The Facts of Life on Waxman-Markey

You take the good, you take the bad, you take them both and there you have … the Peterson amendment to the Waxman-Markey bill, formally known as H.R. 2454, the American Clean Energy and Security Act (ACES). According to Grist contributor Meredith Niles, there are a number of positive inclusions in the amendment that were advocated by environmental groups.

The good aspects, according to Niles, are those that will encourage improved agricultural practices. The bad part of the amendment is that the USDA – the agency whose mission is to promote both domestic agriculture (to keep it from moving overseas) and food safety – will oversee the implementation of these positive aspects.

Niles laments that “industrial agriculture interests are overtaking environmental interests in a bill that, again, is fundamentally meant to reduce greenhouse gas emissions.” No doubt, the agricultural interests have a similar lament about implementation of the Renewable Fuel Standard, which was intended to reduce reliance on oil. There is an interesting comment to Niles’ article by ecoplasm, who says, “Selecting ‘scientific’ analytical tools to meet some influence group’s desired result was a hallmark of the past administration’s EPA, hopefully not this one’s.”

A Scientific American assessment of the Waxman-Markey (Peterson) bill shows how much the “science” of indirect land use change has been affected by the rhetoric from environmental NGOs. The article asks, “Should Domestic Ethanol Producers Pay for Deforestation Abroad?,” and states plainly, “the question is not whether there are indirect impacts but rather how big they are.” The reality is that this assumption about indirect land use change – that it will inevitably occur – is built into the model EPA uses to measure it. It’s a perfect example of selecting a ‘scientific’ analytical tool to achieve an influence group’s desired result.

The Peterson amendment proposes a study by the National Academies on indirect land use change. No doubt, another example of carefully selecting an analytical tool. The 2007 EISA bill also contains a provision for the National Academies to study the issue, though funding for the study has never been authorized.

The science on indirect land use change will continue to develop (is currently continuing to develop). The real issues will be whether there are any positive moves toward reducing greenhouse gas emissions once all the politics are done.

Indirect Land Use Paradigm Change

A recent analysis by Iowa State University Biofuels Economist Robert Wisner argues that requirements for biofuel production are on a collision course with greenhouse gas reduction goals. He notes that the Energy Independence and Security Act’s requirement for gradual increases in production of biofuels “was designed to provide time for technology development and industry growth.” However, he says, California’s and the EPA’s requirement for immediate reductions in greenhouse gas emissions may block the industry’s growth.

Wisner notes some of the large uncertainties in producing accurate, science-based measurements of indirect land use change emissions:

Longer-term technological changes that bring increased crop yields per acre, changes in livestock and poultry feed conversion efficiency that reduce feed needs per animal, the amount of crop residue left on soils, and other factors will affect indirect land use emissions.

When the EISA was first debated and passed, the prevailing theory was that an annual increase in corn production would be sufficient to meet the new demand created by the annual increase in biofuel production. See for instance, U.S. Corn Growers: Producing Food and Fuel from the National Corn Growers Association.

The new models being employed by California and the EPA, however, take as an assumption that the increase in biofuel demand represents a shock to the system that happens all at once. See, for instance, The Land Use Effects of Corn-Based Ethanol, by Thomas Darlington. The models change a key assumption about the effects of the Renewable Fuel Standard, coloring the conclusion drawn. Both assumptions should be open for testing as hypotheses.

EPA Gathers Input on RFS

The EPA today held a public hearing on the RFS2 Rule and will be holding a Workshop on Lifecycle Greenhouse Gas Analysis for the Proposed Revisions to the National Renewable Fuels Standard Program tomorrow. These fora are intended to solicit feedback from stakeholders in the rulemaking and provide information on how the EPA developed its lifecycle model.

BIO submitted testimony to the EPA asking that the agency maintain flexibility in the rule to reconsider the greenhouse gas reductions associated with biofuels as the science of life cycle assessment, particularly methods of accounting indirect land use change, matures.

At a U.S. House Agriculture Subcommittee hearing on May 6, several experts discussed the considerable uncertainties that remain in the current models for ILUC that the EPA has employed.

Joe Glauber, chief economist of the USDA, listed some of the sources of uncertainty, including crop yields and production growth over time, economic and non-economic limits to land use change, and assumptions plugged into the models at the start. Glauber also noted that predicted U.S. plantings of principal crops for 2009 remain well below historical trends and that increases in corn and soybean acres are offset by declines in wheat and cotton acres.

