New data released by the California Air Resources Board (CARB) showed a net gain of nearly 3 million Low Carbon Fuel Standard (LCFS) credits. While the agency considers adjusting the near-term targets to address the growing oversupply of credits, continued regulatory uncertainty adds downward pressure to credit pricing

The latest quarterly report published by CARB this week indicated that 2.9 million more credits were generated than deficits in Q4 2023, pushing the cumulative credit bank to a record 23.5 million credits.

Total deficit generation was down 4% from last quarter as sales of gasoline and conventional continue to shrink.

Overall credit generation, however, grew by nearly 6% driven by increases from the largest credit sources: renewable diesel (7% QoQ), electricity (6%) and renewable natural gas (6%). Bio-based diesel (includes both renewable and biodiesel) made up a record 66% of diesel reported in the state program. Credits from sustainable aviation fuel, while only making up less than 1% of all credits, rose by 66% last quarter. 

CARB Considers Further Changes During April Workshop

The new data comes just weeks after a somewhat contentious workshop held by CARB, where various stakeholders called for more significant changes to the program than regulators appear to be willing to consider. In response to stakeholder comments on reforms proposed in December 2023, CARB canceled the March board hearing and held an all-day workshop on April 10 to present updated modeling and hear additional feedback.

Notably, CARB suggested they would modify the near-term CI reduction schedule in response to the growth in the credit bank. However, staff appear to be maintaining the 30% reduction by 2023 target,  and continued to defend most of the original proposal.

CARB updated their modeling and presented alternatives to the near-term CI benchmark reductions, or “step-downs.” In addition to the originally proposed 5% step-down in 2025, staff modeled the impact of 7% and 9% step-down scenarios on the cumulative credit bank. Staff also modeled a scenario where the auto-adjustment mechanism was triggered twice before 2030 (the original reforms only allow for one triggering by 2030). 

While CARB did not appear to favor one scenario over the other, staff indicated that “…given the growth in the credit bank, staff determined the market could likely support a larger step-down than presented in the [original proposal].”

Next Steps for LCFS

Revised amendments to the step-down would likely trigger another 15-day public comment period before the agency can formally approve changes to the program. It appears likely that revised amendments would not be published by CARB until after the 30-day comment deadline for the April 10 workshop. Staff indicated that implementation by 2025 is still possible, however administrative requirements may make this timeline challenging as the year progresses. 

LCFS Prices Continue Decline

CA LCFS credit prices continue to weaken against continued regulatory uncertainty, with a sharp drop following the April 10 workshop. Prices have continued a decline into May, with trades last heard around $57 on May 1.