Carbon Accounting Policy Provides Perverse Incentives to Fossil Fuels

Carbon Neutral vs Low-Carbon

The International Panel on Climate Change (IPCC) has established best practices and guidelines for countries to inventory national greenhouse gas emissions (GHG) and counterbalancing sinks. ¹ The methodology in the IPCC guidelines advises countries to inventory all reductions of carbon stored in agriculture and forestry sinks—incorporating land use changes—but to avoid double counting this carbon as emissions from bioenergy. In essence, the inventory methodology counts the carbon once as it is transferred from a storage sink to the atmosphere.

Figure 1 shows the trends in emissions and maintenance of carbon sinks within the US from 1990 to 2012, taken from the most recent US inventory in 2014. ² It illustrates the concept that bioenergy can be counted as a reduction of carbon stocks or as energy emissions. The US inventory of carbon sinks, generally included as the measure of existing land uses and forestry, does not provide a balance against the country's entire carbon emissions, though it does more than balance the nation's agriculture and land use change emissions. Fossil energy reserves are not included as a carbon reserve; any fossil energy used is an addition to the overall inventory of terrestrial carbon.

OPEN IN VIEWER

Fig. 1.

Recent trends in US greenhouse gas emissions and sinks by Chapter/IPCC Sector. ²

Within the past decade, several research groups, such as Haberl et al., have proposed a far reaching change to this methodology. ³ Rather than count the loss of carbon sinks, including land use change, they propose counting emissions from energy production regardless of the source, fossil or biomass. Bioenergy could then receive a counterbalancing carbon credit only if it came from “additional” biomass or biomass that is not already inventoried—such as enhanced plant growth, agricultural residues, or waste biomass that would decompose in the open. The reasoning of these researchers is that biomass accounted as a carbon sink, if not used for bioenergy, would continue to increase and build the terrestrial carbon sink. ⁴ Bioenergy should therefore be credited only if it allows terrestrial sinks to continue increasing. Bioenergy would not receive credit simply for renewing or recycling an existing carbon sink, as occurs in sustainably managed forestry or agriculture.

Searchinger et al. caution that counting emissions only from energy production may miss some carbon losses from the harvest and transport of biomass, including slash that is left to decompose and soil carbon loss from decomposing root structures. ⁴ But Searchinger et al. fail to take into account similar emissions from the exploration, production, and transportation of fossil fuels, citing estimates that only 20% of total lifecycle fossil fuel emissions come from the production stage.

The IPCC continues to acknowledge that bioenergy from sustainably managed forestry and agriculture can help countries lower carbon emissions. In a recent update to its guidelines, the IPCC notes, “Evidence suggests that bioenergy options with low lifecycle emissions, some already available, can reduce GHG emissions; outcomes are site‐specific and rely on efficient integrated ‘biomass‐to‐bioenergy systems’, and sustainable land use management and governance.” ⁵ The IPCC inherently recognizes that lower-carbon biofuels and bioenergy that displace fossil fuels are a useful tool in lowering carbon emissions and addressing climate change, even without carbon neutrality.

Nevertheless, the EPA recently finalized rules and guidelines for its Clean Power Plan that limit carbon emissions from electric utility generation and place a functional limit on the use of bioenergy as a carbon reduction tool. ⁶ Within the guidelines, the agency noted that it will assess state plans to use biomass as a carbon emission control in electric energy generation on an ongoing basis, relying on its Revised Framework for Assessing Biogenic CO2 Emissions from Stationary Sources. ⁷ The policy recognizes that sustainably sourced biomass can contribute to carbon emission reductions, but only if alternative methods of the biomass' disposal would have resulted in carbon emissions “anyway.” In practice, the framework specifies that sustainably sourced biomass will primarily come from landfills. The framework incorporates the change to inventorying methodology recommended by researchers, which requires bioenergy to be carbon neutral; yet, at the same time, the EPA's Clean Power Plan counts displacement of coal by natural gas (both fossil fuels) as a carbon reduction.

Free Carbon

The EPA's Clean Power Plan and associated Framework for Biogenic Carbon incorporate a fundamental imbalance in the methodologies for assessing fossil fuel and bioenergy carbon emissions. While bioenergy producers are required to use carbon from new, additional biomass sinks or from sources that would add emissions to the atmosphere “anyway,” fossil fuels are allowed to continually add carbon to the terrestrial carbon cycle with no requirement to maintain or build counterbalancing carbon sinks. This system allows fossil fuel producers either to utilize cost free carbon (in comparison to bioenergy producers) or take unearned credit for existing carbon sinks. When incorporated into policy, this system can distort the existing market signals to bioenergy producers to continually improve their carbon profile, while allowing fossil energy producers to continually get worse with no penalty or market costs.

While it is accurate that biomass in agriculture and forestry absorbs carbon from the atmosphere without regard to the source, this is an extraneous point in comparing the lifecycle impacts of different energy choices. Biofuels and bioenergy put a price on the carbon that exists within the national inventory. A bioenergy producer not only purchases the biomass, but also creates steady demand for biomass over many years—in fact many initiate contracts with area farmers and foresters to ensure a steady biomass supply—and thereby puts a price on renewing and recycling the carbon in the biomass. There is also a market incentive to enhance plant growth, as has been illustrated with the US Renewable Fuel Standard.