As Glauber points out, conversion of forests is one of the key factors in the life cycle greenhouse gas estimates of the EPA’s analysis and many of the published studies on ILUC. Yet, there is considerable uncertainty over whether forest would be the primary source of new cropland.

Bruce Babcock, director of the Center for Agricultural and Rural Development at Iowa State University, pointed out that there is little evidence that U.S. biofuel production has caused deforestation either in the United States or in Brazil. Rather than conversion of forest or pastureland, “U.S. cropland has increased primarily through a reduction in CRP acres and through increased double cropping of soybeans after wheat.” Similarly, expansion of soybean production in Brazil has been accommodated by increased stocking rates on pastureland. It is increases in cattle production in Brazil that have led to deforestation for pastureland in the Amazon.

Babcock concluded, “The precision with which models can estimate emissions associated with market-induced land use changes is low.”

The fact is that the model employed by the EPA attaches heavy penalties for greenhouse gas emissions to production of biofuels based on assumptions that worldwide agriculture is a zero-sum game in which use of crops for one purpose leaves a shortfall in crop availability elsewhere that can only be made up by converting forest to agriculture. When the conclusions of the model are driven by the assumptions, they should be seen as logically invalid.

Opportunity Costs

The Washington Post this week reported on a carbon-credit proposal being put forward by Ecuador for consideration in UNFCCC Climate Change Talks. Ecuador is asking for carbon credits in exchange for leaving undisturbed one-fifth of its petroleum reserves, which are located beneath a protected national park that is part of the Amazon rainforest.

The proposal is similar to one put forward by Brazil last August, called the Amazon Fund, which asks foreign countries to donate money for investment in Brazilian businesses that would conserve the Amazon rather than cut it down – rubber production, for instance, rather than timber, cattle, and agriculture.

The Intergovernmental Panel on Climate Change recognizes natural and managed forests as potential carbon sinks, but not untapped petroleum reserves.

Ecuador’s proposal highlights one of the more obscure calculations in the life cycle emissions of biofuels included in the EPA’s proposed rule — namely “foregone sequestration.” Because natural forests store more carbon than managed agricultural land, biofuels are assessed an opportunity cost stemming from conversion of forest or grassland to agriculture. This is not actual carbon released from the forest or grassland, but a penalty for not preserving a carbon sink (or, in the case of grassland, not converting it to a forest).

The EPA has assumed and applied to biofuels a constant rate of foregone sequestration over a period of 80 years. In fact, the cumulative calculated emissions of corn ethanol include only this opportunity cost after the 20 year mark. The rate is equal to nearly half the calculated emissions of the gasoline baseline. The inclusion of this factor more than doubles the calculated emissions per acre of converted Brazilian forest land assumed to be caused by U.S. biofuel production.

A similar opportunity cost should arguably be applied to petroleum, particularly if Ecuador’s proposal moves forward and the international community recognizes untapped petroleum reserves as potential carbon sinks. In the case of Ecuador, this opportunity cost might include both the emissions that could have been avoided by leaving fossil carbon in the ground and the deforestation caused as roads, pipelines, and drilling sites are cleared from the Amazonian forest.

More Indirect Effects from Oil

In the California Air Resources Board (ARB) hearing on the Low Carbon Fuel Standard, the ARB staff insisted that they looked at the indirect carbon effects of oil but couldn’t find any. In a recent post on this blog, I suggested that they should subscribe to National Geographic Magazine. But that isn’t the only news outlet where they could find evidence of indirect effects. This morning’s EE News had links to several stories detailing indirect effects caused by petroleum. Here they are:

Yesterday’s New York Times had a story about “Oil companies are being sued on charges of environmental damage, collusion with repressive governments and contributing to human rights abuses, among others.” One of the examples listed is a $27 billion lawsuit for oil pollution in the Ecuadorian Jungle. That lawsuit was the subject of the recent 60 Minutes episode Amazon Crude.

A second link was to a Wall Street Journal story on Afghan farmers who had their land ruined by Chinese oil drillers. A third link was to yet another study about the Canadian Tar sands, which was the subject of previously referenced post. By my count, that’s three stories in one day showing indirect effects of oil, yet neither the ARB nor the U.S. EPA accounted for any indirect effects from oil in their life-cycle analysis of gasoline. If academic studies are more your flavor, try this one showing GHG emissions from Persian Gulf oil are doubled when military activities are taken into account.

In a letter to Growth Energy, ARB Chairman Mary Nichols vowed that ARB would “evaluate the land use and other indirect effect of all transportation fuels.” They shouldn’t have to look too hard. I only had to go to one web site.

