Viewpoint: RD, fuel demand weigh on California LCFS

Spanish Market: Emissions
28/12/21

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.

By Elliott Blackburn

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23/11/24

Cop: Carbon market rules adopted as finance talks stall

Baku, 23 November (Argus) — Countries at the UN Cop 29 climate talks in Baku, Azerbaijan, on late Saturday adopted the rules for international carbon trading under the Paris Agreement, a rare bright spot in contentious negotiations that have dragged on well past their scheduled end. After adopting rules for Article 6.2 and Article 6.4 of the Paris Agreement during a late evening plenary, ministers and negotiators applauded in recognition of their efforts. The decisions come a year after the carbon market rules were supposed to have been adopted at Cop 28 in Dubai, nine years after Cop 29 in Paris, and about 24 hours after the Baku talks were scheduled to end. "We have ended a decade-long wait and unlocked a critical tool for keeping 1.5 degrees in reach," Cop 29 president Mukhtar Babayev said. "Climate change is a transnational challenge and Article 6 will enable transnational solutions. Because the atmosphere does not care where emissions savings are made." Article 6.2 and Article 6.4 govern how countries can use carbon credits to meet their greenhouse gas (GHG) emissions-reduction pledges, known as nationally determined contributions (NDCs). Article 6 aims to help set rules on global carbon trade. Article 6 discussions helped get Cop 29 off to a positive start, with the adoption of key standards for the creation of carbon credits under the Paris accord. But after that, negotiators still had to resolve a number of issues, most notably the design of an international registry to keep track of the credits. The talks ultimately settled on a "dual layer" approach, agreed to create a registry to issue and trade credits that would be run by the UN and would be separate from the Article 6 registry, which would only serve an accounting function. The text also says that the inclusion of any emissions credits — known as internationally transferable mitigation outcome (Itmo) units — in the UN registry does not represent any sort of validation of their environmental integrity, in response to concerns raised by the US and others. Further refinements were made to the decision text over the last three days before the Saturday night decision, including the details on what countries need to include in electronic reporting of the credits. Carbon market supporters have generally backed the Baku texts, although some do not agree with all of the details. But they say the text does not harm or constrain international carbon trading, meeting their main objective for Baku. Saturday standoff But Cop 29 has reached a stalemate in negotiations on a new climate finance goal, as developed and developing countries struggle to bridge a huge divide on how much the latter should receive from the former. The lack of progress has raised the possibility the talks could collapse and end without any agreement at all. "This is the final stretch you have all been working very hard and I know that none of us want to leave Baku without a good outcome," Babayev said. "However, time is not on our side." The cop presidency suspended the plenary after the Article 6 decisions to give countries more time to try to reach an agreement, saying it would resume "later tonight." Earlier in the evening, delegates from the Alliance of Small Island States (AOSIS) and the Least Developed Countries (LDCs) group staged a temporary walkout to protest what they say has been a process that lacks inclusion. "The process is not including us as much as it should be, and when it does, and we provide input, our inputs are being ignored," said Evans Njewa, a Malawai environment official who chairs the LDC Group. The most recent negotiating text , released on Friday, angered developing country officials by proposing that developed economies provide $250bn/yr in climate finance by 2035, from a broad range of sources, not just public funds. Developing economies earlier this week floated numbers of $440bn-$600mn/yr for a public finance layer. They also called for $1.3 trillion/yr in total climate finance from developed countries, a sum which the latest draft instead calls for "all actors" to work toward. As a potential compromise, some countries, including Brazil and Somalia, have suggested at least $300bn/yr and up to $350bn/yr or $390bn/yr. Further eroding trust among delegates were reports that an official from Saudi Arabia had been allowed to make changes to negotiating text. "At Cop 29, we are witnessing a geopolitical power play by some fossil fuel states at the expense of the poorest. As the EU, we strongly oppose abandoning the path set in Dubai," German foreign affairs minister Annalena Baerbock said. By Michael Ball Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

