After a couple of years in limbo due to challenges to the Low Carbon Fuel Standard, the California carbon credit market is heating up again. In mid-January, LCFS credits were worth $115 per ton, rising from the mid-$20 range a year earlier. A revised LCFS was readopted by the California Air Resources Board, putting the state&rsquo;s goal of reducing the carbon intensity (CI) of its fuels by 10 percent by 2020 back on track.&nbsp; In 2016, the required reduction is 2 percent from the 2010 baseline, double from the 2015 requirement and increasing steadily until 2020. Ethanol has contributed a big part of the CI reductions realized so far from the LCFS. A December 2014 CARB staff report laying out the upcoming changes to the LCFS said that cumulatively through mid-2014, 60 percent of the credits were generated from ethanol, followed by renewable diesel at 15 percent, biodiesel at 13 percent and natural gas at 10 percent. Intended to be a fuel-neutral, performance-based regulation, all fuels are given CI ratings, expressed as grams of CO2 equivalent per megajoule (gCO2e/MJ).&nbsp; The average CI requirement for gasoline in 2016 is 96.5, which will be lowered each year to reach 88.62 in 2020. Fuels used by obligated parties with ratings above that CI rack up deficits, while those below earn credits. Unlike RINs values (the renewable identification numbers used to demonstrate compliance with the renewable fuel standards to the U.S. EPA), which are given away free by the ethanol producer, the LCFS credit values are getting back to the plants. At the very beginning, they were worth $10 to $15 per metric ton, the CARB staff report said, rising to between $50 and $85 before settling to as low as $27 when the 2013 LCFS compliance curves were temporarily frozen. CARB staff project that in 2020, assuming a corn ethanol CI of 67.24 and a CI credit of $100 per metric ton, the credits will bring 18 cents added value per gallon of ethanol. Cellulosic ethanol, with an assumed 2020 CI of 20, would earn credits worth 56 cents per gallon. In January, ethanol shippers into the California market were working to get paperwork filed with CARB to have their pathways accepted as the updated LCFS takes effect. Those who made the Jan. 31 deadline were guaranteed to have their pathways reviewed and likely approved before the old ones expire at the end of the year. There are 89 U.S. ethanol plants on CARB&rsquo;s list of approved pathways. Almost half of the approved plants accepted the default CI value for ethanol found on a lookup table. Under Method 1&rsquo;s lookup table, ethanol produced with a DDGS coproduct had a CI of 98.40 and, if produced with WDGS, a CI of 90.1. Or, producers could apply under Method 2 to have a CI score calculated by CARB using more site-specific data.&nbsp; Under the readopted LCFS, Methods 1 and 2 are replaced with Tier 1 and Tier 2. Tier 1 will encompass nearly all first-generation facilities with simplified modeling using the revised CaGREET 2.0. Second-generation facilities, new fuels and new feedstock pathways are to use the Tier 2 model, plus qualifying Tier 1 facilities can petition to become a Tier 2 fuel. &ldquo;Tier 1 application and calculation is much simpler than Tier 2,&rdquo; explains John Sens, LCFS manager for EcoEngineers. &ldquo;Before, you could claim small variations, now you have to have a very efficient process to qualify for Tier 2.&rdquo; One of the most visible effects of the change will be that most plants will get a single CI number, rather than multiple CI scores, Sens continues. &ldquo;It will simplify the reporting a lot. Before, CARB was saying producers had to have one pathway for DDGS and another for wet or modified and allocate their reporting, but that turned out to be difficult.&rdquo; Under the new system, an aggregate number will reflect the historical coproduct mix, and producers will have to attest that actual production equals that or, if different, would result in a lower CI. Plants using multiple feedstocks will still have separate pathways. The default lookup CI rating will go away, and all plants will use the CaGREET model to calculate their CI. In revising the model, CARB revisited the controversial indirect land use change (ILUC) issue. While they did not remove ILUC from the analysis, they did revise the numbers. While the previous value for corn ethanol and sorghum ethanol was set at 30 g CO2e/MJ, CARB recalculated it using more recent analyses, and set corn ethanol&rsquo;s at 19.8 and sorghum at 19.4. Thus, with no other changes, all producers will see about a 10 point drop in their CI rating. There will be a lot of variation, however. Sens explains that in the Tier 1 calculator, producers need to include more than ethanol yield and energy consumption. &ldquo;In Tier 1, you put in what region you&rsquo;re in, your transportation values for sourcing feedstock and how far away you are from California.&rdquo; If you look at the multiple pathways approved for a couple of plants in the original LCFS, one can estimate the impact of transportation. White Energy&rsquo;s plant in Hereford, Texas, received a CI of 78.76 for its ethanol when using Texas sorghum and producing WDGS. CARB&rsquo;s lookup value for sorghum was 85.81.