No industry can escape transportation-related emissions. When it comes to climate impacts, the transportation sector simultaneously has the most room for improvement and is the best equipped to decarbonize. The proliferation of electrification and lower carbon fuels, particularly in regions with incentive-based programs in place, is helping to drive drastic emissions reductions from the transportation sector.
Local, state, and federal transportation incentive structures are taking shape across North America, and like any other market-based program, the prices and rules governing them can change rapidly. For example, at the recent Argus North American Biofuels, LCFS & Carbon Markets Summit that took place in Monterey, CA earlier this month, California Air Resources Board (CARB) officials affirmed they are set to increase the stringency of the state’s program known as the Low Carbon Fuel Standard or LCFS to at least a 25% reduction (from 20%) by 2030.
A Sea Change in Regulation
Right now, we are seeing a surge of regulatory change happening across all programs, and a race to set (and achieve) the biggest reduction in the shortest amount of time. British Columbia’s LCFS (BC-LCFS) requires fuel suppliers to progressively decrease the average carbon intensity (CI) of the fuels they supply to users, and their target has continued to rise over time.
Recently B.C. announced that its suppliers must deliver a reduction of 30% by 2030—which is currently higher than California’s LCFS target. Prior to this expansion, B.C. had established a 20% CI reduction goal, in alignment with California’s targets. Next-door neighbor, Washington, is in the process of finalizing its own rigorous set of clean fuel standards. Healthy competition in transport GHG reductions is only becoming stronger as municipalities advance their CFP programs.
In this blog, we’ll provide a brief summary of transportation market trends, regulation updates, and emerging news surrounding low carbon and alternative fuels.
California: Low Carbon Fuel Standard
Pricing: LCFS Credits have been trading between $75 and $100 for the past several months, with a couple of slow cycles between those bounds. The forward curve of the market has moved into contango, meaning market participants expect credit prices to be higher in the future, after being backwardated for several years.
Regulation: California is continuing to lead the nation and planet, in many ways, in state-instituted transportation emissions reduction policy. CARB has been busy, having recently announced its commitment to 100% new zero-emission vehicle sales by 2035 and now finalizing its annual scoping plan that will outline the state’s pathway for achieving its greenhouse gas reduction targets, including achieving carbon neutrality by 2045. In the meantime, Governor Newsom has intervened in the process by providing direction to CARB and the state’s legislature to increase greenhouse gas reduction targets. CARB has indicated that it will begin a formal rulemaking process to update the LCFS once the Scoping Plan process is complete, with rules expected to take effect in 2024. This rulemaking will likely include raising the 2030 CI reduction target and providing longer-term targets past 2030.
Oregon: Clean Fuels Program
Pricing: After trending down with California, the Oregon market has begun to rebound after DEQ released data showing a net program deficit in Q1 2022. Credit prices in Oregon are currently around $120.
Regulation: Oregon’s Department of Environmental Quality (DEQ) is wrapping up a series of revisions to its Clean Fuels Program (CFP) following Governor Brown’s 2021 Executive Order (EO 20-04) directing the extension and expansion of the CFP.
DEQ closed the final comment period for the draft rule in late July, which extends the program through 2035 and sets CI reduction targets of 20% by 2030 and 37% by 2035. Other proposed changes include adding new credit generation opportunities and clarifying the primary entity eligible to generate credits for different technologies.
The DEQ met on Friday, September 23 to present proposed rules to expand the CFP’s CI reduction requirements beyond the currently adopted 10% reduction in average CI by 2025. The regulation was passed by commissioners making it the deepest CI reduction target of any state in the country.
Washington State: Clean Fuel Standard
Washington has entered the formal rulemaking to implement its Clean Fuel Standard (CFS) at the direction of a 2021 bill that called on a program to be in place by January 1, 2023, to reduce the CI of transportation fuels used in the state to 20% below 2017 levels by 2038. The program adopts many of the provisions of the Oregon CFP along with allowing infrastructure credit generation like California.
BC-LCFS was updated by the Low Carbon Fuels Act, which was signed into law on June 2, 2022. British Columbia’s Ministry of Energy, Mines, and Low Carbon Innovation plans to issue the primary set of regulations during 2023 that would be effective on January 1, 2024. The new law sets up the LCFS to be in effect through 2030 and beyond by improving clarity, strengthening administrative provisions, and enabling additional GHG reductions, including increasing the reduction target to 30% by 2030 from the current target of 20%
By 2030, the Program is set to decrease the CI of transportation fuels used in Canada by 15% compared to 2016 levels and is expected to reduce GHG emissions by 26 million tons. The program similarly establishes a credit market that allows obligated entities to meet the CI target by taking actions to reduce the lifecycle emissions of fossil fuels, supply low-carbon fuels to conventional vehicles, or supply low-carbon fuels to alternative technology vehicles (e.g. EVs).
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