Comment Log Display

Clerk of the Board
Air Resource Board
1001 I Street
Sacramento, CA 95814
Electronic Submittal:
http://www.arb.ca.gov/lispub/comm/bclisy.php
CC via Email:  aprabhu@arb.ca.gov, jcourtis@arb.ca.gov,
dsimerot@arb.ca.gov 
Comments on: Indirect Land Use Change
Thank you for the opportunity to comment on the Indirect Land Use
Change (ILUC) issue.  By now your are tired of all the comments
stating that ILUC methodology is not mature enough for use in
regulations.  The European Union's actions indicate they think it
is not ready.  Etc. Etc. I may repeat some of those comments.  But
I will focus on mitigation and/or minimization of ILUC impacts. 
The Boards acceptance of the principles I will put forth is of
great importance to the biomass-based energy industry, California
and indeed, due to the Board's leadership role in pioneering
advances in environmental quality, the World.
Mitigation of ILUC impacts is consistent with long-standing
precedent established in the California Environmental Quality Act
(CEQA) that allows mitigation in some reasonable way.  
Minimization of ILUC impact is what we all want.  Biofuel
producers who are already minimizing ILUC impact should be able to
benefit from their good works by being granted lower ILUC factors
under Method 2B.  The ILUC section of the LCFS must include
language that provides “direct crediting” for the specific
characteristics of fuels with feedstock production methods that
already are inherently low carbon emitters.
Background
A 2nd Opinion, Inc. (A2O) is submitting these comments on behalf
of its client, Neste Oil.  A2O's President Cal Hodge has over 40
years experience in the fuels industry.  He learned to make
unleaded gasoline before it was required by law.  He helped
formulate Amoco's first unleaded regular gasoline.  He has been
involved with California fuel regulations since the early 1990's. 
He is proud to have been part of the team of regulators, fuel
providers and auto makers that have reduced automotive pollution by
99% since the first Earth Day.  He is excited to be working on the
next generation of fuels that will reduce man's carbon footprint
while making vehicles emit even less pollutants.  Now let me tell
you about my client.
Neste Oil Corporation is a refining and marketing company
concentrating on low-emission, high-quality traffic fuels. The
company's strategy is based on growing both its oil refining and
premium-quality renewable diesel businesses. Neste Oil's refineries
are located in Porvoo and Naantali and have a combined crude oil
refining capacity of approx. 260,000 barrels a day. The company had
net sales of EUR 15 billion in 2008 and employs around 5,200
people. Neste Oil is listed on NASDAQ OMX Helsinki. 
The Board's actions concerning the Low Carbon Fuel Standard (LCFS)
and the ILUC issue are important to Neste  because Neste's
scientists have developed and commercialized a process to make
renewable diesel fuel from the same biomass-based feedstocks as
biodiesel (mono alkyl  esters).  Because it starts with the same
biomass-based feedstocks it has about the same (actually slightly
better due to differences in process efficiencies) full life cycle
greenhouse gas (GHG) benefits as the esterification  technology. 
But, by using hydrogen instead of an alcohol (typically methanol
derived from fossil fuel) Neste's NExBTL process produces
hydrocarbons  that are suitable for use in all diesel engines at
all concentrations.   By controlling conversion conditions
renewable diesel can be made with cold weather properties that are
as good as or better than those of petroleum based diesel fuel from
a wide range of vegetable oils and animal fats.  Renewable diesel
is fully compatible with petroleum based diesel fuel and can be
used seamlessly throughout the existing blending, distribution and
consumption infrastructure. 
This is important to the Board because  the fuel  not only
provides outstanding GHG benefits it also has an ultra high
blending cetane and contains essentially no aromatics or sulfur. 
All three properties are key to making CARB Ultra Low Sulfur Diesel
(CARB ULSD) and Texas Low Emissions Diesel (TxLED) burn more
cleanly than their EPA ULSD counterpart.   Neste's renewable diesel
meets or exceeds the standards for all three ULSD's.  When added to
diesel fuel it lowers exhaust emissions, including NOx, which is a
benefit California needs for ozone compliance.
After years of research and development, Neste , recognizing the
environmental significance of the technology,  started up the world
first commercial scale (170,000 tonne/year(t/y), 57 million gallons
per year(mmg/y)) in 2007 at their refinery in Porvoo, Finland.  A
second 170,000 t/y facility is scheduled to start up in 2009 in
Porvoo.  An 800,000 t/y plant is scheduled to be on line in
Singapore in 2010 and another 800,000 t/y plant is due for startup
in Rotterdam in 2011.  It is A2O's opinion that Neste would like to
announce a United States plant for startup in 2012.  