&nbsp; Pacific Ethanol&rsquo;s two plants in California, along with Calgren&rsquo;s, are listed as &ldquo;Corn ethanol-California,&rdquo; with CIs of 80.7 associated with WDGS. Pacific Ethanol&rsquo;s Idaho plant, listed as &ldquo;Corn ethanol-Midwest,&rdquo; has a CI of 90.1. Thus, West Coast plants do have an advantage on transportation, but only if they use locally produced feedstocks. This transportation factor is partly reflected in the fact that, right now, all of the plants with certified pathways are located west of the Mississippi River, although that is also a function of rail logistics. There are a handful of plants east of the Mississippi on the pending list&mdash;seven out of 31 pending ethanol plants.&nbsp; Looking at the published pathways provides other insights on how the ethanol industry is reducing its carbon footprint. In all, 26 plants have CI ratings in the low 80s or below. While it is difficult to know exactly what is contributing to that, higher proportions of wet and modified distillers grains production that result in lower energy costs is one obvious cause. Good ethanol yields and lower transport distances contribute as well. The biggest factor for most of the low-CI scoring plants is the proportion of wet distillers grains sold locally. Richard Hanson, plant manager at Arkalon Energy in Liberal, Kansas, attributes their low score to the plant&rsquo;s local market for WDGS, although it also has a let-down turbine that lowers its use of grid electricity. Arklon&rsquo;s CI for ethanol with WDGS coproduct using sorghum was 76.22 and for corn 80.17. Energy efficient technologies are noted for several plants. Arkalon&rsquo;s sister plant, Bonanza BioEnergy in Garden City, Kansas, is noted for its cogeneration on the CARB approved pathway list, receiving a rating of 76.75 for its corn ethanol produced with WDGS. Poet Biorefining Chancellor, South Dakota, has several CI scores for varying combinations of landfill gas and biomass fuel, one of the lowest being 67.50 for a sorghum-corn blend using 19 percent landfill gas and 15 percent biomass. Poet Chancellor isn&rsquo;t the only one using landfill gas. Siouxland Ethanol in Jackson, Nebraska, has multiple pathways for varying amounts of landfill gas, the lowest being 82.38 for using 16 percent landfill gas along with natural gas while producing 100 percent DDGS. Archer Daniels Midland has received multiple CI ratings for its Columbus, Nebraska, dry mill, showing various proportions of coal and biomass. No grid electricity is used and a note specifying that total plant energy use must stay within a certain, confidential, value indicates a lower-than-normal energy efficiency. The Columbus dry mill&rsquo;s lowest rating, with 15 percent biomass blended with coal, is 83.96. Coal alone for process energy resulted in a CI of 120 for another ethanol producer.&nbsp;&nbsp;&nbsp; Several Poet innovations are earning low CI scores. Corn fractionation is mentioned for its Coon Rapids, Iowa, plant, which received a CI of 80.26 for fuel produced with WDGS. The combination of raw starch hydrolysis and efficient energy consumption earns a number of Poet plants a CI rating between 7 and 9 points lower than the default. Poet has LCFS pathways for 15 of the 29 plants it manages&mdash;all west of the Mississippi. Converting waste streams to ethanol results in big CI reductions. Parallel Products in California uses waste beverages to produce ethanol, earning a CI of 71.4. White Energy&rsquo;s Russell, Kansas, plant is colocated with a wheat gluten facility, with the wheat slurry being turned into ethanol. The Russell plant has multiple CI ratings for varying amounts of wheat slurry combined with sorghum and corn as feedstock, with CI scores ranging from 56.65 up to 77.66. The value of achieving lower CI ratings is clear. Sens and his colleagues at EcoEngineers have developed a spreadsheet that can be used to calculate the return to a plant at varying monetary values for the California LCFS credits and different CI ratings. The two examples (shown on page 36) illustrate the difference between CIs of 80 and 70, if the market value of the credit is $100. &ldquo;It&rsquo;s a pretty significant drop,&rdquo; Sens says. In the 2016 comparison an 80 CI earns carbon credits worth 13.5 cents per gallon while a CI of 70 earns 21.6 cents per gallon. When multiplied across a unit train of ethanol heading to California, the incentive to keep improving that CI score is clear. And, with the value of those credits continuing to increase, more ethanol producers are likely to explore whether going California green makes sense for them. Author: Susanne Retka Schill Senior Editor, Ethanol Producer Magazine sretkaschill@bbiinternational.com 701-738-4922

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The value of ethanol fuel pathways with a CI of 70 and 80 can be compared in these excerpts of a calculator developed by EcoEngineers. 


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Eighty-nine ethanol producers west of the Mississippi River prepare for the revised LCFS. This article appears in the March issue of EPM. 

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