EU warns of 2030 climate ambition gap

Market: Emissions, Natural gas
19/06/24

The European Commission has warned of an ambition gap on the way to member states achieving the bloc's 2030 renewables and energy efficiency goals, although it noted "some" progress. And European industry still faces comparatively high energy prices, the commission said in its twice-yearly report on countries' economies and finances.

Increasing energy efficiency and switching to less costly renewable energy is "essential" to improve the competitiveness of European industry, but most EU states lack solid and sufficiently detailed investment estimations, as well as concrete measures to attract private clean energy finance, the commission said.

And countries need to strengthen their carbon sinks from the land use, land-use change and forestry sectors. For Germany, the commission noted that the transport sector has failed to reach annual sector-specific emission targets, including in 2023, when the sector increased final energy consumption by 6.3pc compared with 2022.

EU states also need to strengthen policies to phase out fossil fuel subsidies so as to align with the EU goal of becoming a climate neutral economy, the commission said. For France, the commission estimated a net budgetary cost of emergency energy support measures at 0.9pc of GDP in 2023 and a projected 0.2pc in 2024, falling to 0pc in 2025. And for Italy the commission forecast a net budgetary cost of emergency energy support measures of 1pc of GDP in 2023, reaching 0pc in 2024. For Germany, the estimations are 1.2pc of GDP going to energy support measures in 2023, 0.1pc in 2024, and 0pc in 2025.

Another of the commission's key recommendations is to cut the share of Russian imports in total EU gas imports beyond the 15pc seen in 2023, even if the share historically stood at around 40pc. Further efforts are needed from "certain" countries to phase out imports of LNG from Russia, the commission said.

EU states have struggled to agree a further round of sanctions against Russia, which would include restricting the reloading of Russian LNG for export outside the EU at terminals in Europe. EU foreign ministers are expected to discuss the matter at a meeting on 24 June.

By Dafydd ab Iago

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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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South Korea to invest $309bn in green finance by 2030

24/12/24

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24/12/24

South Korea to invest $309bn in green finance by 2030

Singapore, 24 December (Argus) — South Korea plans to invest 450 trillion won ($309bn) in green finance by 2030, acting president and prime minister Han Duck-soo said on 23 December. The country is also "actively encouraging private investment by upgrading the Korean Green Taxonomy system", Han added. The taxonomy is technical legislation that classifies the industrial carbon and environmental footprint for investors. It aims to promote green finance and prevent ‘greenwashing', with the aim of achieving a sustainable circular economy. The most important issue for the industrial sector, which accounts for about 36pc of domestic emissions, is to transition to carbon neutrality, Han said. South Korea has an "export-driven economic structure with high external dependence", he said, which means international carbon barriers will significantly affect South Korea. This makes decarbonisation key to maintaining competitiveness, he added. South Korea is also responding to the climate crisis through technological innovation. The country's science ministry last week unveiled plans to invest almost W2.75 trillion to develop technology to respond to climate change in 2025. By Tng Yong Li Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

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Viewpoint: US LPG cargo premiums poised to fall

