Uncertain Future for California's Low-Carbon Fuel Standard?

Abstract

A multiperiod optimization model is used to analyze how changes in the U.S. ethanol market may affect California's low-carbon fuel standard. The six market conditions analyzed include a reference scenario in which development of the lignocellulosic ethanol industry proceeds according to the current industry forecast of the Environmental Protection Agency (EPA) and the ethanol tariff and federal ethanol tax credits maintain current levels; a 5-year delay in development of the lignocellulosic ethanol industry; accelerated growth of the lignocellulosic ethanol industry; removal of the $0.54/gallon ethanol import tariff; removal of the three federal ethanol tax credits; and removal of both the tariff and tax credits. The most dramatic change in California's compliance pathway occurs with changes in development of the cellulosic ethanol industry. If the industry is delayed for an additional 5 years, Brazilian ethanol will account for 25% of all transportation energy in the state by 2020. If industry development accelerates faster than EPA predictions, lignocellulosic ethanol will become the main low-carbon fuel by 2013 and replace all Brazilian ethanol. Removing the ethanol tariff will result in little change from the reference case before 2020. Removing the tax credits or the tax credits and the ethanol tariff will result in no Brazilian ethanol before 2019.