Minnesota grows interest in low-carbon fuels

It’s been a banner year for climate policy in Minnesota: In the 2023 session, the state legislature passed a 100 percent clean electricity standard and established a work group to tackle design elements for a possible clean transportation standard to be developed next year. Following on the climate momentum, the GreaterMSP Partnership announced in August the creation of the first U.S. sustainable aviation fuel (SAF) hub at the Minneapolis-Saint Paul airport. In October, the Heartland Hydrogen Hub was selected as one of seven regional clean hydrogen hubs to receive funding from the Bipartisan Infrastructure Law.

A few other states have a low carbon fuel standard (LCFS) or clean fuel standard, most notably California, Washington, and Oregon. These market-based, technology-neutral standards ramp down emissions from the transportation sector while increasing electrification and the deployment of low-carbon fuel technologies like biofuels (e.g., corn-based ethanol), renewable fuels produced from waste, and hydrogen. In contrast to other states with an LCFS, Minnesota is a major producer of crops like corn and soy that are used as feedstocks for biofuels, and with stronger practices to support climate-smart agricultural production, the state could both support reduced emissions from agriculture and co-benefits like soil health and water quality improvements. Smart state-level policy accelerating the uptake of low-carbon fuels in Minnesota has the potential to benefit its farmers, refineries, and climate goals.

On October 12th, C2ES convened more than 35 stakeholders representing companies, communities, workers, academia, and government for a roundtable discussion in Minneapolis to explore the economic opportunity of expanding low-carbon fuels production and deployment in Minnesota. In addition to exploring specific opportunities for the state to grow its share of the evolving biofuels market, the discussion centered on the environmental, community, and workforce impacts of producing fuel feedstocks, building supporting infrastructure, and deploying low-carbon fuels across ground transportation and aviation.

A few main themes emerged from the discussion:

  1. Long-term certainty is crucial for companies to invest in technology and infrastructure for low-carbon fuels.
    New infrastructure like biorefineries, storage tanks and pipelines are expensive and can take a long time to build. Companies need to know they will see a return on their investment before committing the time and capital to build out this infrastructure. Incentives supporting low-carbon fuels development and deployment must be in place for a long enough time that companies can take advantage of them, and regulations encouraging the increased uptake of low-carbon fuels must be predictable enough to provide market certainty.
  2. Equity must be central to the development of any state-level decarbonization policy. Often, the worst impacts of air pollution from transportation are felt disproportionately by low-income communities and/or communities of color. Policies to reduce emissions from fuels must prioritize improved air quality and health improvements in these communities. Additionally, as electric vehicles increasingly become part of the solution for decarbonizing light-duty transportation, access to charging infrastructure and legacy fueling infrastructure must be available to everyone, regardless of economic status.
  3. Farmers must receive a share of the benefits of low-carbon fuel production.
    Farmers’ existing knowledge levels and familiarity with practices to improve yield, soil health, and water quality create an entry point for innovation on climate-positive practices in the production of fuel feedstocks. However, new technologies like digital tools and climate-smart farm equipment often have high up-front cost barriers and steep learning curves. Additionally, the current crop insurance structure is not set up to account for the additional risk farmers might face by adding new cover crops for fuel feedstocks. Policies and outreach supporting these innovations should include significant accommodations for farmers to meet their financial and training needs.

Roundtable participants agreed that decarbonization must be an all-of-the-above effort. While light duty transportation may be best suited for electrification, for technological and economic reasons, heavy-duty trucking, rail, maritime, and aviation will be best served—at least in the near- to mid-term—by low-carbon drop-in fuels like biodiesel, renewable natural gas, hydrogen, and sustainable aviation fuel. Minnesota, already a major ethanol producer and agricultural powerhouse, is well-positioned to lead on supplying these fuels to markets across the country and utilizing them to meet its own climate goals. The roundtable will inform a forthcoming policy brief summarizing insights from the discussion and offering recommendations for state and federal policymakers to help Minnesota lead the way to a low-carbon future.