The RFS creates volumetric targets for biofuel use that annually have increased from the establishment of the program in 2006 and continue to increase through 2022. The program creates a substantial carve-out within the overall targets for advanced biofuels, especially cellulosic biofuel and biomass-based diesel. And it established the first federal policy requirement to incorporate lifecycle carbon emission measurements for fuel choices, including consequential emissions such as land use change. Advanced biofuels are defined as biofuels that can demonstrate a 50% reduction of carbon emissions over their lifecycle when compared to a baseline measure of petroleum gasoline or diesel. Conventional biofuel, which includes corn ethanol, must demonstrate a 20% lifecycle carbon reduction and is allowed to fill up to 15 billion gallons within the program's statutory volumes. Importantly, the baseline carbon emissions of petroleum fuels are defined as a lifecycle measurement from 2005—no update of this lifecycle measurement is called for in the policy.

The RFS creates new market demand for biomass. The EPA's modeling in 2010 of the lifecycle emissions for conventional biofuel projected a worldwide expansion of agricultural land to meet this new demand. The agency estimated consequential carbon emissions from the resulting land use change that essentially doubled the total lifecycle emissions for certain types of corn ethanol. ⁸ Increases in corn production around the world, in response to higher commodity prices, have been achieved through both yield increases and acreage increases. ⁹ The primary market response to this new demand has been for US farmers to enhance plant growth on existing land by increasing double cropping, reducing unharvested and fallow land, and reducing use of land as temporary pasture. A November 2014 study shows “that the primary land use change response of the world's farmers from 2004 to 2012 has been to use available land resources more efficiently rather than to expand the amount of land brought into production.” ¹⁰ The study did not measure crop yields or increases in the efficiency of biofuel production from corn, both of which help to avoid land use change and reduce other consequential emissions. Corn yields have increased to 153.7 bushels per acre over the past decade (2006–2015) from 137.7 bushels per acre in the preceding decade (1996–2005). ¹¹ Biorefineries have also increased their efficiency, producing more fuel and co-products from each bushel of corn. ¹²

Since 2005, the US has radically changed the sources of fossil transportation fuels it uses. According to data from the US Energy Information Administration, in 2005 the US imported more than 60% of the crude oil it used, primarily from countries in the Middle East; the US produced 1.8 billion barrels domestically, with 26% coming from offshore drilling. Offshore and desert sources of oil are assumed not to cause land use changes. Currently, in 2015, the US imports less than half of the crude oil it uses, with Canada being the largest source, and produces nearly 3.2 billion barrels domestically, with less than 17% produced via offshore drilling. Much of the crude oil and natural gas in the US today is produced via hydraulic fracturing, which was not prevalent in 2005.

It is now recognized that oil exploration and production cause land use change and other consequential emissions. ^13,14 In 2015, the Systems Assessment Group at Argonne National Laboratory modeled the lifecycle carbon emissions of Canadian oil sand production, including some estimate of land use change. ¹⁵ The group also conducted separate up-to-date estimates of the lifecycle emissions from crude oil production in the Eagle Ford shale formation in Texas and the Bakken formation in North Dakota and Montana. The group estimated low to moderate land use change impacts from the increased drilling in these regions, but noted an increase in the flaring of byproducts. While this phenomenon has been studied and publicized for several years now, it was never considered when EPA conducted its lifecycle assessment of the 2005 baseline emissions of gasoline.

Overall, biofuel production is improving on a lifecycle basis, while US oil production and consumption grow worse. The RFS puts no limits on the carbon emissions of fossil fuels—it seeks to limit those emissions by replacing fossil fuels with renewable fuels. But the program sends a signal to biofuel producers to continually improve and to increase production efficiency. In addition, the market has generated a strong signal to farmers to enhance the production of biomass, rather than plow up new land for production.

Translation to Policy

The EPA's Office of Inspector General (OIG) recently launched a research project to evaluate the lifecycle impacts of the RFS. One objective of the research project, according to the OIG, is to determine whether the EPA has updated its lifecycle analysis of biofuels with relevant research. ¹⁶ The research project should also reexamine the utility of freezing the estimate of fossil fuel carbon emissions at the 2005 level, since this has allowed fossil fuel producers to freely increase the carbon emissions from each gallon of their fuel. With this evidence, OIG should question whether the EPA is acting consistently to displace the maximum amount of fossil fuels possible, in order to minimize the increasing carbon emissions from this source.

The EPA should also send a clear, consistent signal to energy producers to use the lowest carbon energy choices under the Clean Power Plan. Penalizing bioenergy systems that use renewable biomass in sustainably managed systems (where the biomass is actively renewed) provides a relative benefit to fossil energy producers, which are allowed to add carbon to the terrestrial cycle without any cost, or conversely to take unearned carbon credit for existing biomass sinks. Just like IPCC, the EPA should recognize that low-carbon biofuels are an important contributor to carbon emission reductions.