Don’t Worry, Be Happy

The EPA has released its long-awaited proposed rules for the Renewable Fuel Standard, including calculations of the lifecycle greenhouse gas emissions for various biofuels. Unlike California, the EPA is proposing to “discount” the greenhouse gas emissions of both biofuels and the baseline petroleum gasoline. The discount rate that EPA uses for most of the calculations it presents is 2 percent over 100 years, although it also proposes using a 0 percent discount rate and a 30-year time span and is taking comments on other combinations. Biofuel critics immediately decried the use of the 100-year timeframe because the resulting calculation produces a better outcome for biofuels.

Denver Post columnist Vincent Carroll writes:

But the mere fact that it would consider measuring ethanol’s carbon impact over 100 years — or should we say guessing at it? — is evidence enough of the ethanol lobby’s stature.”

And the Washington Post’s Juliet Eilperin and Steve Mufson report:

The EPA raised the possibility of computing greenhouse gas costs over a 100-year period instead of a 30-year period. The longer time frame would make the benefits of corn-based ethanol seem greater while discounting the initial costs, such as the loss of untilled land, over time. For example, the EPA said corn-based ethanol is 16 percent better than regular gasoline if its costs are calculated over 100 years, but 5 percent worse over 30 years.
‘EPA has left open the option that an exception to good science could be made in the case of a favored special interest,’ said Frank O’Donnell, who heads Clean Air Watch.”

Both biofuel supporters and detractors should be wary of these calculations and of the precedent they could set. It’s abundantly clear that few people understand what the numbers mean.

The timeframe being discussed is for application of a “foregone sequestration” penalty — the number of years that converted land is considered to be foregoing its preferred use for carbon sequestration as forest or grassland. This penalty is added over and above the initial assumed release of carbon from conversion of the land (and note that there is no comparable penalty for not leaving petroleum carbon “sequestered” underground). Under normal circumstances, industry would prefer a short timespan – fewer than 30 years. After this period, the land would be considered agricultural land rather than former forest and would no longer accumulate a carbon penalty.

The choice of a discount rate is intended to measure present day valuations of costs and benefits over time. So, what are the costs and benefits of reducing greenhouse gas emissions that EPA is discounting? In the analysis, it is the cost of converting forest and grassland to agricultural land in order to obtain the benefit of reducing greenhouse gas emissions from transportation in the future – the “payback”. What the EPA should have measured, though, is the cost of converting our petroleum-based system of transportation to a biomass-based one versus the benefits of reducing greenhouse gas emissions.

The results in the EPA’s proposed rule are skewed by two indefensible assumptions. First is the assumption that the baseline for greenhouse gas emissions from petroleum should be discounted. The law requires establishment of a baseline for gasoline in 2005. To apply a discount rate assumes that the baseline will improve by some rate of change over time. And since petroleum is not assessed a foregone sequestration penalty, the cost of taking carbon from well below ground and putting it into the air is essentially free.

A positive discount rate says that future reductions in greenhouse gas emissions are less important to Americans than the present day costs. Since EPA applies the discount to the petroleum baseline, it is in effect saying that Americans will care less and less about reducing greenhouse gas emissions over time if it means that they have to change their driving habits today. In other words, don’t worry, keep using petroleum and be happy.

Second is the assumption that biofuels are causing land conversion around the world and that the land conversion is always and everywhere accomplished by burning the ground cover and immediately releasing massive amounts of carbon. This unfounded and unproven assumption skews the results of the analysis to the point that the application of a highly unfavorable discount rate appears to benefit the industry and draws the wrath of environmental advocates.

But the reaction from O’Donnell and Carroll shows that biofuel opponents will decry any outcome as politics trumping science — unless it’s their politics that trump science.

EPA Ready to Release Rules for RFS

The White House Office of Management and Budget has completed its review of the EPA’s rules for the Renewable Fuel Standard, which will contain the lifecycle analysis for U.S. fuels. Reuters and the Des Moines Register have reported on the significance of the rule, though EPA has not made clear when the rule will be published in the Federal Register, beginning the comment period.

The rule, much like California’s Low Carbon Fuel Standard (CARB), will include an estimate of carbon emissions from indirect land use change attributed to biofuels. The estimates are based on economic modelling that is based on circular reasoning — the models automatically assume that biofuel feedstock production by definition causes a shift in agricultural crop production.

An analysis by John Sheehan of SheehanBoyce LLC makes the point clearly:

The CARB/GTAP and Searchinger models for land use change are, in a way, based on circular reasoning. They set up conditions such as fixed pre-biofuels land demand (in the case of GTAP) and constant yield (in the case of Searchinger), which make it almost impossible to avoid indirect land use changes.”

