More Art than Science? The Growing Influence of Politics in Carbon Accounting

More Art than Science? The Growing Influence of Politics in Carbon Accounting

January 29, 2024

By Josh Price, Capstone Energy Analyst

Earlier this week, Christopher Nolan’s acclaimed movie Oppenheimer—which depicts the true story of the high-stakes Manhattan Project to develop the world’s first nuclear weapon—took home the most nominations for the 2024 Oscars. The Manhattan Project culminated in the world’s first nuclear explosion at a testing site in New Mexico in July 1945. However, the impact of the Manhattan Project—and the scientific brainpower behind it—did not end with the Trinity test. Roughly one year after the 1945 nuclear test and 1,400 miles east of it in Lemont, Illinois, the Argonne National Lab was formally chartered, with some of the same nuclear scientists behind the Manhattan Project working to find peacetime applications for atomic energy.

Today, the Argonne National Lab’s mission has expanded beyond nuclear energy. It includes the oversight of a key tool for measuring greenhouse gas (GHG) emissions from fuel production processes, known as the Greenhouse Gases, Regulated Emissions, and Energy Use in Technologies (GREET) model. This model, which evaluates the carbon intensity of various inputs (e.g., electricity, natural gas, feedstock) and other aspects of fuel production, has recently taken on new importance given its use to determine tax credit values for clean fuels under the Inflation Reduction Act (IRA). However, as with any model, the assumptions underlying the analysis can be subjective, opening the door for political influence on GREET modeling outcomes.

Treasury has the difficult task of threading the regulatory needle to promote domestic investment, protect the environment, and appease both environmental and industry interests.

Enter the Department of Treasury. Under the IRA, the Treasury is tasked with implementing statutory tax credit provisions—including using the GREET model—into regulations, working with agencies like the Department of Energy and the Environmental Protection Agency to achieve President Biden’s climate and jobs goals while adhering to the legislative text. Unlike the GREET experts at the Argonne National Lab, Treasury has the difficult task of threading the regulatory needle to promote domestic investment, protect the environment, and appease both environmental and industry interests.

Through Treasury’s guidance last year on tax credits for Sustainable Aviation Fuel (SAF) and hydrogen, we can see very clearly how the Biden administration’s priorities—particularly surrounding environmental justice—are influencing Argonne’s application of GREET. While this may seem like a niche, technical issue, the stakes are high: Treasury’s IRA interpretations can make or break billions in planned investment and dictate the pace of deployment for a variety of clean fuels in the US, including SAF, Renewable Natural Gas (RNG), and hydrogen.

Let’s start with SAF. For the Section 40B SAF tax credit—which provides up to $1.75/gallon to aviation fuel blenders based on carbon intensity through the end of this year—Treasury directed Argonne to use a new version of the GREET model specifically for the 40B tax credit to better account for land-use impacts and other indirect effects of crop-based SAF production. This will likely result in lower credit values for fuels derived from ethanol and other energy crops relative to GREET’s standard approach.

We can see very clearly how the Biden administration’s priorities—particularly surrounding environmental justice—are influencing Argonne’s application of GREET.

Environmental advocates have long argued that GREET underestimates land use impacts of crop-based fuels like ethanol, while industry groups like Growth Energy argue that the existing GREET “already reflects the latest science showing bioethanol’s limited impact on land use and its significant reduction in GHG emissions.” While we expect ethanol- and other crop-based SAF will be eligible for credits under the modified GREET model—particularly projects that leverage carbon capture—we believe Treasury’s focus on land use and its push for a new GREET model illustrates the weight of environmental influence on the Biden administration’s approach to carbon accounting.

Moving onto hydrogen. Treasury’s recent proposed rule on the Section 45V clean hydrogen tax credit highlights a similar dynamic, namely, seeking comment on a new approach to carbon accounting for RNG used to make hydrogen—one sought by environmental advocates—rather than the existing assumptions in the GREET model. Specifically, Treasury questioned whether the standard methane avoidance framework that provides livestock RNG with a negative carbon intensity is valid, raising doubts over the approach long-used under California’s Low Carbon Fuel Standard (LCFS) and in the existing GREET model.

Environmental groups have pressured regulators for years to change the methodology under the LCFS to reduce incentives for livestock RNG, which they claim promotes factory farming and is overly generous. While California regulators have largely avoided implementing these changes in the near term, Treasury’s request for comment suggests the Biden administration is evaluating a departure from GREET on methane avoidance crediting.

We believe this approach to RNG partially reflects the Biden administration’s desire to advantage green hydrogen produced via electrolysis relative to thermal hydrogen, given the steep competition for offtake in the near term. While we do expect livestock RNG will ultimately be eligible as a feedstock for hydrogen production under the Section 45V, like with the SAF credit, the new approach to carbon accounting would adversely impact “undesirable” feedstocks from an environmentalist standpoint relative to the existing GREET model.

One of the problems with political influence on technical processes is that political leanings—especially in the White House—can and will change, leading to uncertainty for companies and investors in clean fuel markets. For example, if former President Trump wins in the upcoming 2024 election, we would expect the Treasury to recalibrate its priorities for clean fuel incentives under the IRA, likely tilting the playing field in favor of crop-based fuels and thermal hydrogen under Argonne’s IRA-related GREET models. Regardless of the winners today or tomorrow, all stakeholders would likely fare better if carbon accounting for IRA incentives was treated more like a science and less of an art.

If former President Trump wins in the upcoming 2024 election, we would expect the Treasury to recalibrate its priorities for clean fuel incentives under the IRA.

Undoubtedly, the stakes of Argonne’s work today are significantly lower compared to the early days of the Manhattan Project. However, the scientific rigor that enabled the first nuclear test lives on in Lemont, IL, working to combat one of today’s greatest threats in climate change through deep expertise and pioneering work in lifecycle emission analysis. Policymakers should elevate Argonne’s empirical approach to climate science and the potential downsides of interference, particularly when considering the durability of clean fuel incentives under different regimes. Capstone will continue to monitor the political dynamics over GREET as the story continues to unfold this year through final Treasury regulations.


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