California rushes to finish LCFS package

OREANDA-NEWS. June 26, 2015. California regulators plan to issue another round of amendments to the Low-Carbon Fuel Standard (LCFS) re-adoption package as soon as this week to put finishing touches on the program.

The new amendments would address some of the concerns raised by stakeholders in comments on a package of changes to the LCFS program released by the state Air Resources Board on 4 June. The agency still intends to hold a board vote on the amendments at its 23-24 July meeting in Sacramento.

ARB staff appears to have committed to fixing language in the previous amendments that would have prevented new operations from selling LCFS credits for low-carbon fuels produced during their first two years of operation, responding to one of a number of issues raised in the recent comments.

The language would have prevented newly built, and possibly newly modified, facilities from generating fully fungible LCFS credits until they had two years of operational data to prove their carbon-intensity score. The provisional credits could only be held by the fuel producer, and could not accompany the fuel if it is sold to a counter-party.

The provisions sparked concern in the market that they would impede cash flow to new production facilities, which generally have some of the highest operating costs.

The recent comments also show that the program's legal battles may resume soon after the changes take effect this fall.

The Western States Petroleum Association (WSPA) said a number of the policy changes in the 4 June amendment package were poorly explained and would be categorized as arbitrary and capricious by a court.

WSPA directed withering criticism at the new cost-containment mechanism, which it said "exacerbates an infeasible target, is not market-based, and does not provide the opportunity for fuel suppliers to evaluate the validity of credits."

The trade group said that by publishing the names of program participants and their outstanding LCFS deficit obligations as part of a proposed credit clearance market, ARB would violate the state's long-standing confidential business information practices and "has the distinct possibility of harming a given participant's competitive position in the market."

WSPA repeated complaints that the program's 10pc by 2020 carbon intensity reduction target is not achievable, and said language for the baseline years for generating credits is "internally inconsistent" with "no explanation." A provision for awarding credits for refinery investments that lower carbon emissions per unit of production starting around 2016-17 would use 2011-13 as its carbon intensity baseline, rather than the program's 2010 baseline.

Trade group Growth Energy used it comments to argue the amendments package violated California administrative procedural law. The group said the scientific peer review of the LCFS package was insufficient under California's Health and Safety Code standards and that the indirect land-use change scores proposed are not supported by evidence.

Growth Energy said some proposed amendments are significant enough to require ARB to re-propose the LCFS regulation with a 45-day public comment period. The agency is under a court order to re-adopt the LCFS by this fall as a result of a lawsuit filed by Growth and ethanol producer Poet against the original regulations.