General comments
As A2O participated in the LCFS regulatory process it became
apparent that the methodology of calculating full life cycle energy
and carbon balances, including direct land use changes is still
evolving and that the methodology for calculating indirect land use
changes is in its infancy.  There  will be changes in accepted
methodology as we go forward and it is imperative that the Board
create a very flexible regulation with frequent periodic reviews
and economic protection for facilities that are in compliance with
prevailing regulations when construction starts.
Based upon the changes I have observed during the regulatory
process an annual review is needed during the early years as both
the Life Cycle Analysis (LCA) and ILUC calculation methodologies
evolve and stabilize.  Reviews in 2010, 2011, 2013, 2015 and 2018
are reasonable.  Of course the reviews themselves can recommend the
next review period.
As for duration of economic protection, biofuels production and
conversion equipment have long economic lives.  Fifteen years from
project conception or ten years from conversion plant startup are
reasonable.     
Pathway comments
As we compared the preliminary estimates of the carbon intensities
of fuels derived from soybeans we noticed that the co-product
methodologies were inconsistent.  Biodiesel received a fossil
carbon credit for its co-product glycerin in the "Detailed
California-Modified GREET Pathway for Biodiesel (Esterified Soyoil)
from Midwest Soybeans" while renewable diesel did not receive a
similar fossil credit for its co-product propane.  This has been
called to Staff's attention in another comment paper concerning the
"Detailed California-GREET Pathway for Renewable Diesel from
Midwest Soybeans".  This was the first draft of the renewable
diesel pathway that we have seen.  We are confident that staff will
resolve the inconsistency.  But, the resolution will require one or
both of the pathways to evolve.  This is an example of why the
Board needs to build frequent reviews and the flexibility to change
into the regulation.  That flexibility also needs to include
grandfathering compliant facilities like the European Union did
when they adopted a timetable for implementing ILUC calculations in
December 2008.  Their report can be found at:  
 
http://www.europarl.europa.eu/sides/getDoc.do?pubRef=-//EP//NONSGML+TA+20081217+SIT+DOC+WORD+V0//EN&language=EN
ILUC comments
The renewable diesel pathway was silent on ILUC.  But the
biodiesel pathway had a preliminary ILUC value for biodiesel of 42
gmCO2e/MJ.  Because both biomass-based diesel fuels are produced
from the same patch of land and crop, the impact on land use change
should be the same for both fuels.  Because of differences in fuel
yields and properties, converting the same volume of  soybeans to
renewable diesel fuel produces 4% more energy than if biodiesel is
produced.   Because ILUC values are expressed in gmCO2e/MJ the
higher energy yield per acre means the ILUC value for renewable
diesel fuel should be 4% less than the value for biodiesel or 40
gmCO2e/MJ.  The simple arithmetic of higher energy yield per acre
causing a lower ILUC value suggests a mitigation strategy.  
Mitigation via crop  yield improvement
In the United States the average soy bean yield is about 40
bushels per acre and increasing at the rate of about 0.4 bushels
per acre per year.  The record yield was 139.4 in 2006 and 154.7
bushels per acre in 2007.  (See Figure 1.)
The farmer that produced the record crops used the latest seed and
crop management technology and had good soil.  His yield is an
example of what is possible.  Now let us assume that the average
soy bean farmer began to use advanced seed and land management
technology.  His soil probably will not let him produce at the
record high levels but if he could get to 80 bushels per acre he
will double the energy per acre yield, reduce the need to convert
other land to crop land and reduce the effective ILUC values to 21
for biodiesel and 20 for renewable diesel.  That sounds like
something we want the LCFS to accomplish.  We can make it happen if
we build a mitigation feature into the system.  Figure 2
illustrates how the ILUC value should decrease as soy bean yield
increases. 
Minimization Recognition
We should also reward credits for minimization of land use change
impact to the early adopters, the environmental leaders who changed
seed technology and/or land management practices to minimize both
direct and indirect land use change impact because it was the right
thing to do before the regulation was enacted.   They should
receive ILUC credits for the improvements they have made when they
file a Method 2B pathway.  Awarding those credits should be based
upon the responses to three simple questions: 1. What was the
yield?  2. What is the yield? 3. What did you do to increase the
yield?  Of course the regulation should also allow mitigation
credits for continued advancements in sustainability of the
pathway.
Need way to estimate ILUC for new crops
Because the ILUC calculation methodology is so new, preliminary
ILUC values are available for only four crops: cellulose, corn and
sugar cane for ethanol and soy for biodiesel.   If the biofuels
industry and California are to be ready to comply with the LCFS we
need an accepted methodology to estimate ILUC values for
alternative crops for which there is no GTAP data.  A reasonable
methodology would assume that if an acre produces more energy, it
should have a lower ILUC value.  Figure 3 illustrates how the ILUC
values for various oil crops  would compare to the preliminary
value for biodiesel from soy.  While these numbers are not precise,
they would be 4% less for renewable diesel.