23/12/24

News

23/12/24

Viewpoint: US LPG cargo premiums poised to fall

Houston, 23 December (Argus) — The booming US LPG export market has fueled record spot fees this year for terminal operators that send those cargoes abroad, but those fees are poised to fall next year as additional export capacity comes online. US propane exports surged over the past two years, hitting an all-time high of 1.85mn b/d in the first quarter of this year, according to data from the US Energy Information Administration (EIA). Terminal fees for spot propane cargoes out of the US Gulf coast hit an all-time high of Mont Belvieu +32.5¢/USG (+$169.325/t) in mid-September. US propane production is expected to grow by another 80,000 b/d in 2025 to 2.22mn b/d while the outlook for domestic consumption is fairly steady, at 820,000 b/d next year — meaning even more propane will be pushed into the waterborne market. But that is dependent on US infrastructure keeping up with the pace of production. US export terminals in Houston, Nederland and Freeport, Texas, have run at or above capacity for the last two years given the thirst for cheaper US feedstock, largely from propane dehydrogenation (PDH) plant operators in China. This demand has created bottlenecks at US docks, and midstream operators like Enterprise, Energy Transfer, and Targa have rushed to ramp up spending on both pipelines and additional refrigeration to stay ahead of the wave of additional production. US gas output spurs LPG exports As upstream producers have ramped up natural gas production ahead of new LNG projects, most producers are counting on LPG demand from international outlets in Asia to offload the ethane and propane the US cannot consume. For the past four years, Asian buyers have been more than happy to oblige. US propane exports to China rose from zero in 2019, when China imposed tariffs on US imports, to an average of 1.36mn metric tonnes (t) per month in January-November 2024, according to data from analytics firm Kpler, making China the largest offtaker of US shipments. US exports to Japan averaged 480,000t per month throughout most of 2024, and exports to Korea averaged 460,000t per month in the first 11 months of 2024. China, Korea, and Japan received 52pc of US propane exports in 2024, up from 49pc in 2020, according to data from Vortexa. Strong demand in Asia has kept delivered prices in Japan high enough to sustain an open arbitrage between the US and the Argus Far East Index (AFEI). Forward-month in-well propane prices at Mont Belvieu, Texas, have remained well below delivered propane on the AFEI. In 2020, Mont Belvieu Enterprise (EPC) propane averaged a $143/t discount to delivered AFEI — a spread that has only widened as additional PDH units in Asia have come online. During the first 11 months of 2024, the Mont Belvieu to AFEI spread averaged a hefty $219/t, leaving plenty of room for wider netbacks in the form of higher terminal fees for US sellers, especially as a wave of new VLGCs entering the global market has left shipowners with less leverage to take advantage of the wider arbitrage. The resulting wider arbitrage to Asia has kept US export terminals running full for the last two years. So when a series of weather-related events and maintenance in May-September limited the number of spot cargoes operators could sell and delayed scheduled shipments, term buyers willing to resell any of their loadings could effectively name their price. This spurred the record-high premiums for spot propane cargoes in September. New projects may narrow premium An increase in US midstream firm investments in additional dock capacity and added refrigeration in the years ahead could narrow those terminal fees, however. Announced projects from Enterprise and Energy Transfer, in particular, will add a combined 550,000 b/d of LPG export capacity out of Houston and Nederland, Texas by the end of 2026. Enterprise's new Neches River terminal project near Beaumont, Texas, will add another 360,000 b/d of either ethane or propane export capacity in the same timeframe. These additions are poised to limit premiums for spot cargoes by the end of 2025. Already, it appears the spike in spot cargo premiums to Mont Belvieu has abated for the rest of 2024. Spot terminal fees for propane sank to Mont Belvieu +14¢/USG by the end of November. The lower premiums come not only as terminals resume a more normal loading schedule, but at the same time a surplus of tons into Asia ahead of winter heating demand has narrowed the arbitrage. The spread between in-well EPC propane at Mont Belvieu fell from $214.66/t to $194.45/t during November. A backwardated market for AFEI paper into the second quarter of 2025 means US prices are poised to fall more in order to keep the spread from narrowing further. By Amy Strahan Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

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Viewpoint: Low-carbon fuel battles tumble into 2025