A previous analysis by Thomas Darlington of Air Improvement Resource Inc. raised the exact same point, saying:

The model is therefore answering the question “What are the land use changes if all the ethanol increase is shouldered in one year (in this case, 2001)?” However, we would submit that this is not the correct question to answer. The real question is how much new land is converted either domestically or internationally if the 13.25 bgy ethanol increase is phased in from 2001 through 2015?”

Both analyses make the point that indirect land use change effects can be measured more accurately by dynamic models that account for crop production yield and demand changes.

An analysis prepared by the New Fuels Alliance further points out that while CARB and EPA have extended lifecycle analysis for biofuels by including a risk assessment of their economic impacts, both agencies are relying on existing estimates of the lifecycle emissions of petroleum fuels.

Considering the magnitude of the GHG emissions associated with petroleum fuels, the calculation of the indirect GHG effects including the appropriate fate or coke, residual oil and the demand for fuel oil for crude transport would be appropriate.”

The New Fuels Alliance points out that “Road building in forested areas causes relatively small direct emissions, however the roads are often a magnet for subsequent deforesting activities, providing access to previously inaccessible land.” This is a point made earlier on this blog.

The New Fuels Alliance analysis stops short of conducting a general equilibrium analysis of the economic impact of petroleum, but points out that there is an existing model for doing so. CARB had claimed that they simply did not know how to do such an analysis for oil.

EPA should use the comment period that will begin when they publish their rule in the Federal Register to investigate better models for analyzing the indirect effects of both biofuels and oil.

Advanced Biofuels – Increasing Domestic Economic Growth and Reducing Greenhouse Gas Emissions

Last week the Members of the Energy and Commerce Subcommittee on Energy and Environment in the House of Representatives held hearings on “The American Clean Energy and Security Act of 2009” (“ACES”). ACES is a draft climate change bill including language for a renewable electricity standard, carbon capture and sequestration, a low carbon fuel standard, development of a smart electricity grid, energy efficiency, and allowances and offsets of a cap and trade program for greenhouse gas emissions and global warming pollution reduction. This legislation, if and when it is signed into federal law, will be pivotal for the environment, the US economy and international trade among other impacts. Making sure the legislation is written correctly in order to achieve its goals is an enormous task for the Committee and for Congress as a whole.

One of the panels testifying at the hearing was titled “Green Jobs and Economic Benefits” on Wednesday, April 22 and included testimony from the American Wind Energy Association, Blue Green Alliance, the Union of Concerned Scientists, the Environmental Defense Fund and the Stockholm Environment Institute. Both Republican and Democratic Representatives expressed concern over the economic impact a cap and trade regime could have on the American economy and job creation/loss, particularly at a time when our economy is not at its strongest.

A study by Bio Economic Research Associates found that direct economic output from the advanced biofuels industry, including capital investment, research and development, technology royalties, processing operations, feedstock production and biofuels distribution, is estimated to rise to $5.5 billion in 2012, reaching $17.4 billion in 2016, and $37 billion by 2022 and direct job creation from advanced biofuels production could reach 29,000 by 2012, rising to 94,000 by 2016 and 190,000 by 2022. Total job creation, accounting for economic multiplier effects, could reach 807,000 by 2022.

Ensuring that any climate legislation that is signed by President Obama is technology and feedstock neutral, provides incentives for producing the lowest carbon fuels, electricity, manufacturing processes and products to allow for technologies such as advanced biofuels, is imperative in order to achieve 1) reducing greenhouse gas emissions and 2) jump starting our economy in the next great innovative areas, clean renewable energy and manufacturing. The statistics above along with the proven greenhouse gas reduction benefits of advanced biofuels (Sandia National Laboratories found that producing 60B gallons of biofuels annually could provide annual greenhouse gas savings of 260 million tons of CO2 per year, the equivalent to 45 coal-fired power plants) clearly show that advanced biofuels can and should play an important role in our goal of significant global warming pollution reduction.

A Bad Rule Is Better Than No Rule?

California’s Air Resources Board will vote Thursday on its proposed numbers for the life cycle emissions of various fuels, included under the Low Carbon Fuel Standard.

According to a Greenwire story picked up in the New York Times, advocates of the rule believe that it will stimulate investment in advanced biofuels, since according to the staff analysis those biofuels will be preferred for use in California. But start-up advanced biofuel producers are facing considerable economic challenges in getting the industry off the ground, as described in a BusinessWeek story.

