On September 27, 2018, the California Air Resources Board (CARB) voted to adopt an extensive set of amendments to the Low Carbon Fuel Standard (LCFS). The final resolution was posted to CARB’s website on October 1st. The amendments will become effective in 2019.
The headline driver for these modifications is the 2016 adoption of Senate Bill 32 (SB 32), extending the statewide greenhouse gas (GHG) emissions target to at least 40% below 1990 levels by 2030. As the transportation sector represents 41% of GHG emissions in California, achieving this new target will be dependent upon significant further reductions in transportation-related GHG emissions. The LCFS has been a key source of emissions reductions since its implementation in 2011, with an expected 3.5% targeted reduction in the average carbon intensity (CI) of the transportation fuel pool in 2017. Accordingly, the LCFS program is seen as a key vehicle to achieve the additional reductions sought by SB 32.
The approved 2018 LCFS amendments, none of which were a surprise given the lengthy approval process, include the following changes:
Clearing Service Provider
- Exchanges will be allowed to participate in the LCFS marketplace to clear transactions between two entities with registered accounts in the LCFS Reporting Tool Credit Bank & Transfer System (LRT-CBTS). A clearing service provider cannot own LCFS credits but can hold them for up to five days for clearing purposes only.
- A new goal of a 20% reduction in fuel CI from a 2010 baseline by 2030.
- Eased near-term GHG reduction targets – the 2019 target has been eased from a 7.50% reduction to a 6.25% reduction, and the 2020 target has been revised from a 10.00% reduction to a 7.50% reduction. Beyond 2020, the annual targets adjust at a steady rate of 1.25% additional reduction per year.
Shifting Fuels Inclusions
- The addition of Alternative Jet Fuel (AJF) as an opt-in, credit-generating fuel. (Note that LCFS deficits are not incurred by fossil jet fuel as the state does not have authority to regulate it).
- Removing the opt-in status for hydrogen from fossil sources and fossil compressed natural gas (CNG) from North American sources. Small fossil CNG stations, however, are exempt from the LCFS requirements until CNG becomes a deficit-generating fuel.
- Removing the exemption for liquefied petroleum gas (LPG or propane) used in transportation. As with fossil CNG stations, small LPG stations are exempt from the LCFS requirements until LPG becomes a deficit-generating fuel.
- Allowing alternative fuels used in tactical military vehicles and aircraft to opt in. (Note that fossil fuels used in military tactical vehicles are exempt from LCFS and do not create a deficit.)
- Electric transportation applications for motorbikes, refrigerated transport units, forklifts, and shore power for ocean-going vessels will now be eligible credit generators.
Third-Party Verification Has Arrived
- Addition of third-party verification to support the accuracy of reported LCFS data. Within this provision, CARB reduces the frequency of verification for alternative fuels production and fueling facilities generating less than 6,000 credits or deficits annually.
Pathway Application(s) and CI Determination Changes
- CARB is updating California’s Greenhouse Gases, Regulated Emissions, and Energy Use in Transportation Model (CA-GREET) from 2.0 to 3.0. The GREET 3.0 lifecycle model of energy and emission impacts of transportation fuels is updated to reflect California-specific information which informs pathway-specific CI values.
- Entities filing site-specific data for a fuel pathway application can now apply as “joint applicants.”
- For EV charging, a time-of-use electricity CI could be used, effective in 2019, incentivizing charging stations to charge EVs during times when the low-CI grid electricity is available.
- Clarification that biomethane and biogas must be physically supplied to crude oil production facilities and refineries, and renewable power be directly supplied to the facilities to be part of an Innovative Crude or Refinery Investment Credit project.
- Clarification that the Innovative Crude provision also applies to projects related to innovative investments to reduce the CI in transportation of crude to the refinery in addition to projects implemented at oil fields.
Refinery Investment Credit Pilot Program (RICPP)
- Transition from refinery-wide GHG-reduction accounting to project-level The GHG-reduction threshold will shift from a CI-based threshold of 0.1 gCO23/MJ to a quantity-based threshold of 10,000 MT/year or one percent of pre-project emissions. This eligibility threshold only applies to process improvement projects.
- Addition of CCS projects, renewable electricity use, substitution of fossil fuels with renewable fuels, and electrification as qualifying RICPP projects.
- Decreasing the cap on process improvement credits to ten percent of an entity’s annual compliance obligation and adding a 15-year limitation on LCFS credits from the project.
Zero-Emission Vehicle Incentives
- Zero-emission vehicle (ZEV) fueling infrastructure – hydrogen refueling infrastructure and DC fast-charging infrastructure – will now be credited based on capacity rather than on use. This amendment is designed to sunset after an initial period of enhanced support for ZEV infrastructure build-out. The maximum quantity of infrastructure credits issued will be capped at 2.5 percent of overall program deficits for each category.
- A statewide EV point-of-sale rebate program will be established, funded exclusively by a portion of the LCFS credit proceeds from opt-in electrical distribution utilities (EDU) who earn credits through residential EV charging assigned to that EDU by the Executive Officer.
Carbon Capture and Storage
- New protocols concerning carbon capture and storage are intended to encourage application of this technology to reduce the CI of both fossil and renewable fuels. (Note that ethanol plants may participate through capture of CO2 from the fermentation process.)
Finally, the proposed amendments include some streamlining of reporting requirements, building on program experience, and additional technical updates which include updates to conversion factors and standard values aimed at improving the accuracy of GHG emissions reporting.