23/12/24

News

23/12/24

Viewpoint: Low-carbon fuel battles tumble into 2025

Houston, 23 December (Argus) — Fights over North America's largest low-carbon fuel mandates will tumble into 2025, long after a contentious year spent updating the program. California's minority Republican lawmakers have seized upon fears that new, tougher targets approved in November to the state's Low Carbon Fuel Standard (LCFS) could hike today's pump prices by 15pc. Environmental opponents have sued the California Air Resource's Board (CARB) alleging regulators ignored shortcomings to push through those amendments. And fuel suppliers, meanwhile, continue to grapple with new demands on feedstock selection, certification and other decisions that will begin to tighten by the end of this decade. LCFS programs require yearly reductions in transportation fuel carbon intensity. Higher-carbon fuels including petroleum diesel and gasoline incur deficits for exceeding annual targets. Suppliers must offset these deficits with credits generated from distributing approved, lower-carbon alternatives to the state. California operates the oldest and largest among five operating programs on the continent. The program helped drive a surge in US renewable diesel production capacity that earlier this year cut petroleum's share to less than a quarter of the liquid diesel used in the state. Credit trade representing each metric tonne (t) of carbon reduction drives the incentives for renewable diesel, captured dairy methane or electric vehicle charging capacity used in California transportation. Credits peaked at $219/t in February 2020, equivalent to roughly $267.10/t in today's dollars. But spot credits have languished below $100/t since late 2022. Prices buckled under the growing weight of more than 30mn t of extra credits available for future compliance — enough to satisfy all the deficits generated in 2023 a second time, with another 30pc leftover. CARB staff estimated that the targets board members approved in November would reduce that reserve by more than 8mn t, or less than a third. Fuel producers warned that carbon reduction could stagnate under the smothering imbalance of new credits. Staff dismissed outside estimates of 65¢/USG increases to gasoline prices attributed to the tough new program targets, but declined to offer a competing cost estimate. Spot credit prices would need to more than triple to $250/t next year to hit gasoline prices that hard at the pump, based on Argus analysis. Pump prices make good politics Governor Gavin Newsom (D) has for two years sought and received state tools to scrutinize oil company profits on California fuel sales. Now a California state senate Republican bill would repeal the new targets and other newly adopted changes intended to restore incentives under the program. A state assembly bill would require any CARB new rulemaking or standard to undergo a cost analysis by the state's Legislative Analyst Office, a nonpartisan office that performs such reviews of legislative proposals. These Republican measures face a likely impossible climb through Democratic supermajorities in both chambers. But lawmakers noted the potency of fuel price complaints. A legislative session — framed in defiance of a new federal administration hostile to their climate efforts — opened with leaders acknowledging the need to balance costs. "California has always led the way on climate change and we will continue to lead on climate," speaker Robert Rivas (D) said on 2 December. "But not on the backs of poor and working people. Not with taxes or fees for programs that don't work." Similar battles have already spilled out of the state. British Columbia voters in October narrowly denied conservatives a majority on a platform that included ending the province's aggressive LCFS. National conservatives targeted Canada's carbon taxes in a campaign against Premier Justin Trudeau's wobbling government ahead of elections next year. As regulators update programs to drive ambitious transportation changes, voters will become more aware of where the changes are heading. 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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Viewpoint: US tax fight next year crucial for 45Z

