California implemented a low carbon fuel standard (LCFS) in 2010 to reduce greenhouse gas emissions.
The goal of the policy is to reduce the carbon intensity of California’s transportation fuels by 10 percent in 2020 and another 10 percent by 2030. Regulated entities who purchase and distribute low-carbon fuels earn credits. The credits can then be sold to other regulated entities to meet the carbon caps in place. California’s policy has provided a demand boost for ethanol producers. According to the Iowa Farm Bureau, corn-based ethanol made up 34 percent of the LFCS credits earned in 2016.
California’s carbon intensity scores for ethanol fuels vary depending on the production process, energy source, and the transportation distance to California. Dry mill ethanol facilities score better than wet mills. Ones which use natural gas, wind energy, or landfill gas as energy sources score better than ones which use electricity generated from coal. A corn-based ethanol facility located in Nebraska will typically have a certified carbon intensity score in California between 70-80. This makes Nebraska ethanol an attractive low-carbon fuel alternative compared to gasoline which has a carbon intensity score around 100.
However, ethanol produced in Brazil, because it’s made from sugarcane and requires less processing, has a carbon intensity score around 46. When carbon credit prices in California get high enough, it can incent ethanol imports from Brazil. This has happened in 2019. From January through September of this year, it is estimated Brazil has shipped nearly 172 million gallons of ethanol to California. When the revenue from carbon credits is included, Brazilian is priced around 7 percent cheaper into California than U.S. ethanol. Ironically, Brazil remains a top ethanol importer of U.S ethanol.