Monday, April 27, 2009

biofuelwatch - California fuel standard testing on ethanol, may violate NAFTA

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1. http://planetark.org/wen/52614

ANALYSIS - California Rule Could End Ethanol's Honeymoon
Date: 27-Apr-09
Country: US
Author: Timothy Gardner

NEW YORK - California's newly adopted low-carbon fuel standard may mark the beginning of the end of ethanol's coveted status as the sole US alternative motor fuel.

The US state with the most cars late on Thursday approved the world's first-ever regulations to slash emissions of planet-warming carbon dioxide from vehicle fuels.

The ruling, which will be subject to further studies, will not kill the ethanol industry. But it sets the bar higher for cleaner development of corn ethanol, which enjoyed an investment boost over the last few years thanks to generous federal incentives and mandates calling for increasing amounts of the fuel to be blended into gasoline.

The measure also sets the stage for emerging alternative fuels -- such as cars that run on compressed natural gas and electric vehicles like plug-in hybrids that run on both gasoline and rechargeable batteries -- to compete with second-generation ethanol.

That fuel, known as cellulosic ethanol, is expected to be made in commercial amounts from non-food feedstocks like switchgrass and fast-growing trees.

"The ruling is the first sign that the ethanol industry could be brought out of its honeymoon phase," said Sander Cohan, an alternative motor fuels analyst with Energy Security Analysis Inc in Boston.

"First-generation ethanol, especially corn ethanol, is a poster child for who might be put at a disadvantage."

To give fuel producers time to adjust, the bulk of the carbon limits required under the regulation do not go into effect until 2015.

But analysts said California has fired the first shot in a battle that could widen in coming years. At least 11 other states in the US East are considering adopting a low-carbon fuel standard for cars by the end of the year. In addition, the main climate bill being considered in the US Congress seeks to regulate greenhouse gas emissions from fuels.

California's regulators ranked 11 different ways of making corn ethanol. They found that traditional distilling methods used in the Midwest, accounting for the bulk of US supplies, emit the most carbon over a lifecycle measured from production to combustion.

The state gave much better carbon savings scores to corn ethanol made in California with a distillery fired by a blend of natural gas and crop waste, also known as biomass.

In the race to make ethanol, little regard has been paid to emissions of the distillery itself. A handful of nearly 200 plants are fired by coal, the most carbon-heavy fossil fuel, while many others have been slow to convert to biomass.

Cellulosic ethanol faired better.

"The standard is favourable to cellulosic and to plug-in hybrid development, but not favourable to US-produced corn ethanol," said Divya Reddy, an analyst with the Eurasia Group in Washington.

Cars fuelled by compressed natural gas, which are not yet widely available, scored slightly better than California-made ethanol, and vehicles that run on batteries, which also are just beginning to be made in the United States, scored much better.

LAND USE
The ethanol industry challenged California's findings, and said it would fight the regulations.
The ethanol industry's biggest objection is that the standard calculates an indirect carbon footprint attributed to land-use changes from the clearing of grasslands and forests to cultivate corn.

Nathan Shock, a spokesman for private company Poet, the largest US ethanol producer, said those land-use calculations are unfair because the rule as currently written applies to biofuels alone, putting ethanol at a relative disadvantage.

Bob Dineen, head of ethanol industry group the Renewable Fuels Association, said the ruling could hurt investments in the development of next-generation ethanol.

Paul Winters, a spokesman for the Biotechnology Industry Association, said the ruling could hit investments by the biggest producers of corn ethanol into cellulosic. Some traditional ethanol makers have plans to make cellulose-based fuel using readily available crop waste like corn cobs and stalks.

But as the ethanol industry argues its case, natural gas and battery-powered cars will likely make inroads in replacing petroleum, Cohan said.

"The strength of the low-carbon standard ... is that it forces attention toward non-agricultural alternative fuels that will likely play a role in any sort of alternative fuel mix," he said.

(Additional reporting by Steve Gorman in Los Angeles; Editing by David Gregorio)
© Thomson Reuters 2009 All rights reserved


2. http://planetark.org/wen/52612

New California Fuel Rule May Violate NAFTA - Lawyer
Date: 27-Apr-09
Country: US
Author: Scott Haggett

CALGARY - California's new low-carbon fuel rules may be a violation of NAFTA and World Trade Organization provisions because they would unfairly limit exports of crude from Canada's oil sands to the state, a prominent Canadian trade lawyer said on Friday.

California adopted a first-ever rule on Thursday requiring refineries, producers and importers of motor fuels sold in the state to reduce the "carbon intensity" of their products by 10 percent by 2020, with greater cuts thereafter.

The measures to slash such emissions would force refiners to consider the carbon footprint of the fuels they produce, a potential blow to synthetic crude upgraded from Alberta's oil sands, whose production emits more carbon-dioxide than conventional oil.

However, the state may have no business imposing such rules on oil produced in other countries, a Canadian lawyer said, and the provisions may violate international trade treaties.

"There's definitely a NAFTA case and a WTO case. There's no doubt in my mind about it," said Simon Potter, a partner at the McCarthy Tetrault law firm whose practice includes trade and competition law.

"This is California deciding they are going to treat oil differently depending on ... where it comes from. It's an obvious violation of the requirement for national treatment."

NAFTA provisions guarantee that companies and products from Canada, the United States and Mexico are not discriminated against on the basis of nationality or origin.

"Once you get across the border, you have to be treated like everybody else," said Potter, a former president of the Canadian Bar Association.

"To the extent that these measures make oil from one part of the world that they consider dirty more expensive than identical oil from another part of the world they consider clean, they've got a discriminatory treatment issue."

Canadian trade officials said in an e-mailed statement that the new California rules may amount to discrimination against the country's crude oil.

"Canada's overall energy integration with the United States and our common goal of reducing green house gas emissions makes it all the more important that our individual efforts to address climate change do not lead to the creation of unnecessary barriers," the statement said.

"We are continuing to examine the potential consequences for trade of California's LCFS regulations."

While little or no oil sands crude is currently exported to California, the Alberta government said it considers the provision a threat because the state is a potential market. Also, other US states are considering similar regulations.

"Does it have a possibility of a negative effect on Alberta's bitumen future? I would suggest I'd be very naive if I thought anything other than 'yes' is the proper answer to that," Alberta Energy Minister Mel Knight said on Friday in Houston.

(Additional reporting by Bruce Nichols and Jeffrey Hodgson; Editing by Alex Richardson)
© Thomson Reuters 2009 All rights reserved




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