23/12/24

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23/12/24

Viewpoint: US tax fight next year crucial for 45Z

New York, 23 December (Argus) — A Republican-controlled Congress will decide the fate next year of a federal incentive for low-carbon fuels, setting the stage for a lobbying battle that could make or break existing investment plans. The 45Z tax credit, which offers greater subsidies to fuels that produce fewer emissions, is poised to kick off in January. Biofuel output has boomed during President Joe Biden's term, driven in large part by west coast refiners retrofitting facilities to process lower-carbon fats and oils into renewable diesel. The 45Z tax credit, created by the 2022 Inflation Reduction Act (IRA), was designed to extend that growth. But Republicans will soon control Washington. President-elect Donald Trump has dismissed the IRA as the "Green New Scam", and Republicans on Capitol Hill, who had no role in passing Biden's signature climate legislation, are keen to cut climate spending to offset the steep cost of extending tax cuts from Trump's first term. Biofuels support is a less likely target for repeal than other climate policies, energy lobbyists say. But Republicans have already requested input on 45Z, signaling openness to changes. Republicans plan to use the reconciliation process, which enables them to avoid a Democratic filibuster in the Senate, to extend tax breaks that are scheduled to expire in 2025. "I want to place our industry in a place to make sure that the biofuels tax credit is part of reconciliation," said Kailee Tkacz Buller, president of the National Oilseed Processors Association. But lawmakers "could punt the biofuels discussion if stakeholders aren't aligned." A decade ago, biofuel policy was a simple tug-of-war between the oil and agriculture industries. Now many refiners formerly critical of the Renewable Fuel Standard produce ethanol and advanced biofuels themselves. And the increasingly diverse biofuels industry could complicate efforts to present a united front to Congress. Farm groups worry about carbon intensity scoring hurting crop demand and have lobbied to curtail record-high feedstock imports, to the chagrin of some biorefineries. Those producers are no monolith either: Biodiesel plants often rely more on local vegetable oils, while ethanol producers insist on keeping incentives that do not discriminate by fuel type and some oil majors would back subsidizing fuels co-processed with petroleum. Add airlines into the picture, which want greater incentives for aviation fuels, and marketers frustrated by 45Z shifting subsidies away from blenders — and the threat of fractious negotiations next year becomes clear. There are options for potential compromise, according to an Argus analysis of comments submitted privately to Republicans in the House of Representatives, as well as interviews with energy lobbyists and tax experts. The industry, frustrated by the Biden administration's delays in clarifying 45Z's rules, might welcome legislative changes that limit regulatory discretion regardless of what agency guidance eventually says. And lobbyists have floated various ways to appease agriculture groups without kneecapping biorefineries reliant on imports, including adding domestic content bonuses, imposing stricter requirements for Chinese-origin used cooking oil, and giving preference to close trading partners. Granted, unanimity among lobbyists is hardly a priority for Republican tax-writers. Reaching any consensus in the restive caucus, with just a handful of votes to spare in the House, will be difficult enough. "These types of bills always come to down to what's the most you can do before you start losing enough votes to pass it," said Jeff Navin, cofounder of the clean energy advocacy firm Boundary Stone Partners and a former House and Senate staffer. "Because they can only lose a couple of votes, there's not much more beyond that." And the caucus's goal of cutting spending makes an industry-wide goal — extending the 45Z credit into the 2030s — even more challenging. "It is a hard sell to get the extension right away," said Paul Winters, director of public affairs at Clean Fuels Alliance America. Climate costs Cost concerns also make less likely a simple return to the long-running blenders credit, which offered $1/USG across the board to biomass-based diesel. The US Joint Committee on Taxation in 2022 scored the two-year blenders extension at $5.5bn, while pegging three years of 45Z at less than $3bn. An inconvenient reality for Republicans skeptical of climate change is that 45Z's throttling of subsidies based on carbon intensity makes it more budget-friendly. Lawmakers have other reasons to not ignore emissions. Policies elsewhere, including California's low-carbon fuel standard and Europe's alternative jet fuel mandates, increasingly prioritize sustainability. The US deviating from that focus federally could leave producers with contradictory incentives, making it harder to turn a profit. And companies that have already sunk funds into reducing emissions — such as ethanol producers with heavy investments in carbon capture — want their reward. Incentives with bipartisan buy-in are likely more durable over the long run too. Next time Democrats control Washington, liberals may be more willing to scrap a credit they see as padding the profits of agribusiness — but less so if they see it as helping the US decarbonize. By Cole Martin Tax credit changes 40A Blenders Tax Credit 45Z Producers Tax Credit $1/USG Up to $1/USG for road fuels and up to $1.75/USG for aviation fuels depending on carbon intensity For domestic fuel blenders For domestic fuel producers Imported fuel eligible Imported fuel not eligible Exclusively for biomass-based diesel Fuels that produce no more than 50kg CO2e/mmBTU are eligible Feedstock-agnostic Carbon intensity scoring incentivizes waste over crop feedstocks Co-processed fuels ineligible Co-processed fuels ineligible Administratively simple Requires federal guidance on how to calculate carbon intensities for different feedstocks and fuel pathways Expiring after 2024 Lasts from 2025 through 2027 Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

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