Viewpoint: RD, fuel demand weigh on California LCFS
New low-carbon fuel supplies will add pressure in 2022 on California Low Carbon Fuel Standard (LCFS) credits already trading near three-year lows.
California this year recorded some of the nation's largest drops in transportation fuel demand compared with pre-pandemic levels in 2019. The slump in associated LCFS deficits helped push spot credits down nearly 30pc this year, dropping in November to their lowest levels since 2018. Federal mandates and US refiner strategies threaten to deluge California with renewable diesel credits in 2022.
A $1/USG federal blending tax credit offers a first layer of support for biodiesel and renewable diesel (RD). Proposed federal Renewable Fuel Standard (RFS) mandates for 2022 will add a second.
The US Environmental Protection Agency (EPA) projects that refiners, importers and other obligated parties will rely on renewable diesel and biodiesel to meet a 21bn ethanol-equivalent USG renewable fuel blending requirement for 2022. The price for credits associated with biodiesel and renewable diesel used to comply with the RFS have averaged about $1.54/USG since EPA proposed the mandates earlier this month, compared with about $1.03/RIN in January.
Low-carbon crosshairs
California's LCFS and Oregon's Clean Fuels Program complement the LCFS with an additional layer of incentives. While the RFS mandates minimum volumes, LCFS programs set a maximum carbon intensity for transportation fuels each year. Fuel distributors supplying low-carbon fuels including renewable diesel and biodiesel receive credits that offset deficits incurred by conventional, higher-carbon fuel.
The combination of compliance incentives and significant fuel demand has kept California lucrative for renewables. California accounted for more than 60pc of US renewable diesel blending in 2020, based on EPA and state data. That increased to 70pc of renewable diesel blended in the US through the first half of this year.
California LCFS credit prices began sinking in August. Credit generation climbed faster than the state's transportation fuel demand after business and travel restrictions imposed to limit the spread of the coronavirus in 2020. That imbalance lingered, even as the state eased restrictions.
California has consistently reported one of the five largest deficits to 2019 gasoline demand in all but one of the first nine months of the year, according to EIA data. State data show that September taxable gasoline volumes supplied fell to a more than 20-year low, trailing the same month of 2019 by 7pc. CARBOB represented almost 80pc of all LCFS deficits generated in the second quarter, the most recent period for which data are available.
The official balance of LCFS credits and deficits for the third quarter will be published at the end of January. But third quarter taxable gasoline gallons fell by 12pc compared with 2019. Taxable gallons have closely tracked volumes associated with official LCFS deficits, falling within 0.7pc of the second quarter California Air Resources Board (CARB) data.
Lower and lonesome
Some producers have urged CARB to halt the drop in credits to signal support for long-term investments needed to deliver low-carbon fuels. California and Oregon cap credit prices, but regulators for both states have said they will not set a floor.
Low credit prices indicate room for tougher standards, regulators said. But neither program can lower targets quickly.
Because any new LCFS standards must align with ongoing, broader updates to California's policies on climate change, new targets will not be implemented before 2024, CARB staff said.
Lower credit prices could offer some long-term advantages, Darling Ingredients chief executive Randall Stuewe said this month. Darling partnered with US independent refiner Valero on the largest US renewable diesel producing joint venture, Diamond Green Diesel, and processes renewable feedstocks as part of its core business.
Prices well below their maximum levels will help LCFS programs spread to new markets and set tougher future goals, he said.
"That gives regulators the courage to accelerate the trajectory of decarbonization," Stuewe said.
Other North American markets are pursuing their own LCFS programs. Washington state regulators are crafting rules for a program legislators approved earlier this year, which could start in 2023. Canada also continues to refine its Clean Fuel Standard, an LCFS program that could begin trading in early 2023. Minnesota, New York, New Mexico and other states have all considered adopting similar programs for their markets.
But the status quo of California's leading incentives and lagging demand will keep the state flush with credits in 2022.
