California & Oregon LCFS Report - September 2022

To quickly access the page content, please click on the links below: 

• News Update
• Schedule
• LCFS Credit Pricing
• LCFS Credit Transfer Activity for California 
• LCFS Cost for Gasoline and Diesel 
• Figure 1. California LCFS USD/mt Jan. 2020 - Present
• Figure 2. California Monthly LCFS Credit Price and Transaction Volume as Reported by ARB
• Figure 3. Oregon LCFS USD/mt Jan. 2020 – Present

News Update

• California passes the SAF bill. The State's assembly passed a bill that requires CARB to develop a strategy to use more sustainable aviation fuel (SAF) as the sector needs to be decarbonized. The target is to reduce GHG emissions from aviation to net-zero by 2045 and to 40% below 1990 levels by 2030. The bill will become law after California’s Governor Newsom signs it.

• California votes for ZEV. On August 25^th, CARB voted for transitioning away from gasoline- and diesel-powered vehicles to zero-emission models. The new regulation requires all light-duty vehicle sales to be ZEV by 2035 and establishes stricter tailpipe emissions standards for the remaining fuel engines after the date. That is considered one of the most transformative rules in history, and it comes from California, which was once the largest state market for gasoline and diesel fuel. However, automakers warn of remaining challenges like ZEV affordability, the convenience of recharging, the sufficiency of the battery supply chain, etc. Moreover, the regulation requires producers to raise the percentage of ZEVs in their offerings between 2026 and 2035. Environmentally friendly vehicles should make up 35% of models offered in 2026, 68% of cars offered in 2030, and 100% in 2035. Currently, ZEVs reached 16.5% of all the light-duty vehicles sold in the first and second quarters of 2022. Massachusetts, Washington, and Oregon are also considering adopting the same regulation.

• H2 fueling station bill. On August 22^nd, the California Senate passed a bill to accelerate the development of hydrogen fueling station infrastructure. It would extend the existing law of electric charging stations deployment, which bans regulators from denying an application unless it is harmful to public health and safety. Major automakers have already approached Governor G. Newsom to help fund the building of 1,000 H2 stations in the next ten years.

• California gasoline demand remains weak. The State recorded fuel taxes on around 909,000 b/d of gasoline for May, a 2% increase from April and an 8% drop from May 2019 before the pandemic. Demand remains slow due to the high prices driven by the war in Ukraine and other factors. Consequently, this contributes to the LCFS bank surplus. CARBOB generated around 80% of the LCFS deficit in 2021. Moreover, the taxable diesel amount dropped by 8% to 171,000 b/d in May and was 9% lower than in May 2021.

• Changes to California’s LCFS framework. On August 18^th, ARB evaluated the potential verification and base credit methodology updates in the State's LCFS program. As the number of LCFS pathway applications increased significantly, regulators are searching for ways to simplify the administration process. Agency presented three areas for streamlining the program’s implementation:

• • Deemed Complete Date:
    • Currently, Tier 1 application is deemed complete after the verification body issues a positive or qualified positive validation statement, and Tier 2 application deemed complete upon routing to a verification body. Proposed changes would be aligning Tier 1 and Tier 2 and considering application complete when the verification body issues a positive or qualified positive validation statement.
  • Credit True-up for Temporary Pathways:
    • The change would address the delayed pathway certifications and allow fuel producers to generate credits while applications are under review or if the existing production process is expanded with new feedstock or finished fuels.
  • Simplified Tier 1 Hydrogen Calculator:
    • Staff considers developing a new hydrogen calculator for Steam Methane Reforming (Natural Gas, Renewable Natural Gas) and electrolysis (grid electricity, direct-supply electricity, book-and-claim Low-CI electricity) credit generation.
    • Calculator Design considerations include H2 production technologies, the energy input for liquefaction and regasification, H2 reporting and dispensing, and integrated book and claim input fields for low-CI electricity and RNG.
  • Emission Factor Update:
    • In order to address changes in the electricity mix, the inclusion of new fuel production and process technologies, updates to science, data, and availability of new source models, ARB is looking to update EF.
  • Electricity and Hydrogen verification:
    • Potentially adding verification requirements for electrification pathways to ensure data accuracy. Furthermore, an exemption for third-party verification under 6000 credits is being considered.
  • EV Base Credit Methodology:
    • In order to better calculate residential plug-in-electric vehicle (PEV) charging rates for LCFS credit generation, ARB is discussing different models – onboard telematic charging data, emission factor model, estimated data and TOU estimation.

