California posts new record LCFS credit build: Update

Market: Emissions, Oil products
31/01/23

Adds fuel usage data in fifth, sixth paragraphs.

A second consecutive record build in California Low Carbon Fuel Standard (LCFS) credits added pressure to spot and forward markets today.

New LCFS credits outpaced program deficits by a record 1.7mn metric tonnes (t) in the third quarter of 2022, building unused credits available for compliance to 13.4mn t, according to California Air Resources Board (CARB) data released today.

New credits have exceeded deficits for six consecutive quarters, and posted new record increases for the past two. The rising volume of credits that can be used to comply with state mandates and do not expire have raised alarms from renewable fuel producers seeking tougher new standards for one of the top low-carbon fuel markets.

LCFS programs require yearly reductions in transportation fuel carbon intensity. Conventional, higher-carbon fuels that exceed the annual limit incur deficits that suppliers must offset with credits generated from the supply of approved, low-carbon alternatives.

Rising supplies of these low-carbon fuels have met sluggish demand for California's gasoline blendstock and largest LCFS deficit source, CARBOB. The fuel still generated 79pc of all new deficits during the third quarter, even as overall consumption fell by 3.1pc from the previous quarter and by 8.5pc from the third quarter of 2021. Petroleum diesel consumption fell by 29pc from the third quarter of 2021.

Deficits generated from the consumption of petroleum gasoline and diesel in the state fell by 3.5pc from the previous quarter as demand for both shrank during the period.

Credit generation meanwhile continued to climb, up by 2.7pc from the previous quarter, as renewable natural gas, ethanol and electric vehicle charging all produced more credits than in the previous quarter.

Renewable diesel credits meanwhile shrank, as smaller volumes of higher-carbon production found their way to the state during the quarter. Both used-cooking oil- and tallow-based renewable diesel consumption exceeded volumes in the third quarter of 2021 but fell by a combined 22pc from the previous quarter. Corn oil-based renewable diesel increased sharply. Renewable diesel remained the leading source of new credits, at 39pc of all generated during the third quarter of 2022.

Lower, longer

California LCFS credit prices have groaned under the weight of record supplies. Credits do not expire, and so parties may use the growing bank of untapped credits to meet current and future obligations.

Spot credits that traded around $200/t in January 2021 slumped to a six-year low in September 2022, near $60/t. Spot credits have traded between $60-70/t since then, even as CARB reported the previous 11.3mn t record volume of unused credits at the end of October.

Credits immediately sank following the data release early in the second half of today's trading session. Bids for prompt through second quarter 2023 credit transfers briefly dipped to $58/t.

Renewable fuel suppliers have clamored for CARB to respond to the rising unused credit volume with tougher targets. CARB staff have said that a rulemaking to consider revisions to the LCFS would begin early this year.

