The Washington Department of Ecology held a workshop on Thursday to discuss potential rule changes to the state’s Clean Fuel Standard (CFS) which was originally implemented on January 1, 2023. Ecology staff laid out the scope of this rulemaking which is expected to conclude with rule adoption by early 2025. The rulemaking will address the following topics:
Sustainable Aviation Fuel (SAF) – align program rules with state legislation passed in 2023 that aims to expand use of SAF.
Third-Party Verification – require fuel pathway applications and fuel transaction reports to be verified by accredited verification bodies. Ecology is looking to mirror similar programs in California and Oregon, where both programs are proposing to expand existing verification requirements to include EV charging. Ecology did not clarify whether verification would be required for EVs during the workshop.
Expand ZEV infrastructure applicability – current rules allow for certain public fast-charging and hydrogen refueling stations to generate CFS credits based in part on station fueling capacity and not solely on the quantity of fueling. Ecology is considering expanding the current rules to allow for medium and heavy-duty infrastructure to be eligible as well. The California Air Resources Board has proposed a similar expansion of ZEV infrastructure crediting for their Low Carbon Fuel Standard. Ecology also indicated that the current ZEV infrastructure program will soon be implemented.
Book-and-claim accounting – Ecology staff propose to update accounting methods for biomethane and electricity.
Ecology clarified that changes to carbon intensity targets and program participation fees would not be considered during this rulemaking.
Public comments from this initial workshop may be submitted by March 24. Ecology will schedule additional workshops in the spring and begin publishing draft rules this summer. Ecology aims to hold a public hearing to consider rule changes in the fall or winter.
Quarterly data from the California Air Resources Board (CARB) showed the largest ever credit surplus as prices fell to multi-year lows last month. Earlier this week, CARB postponed a March hearing to consider reforms to the LCFS program and may be evaluating stricter carbon intensity targets amidst stakeholder pressure.
In Q3 2023, 2.2 million more credits were generated than deficits, pushing the cumulative credit bank to over 20M credits and 3.6x greater than the average quarterly deficits generated in the prior year. This last metric is significant under the proposed amendments where an auto-acceleration mechanism (AAM) would be triggered under certain market conditions beginning in 2027.
Overall credit generation was up 9% from the previous quarter, driven by increases from the largest credit sources: renewable diesel (12% QoQ), electricity (10%), ethanol (20%), and renewable natural gas (4%). Nearly half of all credits came from bio-derived diesel which now makes up 60% of all diesel fuel consumed in the state.
Growth in credits from EV charging were driven by increases in residential credits awarded to utilities (11%), non-residential charging (17%), and heavy-duty fleet charging (19%). Credits from DC fast-chargers enrolled in the ZEV infrastructure crediting scheme fell by 4%. EVs continue to represent about one-quarter of all credits in the program.
Oregon Clean Fuels Program Data and Rulemaking Workshop
Data for the Oregon Clean Fuels Program indicated a second straight quarter of net credit gains. In Q3, 686k credits were generated compared to just 624k deficits, a net gain of 62k credits. Last quarter saw a net gain of 81k credits, the largest quarterly increase since 2019. Following the trend in California, renewable diesel has quickly become the largest source of credits in the program, growing by 32% last quarter and 187% year-over-year. Credits from electric forklifts were unchanged the previous two quarters after falling over 75% in Q1.
On January 30, the Oregon Department of Environmental Quality (DEQ) held a rulemaking workshop to outline potential changes to the CFP including expanding third-party verification requirements to electricity reporting. The rulemaking will not consider changes to carbon intensity targets which were last updated in 2022. Future workshops are expected March through June.
The California Air Resources Board (CARB) announced yesterday that the March 21 public hearing to consider amendments to the Low Carbon Fuel Standard (LCFS) will be postponed to a later date. CARB plans to hold a workshop sometime in mid-April to “enable additional discussion and re-evaluation of the carbon intensity benchmarks, including the proposed step-down and auto-acceleration mechanism, as well as more consideration of the proposed sustainability guardrails, among other topics.” The 45-day public comment period will still close on February 20.
CARB’s postponement comes two weeks after the release of quarterly data which indicated the largest ever net credit surplus and as LCFS credit pricing surpasses multi-year lows.
The New Mexico Senate approved HB41 by a vote of 26-15 on Tuesday night. The bill now heads to Governor Grisham for signature. Once signed into law, New Mexico will become the fourth state with a clean fuel standard behind Washington, Oregon, and California.
The bill would require the New Mexico Department of Environment to implement low carbon fuel standard regulations by July 2026. The program would mandate a 20% reduction in carbon intensity by 2030 and a 30% reduction by 2040, while creating mechanisms for generating and trading credits similar to those of existing programs.
Which Other States are Considering Clean Fuel Policy?
Minnesota approved a 100% clean energy standard in 2023 and may be poised to become the next state to pass a clean fuel standard this year. Last week, a working group convened by the legislature delivered a report recommending more moderate carbon intensity targets than those included in the current legislation. Minnesota’s 2024 legislative session concludes on May 20.
The New York Senate approved S. 1292 in June 2023 but the bill failed to pass in the State Assembly. Clean fuel policy has been considered by New York lawmakers for a number of years but has struggled to gain support with key stakeholders including environmental groups.
In 2023, lawmakers introduced H.B 5083 and S.B 275 to establish a clean fuel standard for the state. The bill would require a 35% reduction in the carbon intensity of transportation fuels by 2035. The bill has yet to be heard by a legislative committee in the current session and was not included in sweeping climate policies approved last November.