Cop 29 goes into overtime on finance deadlock

22/11/24

Cop 29 goes into overtime on finance deadlock

Developing countries' discontent over the climate finance offer is meeting a muted response, writes Caroline Varin Baku, 22 November (Argus) — As the UN Cop 29 climate conference went into overtime, early reactions of consternation towards a new climate finance draft quickly gave way to studious silence, and some new numbers floated by developing nations. Parties are negotiating a new collective quantified goal — or climate finance target — building on the $100bn/yr that developed countries agreed to deliver to developing countries over 2020-25. The updated draft of the new finance goal text — the centrepiece of this Cop — proposes a figure of $250bn/yr by 2035, "from a wide variety of sources, public and private, bilateral and multilateral, including alternative sources". This is the developed country parties' submission, the Cop 29 presidency acknowledged. Developing nations have been waiting for this number for months, and calling on developed economies to come up with one throughout this summit. They rejected the offer instantly. "The [$250bn/yr] offered by developed countries is a spit in the face of vulnerable nations like mine," Panama's lead climate negotiator, Juan Carlos Monterrey Gomez, said. Negotiating group the Alliance of Small Island States called it "a cap that will severely stagnate climate action efforts". The African Group of Negotiators and Colombia called it "unacceptable". This is far off the mark for developing economies, which earlier this week floated numbers of $440bn-600bn/yr for a public finance layer. They also called for $1.3 trillion/yr in total climate finance from developed countries, a sum which the new text instead calls for "all actors" to work toward. China reiterated on 21 November that "the voluntary support" of the global south was not to be counted towards the goal. A UN-mandated expert group indicated that the figure put forward by developed countries "is too low" and not consistent with the Paris Agreement goals. The new finance goal for developing countries, based on components that it covers, should commit developed countries to provide at least $300bn/yr by 2030 and $390bn/yr by 2035, it said. Brazil indicated that it is now pushing for these targets. The final amount for the new finance goal could potentially be around $300bn-350bn/yr, a Somalian delegate told Argus . A goal of $300bn/yr by 2035 is achievable with projected finance, further reforms and shareholder support at multilateral development banks (MDBs), and some growth in bilateral funding, climate think-tank WRI's finance programme director, Melanie Robinson, said. "Going beyond [$300bn/yr] would even be possible if a high proportion of developing countries' share of MDB finance is included," she added. All eyes turn to the EU Unsurprisingly, developed nations offered more muted responses. "It has been a significant lift over the past decade to meet the prior goal [of $100bn/yr]," a senior US official said, and the new goal will require even more ambition and "extraordinary reach". The US has just achieved its target to provide $11bn/yr in climate finance under the Paris climate agreement by 2024. But US climate funding is likely to dry up once president-elect Donald Trump, a climate sceptic who withdrew the US from the Paris accord during his first term, takes office. Norway simply told Argus that the delegation was "happier" with the text. The EU has stayed silent, with all eyes on the bloc as the US' influence wanes. The EU contributed €28.6bn ($29.8bn) in climate finance from public budgets in 2023. Developed nations expressed frustration towards the lack of progress on mitigation — actions to cut greenhouse gas emissions. Mentions of fossil fuels have been removed from new draft texts, including "transitioning away" from fossil fuels. This could still represent a potential red line for them. Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

Opinion: Bridging the divide

22/11/24

Opinion: Bridging the divide

Cop summits put the gap between developed and developing countries in stark relief and demand a strong moderator Baku, 22 November (Argus) — The UN's Cop climate summits always involve a high-stakes test of multilateralism. But the Cop 29 gathering that is crawling towards its conclusion in Baku this week has pushed this concept to its limit. The summit faced serious challenges even before it kicked off. Azerbaijan took on the presidency relatively late in the day and the country's president, Ilham Aliyev, irritated some delegates with an opening speech that lauded oil and gas as a "gift from God" and railed against "western fake news". His comments on European nations' Pacific island territories prompted France's energy minister to boycott the talks, while the Cop chief executive was caught on film trying to facilitate fossil fuel deals. And the broader geopolitical background for the gathering was, of course, "grim", as EU climate commissioner Wopke Hoekstra noted, even before delegates tackled the summit's key discussion topic — money. At the heart of this year's Cop is the need to agree a new climate finance goal — a hugely divisive subject at the best of times. Discussions start with countries' wealth, take into account historical responsibility for emissions, and often end up with accusations of neocolonialism and calls for reparations. Figuring out who pays for what is crucial to advancing any kind of meaningful energy transition — and is hence a regular Cop sticking point. Developing countries have long argued that they are not able to decarbonise or implement energy transition plans without adequate financing, and they are prepared to hold other issues hostage to achieve this. Equally, developed countries will not budge on finance until stronger emissions cuts are pledged. Cop summits throw the developed/developing world divide into stark relief as well as shine an unforgiving light on weak management and oversight of Cop debate — an event where every country has an equal vote and needs a strong moderator to bridge that deepening developed and developing world division. This year's summit falls between two much more heavily-hyped Cops, and next year's host Brazil has already taken centre stage, boosted by also holding the G20 presidency. Cop 29 president Mukhtar Babayev asked Brazil and 2021 host the UK to help ensure a balanced outcome, while a strong focus on climate at this week's G20 summit in Rio de Janeiro lent some support to discussions in Baku. More challenges loom. US president-elect Donald Trump has threatened to pull the US — the world's second-largest greenhouse gas emitter — out of the UN Paris Agreement for a second time, and there are fears that fellow G20 member Argentina might quit too. But the Cop process has dealt with some of these challenges before — it is built to withstand a term or two of an unsympathetic world leader, and any exits from the Paris accord could galvanise others to step up their policy commitments, several delegates in Baku suggest. And the issue overshadowing it all — and the reason nearly 200 countries still turn up each year — is not going away. The world has already warmed by around 1.3°C above pre-industrial levels and this year is set to smash last year's record as the hottest. Leaders from both developed and developing countries spoke of catastrophic floods, droughts, heatwaves and storms. It has become a truism, but when it comes to the tricky issue of money, the only thing more daunting than the cost of tackling climate change is the cost of ignoring it. Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

