The timeline for implementing changes to the California Low Carbon Fuel Standard (LCFS) became clearer last week. At an industry conference, California Air Resources Board (CARB) Executive Director Dr. Steven Cliff indicated a final proposal would be made available in the “November timeframe” with hopes of approval by next spring. The announcement came after the September 8 publication of the Standardized Regulatory Impact Assessment (SRIA).
Under this timeline. CARB could implement a mid-year adjustment to the 2024 carbon intensity targets, increasing compliance obligations for fuel suppliers. An even more significant adjustment or “step down” is being considered for the 2025 targets, as indicated in the SRIA. The document evaluated other significant changes to the program, including a target acceleration mechanism, the inclusion of intrastate fossil jet fuel as a regulated fuel, and the phasing out of biomethane and forklift crediting. However, Dr. Cliff reiterated that the SRIA, which precedes any formal rule-changes to be considered by the regulatory body which oversees the LCFS, “is not the final proposal. It’s not even the proposal.”
What To Watch For Next
Regulatory staff will present on changes to the LCFS at the September 28 CARB non-voting meeting. The next formal milestone will be the publication of a Rulemaking Package which starts the 45-day public comment period, after which CARB may adopt new provisions to the LCFS rules.
The California Air Resources Board (CARB) held a workshop on August 16 to present updates to a model that assesses the feasibility and economic impact of proposed changes to the Low Carbon Fuel Standard (LCFS). Although the workshop did not specifically address policy changes, the inputs of this model are suggestive of what CARB may put forward in formal rule changes coming later this fall.
Why is CARB making changes to the LCFS?
The last time significant changes to the LCFS were made was in 2018. Since then, the agency has workshopped several policy and procedural changes and received significant stakeholder and community feedback. During workshops held last summer, CARB presented a plan to align LCFS with several key climate policies, most notably the 2022 Scoping Plan, which was formally adopted in December 2022.
Key Program Changes
The model inputs included many of the policy changes that have been discussed at public workshops over the past 18 months and may hint at what the agency will propose later this year. Some of these changes are highlighted below:
Accelerating Carbon Intensity Targets
Carbon intensity, a measure of lifecycle emissions of a fuel, is used as a benchmark to compare gasoline, diesel, and other low carbon fuels such as biofuels and electricity. The benchmark decreases each year to meet the current target of 20% reduction from 2010 levels by 2020. As the benchmark decreases, conventional gasoline and diesel generate more deficits (i.e. greater demand for credits) which produces the long-term incentive for lower carbon fuels.
CARB has proposed advancing the 2030 target to between 25% and 35% reduction, while adding a 2045 target of 90% reduction. The 2030 acceleration is significant because it would increase the demand for credits in the near term, depending in part on how the targets “step down” from their current levels in order to meet the new 2030 target. Proponents of steeper 2030 targets argue this will provide needed price support for the LCFS credit market which has significantly declined in recent years due largely to an oversupply in credits. Others caution that overly stringent targets would increase fuel prices and could undermine political support for the program.
In the latest iteration of the model, CARB included a 30% reduction target for 2030 with a significant step down between 2024 and 2025. While not an official proposal from CARB, it might indicate what the agency is ready to move forward with in the fall.
CI Adjustment Mechanisms
Phasing Out eForklifts
In previous workshops, CARB has proposed reducing and eventually phasing out credit generation from eForklifts. Staff discussed reducing the credit generation potential of lighter classes of forklifts and requiring electricity consumption to be metered. Forklifts are unique in that CARB allows for electricity consumption to be estimated. However, both the Oregon Clean Fuels Program and the Washington Clean Fuel Standard have recently required metering for electric forklifts in their programs. CARB’s latest model included a significant reduction in credits from forklifts, suggesting these changes are still on the table.
Verification Requirements for ElectricityCredits
In a previous workshop, CARB proposed requiring all participants generating credits from electric vehicles to go through an annual verification process. Electricity is the only major credit source where fuel consumption reporting is not required to be independently verified. Other programs, such as the Canadian Clean Fuel Regulations require verification for all fuel types.
Expanding Infrastructure Crediting to Medium/Heavy-Duty Vehicle Charging
Under the LCFS, some public fast-charging stations are eligible to generate credits based on the total capacity of the site, not solely on electricity consumption. CARB has proposed expanding these provisions to stations that provide charging to multiple medium and heavy-duty fleets. CARB’s latest model included credit generation from this pathway, suggesting that the agency is still considering this change.
What’s Next for LCFS?
During the workshop, staff shared an updated timeline which confirmed that formal changes to LCFS will not be considered for adoption until early 2024. However, the agency expects to move forward with the formal rulemaking process later this fall, and implement the changes “sometime in 2024.”
The California Air Resources Board (CARB) published quarterly program data for the Low Carbon Fuel Standard (LCFS) on June 30, 2023 and announced another workshop for August 16 to discuss changes to the program.
Credit Bank Adds 1.3M Net Credits After Sluggish Q1
The cumulative credit bank, a measure of net credit generation over the lifetime of the program, grew for an eighth consecutive quarter and now stands at 16.5M credits. Deficits were down in Q1 (-3%), driven largely by a decline in gasoline volume (-9%). Credits from all sources (-6%) fell for the first time in 2 years driven in part by reductions in volume from electricity (-5%), biodiesel (-3%), and ethanol (-2%). Average carbon intensities (CI) were up across the major credit sources as well, including RNG (+21%), biodiesel (+8%), RD (+9%), and electricity (+3%). Finally, the more stringent CI targets for 2023 kicked in, which reduces the number of credits per unit of low carbon fuel when compared to 2022.
EV Credits Take a Step Back in Q1
Credits from electricity fell last quarter (-7%) for the first time since the COVID pandemic, driven primarily by a 12% decline in residential EV charging credits which are issued to utilities based on a formula. Credits also decreased across other categories including eForklifts (-1%), ocean-going vessels (-13%) and fixed-guideways (-11%). EVs still remain the second largest source of credits under the LCFS and among the fastest growing fuel type.
What’s Next for CA LCFS?
CARB scheduled a workshop on August 16 to present updates to their model that is used to assess the feasibility and economic impact of proposed changes to the program, including establishing more stringent 2030 CI targets. In the previous workshop held in May, CARB staff had reiterated their intent to initiate a formal rulemaking process to make changes to the LCFS by this summer, with a targeted implementation date of January 1, 2024.
CARB will release Q2 2023 program data by October 31, 2023.