On February 20th, the California Air Resources Board (CARB) released Unofficial LCFS Rulemaking Documents for public review. These proposed amendments will be considered at a CARB Board hearing in April 2018 and voted on at a second hearing in mid-to-late 2018. In the past, CARB has released draft rulemaking documentation before public workshops, but this release – the first labeled “unofficial release” of which we are aware – was posted to CARB’s website without being associated with a workshop or Board meeting. With this unofficial release – which CARB wisely preannounced – all credit market participants and stakeholders gained access to the proposed regulatory change simultaneously.
Today we offer a flash analysis of what we see in these rulemaking documents upon first review. We note that they contain the same provisions previously included in CARB workshop documents: the addition of transportation propane and renewable jet, the option to add military fuels, additional EV credits for time-of-day and renewable power, verification, and so on.
The big news in the “unofficial release” is the near-term changes in percent reductions of carbon intensity (CI) from 2010 levels. Instead of a 7.5% reduction in 2019 and a 10% reduction in 2020, CARB is proposing a less ambitious 6.25% in 2019 and 7.5% in 2020. In fact, the proposed changes reach the original LCFS reduction goal of 10% in 2022 instead of the original 2020. In the longer-term, CARB proposes a 20% reduction goal in 2030 instead of the 18% suggested in prior documents.
Stillwater has always been concerned about the feasibility of the 2020 target given that the credit bank in its current trajectory would be deeply negative even with an expanded credit-generating universe. Obviously, the changes in 2019 and 2020 will have a significant impact on the LCFS credit bank and program feasibility. The credit market seemed to reflect our sentiments, reacting to the document’s release by falling as much as 30% (!) yesterday.
Some market participants to whom we’ve spoken since Tuesday’s document release have expressed the opinion that CARB has changed the compliance scope, effectively moving the goal posts with this document. This sentiment was reflected in the market’s reaction. We will go more in-depth into how CARB’s compliance scope has actually changed in our Quarterly LCFS Newsletter, published on February 28th.
