Adds comments from meeting.
Fuel producers today urged California regulators to preserve incentives in a newly uncertain market as residents asked them to start over with greater ambitions for a zero-emission future.
California regulators may toughen carbon-slashing targets and raise hurdles for crop-based fuels to participate in North America's largest Low Carbon Fuel Standard (LCFS).
On Friday California's Air Resources Board heard hours of final testimony on a rulemaking that has been underway for nearly a year — and on the verge of running out of time — to restore shrinking incentives in the state's program to decarbonize road fuels. The decision comes amid growing outcry over the cost of diversifying the state's fuel portfolio passed on to drivers. Choices made on incentives in the largest US renewable fuels and electric vehicle charging markets may offer some clarity to markets now roiled by uncertainty over the approach an incoming second Donald Trump administration will take.
"The tools in our toolbox may become much more limited going forward," board chairwoman Liane Randolph said in opening remarks. "While we will do everything we can to protect our authority in California and our existing programs that we have to clean the air, we know that we must do all we can to use our existing state authority to bring clean fuels to California."
Board consideration was not expected until late in the day.
LCFS programs require yearly reductions to transportation fuel carbon intensity. Higher-carbon fuels that exceed the annual limit incur deficits that suppliers must offset with approved, lower-carbon alternatives.
California's program has helped spur a rush of new renewable diesel production that quickly overwhelmed the deficits generated from petroleum gasoline and diesel use in the state. LCFS credits do not expire, and leftover credits available for future compliance grew to 29.1mn metric tonnes by July. The program generated 22.4mn deficits in all of 2023.
Tougher targets on tap
Board approval of amendments considered today would immediately toughen program targets for 2025 by 9pc. The one-year drop would nearly double reductions first proposed last year, and require cuts six times deeper than the typical year-to-year change in targets. Regulatory staff published models in April suggesting such a target could thin a smothering inventory of excess credits available for future compliance by 8.2mn — roughly a third of the available excess credits.
Other proposals would take longer to begin. California would require new attestations about land use for crop-based feedstocks by 2026, shifting toward tougher verification requirements for such feedstocks by 2031. Regulators would limit credit generation for existing suppliers of biodiesel and renewable diesel made from soybean oil or canola oil credits to only 20pc of such fuels they supply to California by 2028. And CARB would begin phasing out outsized credit generation from renewable natural gas used in transportation in 2040, after locking-in incentives for current projects regardless of any regulations that would mandate methane reductions.
The program has faced a late push of opposition from fuel suppliers and environmental critics highlighting costs to previously unaware drivers. The campaign inspired an unusual volume of public comment filings in October from residents focused on gasoline costs.
Hours of public comment included numerous residents near dairies and other infrastructure critical of incentives that continued operations worsening their air quality, as well as environmental groups opposed to incentives not focused on electric transportation.
"This proposal is simply not worthy of your vote," Earthjustice staff attorney Nina Robertson said. "It represents a grab bag of giveaways to polluting special interest that have turned what was once a program for climate progress into a piggy bank for their false climate solutions."
But CARB faces a 5 January deadline to approve the proposals. Missing it would restart the regulatory process, which staff has said could take another two years to complete. Credits available for future compliance nearly tripled over the past two years. Renewable natural gas, electric vehicle and even biofuels groups wary of elements of the proposal have issued statements of support this week.
"While there is always room for improvement, in our view, there's no reason to delay adoption of this proposal today," Neste US president Peter Zonneveld said. "There is no time to waste."
Randolph has repeatedly defended the program in public appearances as the temperature on fuel costs concerns rose. Board member Dean Florez said ahead of the meeting that he would vote against the amendments, citing what he considered a lack of clearer information on potential cost and emissions impact.
"The opacity has eroded confidence in our intentions and planning," Florez wrote in a guest editorial.
CARB's choices will ripple across fuel supply strategies around the world. California used two thirds of the renewable diesel consumed in the US during the second quarter, and access to the market can determine feedstock margins. With immediate federal choices on biofuel tax incentives or possible feedstock sanctions uncertain, clarity on California's may offer suppliers one of the fuel planning footholds this year.