Building a viable biofuel industry requires transformation of the existing petroleum-based economy to a biobased economy. Because oil dominates the market, government intervention is required to carve out a space for alternatives. So, signals from the government will have a large influence on investments.
CARB is required to include measurement of indirect land use change in the calculation of the life cycle emissions for biofuels, even though there is considerable academic disagreement over California’s adopted method for measuring it. CARB chairwoman Mary Nichols said in the Greenwire story, “No one has offered an alternative that they say is better. The people who oppose it say, ‘We just don’t know enough and shouldn’t do anything,’ and we don’t think that’s acceptable.”

That’s not an accurate assessment of the academic or the industry point of view. A recent letter from Robert C. Brown, director of the Bioeconomy Institute at Iowa State University, points out that in terms of achieving real reductions in greenhouse gas emissions, California’s proposed law misses the mark:

The inclusion of ILUC in calculating the LCFS will have virtually no influence on the course of land use change in the developing world or the associated GHG emissions. On the other hand, the nascent biofuels industry, if saddled with the GHG emissions generated by other sectors of the world’s economy, will not be able to compete in energy markets.

“Second, a GHG policy that makes exceptions for some sectors of the economy and shifts the associated carbon burdens to other sectors is likely to encourage further growth in GHG emissions. As the Searchinger and Fargione studies revealed, burdening biofuels agriculture while exempting food agriculture could have the effect of encouraging unsustainable land stewardship in the developing world with the perverse outcome of increasing net GHG emissions around the world. All economic activity should be directly responsible for the GHG emissions emanating from them if this situation is to be avoided.”

Brown’s point is that economic impacts are included in California’s calculations for biofuels but not for other fuels or other areas of the economy that are regulated under California’s law. Further, the calculations are based on economic projections that are driven by assumptions.

Michigan State University Professor Bruce Dale recently gave several examples of how indirect effects might perversely apply to other industries or government policies. He summed up his argument by saying, “This is the logic of indirect effects analysis. The polluter does not pay. Those who actually create the additional pollution are not held accountable for their actions.”

Other researchers have proposed methods for directly measuring land use change associated with biofuels, such as Dale and Thomas Darlington of Air Improvement Resource Inc. in “Land Use Effects of U.S. Corn-Based Ethanol.”

Unintended Consequences of California’s LCFS

The LA Times today published an insightful opinion article written by Gal Luft, executive director of the Institute for the Analysis of Global Security and co-founder of the Set America Free Coalition titled “Greenhouse gas rules could fuel oil dependence” http://www.latimes.com/news/opinion/commentary/la-oe-luft16-2009apr16,0,2388173.story. One of the reasons many experts and stakeholders are following the California Air Resources Board’s (CARB) low carbon fuel standard (LCFS) process so closely is that in all likelihood other states and ultimately the federal government and Congress will use the CARB process as a blueprint for other regulations involving fuels and carbon mitigation, particularly their findings on indirect land use change (ILUC) values.

Embracing inclusion of immature ILUC values for the CARB greenhouse gas regulations in California would mean two things that will be particularly worrisome if applied at a national level.

One, ILUC penalties have implications not just for biofuels, but for all agricultural activity and, justly so, for all land use decisions. For example, residential buildings, wind farm projects, commercial real estate projects, public and community buildings are just examples of other businesses that inflict land use change from natural habitat in this country.

Two, for the land displaced in the aforementioned projects, American (California in this case) businesses will essentially be held responsible for land use decisions, and the resulting carbon emissions, of individuals and nations around the world over which they have no control. This creates a structure where the United States is positioned to shoulder the burden of, and potentially even encourage, poor land use choices in other nations by assessing their carbon emissions due to land use change to American businesses instead of encouraging sound land use practices on a local level. I would assume the greenhouse gas emissions would not be counted twice so even if other countries instituted their own carbon emission reduction policy, those land use changes, having already been allocated to businesses in the US, would not be allocated again on the local level.

Due to the likely direct affects on American businesses of all kinds, this policy formulation, which will in all probability be used as a blueprint for regulatory decisions in other states and on the federal level, deserves serious consideration and discussion to minimize economic harm and other unintended consequences. The Board’s credibility as well as the credibility of the analysis itself is at stake.

In order to ensure a sound scientific foundation for these policies and to avoid the pitfalls and unintended consequences Ms. Luft outlines in her piece, greater consensus is needed on assumptions being made in California particularly concerning indirect land use change. Legitimate fundamental disagreements over data, modeling, and other assumptions call for a period of further analysis, and a transitional policy that drives investment in land efficiency and production best practices.