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California LCFS revisions benefit US corn and soy biofuels, offer increased diesel substitution

Proposed changes to California’s Low Carbon Fuel Standard (LCFS) program could affect biofuel supply/demand patterns as far afield as Asia and South America when the scheme’s reconfirmation is put to a vote this week. In particular, the proposed changes under a greatly simplified generic reporting scheme may complicate import economics for some producers of sugar cane ethanol into the US west coast, while upgrading the attraction of Midwest corn ethanol and soy-based biodiesel for west coast US buyers.
Carbon reduction targets in California remain little changed through to 2020 under California’s “hockey stick” methodology which accelerates mandated cuts between 2016 and 2020 after a slow start to the scheme in its first five years. But upgrades to the carbon intensity ratings of gasoline and diesel meanwhile imply possible room for growth in the overall blend stimulated by LCFS. Gasoline’s CI rating has decreased marginally from 98.95gCO2e/mj in 2013-2015 to 98.47, while diesel’s CI rating has more significantly gone up from 98.03 to 102.01.
Simplified generic carbon pathway methodologies for producers unable to document their specific CI calculations have improved the playing field for standard Midwestern corn ethanol, with a more than 10 point gCO2e/mj reduction attributed to corn ethanol from Indirect Land Use Change factors. The improved ratings for corn ethanol will leave sugar cane ethanol made at plants without electricity co-processing facilities struggling to compete into California without enough of a price discount to offset the handicaps of freight and poor CI ratings. Conversely, simplified CI methodologies could allow more Brazilian sugar ethanol producers to benefit from a lower CI rating than under the previous more fragmented CI rating system.
Midwestern soy-based biodiesel and HVO manufacturers also look like being net beneficiaries of the new simplified methodology. Biodiesel made from any plant-based feedstock will qualify for a CI rating of just 56.95g/mj, compared to an increased rating for diesel of 102g/mj. Tallow-based biodiesel producers meanwhile look set to suffer a near doubling of their generic CI into the 30sg/mj.

MS 23/09/2015

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