Book-and-Claim would promote the development of Power-to-Liquid (PtL) fuels, which in turn would promote the development of new renewable electricity sources.
Author: Ira Dassa, Regulatory Counsel
In a previous Policy Perspective, we discussed the Inflation Reduction Act and the Treasury Department’s proposed rule governing the federal clean hydrogen production tax credit, Section 45V. In particular, we looked at the three-part test that Treasury laid out for a clean hydrogen producer to rely on Renewable Energy Certificates (RECs) for purposes of the all-important lifecycle greenhouse gas emissions (GHG) rate calculation under the section 45V credit. In this brief article, we will again touch upon RECs and the indirect accounting mechanism known as book-and-claim or “unbundling,” and articulate why, under existing (and prospective) state low carbon fuel standard (LCFS) programs, Twelve and other Power-to-Liquid (PtL) fuel producers should be allowed to procure the renewable electricity that is integral to PtL fuel production through book-and-claim accounting[1]. accounting[1]. PtL fuels are drop-in replacements for fossil fuels. They tap into the virtually unlimited supply of waste carbon dioxide (CO2) rather than relying on agricultural crops or capacity-constrained biomass feedstocks, as is the case with other fossil alternatives. Renewable electricity is the key to PtL fuels, as it is what enables them to have ultra-low carbon intensities, and in that regard, book-and-claim accounting is central to creating a fossil-free future powered by a circular, low-carbon economy.
The California LCFS
California, which established itself as the trailblazer on low carbon fuels policy almost 15 years ago, is now in the process of considering the latest potential amendments to its LCFS Program. The public comment period for the California Air Resources Board’s (CARB) December 2023 rule making package closed in late February. In Twelve’s submission, we took the opportunity to reiterate a proposal we had first put forward last summer – that CARB should revise the relevant LCFS regulatory provisions to allow book-and-claim accounting, through the use of RECs or electricity indirectly supplied via a green tariff program, as a means to source renewable energy for the production of PtL sustainable aviation fuel (SAF) such as Twelve’s E-Jet® or any other transportation fuel produced from CO2, water, and renewable electricity.
CARB should revise the relevant LCFS regulatory provisions to allow book-and-claim accounting, through the use of RECs or electricity indirectly supplied via a green tariff program, as a means to source renewable energy for the production of PtL sustainable aviation fuel (SAF) such as Twelve’s E-Jet® or any other transportation fuel produced from CO2, water, and renewable electricity.
In our February 20, 2024 comment letter, we highlighted the fact that CARB itself recognizes – quite correctly in our view – that there is tremendous “interest in producing synthetic fuels by combining hydrogen with captured CO2.” We then pointed out the following:
The LCFS Program, as CARB puts it, is meant to encourage investment in “innovative . . . carbon capture [and] utilization,” and the PtL process is a prime example of carbon capture and utilization.
Allowing book-and-claim for the electricity used in the production of PtL fuels would greatly incentivize the scale-up of these ultra-low carbon alternative fuels, not to mention ease the state’s path to achieving the 90 percent jet fuel carbon intensity reduction in 2045 that CARB has proposed.
Absent indirect accounting, PtL fuel producers would have little choice but to co-locate their facilities with, or otherwise ensure a direct, behind-the-meter connection to, a renewable energy source, which is often infeasible, and in the case of hydropower, difficult or physically impossible to accomplish.
Thus, without indirect accounting, it will be extremely challenging for Twelve’s E-Jet, as well as the PtL SAF produced by other fuel producers, to contribute to the decarbonization of the California aviation sector and, in turn, facilitate achievement of the state’s ambitious GHG emissions reduction goals.
The good news is that Twelve was not the only PtL entity to make its views on CARB’s Initial Statement of Reasons known. In fact, a host of other companies joined Twelve in a joint submission recommending that CARB “modify the proposed LCFS amendments such that PtL facilities are authorized to procure [renewable] electricity for electrolytic hydrogen production and their other energy needs via book-and-claim accounting.”[2] Even the International Council on Clean Transportation, an influential environmental organization, criticized CARB for “effectively restrict[ing renewable] electricity from being eligible for attribution unless it was supplied via a direct electricity connection” and sought “more flexibility for e-fuel pathways.”[3]
At an LCFS-related meeting in mid-March, CARB staff acknowledged receiving comments during the public comment period calling on the agency to “incentivize development of innovative fuels.”[4] Staff also alluded to the pressures facing crop-based biofuels, and indicated that a public workshop related to the rulemaking package will be convened in April. Another public comment opportunity is expected after that workshop, which has now been scheduled for April 10, and CARB’s final rule is anticipated for release later this year. Twelve and its partners in the PtL industry are hopeful that the Board seizes the opportunity before it and adopts a final rule that fosters the development of innovative, ultra-low carbon PtL fuels by allowing indirect, book-and-claim accounting in connection with the electricity used in the fuels’ production. Such accounting, it bears emphasizing, can certainly be implemented in an environmentally rigorous way.
Beyond California
Indirect accounting for PtL fuel producers’ feedstock electricity should likewise be allowed in the other state LCFS programs that are already on the books or under development (i.e., the Oregon and Washington Clean Fuels Programs and the soon-to-be developed program in New Mexico), as well as in any LCFS programs that state legislatures around the country (e.g., Hawaii, Illinois, Massachusetts, Michigan, Minnesota, New Jersey, New York) are currently considering. In Twelve’s view, indirect accounting for renewable electricity should be endorsed, too, by the U.S. Environmental Protection Agency (EPA) under the federal Renewable Fuel Standard (RFS) Program, at least when PtL transportation fuel like E-Jet® is produced from biogenic CO2 (e.g., CO2 captured from an ethanol plant). We expect to have more to say about EPA’s RFS Program in the future, so stay tuned.