New York (Platts)--19Nov2010/412 pm EST/2112 GMT

A decision this week by California regulators to lower corn-based ethanol's so-called indirect land use penalty is good for that product's demand, but timing of the change is not, the Renewable Fuels Association said Friday.

California is in the midst of refining its Low Carbon Fuel Standard regulations, which go into effect January 1, 2011. The LCFS takes into account indirect land use changes (ILUC) caused by fuels, something that penalized US corn-based ethanol when compared to Brazil's sugar-based production.

But in a resolution Thursday, the California Air Resources Board said it would take new Purdue University research into account for its ILUC values, something that will lower the penalty for corn-based ethanol "by at least half," according to RFA.

The new ILUC changes will not be effective when the LCFS begins January 1. Instead they will be incorporated into the regulations "in the Spring of 2011 or as expeditiously as practical afterward," said CARB in its resolution. That will "confuse and disrupt the market," said RFA CEO Bob Dinneen in a statement Friday.

CARB could not be reached for comment.

Brazil's sugar-based ethanol markers backed CARB's decision, which will also alter their fuel's ILUC value. "The Board's decision... ensures that as the science evolves, so will the regulations," said Joel Velasco, spokesman for the Brazilian Sugarcane Industry Association.

CARB, in its resolution, said it continues to work with refiners and other stakeholders to "develop a screening process to assist regulated parties and other stakeholders in identifying high carbon-intensity crude oils." It is also working with refiners and biofuels producers to complete an "evaluation for biodiesel and renewable diesel."

--Beth Evans, beth_evans@platts.com

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