Several other states are considering clean fuel standard legislation including: Massachusetts, New Jersey, Pennsylvania, Vermont, Hawaii, and Illinois.
On December 19, the California Air Resources Board (CARB) revealed their long-awaited proposal to update and extend the Low Carbon Fuel Standard (LCFS). Among the most significant changes:
Increases 2030 carbon intensity (CI) targets from 20% to 30%, including a one-time 5% reduction of the CI benchmark in 2025
Extends CI reduction targets to 90% CI by 2045
Creates new auto-acceleration mechanism to help stabilize the credit market in the event of rapid decarbonization that outpaces deficits, beginning in 2028
Phases in some limitations to biomethane crediting
Reduces credits from eForklifts
Adds third-party verification requirement to electricity and other fuels
Expands ZEV infrastructure crediting for medium and heavy-duty charging
Staff published a Preliminary Draft Report, Regulatory Text, and nearly 12 total documents on its rulemaking page. These 500+ pages make for a good read over the holiday break.
What to Watch for Next
The agency indicated a formal regulatory notice will be issued in early January 2024, which kicks off a 45-day public comment period. The proposed regulations can then be adopted at a subsequent board meeting, potentially as early as March 21.
Check back here for more analysis on these proposed changes!
The California Air Resources Board (CARB) published Q2 2023 data for the Low Carbon Fuel Standard (LCFS) today. Consistent with trends dating back to 2021, low carbon fuel producers generated 1.6M more credits than deficits, pushing the cumulative credit bank to over 18M credits.
Record Credit Generation
More credits were generated in Q2 (5.5M) than in any previous quarter of the program, led by increases from the largest credit sources: renewable diesel (14%), renewable natural gas (28%), and electricity (7%). Two key trends underpin the consistent growth in net credits: 54% of diesel sold in CA last quarter came from renewable feedstocks while the average carbon intensity (CI) of renewable natural gas fell to its lowest mark of -131 g/MJ.
There was also a 50% increase in credits from alternative jet fuel (also referred to as sustainable aviation fuel) which still represents less than 1% of all credits. Meanwhile, there were modest declines in credits from ethanol (-11%), propane (-11%), and biodiesel (-5%).
EV Credits Rebound
Credits from EV charging bounced back from a quarterly decline in Q1, driven by increases in both light-duty (12%) and heavy-duty (11%) on-road EV charging. Residential EV charging still made up about half of all EV credits, ahead of forklifts (23%) and on-road EVs (18%). Credits from DC fast-charging infrastructure rose by about 12%. Overall, EVs are the second largest source of credits, representing about one-quarter of all credits in the program.
Credit Prices Hover Above Six-Month Low
LCFS credit prices closed October around $68/credit, up slightly from six-month lows in September following CARB’s publication of a regulatory document which hinted at major program changes including the strengthening of CI targets and limitations on biomethane crediting. CARB is expected to publish its final proposal by December, which triggers a 45-day public comment period before the governing board can approve rule changes.
Due to SRECTrade’s retirement as an Approved Vendor in the Illinois Adjustable Block Program on August 10th, 2022 (see this blog post for more information), extensions will no longer be filed for projects who have not met their interconnection deadlines.
Adjustable Block Program (ABP) projects are awarded a contract after their Part I approval. The project then has 12 or 18 months to provide energization documents and be submitted for Part II approval. In the past, SRECTrade has filed extensions on behalf of projects that required more time. Beginning in November, 2023, any projects that have not been Part II submitted by their deadline will be canceled with SRECTrade. This will result in the forfeit of the application and collateral fees (that are non-refundable once awarded a contract), and will require the project to be resubmitted through a different approved vendor to participate in the ABP program.
SRECTrade will continue to provide services for all applications that are Part II submitted prior to their energization deadline. To help ensure your application is not canceled, please submit any outstanding documents 6 weeks prior to your deadline.
SRECTrade looks forward to continuing service of its Designees and existing clients during the remainder of their participation in the ABP.
No credits were transferred in July after technical issues with the Washington Fuel Reporting Systems triggered a one-month delay in the first issuance of credits. However, 27,055 credits were transferred in August. The average price from the four reported trades was $106.66. The price of Washington CFS credits was about midway between those reported in CA ($77) and OR ($137) during the same month. Credits from one program cannot be sold in another.
Q1 2023 Credit and Deficits
Ecology reported 275k credits generated and 227k deficits generated, a net credit build of about 47k credits. Entities with compliance obligations do not have to retire credits until next year, and credits do not expire so they may be held indefinitely by market participants.
The largest source of credits was ethanol (75%), followed by renewable diesel (12.1%), biodiesel (11.8%), and electricity (10.8%). Credits from residential EV charging, which are separately calculated and issued by Ecology, have not yet been issued for Q1 or Q2.
The deadline for reporting fuel consumption for the Q2 2023 reporting period is today. Ecology has not yet set a publication schedule for reporting quarterly credit and deficit data.
What’s Next for the Washington CFS?
Ecology will create a zero-emission vehicle infrastructure or “capacity credit” program for public DC fast-charging and hydrogen refueling stations. Stations approved under this program may generate CFS credits based on the fueling capacity of those stations. Guidance on this program is expected to be released before the end of the year.
Ecology must also address the inclusion of alternative jet fuel pathways in the CFS after the passage of SB 5447. A rulemaking may be initiated as soon as this year or early next year.
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.”