By Elliott Blackburn

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24/12/24

Viewpoint: California dairy fight spills into 2025

Houston, 24 December (Argus) — California must begin crafting dairy methane limits next year as pressure grows for regulators to change course. The California Air Resources Board (CARB) has committed to begin crafting regulations that could mandate the reduction of dairy methane as it locked in incentives for harvesting gas to fuel vehicles in the state. The combination has frustrated environmental groups and other opponents of a methane capture strategy they accuse of collateral damage. Now, tough new targets pitched to help balance the program's incentives could become the fall-out in a new lawsuit. State regulators have repeatedly said that the Low Carbon Fuel Standard (LCFS) is ill-suited to consider mostly off-road emissions from a sector that could pack up and move to another state to escape regulation. California's LCFS requires yearly reductions of transportation fuel carbon intensity. Higher-carbon fuels that exceed the annual limits incur deficits that suppliers must offset with credits generated from the distribution to the state of approved, lower-carbon alternatives. Regulators extended participation in the program to dairy methane in 2017. Dairies may register to use manure digesters to capture methane that suppliers may process into pipeline-quality natural gas. This gas may then be attributed to compressed natural gas vehicles in California, so long as participants can show a path for approved supplies between the dairy and the customer. California only issues credits for methane cuts beyond other existing requirements. Regulators began mandating methane reductions from landfills more than a decade ago and in 2016 set similar requirements for wastewater treatment plants. But while lawmakers set a goal for in-state dairies to reduce methane emissions by 40pc from 2030 levels, regulators could not even consider rulemakings mandating such reductions until 2024. CARB made no move to directly regulate those emissions at their first opportunity, as staff grappled with amendments to the agency's LCFS and cap-and-trade programs. That has meant that dairies continue to receive credit for all of the methane they capture, generating deep, carbon-reducing scores under the LCFS and outsized credit production relative to the fuel they replace. Dairy methane harvesting generated 16pc of all new credits generated in 2023, compared with biodiesel's 6pc. Dairy methane replaced just 38pc of the diesel equivalent gallons that biodiesel did over the same period. The incentive has exasperated environmental and community groups, who see LCFS credits as encouraging larger operations with more consequences for local air and water quality. Dairies warn that costly methane capture systems could not be affordable otherwise. Adding to the expense of operating in California would cause more operations to leave the state. California dairies make up about two thirds of suppliers registered under the program. Dairy supporters successfully delayed proposed legislative requirements in 2023. CARB staff in May 2024 declined a petition seeking a faster approach to dairy regulation . Staff committed to take up a rulemaking considering the best way to address dairy methane reduction in 2025. Before that, final revisions to the LCFS approved in November included guarantees for dairy methane crediting. Projects that break ground by the end of this decade would remain eligible for up to 30 years of LCFS credit generation, compared with just 10 years for projects after 2029. Limits on the scope of book-and-claim participation for out-of-state projects would wait until well into the next decade. Staff said it was necessary to ensure continued investment in methane reduction. The inclusion immediately frustrated critics of the renewable natural gas policy, including board member Diane Tarkvarian, who sought to have the changes struck and was one of two votes ultimately against the LCFS revisions. Environmental groups have now sued , invoking violations that effectively froze the LCFS for years of court review. Regulators and lawmakers working to transition the state to cleaner air and lower-emissions vehicles will have to tread carefully in 2025. By Elliott Blackburn Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

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Trump-Panama tiff highlights rising transit cost

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24/12/24

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Furthermore, vessel operators that cancel within two days of their transit will be charged a fee at 2.5 times the transit reservation fee, described by the ACP as a surcharge to the existing cancellation fee, which ranges up to 100pc of the transit reservation fee depending on how close to the transit date that an operator cancels. This means that a Super vessel that cancels within two days of its transit date will receive the 2.5 times surcharge on top of the 100pc transit reservation cancellation fee and pay a total of $175,000. A Neopanamax vessel will pay a total of $350,000. "Vessels of war" should also vie for slots: ACP Trump also suggested that the ACP was charging the US Navy, alongside US corporations, "exorbitant prices and rates of passage" and that these fees were "unfair and injudicious". In March 2024, the ACP published an update on transit slot assignments for vessels of war, auxiliary vessels and other "government-owned" vessels encouraging their operators to participate in the transit system rather than waiting for the ACP to assign them a slot. "Vessels of war, auxiliary vessels, and other government-owned vessels are encouraged to obtain a booking slot through the available booking mechanisms in order to have their transit date guaranteed and minimize the possibility of delays," the ACP said. The ACP points out that these vessels of war are entitled to "expeditious transits" based on the Treaty Concerning Permanent Neutrality and Operation of the Canal and are technically not required to obtain a reservation to be considered for transit. Panama president Jose Raul Mulino on Sunday rejected Trump's threat to retake the canal , which has been under full control of the Central American country since 1999. The canal's rates are established in a public and transparent manner, taking into account market conditions, Mulino said. "Every square meter of the Panama Canal and its adjacent area is Panama's and will continue to be," Mulino said. "The sovereignty and independence of our country are non-negotiable." By Ross Griffith Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

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