Carbon Market Outlooks Dashboard Preview

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While the structure and rules of the BC-LCFS are quite similar to the California Low Carbon Fuel Standard (LCFS) and other state LCF programs, the markets differ. Overall, low-carbon fuel suppliers look to market their fuels wherever is most economically advantaged. Among the LCF markets which provide financial incentives for low-carbon fuels, the California market is much larger than B.C., which means that B.C. fuels suppliers must compete with California for low-carbon fuels. This leads to Stillwater’s assumption that B.C. credit prices must be sufficiently high to attract low-carbon fuels that could otherwise be sold into California. As such, in this outlook we focus on the programs that add to the value of low-CI fuels in the B.C. and California markets as the sum of these values plus the underlying fuel value establishes the value of the low-CI fuel in each market.

Along the West Coast of North America, there are essentially five fuel markets:

1. Southern California/Las Vegas/Phoenix,
2. Northern California/Reno,
3. The Pacific Northwest, including British Columbia,
4. Hawaii, and
5. Alaska

The West Coast of North America forms an area of fuel supply that is isolated by distance, time, and limited logistics (other than marine) from other areas where petroleum and renewable fuels are produced. Thus, these five fuel markets are sub-markets to the broader, isolated West Coast regional market with the final two markets (Hawaii and Alaska) being small and insignificant in comparison to the first three. For each of the first three markets, there are intra-market product pipelines to supply fuel.[1] Although there are no product pipelines linking the three West Coast fuel markets, they are closely linked by regular fuel product movements between markets by marine transport, and marine imports/exports that have optionality to receive or source into or from the five markets. On the supply side, low-CI fuels are received by rail and marine from sources to the east and overseas.

Focusing on B.C. and California, there are major differences in market characteristics. California’s fuel market is eight times larger than B.C.’s and has multiple large petroleum refineries and two major port regions that engage in trading fuels with regions all over the world. B.C., by contrast, has just two small refineries and is supplied most of its petroleum transport fuels from Edmonton refineries either via the Trans Mountain Pipeline (TMPL) or by rail with some volumes imported from the U.S. The trading markets for LCFS credits in these two jurisdictions are also quite different in terms of scale and liquidity.

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To understand how BC-LCFS credit prices relate to credit prices in California’s LCFS, it is necessary to understand the sum of the value of low-carbon fuel EAs in each market. Here, we will illustrate the elements of the total EA value of a low-carbon biofuel in the B.C. and California markets. In this example, we will discuss the value of biodiesel (BD) in B.C. and California. Each EA value described below adds to or subtracts from the value of BD in each jurisdiction.

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Of the low-CI fuels that are swing fuel candidates, we assume that RD will be the swing fuel in the future. As discussed above, ethanol has reached the E10 limits, BD is not an ideal fuel for B.C. because of its cold flow properties, and RD has become widely available on the West Coast, quickly growing to 18% of the B.C. liquid diesel pool in 2023.

Based on the credit value of RD in the BC-LCFS being equal to the total value of the environmental attributes in the LCFS market, a projected exchange rate average of 0.76 CAD/USD over the period, and the three cases in Stillwater’s LCFS Outlook, the forecasted BC-LCFS Credit Prices are presented in the figures and table below.