Cop: Brazil eyes $300bn/yr for climate finance goal

22/11/24

Cop: Brazil eyes $300bn/yr for climate finance goal

Baku, 22 November (Argus) — Brazil has set out a suggestion of "at least" $300bn/yr in climate finance to be provided by developed countries to developing nations. Brazilian representatives set out their proposal today, in response to a draft text on a new climate finance goal. Brazil's proposal of $300bn/yr in climate finance by 2030 and $390bn/yr by 2035 are in line with the recommendations of a UN-mandated expert group. Negotiations at Cop are continuing late into the evening of the official last day of the conference, with no final texts in sight. Discussions centre around the new collective quantified goal (NCQG) — the climate financing that will be made available to developing countries in the coming years to help them reduce emissions and adapt to the effects of climate change. The presidency draft text released this morning put the figure at $250bn/yr by 2035, with a call for "all actors" to work towards a stretch goal of $1.3tn/yr. Representatives of developing countries have reacted angrily to the figure put forward in the text, saying it is far too low. Brazil's proposal appears to call for all of the $300bn-$390bn to be made up of direct public financing, which could then mobilise further funding to reach the $1.3tn/yr. It was inspired by the findings of a UN report, Brazil said. The UN-backed independent high-level group on climate finance today said that the $250bn/yr figure was "too low," and recommended the higher $300bn-390bn/yr goal. Brazil's ask would be a significant step up in the required public financing. The $250bn/yr target includes direct public financing and mobilised private financing, and potentially includes contributions from both developed and developing countries. Wealthier developing countries have been hesitant to see their climate financing fall in this category, which they say should be made up exclusively of developed country money, in line with the Paris Agreement. But $300bn/yr would represent an increase in ambition, Brazil said, while the $250bn/yr called for in the draft text would be very similar to the $100bn/yr goal set in 2009, after taking into account inflation. Delegates at Cop look set to continue discussions into the night. A plenary session planned for late in the evening, which would have allowed parties to express their positions in public, has been cancelled, suggesting groups still have differences to hammer out. By Rhys Talbot Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

Cop: Developing nations reject first finance offer

22/11/24

Cop: Developing nations reject first finance offer

Baku, 22 November (Argus) — Developing countries at the UN Cop 29 climate summit in Baku, Azerbaijan have rejected the first climate finance amount put forward by developed nations, and are mulling counter-offers. A revised draft text for a new climate finance goal was released earlier today. Parties are negotiating the next iteration of the $100bn/yr that developed countries agreed to deliver to developing nations over 2020-25 — known as the new collective quantified goal (NCQG). The new text stated that developed nations should contribute $250bn/yr by 2035 in climate finance for developing countries. This is up from the previous $100bn/yr that developed countries agreed to deliver over 2020-25, but still a fraction of the 1.3 trillion/yr that developing countries have been calling for. "The [$250bn/yr] offered by developed countries is a spit on the face of vulnerable nations like mine," said Panama's representative Juan Carlos Monterrey Gomez. "They offer crumbs while we bear the dead," he said, adding that the amount offered is "outrageous, evil and remorseless." There is still "a lot to fight for," said a delegate from Honduras, as others suggested that major edits to the text are likely. The negotiating block the Alliance of Small Island States (Aosis) pointed out that the text ignores minimum allocation floors for small island developing states (Sids) and least developed countries (LDCs) of at least $39bn/yr and $220bn/yr, as proposed at the start of the summit. The LDCs also complained that "rich" members of the group of 77 (G77) — a UN coalition of developing nations —insisted on no carve-outs for the poorer and most vulnerable countries, according to a Somalian delegate. The proposed $250bn/yr will severely stagnate climate action efforts and does not raise the bar from the previous ineffective $100bn/yr goal, the Aosis group said. "We cannot be expected to agree to a text which shows such contempt for our vulnerable people." Counter-offer A UN-mandated finance expert group indicated that the figure put forward by developing countries "is too low" and not consistent with the goals of the Paris Agreement. The group's analysis shows that the new finance goal for developing countries, based on the components that it covers, should commit developed countries to provide at least $300bn/yr by 2030, and $390bn/yr by 2035. "We believe that these targets are feasible," the group said. Brazil indicated that the country is now pushing for these targets. The final amount for the new finance goal could potentially be around $300bn-350bn/yr, a Somalian delegate told Argus. Developed nations, in contrast, offered more muted responses. "It has been a significant lift over the past decade to meet the prior goal [of $100bn/yr]," said a senior US official, and the new goal will require even more ambition and "extraordinary reach." A delegate from Norway told Argus that the text is "something to work on" and that they were "happier than yesterday." "We should leave Baku with a goal that at least gets to $300bn/yr by 2035," said climate think-tank WRI's finance programme director Melanie Robinson. "This is achievable with projected finance, further reforms and shareholder support at multilateral banks, and some growth in bilateral funding," she said. By Prethika Nair and Rhys Talbot Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

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