Related news posts
Toshiba, PLN eye CCS at Indonesian thermal power plants
Toshiba, PLN eye CCS at Indonesian thermal power plants
Osaka, 23 August (Argus) — Japanese engineering firm Toshiba Energy Systems and Solutions plans to explore installing carbon capture and storage (CCS) equipment at Indonesian state-owned power firm PLN subsidiary's thermal power plants. This is in line with Indonesia's net zero emission goal by 2060. Toshiba on 22 August said that it signed an initial agreement with PLN subsidiary Nusantara Power (PLN-NP). The target plants include the Paiton No.1 and No.2 coal-fired units that operate with steam turbines and generators supplied by Toshiba. Toshiba has delivered 32 steam turbines, with a combined capacity of 8,263MW, to thermal and geothermal power plants in Indonesia since 1981. Nine steam turbines totalling 1,845MW are currently in operation at four thermal plants owned by PLN-NP, the company said. Toshiba aims to minimise energy consumption required for CCS, while optimising generation efficiency of existing power plants. The deal came after Japan's trade and industry ministry (Meti) and Indonesia's ministry of energy and mineral resources (ESDM) signed an agreement on 21 August to form an institutional co-operation framework to facilitate and enhance collaboration to encourage decarbonisation of the energy sector. By Motoko Hasegawa Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.
Brazilian politicians, judges to advance green agenda
Brazilian politicians, judges to advance green agenda
Sao Paulo, 22 August (Argus) — Representatives from Brazil's three branches of government have pledged to work together to advance the country's green agenda by approving legislation, expanding funding and guaranteeing enforcement related to the environment and the energy transition. Representatives from the supreme court (STF) and congress, together with President Luiz Inacio Lula da Silva and members of his cabinet signed an agreement on Wednesday aimed at reinforcing the country's commitment to protecting the environment. On the legislative front, lower house speaker Arthur Lira and senate President Rodrigo Pacheco promised to give priority to legislation that will advance the transition to low-carbon energy. This includes legislation that will create a regulated carbon market, a bill regulating offshore wind projects as well as a proposal that will create blend mandates for advanced biofuels. Pacheco plans to hold a vote for the bill that will create a carbon market in the first half of September, a spokesperson for senator Leila Barros, who is elaborating the text, told Argus . Barros has made significant progress on the new draft of the bill, but is finetuning the final text to address demands from specific sectors of the economy, the spokesperson said. The senate is also finalizing its analysis of the fuels of the future bill, which will create blend mandates for hydro-treated vegetable oil (HVO) and sustainable aviation fuel (SAF) as well as clear the way to increase the mandatory ethanol and biodiesel blends in commercial fuels. Senator Veneziano Vital do Rego presented a draft of the legislation on 20 August and is working to hold a vote in early September on the bill, which passed the lower house in March. Legislation for offshore wind has also made progress in the senate, but a proposal has not yet been presented. A draft of the bill was approved by the lower house last year, but included amendments that would expand subsidies for fossil fuels, potentially raising electricity prices for consumers. As part of the agreement, the executive branch has also promised to make further progress towards guaranteeing financing for energy transition projects. Likewise, the judiciary has agreed to give priority to cases that involve environmental, climate and land ownership. Lula stressed that the agreement among the three branches of the government shows Brazil's willingness to take a leading role to protect that environment as it prepares to host the Cop 30 meeting in Para state in 2025. Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.
