Important Disclaimer California Takes Steps to Expand the Market Penetration of Alternative Fuels and Reduce Transportation Sector
Greenhouse Gases November 14, 2007 California's 24 million registered vehicles are 96 percent reliant on petroleum, making California the second largest consumer of gasoline in the world, after the United States as a whole. As a result, nearly 41 percent of California's greenhouse gas emissions come from the transportation sector. On October 31, 2007, the California Energy Commission (CEC) adopted a State Alternative Fuels Plan. The plan presents strategies and actions to increase California's use of alternative, non-petroleum fuels and recommends targets on a gasoline equivalent basis for use of 10 different alternative motor fuels. Targeted fuels include renewable diesel, biodiesel, synthetic fuels, ethanol, biomethane, hydrogen, compressed natural gas, propane, coal-to-liquid fuels, gas-to-liquid fuels, and electricity. Using a full fuel-cycle analysis, the CEC determined that nearly all of these alternative fuels are at least 10 percent lower in carbon content than conventional petroleum fuels. The plan establishes market-penetration goals for these alternative fuels of 9 percent by 2012, 11 percent by 2017, and 26 percent by 2022. The plan also establishes a 2050 vision that foresees alternative fuels displacing more than half of the energy needed to power California's transportation system. History of the Plan The State Alternative Fuels Plan was mandated by Assembly Bill 1007 (AB 1007), which directed the CEC, in partnership with the California Air Resources Board, to prepare a full fuel-cycle assessment of alternative fuels and incorporate the results of that assessment into a plan to increase alternative fuel use in California. The CEC also was directed to establish alternative fuel market penetration goals for 2012, 2017, and 2022, and recommend policies, standards, financial incentives, and research and development programs to stimulate the development of alternative fuels, new vehicles, and fueling infrastructure. Conclusions of the Plan The plan initially focuses on the development of alternative-fuel gasoline blends and biofuels because they have petroleum reduction, waste reduction, and climate-change benefits. Over the longer term, the plan anticipates that advanced biofuels, hydrogen, and electricity will play a larger role in the state's alternative fuel mix. The plan identifies biodiesel, renewable diesel, natural gas, propoane, and electric drive technologies as primary options to displace diesel fuel in transit bus, school bus, delivery van, and port vehicle markets. Also built into the plan is a multi-part strategy to develop hybrid and electric vehicle technologies; build alternative fuel infrastructure; increase blending of biofuels into gasoline and diesel; improve fuel efficiency of vehicles; and reduce vehicle miles traveled in California. The plan recommends a combination of regulations, incentives, and market investments to achieve increased penetration of alternative and non-petroleum fuels in California's transportation fuel markets. According to the plan, alternative fuel stations will need to operate commercially with 20 percent market share before alternative fuel costs approach parity with gasoline and diesel pump costs. To achieve this level of market penetration, the plan calls for coordinated and sustained government incentives over a 20 to 30 year timeframe and substantial capital investment by the private sector, particularly in sharing the cost of building fueling stations and funding the development and demonstration of clean and advanced transportation technologies. The plan predicts that $2 billion in government incentives will be needed between 2008 and 2022 to accomplish a "moderate" growth rate in alternative fuels. This level of incentives is expected to stimulate more than $40 billion in private investment, resulting in market investments of more than $100 billion between 2008 and 2050. Expected benefits of this investment include avoided petroleum purchases of up to $19 billion in 2022 and $42 billion in 2050. Funding the Plan California has already taken steps to put some incentive funding in place. California Governor Arnold Schwarzenegger signed Assembly Bill 118 (AB 118) on October 14, 2007. AB 118 creates an Alternative and Renewable Fuel and Vehicle Technology Program, which will be administered by the CEC to provide grants, loans, loan guarantees, revolving loans, or other appropriate measures to public agencies, businesses, public-private partnerships, academic institutions, and others to develop and deploy innovative fuel and vehicle technologies. The program will be funded through 2016 with increased vehicle registration and smog-abatement fees and will provide the CEC with roughly $120 million per year (starting with fiscal year 2008-2009) for incentive funding to implement the State Alternative Fuels Plan, including $10 million a year in state loan guarantees for alternative and renewable transportation fuels. The CEC will be forming an advisory body to develop an investment plan and establish priorities for directing incentive funds. Advancing California Policy Goals The State Alternative Fuels Plan is intended to work in conjunction with several other California initiatives, including programs to reduce greenhouse gas emissions and increase biomass energy production. In July 2006, Governor Schwarzenegger approved and publicly released a Bioenergy Action Plan for California. The Bioenergy Action Plan establishes biofuel use targets for California of 0.93 million gasoline gallon equivalents in 2010, 1.6 billion in 2020, and two billion in 2050. The Bioenergy Action Plan sets in-state production goals of 20 percent of biofuels production within California by 2010, 40 percent by 2020, and 75 percent by 2050. Targeted biomass resources include farms, dairies, forests, and landfills. The State Alternative Fuels Plan also works in concert with California's Low Carbon Fuel Standard, which the governor established in January 2007 through Executive Order S-01-07. The Low Carbon Fuel Standard requires fuel suppliers and distributors to reduce the carbon intensity of their fuels 10 percent by 2020. Carbon intensity refers to the amount of greenhouse gas emissions, measured on a lifecycle basis, per unit of motive power. Achieving this goal is the equivalent of taking three million cars off the road. The measure is slated for adoption by the California Air Resources Board as a "discrete early action measure" under the California Global Warming Solutions Act of 2006 (AB 32). AB 32 requires California to reduce statewide greenhouse gas emissions to 1990 levels by 2020 and to 80 percent below 1990 levels by 2050. Investing in California's Future The challenge of reducing emissions in the transportation sector has spurred not only regulatory activity, but entrepreneurial activity and related investment. California has been the birthplace of dozens of new biofuels research and development, production, and marketing companies since 2005, and is viewed as the primary market for similar companies founded in Oregon and Washington. In 2006, the transportation sector received roughly 40 percent of the record-breaking $2.5 billion of venture capital investment in companies emerging in the energy sector. With the CEC's adoption of a State Alternative Fuels Plan, and California's associated policies on greenhouse gas reductions and biomass energy production, California is likely to see a continuation of private-sector investments into the foreseeable future. A copy of the State Alternative Fuels Plan can be found at: http://www.energy.ca.gov/2007publications/CEC-600-2007-011/CEC-600-2007-011-CTF.PDF. For more information, please contact Peter Mostow at (206) 883-2541, John Pierce at (206) 883-2511, Andy Braff at (206) 883-2567, or Kevin Fox at (415) 947-2042. |