Publication Detail

Oregon’s Clean Fuels Program: A Review and Status Update


Journal Article

Sustainable Transportation Energy Pathways (STEPS), Energy Futures, Policy Institute for Energy, Environment, and the Economy

Suggested Citation:
Witcover, Julie and Colin Murphy (2020) Oregon’s Clean Fuels Program: A Review and Status Update. Transportation Research Record 2675

Oregon implemented a fuel carbon policy called the Clean Fuels Program (CFP) in 2016. Modeled largely on the Low Carbon Fuel Standard (LCFS) operated by California, the CFP sets a declining target for the average life cycle carbon intensity (CI) of transportation fuels used in the state. The CFP incentivizes the deployment of emissions-reducing fuels and vehicles, and can contribute toward economy-wide greenhouse gas reduction goals. This paper reviews program data from the first three years of the CFP’s operation, provides an overview of program characteristics, identifies key trends, and compares the CFP to the LCFS. While it is early in the program’s operational history and CI reduction targets are small, the available data indicate a program functioning as expected based on the experience of jurisdictions with similar programs. Aggregate emissions reductions have slightly exceeded targets resulting in the accumulation of a small bank of credits. Early compliance has largely been driven by blending of ethanol into retail gasoline and the introduction of greater volumes of diesel substitutes. Electric vehicles are a small but rapidly growing contributor to compliance. As targets grow more stringent, compliance will require greater volumes of low carbon fuels to be brought to market.
The transportation sector accounts for 40% or more of greenhouse gas (GHG) emissions in California, Oregon, Washington, and British Columbia. Each of these states is a signatory to the Pacific Coast Collaborative (PCC) Climate Plan, in which they pledge to adopt several climate policy measures, including developing regional demand for low carbon fuels (1). Oregon instituted its Clean Fuels Program (CFP) in 2016 as part of the PCC commitment and its state-level GHG emissions reduction strategy. The CFP is largely based on the Low Carbon Fuel Standard (LCFS), in operation in California since 2011. The CFP aims to reduce the GHG intensity of state transportation fuels by 10% over a 10-year period by providing a market to incentivize development and deployment of alternative fuels and vehicles with lower GHG emissions than conventional petroleum-based technologies.
The CFP sets an average carbon intensity (CI) standard for transportation fuels used in Oregon, with a few exemptions such as fuels going to military uses. The CI standard is measured in grams of carbon dioxide equivalent per megajoule of fuel energy (gCO2e/MJ). All fuels are assessed for lifecycle GHG emissions, covering all activities from production through combustion including production of raw materials, conversion or refining, transportation, and any significant GHG impacts because of market perturbations from the policy, including land use change associated with some biofuels. Each fuel receives a CI rating based on that assessment. Fuels with a CI rating above the target, like petroleum-based fuels (e.g., gasoline and diesel), accumulate one deficit for each ton of GHGs they emit above the standard. Fuels with a CI rating below the standard generate one credit for each ton of GHG emissions avoided relative to the CI target. For compliance, an obligated party must retire enough credits to offset generated deficits. Credits are tradable by private contract, with or separated from the fuels that generate them, and act as compliance units as well as financial instruments, thus allowing a market price for emissions credits to emerge. Credit transfers must be registered with the CFP regulator, the Oregon Department of Environmental Quality. CFP credit sales to deficit-generating obligated parties typically generate a significant source of revenue for low carbon fuel producers.
The program is different from a cap-and-trade carbon allowance program, which prices all emissions; the CFP only prices emissions relative to the standard, penalizing emissions above the standard and rewarding savings below it. While cap-and-trade allowance permits and CFP credits both represent an amount of GHGs, they are not equivalent. Whereas cap-and-trade permits represent an allowance to emit a certain absolute amount of GHGs, CFP credits reflect an emissions reduction relative to the specified CI target. Additionally, currently used cap-and-trade permits only cover emissions from the tailpipe within the controlled jurisdiction and consider biogenic carbon to have no emissions, CFP credits account for the full lifecycle emissions of the fuels that generate them, and include some accounting of land sector emissions for the production of biofuels.
To achieve compliance in each reporting period, obligated parties may reduce the CI rating of their fuels, generate their own credits, buy credits from other market participants (with or separated from the credit-generating fuel), or apply credits banked in earlier years. The CFP schedule of annual CI reduction targets builds toward its 10% reduction in the statewide fuel pool’s CI rating from 2015 levels by 2025: less than 1.0% in 2016 and 2017; 1.0% in 2019; 1.5% in 2019; and 2.5% in 2020. Credits are earned against distinct nominal standards set for gasoline and its substitutes and diesel its substitutes; once earned, credits are fungible and bankable for future use without limit, in addition to being tradable. A recent Executive Order by Oregon Governor Brown called for extending targets through 2035 to reach 25% reduction in that year (2).
The fuel CI standard has emerged in several jurisdictions as a key climate policy focused on transportation which is potentially difficult to decarbonize under economy-wide carbon prices at levels currently seen (3, 4). British Columbia (5) has had a similar policy in effect since 2011; Brazil is just embarking on one; and Canada is developing a fuel CI standard using the LCFS as a model (6, 7). For more about transportation fuel CI standard policy design, including how it compares to a cap-and-trade, see (3, 4); for Oregon’s CFP regulation see (8).
Several studies have examined the California LCFS (4, 9–12) and the British Columbia low carbon fuels regulation (13). Oregon’s program has not as yet been studied at similar depth, but its early years are of interest as an instance of the policy implemented: (a) alongside a longer-standing, more mature policy in a larger jurisdiction; and (b) for a reference year where renewable fuel mandates of E10 and B5 (10% ethanol by volume in gasoline and 5% biodiesel by volume in diesel) had already taken effect, reducing the efficacy of increasing biofuel volume up to those levels as an early-year compliance strategy, in contrast to California (14, 15).
This study aims to contribute to information on Oregon’s CFP by examining and synthesizing publicly available data on the key metrics of the market response and compliance to Oregon’s CFP in its early years, from 2016 through 2018 Q3. Methods are outlined in the next section, followed by the presentation of results, discussion, and conclusions in subsequent sections. Comparative discussion of the CFP with other programs is included in the final two sections.