California ARB staff posts concept paper on re-adoption and modification of LCFS; possible more stringent post-2020 targets
10 March 2014
The California Air Resources Board (ARB) staff has posted a Low Carbon Fuel Standard (LCFS) Re-Adoption Concept Paper, which will be discussed during the LCFS workshop on 11 March 2014. The LCFS regulation mandates a 10% reduction in the carbon intensity (CI) of transportation fuels used in California by 2020.
In response to a suit brought against ARB and the LCFS, the State of California Court of Appeal, Fifth Appellate District (Court) held in 2013 that the LCFS would remain in effect and that ARB can continue to implement and enforce the 2013 regulatory standards while it takes steps to cure California Environmental Quality Act and Administrative Procedure Act issues associated with the original adoption of the regulation. ARB staff is proposing that the Board re-adopt the LCFS regulation in 2014. Additionally, ARB staff is proposing a suite of amendments to provide a stronger signal for investments in and production of the cleanest fuels, offer additional flexibility, update critical technical information, and provide for improved efficiency and enforcement of the regulation.
While the basic framework of the current LCFS, including the use of life cycle analysis, the LCFS credit market, and the LCFS Reporting Tool (LRT), among other aspects, are working and will continue, ARB staff asserted. The concept paper provides an overview of new elements being considered as part of the 2014 LCFS rulemaking effort.
Since the regulation went into effect, regulated parties as a whole have to over-complied with the regulation, providing significant “excess” credits that can be used for future compliance. The requirements (i.e., 1% reduction in CI) are modest at this stage; staff believes that the current developments on clean fuels support compliance for years to come but recognize increasingly larger volumes of low-CI fuels will be needed to meet the targets as 2020 approaches.
Credits have been generated primarily from ethanol (62%), but also from renewable diesel (15%), biodiesel (12%), and from natural gas (9%). Approximately 270 LCFS credits transactions were recorded through February 2014, demonstrating a robust credit market. The LCFS credit prices, which started at $10 to $15/metric ton (MT) CO2e, have risen to $50 to $85/MT CO2e.
There are four concepts being considered:
GHG Emissions Reductions at Refineries. ARB is proposing to allow refineries to generate credits for investments at the refinery that reduce GHG emissions. This provision is consistent with full life cycle analyses, but instead of reducing the CI of the fuels produced—as is done with biofuel production facilities—the CI for CARBOB and CARB diesel will remain the same for market fungibility purposes, so credits will need to be the mechanism for recognizing GHG emission reductions at the refineries. These investments would also reduce associated toxic and criteria air pollutants.
Modification of Compliance Curves for Gasoline and Diesel Standards. ARB staff anticipates that the rulemaking process for re-adoption of the LCFS will be concluded in 2015. This will likely keep LCFS regulatory standards at 2013 levels through 2015. While staffers currently have no proposal to change the average carbon intensity target of 10% by 2020, some post-2015 “curve-smoothing” will be appropriate, they suggest. Staff is conducting an in-depth analysis of projected fuel availability that will inform the 2016 - 2020 compliance targets.
Achieving the GHG and air quality goals outlined in the draft Scoping Plan Update (earlier post) will require a renewable portfolio of transportation fuels well beyond the current policy trajectories. Accordingly, in 2014 ARB will consider revising the LCFS with post-2020 targets that call for CI reductions greater than 10%.
This additional analysis will also include the effects of proposed changes to the LCFS, such as potential revisions to the calculation of ILUC (indirect land use change) values, options for refineries to generate credits via a refinery credit provisions, provisions for electricity credits for off-road applications, and a cost containment provision, which may affect the volumes and types of fuels needed for compliance.
ARB is analyzing what low-CI fuels are likely to be available for compliance by 2020 as well as the 2030 timeframe, based on industry, academic, and government sources. Staff is developing low-CI fuel projections that take into account the effect of petroleum prices on the production of biofuels which will result in low, medium, and high projections.
Staff is also in the process of identifying which of these fuels are likely to come to California to be used for compliance with the LCFS, based on the demand-pull incentive structure of the program (i.e., lowest-cost compliance).
Refinery-Specific Crude Oil Incremental Deficit Accounting. Because smaller refineries can be affected by the California Average crude oil incremental deficit, but cannot affect the Annual Crude Average carbon intensity, ARB is proposing to allow low-complexity/low-energy-use refineries to opt out of the California Average Crude Provision in the current LCFS regulation and instead have their crude oil incremental deficit calculated on a refinery-specific basis. The large, complex refineries would continue to operate under the California Average crude oil provision.
The low-complexity/low-energy-use refineries would be allowed a one-time, irreversible opportunity to opt for refinery-specific accounting.
Fuel Pathways and Producer Facility Registration. LCFS stakeholders have expressed concerns that many of the Method 2 pathways in the Lookup Table and on the Method 2 web site are not available for wider use by regulated parties. In response, staff is proposing a two-tiered system in which conventionally produced first-generation fuels, such as starch- and sugar-based ethanol, would fall into the first tier, while next-generation fuels, such as cellulosic alcohols, would fall into the second tier. Any fuel (first or next generation) produced using an innovative method, such as carbon capture and sequestration, would fall into the second tier.
Producers of first-tier fuels would be registered into CI bins using an application process that is similar to the existing Method 2 process. The bins would consist of simple carbon intensity ranges. The CI of all fuels in a given bin would be the midpoint of the range that defines that bin. The same registration process fuel providers would use to obtain a first-time tier-one CI would be used to move from one bin to another.
Producers of second-tier fuels would apply for fuel pathways using a modified version of the existing Method 2 process. Staff would also have the ability to develop and post tier-two pathways for the use of qualifying fuel providers.
A number of proposals have already been workshopped and discussed with stakeholders in 2013. Staff is reintroducing these proposals along with current recommendations. These include:
- Cost containment provisions;
- Revised ILUC values;
- Electricity provisions;
- Low-energy-use refinery provisions;
- Innovative technologies for crude oil production;
- Revisions to OPGEE (Oil Production Greenhouse Gas Emissions Estimator) and updates to the crude oil lookup table;
- Enhancements to reporting and record-keeping requirements;
- Enhancements to LCFS credit provisions; and
- Enforcement provisions.
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