Sweden, Zambia Article 6 agreement eyes renewables
Sweden, Zambia Article 6 agreement eyes renewables
Berlin, 21 August (Argus) — Sweden and Zambia have signed an initial agreement on climate co-operation under the Paris climate deal, with a focus on investing in renewable power, the countries said. Zambia's ministry of green economy and environment and the Swedish Energy Agency are now negotiating a bilateral agreement under Article 6.2 of the Paris agreement. This will allow Zambia to generate so-called internationally transferred mitigation outcomes (Itmos), representing emissions reductions, that Sweden may count towards its own emissions cut targets under the UN framework. Most of the carbon credits that Zambia has generated under the UN's Kyoto protocol-era clean development mechanism and in the voluntary carbon market make use of the REDD+ programme, aimed at reducing deforestation and forest degradation and enhancing carbon stocks. Given the acute lack of electricity in Zambia because of a drought in the region — the country is 85pc dependent on hydropower for its generation — the Zambian government has proposed that Article 6.2 investments be directed at the country's power system, such as solar and wind power capacity. And experts from Kenya-based Climate Action Platform–Africa (CAP-A) and the UK's Foreign, Commonwealth and Development Office (FCDO) have suggested that Zambia diversify beyond REDD+ and look at opportunities in sectors such as energy or waste management to maximise its carbon market potential. "The Zambian government has taken huge steps towards addressing the nation's current energy crisis," Zambia's green economy and environment minister Douty Chibamba said at the signing of the agreement in Lusaka yesterday. The Swedish Energy Agency aims for projects that provide "large emissions reductions" while having a positive long-term effect on Zambia's energy system, its head of international climate co-operation Sandra Lindstrom said. Projects must also benefit local communities and contribute to sustainable development, Lindstrom said, reflecting the shift away from the Kyoto protocol, under which issues such as indigenous rights or benefit sharing were largely ignored. CAP-A and the FCDO will launch a programme in September aimed at finalising Zambia's carbon market framework, notably a balanced benefit sharing and distribution system. The Swedish ambassador stressed at the signing of the agreement that Sweden's investments under Article 6.2 will complement existing support from Sweden's development agency in Zambia and the region. The initial agreement is Sweden's third with a project host country. Sweden has also signed a bilateral agreement under Article 6.2 with Ghana . By Chloe Jardine Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.
Indonesia may tighten POME oil export rules: Ministry
Indonesia may tighten POME oil export rules: Ministry
Singapore, 21 August (Argus) — Indonesian exports of palm oil wastes and residues including palm oil mill effluent (Pome) oil may soon be subjected to stricter export regulations, according to a draft document from its trade ministry. The ministry released the draft after a meeting with biofuel feedstock exporters on 20 August. The timeline for a decision on finalising the regulation is still unclear, although some market participants said it could be made by this month. Exports of Pome oil, high acid palm oil residue (Hapor) and empty fruit bunches (EFB) oil under the HS code 2306.60.90 are expected to require export permits, a change from the previous requirement of only export rights. While more details were not disclosed, meeting domestic market obligations (DMO) is usually a prerequisite to get export permits, suppliers said. This means that companies will need to sell a certain amount of cooking oil within Indonesia — or buy export quotas or credits from palm oil refineries around $15-$20/t — before they are able to export these products. This has led to expectations of potentially tightened feedstock exports. Refineries who sell cooking oil volumes to remote areas of Indonesia will also receive higher export quotas. As of January 2023, only crude palm oil (CPO), refined, bleached and deodorised (RBD) palm oil, RBD palm olein and used cooking oil (UCO) were subject to the DMO requirements. The previously-set domestic Highest Retail Price (Harga Eceran Tertinggi or HET) for cooking oil sold to consumers at 14,000 rupiah/l is now Rp15,700/l. This is likely because of higher CPO prices and packaging costs, a Indonesia-based supplier said. But market participants said they were also anticipating this increase previously. The higher HET implies that companies' cost of acquiring export permits in the medium to long term could fall, having sold cooking oil at higher prices domestically, market participants said. DMO for cooking oil Indonesia's Ministry of Trade also issued a regulation on 16 August stating that the DMO scheme for cooking oil will move fully from bulk to packaged palm olein – in 500ml, 1 litre (l), 2l and 5l volumes. This is likely to help maintain stable cooking oil prices and control inflation, as packaged olein is easier to monitor than bulk, a supplier said. The deadline for moving from bulk to packaged volumes is 12 November. Refineries under the DMO must also supply cooking oil volumes domestically of around 250,000 t/month, compared with approximately 300,000 t/month previously. But actual volumes will also depend on factors like how much palm oil wastes and residues exporters want to ship in a particular month too, a supplier said. The draft document did not include updates to long-awaited changes to export duties and levies to POME oil, UCO and other products, market participants said. They were expecting these changes in September or October when the new government is sworn in, although the actual timeline is difficult to determine. Current combined export duties and levies on POME for August is only $10/t, considering a CPO reference price of $820.11/t. UCO is not subject to duties, but have levies of $35/t. By Sarah Giam Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.
Business intelligence reports
Get concise, trustworthy and unbiased analysis of the latest trends and developments in oil and energy markets. These reports are specially created for decision makers who don’t have time to track markets day-by-day, minute-by-minute.
Learn more