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First status review of California LCFS finds regulated parties exceeding the standard; compliance production cost about 0.1 cents/gallon

A status review of California’s Low Carbon Fuel Standard (LCFS) (earlier post) for the period of 2011 and the first quarter of 2012 by Dr. Sonia Yeh at the Institute of Transportation Studies, UC Davis and Julie Witcover found that regulated parties in the LCFS—i.e., oil producers and importers to California—exceeded the standard in 2011 and the first quarter (Q1) of 2012 by a substantial margin.

The report, the first in a series of periodic status reports of the LCFS, found that regulated parties generated 1.58 million credits (tonnes CO2e reduction) in the first 15 months, nearly double the amount of deficits (0.78 million), for a net surplus of 0.80 million credits to exceed the required reduction level by about 0.8 million tonnes CO2e. Companies relied on ethanol to generate 86% of the credits.

The LCFS is a performance-based regulation adopted in 2010 that requires regulated parties incrementally to reduce the carbon intensity (CI) of the state’s transportation fuel mix starting in 2011 with a 0.25% reduction, increasing to 10% reduction by 2020.

The CI of ethanol fuels used to generate CA-LCFS credits in 2011 and first quarter of 2012 averaged around 84 gCO2e/MJ, compared to baseline values of 95.6 gCO2e/MJ for gasoline.

Yeh and Witcover used available information on actual trades, bids, and offers in August 2012 to estimate that CA-LCFS carbon credits were valued at $10-18/tonne CO2e, with an average of $13/tonne CO2e. At this price ($13/tonne CO2e) and given the 2012 requirement of 0.5% CI reduction, companies who choose to meet their obligation purely by purchasing CA-LCFS credits for compliance would incur an added cost of about 0.1 cents per gallon of gasoline produced, they calculated.

Each status report is to provide updates on LCFS compliance and markets, and address a selected topic; the first report we examines the effect of the 2012 US summer drought on feedstock availability and LCFS compliance.

Yeh and Witcover found that poor yields due to extreme drought in the Midwestern US raised corn prices about 60% from mid-June through August, causing ethanol prices to rise about 60 cents per gallon. The actual impacts of the drought on this year’s CA-LCFS compliance and on other food/fuel prices are not yet clear, they concluded. Corn ethanol is still less expensive than gasoline on a per gallon basis and considerable amounts are being exported. Given that companies have until 31 March 2013 to acquire additional credits to meet 2012 compliance requirements, and corn and sugarcane ethanol markets are still adjusting to the drought’s effects, it is too soon to gauge the drought’s overall impact on CA-LCFS compliance and compliance cost, they wrote.



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