• Oregon renewable diesel plant in 2025. Port Westward’s renewable diesel and SAF project by Next Renewable Fuels received an essential air permit. However, the entity still has to obtain a state water permit and complete a federal National Environmental Policy Act to continue with its two-year construction phase. The facility was planned to start in 2024 with an output of 37,500 b/d. However, the start date has moved back to 2025 as permits are expected in 2023. Currently, Oregon does not have any renewable diesel facilities. Ethanol and biodiesel make up most of the renewable fuels used in the State. Oregon’s fuel consumption doubled in Q1 2022 since Q1 2021, reaching 3,800 b/d.

• Oregon LCFS reserve drops in Q1. In Q1 2022, Oregon saw a LCFS deficit of approximately 86,000 metric tons. That is the largest figure seen since 2016. However, data do not include credits generated by the EV charging as it is reported semi-annually and a surge in renewable diesel supplies. Even though gasoline consumption fell in the first quarter, the deficit created by this fuel rose and reached 57% of the total generated. On the other hand, diesel demand rose by 6.6% compared to Q1 2021. Furthermore, it was accountable for 38% of the new deficit in this quarter. Biodiesel accounted for the most significant part of Oregon's new credit generation – 28%, whereas renewable diesel and ethanol accounted for 22% and 21%, respectively.

Schedule

• January 2, 2023: California LCFS 3Q 2022 reporting deadline
• January 31, 2023: California LCFS 3Q 2022 data release
• April 3, 2023: California LCFS 4Q 2022 reporting deadline
• April 28, 2023: California LCFS 4Q 2022 data release

LCFS Credit Pricing         

• Credits Price as of September 12^th, 2022: 
  • California - Spot Delivery $81.50
  • Oregon - Spot Delivery $ 114.00

LCFS Credit Transfer Activity for California

Source: https://ww2.arb.ca.gov/resources/documents/monthly-lcfs-credit-transfer-activity-reports

LCFS Cost for Gasoline and Diesel

• Cost as of September 13^th, 2022 for Vintage 2022:
  • California
    • Carbob (No Cl ethanol)- Vintage 2022 9.92 cents per USG
    • Carbob (79.9 Cl ethanol)- Vintage 2022 9.29 cents per USG
  • Oregon
    • E10 gasoline- Vintage 2022 6.63 cents per USG
    • B5 diesel – Vintage 2022 7.53 cents per USG

Market Update

• On average, California LCFS traded at $88.15 in August, which was ~5% lower than the average of $92.65 in July and ~17.5% higher than the 5 year low of $75 back in July 2017.
• New ZEV regulation will contribute to the growing imbalance of California’s LCFS bank as vehicle charging generates around 23% (Q1 2022) of LCFS credits and reduces CARBOB consumption. Furthermore, gasoline demand has remained sluggish for months.
• CARB reported 153 transactions in August, a 287% drop from 439 in July. The traded volume was equal to 1,624,000 credits compared to 3,680,000 credits in July, or 226% decrease. August weighted-average price was $97, whereas reported average spot price was 9.1% lower and equal to $88.2.

Figure 1. California LCFS USD/mt Jan. 2020 - Present

2021 Average Daily Price: $176.53                                          2022 Average Daily Price: $111.97               2021 Highest Daily Price:   $201.00                                         2022 Highest Daily Price: $153.50 (1/6/2022)

Figure 2. California Monthly LCFS Credit Price and Transaction Volume as Reported by ARB

Figure 3. Oregon LCFS USD/mt Jan. 2020 – Present

2021 Average Daily Price: $125.32	2022 Average Daily Price: $117.93
2021 Highest Daily Price: $127.50	2022 Highest Daily Price: $126.50

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