Updates throughout with more detail on revisions.
California regulators advanced stricter limits on crop-based biofuels as revisions to a key North American low-carbon incentive program drew closer to a vote.
The California Air Resources Board (CARB) late yesterday added sunflower oil — a feedstock with no current approved users or previous indicated use in the program — to restrictions first proposed in August on canola and soybean oil feedstocks for biomass-based diesel. The new language maintained a proposal to make the program's annual targets 9pc tougher in 2025 and to achieve by 2030 a 30pc reduction from 2010 transportation fuel carbon intensity levels.
Board decisions that could come as early as 8 November may reconfigure the flow of low-carbon fuels across North America. The state credits anchor a bouquet of incentives that have driven the rapid buildout of renewable diesel capacity and dairy biogas capture systems far beyond California's borders, and inspired similar, but separate, programs along the US west coast and in Canada.
CARB staff's latest proposals, published a little before midnight ET on 1 October, offer comparatively minor adjustments to the shock August revisions that spurred a nearly $20 after-hours rally in LCFS prompt prices. Prompt credits early in Wednesday's session traded higher by $3 than they closed the previous trading day before slipping back by midday.
LCFS programs require yearly reductions in transportation fuel carbon intensity. Higher-carbon fuels that exceed these annual limits incur deficits that suppliers must offset with credits generated from the distribution to the market of approved, lower-carbon alternatives.
California's program has helped spur a rush of new US renewable diesel production capacity, swamping west coast fuel markets and inundating the state's LCFS program with compliance credits. CARB reported more than 26mn metric tonnes of credits on hand by April this year — more than enough to satisfy all new deficits generated in 2023. Staff have sought through this year's rulemaking to restore incentives to more deeply decarbonize state transportation than thought possible during revisions last made in 2019.
Participants have generally supported tougher targets, with some fuel suppliers warning about potential price increases and credit generators urging CARB to take a still more aggressive approach.
But proposals to limit credit generation to only 20pc of the volume of fuel a supplier made from canola, soybean and now sunflower has found little public support. Environmental opponents have argued that the CARB proposals fall short of what is necessary to add protections against cropland expansion and fuel competition with food supply. Agribusiness and some fuel producers have warned the concept, proposed in August, ran counter to the premise of a neutral, carbon-focused program and against staff's own view last spring. The proposal exceeded what CARB could do without beginning a new rulemaking, some argued.
CARB yesterday proposed a grace period for facilities already using the feedstocks to continue generating credits while seeking alternatives. Facilities certified to use those feedstocks before changes are formally adopted could continue using those sources until 2028, compared to a 2026 cut off proposed in August.
No facilities currently supplying California have certified sunflower feedstock, and it was not clear that any were planned.
"We're not aware of any proposed pathway or lifecycle analysis for sunflower oil, so that addition is just baffling," said Cory-Ann Wind, Clean Fuels Alliance America director of state regulatory affairs. "Clearly not based in science."
The latest revisions include a change to how staff communicate a new, proposed automatic adjustment mechanism (AAM). The mechanism would automatically advance to tougher, future targets when credits exceed deficits by a certain amount. Supporters consider this a more responsive approach to market conditions than the years of rulemaking effort already underway. Opponents argue such a mechanism cedes important authority and responsibility from the board.
Staff proposed quarterly, rather than annual, updates on whether conditions would trigger an adjustment, and to use conditions during the most recent four quarters, rather than by calendar year. Obligations and targets would continue to work on a calendar-year basis.
CARB staff clarified that verifying electric vehicle charging credits would not require site visits to the thousands of charging stations eligible to participate in the program. Staff also clarified how long dairy or swine biogas harvesting projects could continue to generate credits if built this decade, with a proposed reduction in credit periods only applying to projects certified after the new rules were adopted.
California formally began this rulemaking process in early January after publishing draft proposals in late December. Regulators initially proposed adjusting 2025 targets lower by 5pc for 2025 — a one-time decrease called a stepdown — to work toward a 30pc reduction target for 2030.
CARB set its sights on 21 March for adoption. But staff pulled that proposal in February as hundreds of comments in response poured in.
Updated language released on 12 August proposed a steeper stepdown for 2025 of 9pc while keeping the 30pc target for 2030.
Public comment on yesterday's publication will continue to 16 October.
