Flash Report

Flash Report – SRIA Release: CARB’s First Salvo of Proposed 2023 LCFS Amendments

Sep 12, 2023

On September 8, 2023, the California Air Resources Board (CARB) released the Standardized Regulatory Impact Assessment (SRIA) for the 2023 Low Carbon Fuel Standard (LCFS) Amendments. An SRIA is required when a proposed regulation has an economic impact exceeding $50 million. The SRIA must meet requirements of the Department of Finance and lay out the comparison of the proposed regulatory alternatives such that analytical decisions can be made to choose the action that is most cost effective among other objectives. The SRIA must be included in the Initial Statement of Reasons (ISOR) that, when filed, begins the formal rulemaking process.

Except for the specific reduction schedule, including the step change in 2025, all of the proposed amendment items were discussed at an August 16, 2023 public workshop concerning LCFS modeling updates – including the California Transportation Supply (CATS) Model used to develop the LCFS scenarios analyzed in the SRIA. Although the SRIA does not contain the regulatory text, it does contain an overview of the proposed amendments, including:

  1. Annual Carbon Intensity (CI) Benchmarks – Increase stringency through 2030 and extend to 2045
    The SRIA contained a percentage reduction in the benchmark by year through 2045. The highlights are a 5% step-up in reduction in 2025 from the current regulation with 30% in 2030 and 52.5% in 2035. In the table below we highlight key years with the periods between key years declining linearly.
  2. Addition of an Automatic Acceleration Mechanism
    The specific details of the automatic acceleration mechanism (AAM) were not included in the SRIA although it was implied that the AAM would increase the stringency of the benchmark in year X plus 2 when “specific regulatory conditions are satisfied” based on LCFS reporting for year X.
  1. Eliminate Exemption for Intrastate Fossil Jet Fuel
    This will add a new category of deficit-generating fuels. What is defined as intrastate jet fuel was not included on regulatory specifics.
  1. Phase out of Methane Crediting
    Avoided methane crediting will be phased out for dairy and swine manure pathways, and landfill-diversion pathways (i.e., food waste) by 2040. Pathway applications made through 2029 will allow one ten-year methane crediting period, and a five-year crediting period for pathways recertified from 2030 through 2034.
  1. Biomethane Deliverability Requirements
    The current LCFS regulation allows book-and-claim crediting of biomethane that is injected into the North American natural gas pipeline system. The proposed change is to align biomethane deliverability requirements with the requirements currently in effect for other fuels. This would limit the geographic area for renewable natural gas (RNG) book-and-claim crediting.
  1. Expand ZEV Infrastructure Crediting to Medium- and Heavy-Duty Sector
    The proposal would allow zero emission vehicle (ZEV) infrastructure crediting for hydrogen refueling and fast charging infrastructure for the medium- and heavy-duty sector similar to the current light-duty ZEV infrastructure crediting.
  1. Allow Book-and-Claim for Low-CI Hydrogen
    Low-CI hydrogen injected into a pipeline network would be eligible for crediting via book-and-claim accounting. The thresholds for low-CI would be a well-to wheels CI of 55 g/MJ for gaseous hydrogen and 90 g/MJ for liquid hydrogen. Hydrogen from fossil gas will be excluded.
  1. Project-Based Crediting Draws to a Close
    Project crediting for petroleum projects will be phased out by 2040.
  1. Electric Forklift Crediting Modification
    Crediting for smaller forklifts (less than 12,000 pounds) will be decreased. Details of the specifics are not available in the SRIA.
  1. Other
    Additional amendments are proposed to simplify and streamline application reporting requirements to encourage greater participation and improve administrative efficiency.

Concerning timeline for amendment adoption, CARB Staff have indicated that the LCFS Amendments will be a non-voting agenda item at the September 28-29 Board Meeting with the ISOR package, including the proposed regulatory text, to be filed subsequently. Accordingly, the amendments are set to be considered for adoption in early 2024. Today, at the Argus North American Biofuels, LCFS & Carbon Markets conference, Rajinder Sahota, Deputy Executive Officer of Climate Change & Research at CARB indicated that the LCFS amendments will be implemented by mid-2024.

What are the impacts of these changes?

Last week, Stillwater published the Fall Update of our 2023-2024 LCFS Credit Price Outlook including LCFS credit balances and prices through 2035. Our three primary cases include a 4% step change in 2024 (compared to the 5% step change in 2025 in the SRIA) rising to 30% in 2030 (identical to the SRIA) and 45% in 2035 (compared to 52.5% in the SRIA). In this Fall Update, we also included a “Delayed Case,” which demonstrates the impact of delaying implementation of the expected program amendments until January 1, 2025. This case assumed a 2.5% step change in 2025 (compared to the 5% step change in 2025 in the SRIA). Importantly, the SRIA is an economic and social impact document and not the proposed regulation; additional specifics will emerge as CARB moves toward official amendment proposal. If, for example, the amendments were implemented mid-2024, we could potentially see a half-year 5% step change in mid-2024 which would, in effect, increase the 2024 CI reduction schedule by 2.5% on average.

As Stillwater’s credit price outlook cases were developed prior to CARB’s release of the SRIA, they do not precisely match CARB’s newly proposed CI-reduction schedule. Our outlook assumptions do, however, provide a near match to the proposed program changes outlined in the SRIA. Our four cases also bracket the CI reduction schedule put forth in the SRIA, offering a valuable view of the potential forward credit price trends. And we are constantly updating our assumptions! Stillwater’s Winter quarterly outlook update, scheduled for release December 12, 2023, will include the specifics of the amended regulatory text set to be released after the September CARB Board meeting.

Stillwater’s price projection for California’s LCFS program is based on our analysis of the supply of low-CI fuels in California, the demand for fossil gasoline and diesel, our outlook on the CIs of each fuel pool, and the evolution of the LCFS regulation. Our LCFS outlook is updated on a quarterly basis, and a subscription includes one full year of updates. To learn more, schedule time with Kendra Seymour using this Microsoft Booking link.

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