Of course once an ILUC value has been determined for a crop, it
should be able to be further mitigated by increasing the crop per
acre yield by using advanced seed and crop management practices.
Other ILUC mitigation observations
At the March 27, 2009 LCFS Workshop, Dr. John Sheehan of the
Institute on the Environment at the University of Minnesota made
the presentation "Biofuels and land-use change A simpler approach
to the problem".  His presentation is based upon work he has done
with Nathanael Green at NRDC to develop a simple, commonsense
systems dynamics model to assess the carbon debt of biofuels when
indirect land use change is included.  While he is late to the
party, (This is another example of how fast this methodology is
evolving.) his observations and conclusions are pertinent to the
Board's decisions concerning how to deal with the ILUC issue.
1.	Some of the early publishers on ILUC assumed constant crop
yields which tends to overstate carbon debt.  If one assumes
historical trends of increasing yields the carbon debt is much
less.
2.	"Permanent loss of farmland due to human-induced degradation is
estimated to be 5-6 million ha per year."
3.	"Addressing sustainable land management changes the picture"
4.	"Land abandonment due to unsustainable farming is a (the?)
critical problem"
5.	We need to "Focus on incentivizing fuel providers who offer low
land-use impact feedstocks or who couple their fuel production to
strategies that lead to better land management globally and
restoration of degraded lands"
Here are three thoughts the Board should consider:
1.	The methodology of accounting for ILUC is evolving rapidly. 
Flexibility and review is essential.
2.	What better way to incentivize fuel providers than to better
manage land and restore degraded lands than to create mitigation
procedures in the LCFS regulations?
3.	Some people are already doing what is right.  We need to
reward, not penalize, biofuel providers that committed to
responsible and sustainable production practices early.

Environmental leadership should not be penalized for leading
Neste Oil is fully committed to only using biofuel feedstocks that
have been produced responsibly.  It has a set of tough
sustainability principles in place covering its procurement of
bio-based raw materials. Thanks to the development of a system that
enables it to trace the origin of all the biofuel feedstocks that
it uses, it knows exactly where and how they have been produced. 
Neste Oil has committed itself to only using sustainable biofuel
feedstocks.
Neste Oil is actively supporting work in the areas of legislation
and certification designed to prevent the irresponsible production
of biofuels. The company has committed itself to an alliance
calling for a ban on the felling of rainforest.  It was the first
oil company to play an active role in an organization dedicated to
protecting rainforest.
"Our approach is very much to only use raw materials that are
produced in line with the principles of sustainable development. We
oppose the destruction of rainforest and anything that undermines
human rights or natural biodiversity," said President & CEO Matti
Lievonen, speaking at Neste Oil's Annual General Meeting in
Helsinki on March 4, 2009.
"Neste Oil is working with over 20 research communities in Europe,
America, Africa, Asia, and Australia to develop and introduce new
raw materials. We increased our R&D budget last year by a third, to
€37 million, and are devoting the bulk of our research efforts
today to researching and identifying new types of renewable raw
materials."
If regulators want to encourage companies to take such leadership
roles, regulators must be careful when setting baseline performance
goals or default values so as not to damage the innovators.  When a
company assumes a leadership role in doing what is right, it needs
to be judged against its peers not itself.
Feasibility
One more comment.  Large ILUC values threaten the feasibility of
the LCFS.  Without the ILUC debit it takes a 14% blend of soy-based
biodiesel to satisfy the 2020 LCFS.  Currently most diesel engine
manufacturers are comfortable with a 5% blend.  Some have accepted
a 20% blend.  But few are comfortable with the 36% blend that is
needed in 2020 if the preliminary estimate of 42 gmCO2e/MJ ILUC
impact survives the regulatory process. 
For renewable diesel blends, recipes are not a problem because
renewable diesel is acceptable at all blend levels.  However, even
though the feasible blend ratios are expected to be smaller than
for biodiesel after staff resolves the inconsistencies we have
found in the pathways and adjusts the preliminary ILUC impact to 40
gmCO2e/MJ, the global volume requirements may be hard to supply if
other jurisdictions adopt similar low carbon fuel requirements.
Regulatory Certainty
Regulatory uncertainty will worsen the potential supply problem. 
Therefore, it is essential that the LCFS regulations assure capital
recovery for projects that are compliant when concieved.  Fifteen
years from project conception or ten years from conversion plant
startup are reasonable.     
If you have questions you may contact Cal Hodge at
A2ndOpinionInc@aol.com and/or Riitta Lempiainen at
Riitta.Lempiainen@nesteoil.com .