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California’s Latest LCFS Proposed Changes Add Clarity and Extend Lifeline to RNG Projects

California’s Latest LCFS Proposed Changes Add Clarity and Extend Lifeline to RNG Projects

CA LCFS

Friday, 4th October 2024

Srishtu Sai Rohit

Key Takeaways

California’s Air Resources Board (CARB) introduced further updates for the Low Carbon Fuel Standards program, which are slated to go into effect in Q1 2025. Most changes refine CARB’s position and incorporate stakeholder feedback, and there are no significant changes.
Hydrogen credits from fossil gas extended until 2035, with 80% renewable content required by 2030.
Sunflower oil added to the 20% credit cap on virgin crop-based biofuels alongside soybean and canola oil; and that this would only be applicable after January 2028.
Evaluation of whether the Automatic Acceleration Mechanism (AAM) is triggered would happen on a quarterly basis, rather than assessment annually on a calendar basis.
Public hydrogen refueling stations now credited at 100% capacity, encouraging more infrastructure investments.
Verification threshold for small entities raised to 10,000 credits, easing compliance for smaller hydrogen and electricity providers.

The California Air Resources Board (CARB) is in the process of updating rules for its Low Carbon Fuel Standard (LCFS), to align with the state’s climate goals, embrace technological advancements, and respond to stakeholder feedback. The latest changes were detailed in the Second 15-Day Notice, which was released on October 1, 2024. This notice builds on a previous proposals and public input, emphasizing increased flexibility, transparency, and market stability.

Timeline of Amendments

To understand the progression of these amendments, here’s a timeline of key events:

December 2023: CARB issued a 45-Day Notice outlining substantial proposed changes to the LCFS. This initial notice set the stage for discussions and feedback from various stakeholders. cCarbon updated its modeling based on the scenarios presented which can be accessed here.
August 12, 2024: After reviewing public comments received during the initial notice period, CARB released a 15-Day Notice. This document incorporated stakeholder feedback and detailed updates to the earlier 45 day package. cCarbon developed an analyst note to capture the impact of the package here and also carried out an analysis of the comments submitted to CARB. Here CARB confirmed its intention to have a 30% reduction in carbon intensity by 2030 with a 9% step-down in 2025.
October 1, 2024: ARB published a Second 15-Day Notice was published, reflecting further refinements based on additional input from stakeholders. The public comment period for this notice is open until October 16, 2024, with a public hearing scheduled for November 8, 2024.

Key Updates in the Second 15-Day Notice

The Second 15-Day Notice introduces updates and modifications that help clarify and refine several proposals introduced in the First 15-Day Notice. Below are some of the key changes:

Hydrogen Production and Renewable Content Requirements

First 15-Day Notice: The original proposal set a deadline of January 1, 2030, for hydrogen produced from fossil gas to be ineligible for LCFS credits. Additionally, hydrogen used as vehicle fuel was required to meet specific renewable content standards by this date.
Second 15-Day Notice: This deadline has been extended to January 1, 2035, allowing more time for the industry to develop renewable hydrogen production capabilities. By 2030, hydrogen must contain at least 80% renewable content to comply with LCFS requirements. This extension is designed to align with California’s broader renewable energy objectives and support the transition to non-fossil hydrogen sources.

Credit Limitations on Virgin Crop-Based Biofuels

First 15-Day Notice: A cap of 20% was established on credit generation from biofuels produced from virgin soybean and canola oil. Further, the earlier notification stated “For companies with biomass-based diesel pathways certified prior to the effective date of the regulation and for which the percentage of biomass-based diesel produced from soybean oil or canola oil was greater than 20 percent of combined reported biodiesel and renewable diesel quantities for 2023 LCFS reporting, this provision takes effect beginning January 1, 2028”
Second 15-Day Notice: The cap now includes sunflower oil as well, responding to public feedback that suggested excluding it could incentivize its use. This limit applies uniformly to all biofuels produced within California, ensuring equitable treatment across domestic and imported fuels. The notification says that “the provision will not apply to any biomass-based diesel pathway certification applications submitted before the effective date of the regulation until January 1, 2028.”.

While sunflower oil has been added, the other key change has been on timeline. While earlier we had anticipated that RD would slow down in the near term, our new assessment is that it would not.

Soybean Oil, Canola Oil and Sunflower oil (reported as a component of ‘Other feedstock’ in CARB’s quarterly reports), has already crossed 20% for 2 years at an aggregate level. And in some quarters Soybean sourced RD alone has exceeded 20% of the RD produced. Over the next 3 years we will see a change/ shift in how RD is supplied into California. We will also have to see if other jurisdictions adopt a similar stance.

Annual Carbon Intensity Benchmarks

First 15-Day Notice: The automatic acceleration mechanism (AAM) for adjusting annual carbon intensity benchmarks was based on data from the previous calendar year.
Second 15-Day Notice: This mechanism has been modified to utilize data from the most recent four quarters. This change allows for quarterly announcements regarding benchmark adjustments (instead of May 15^th of every year), enhancing predictability and compliance planning for stakeholders. However, “If triggered, the benchmark schedules would still be adjusted on the same frequency and timing as previously proposed”

Changes to Hydrogen Refueling Infrastructure (HRI) Credits

First 15-Day Notice: The capacity factor for light and medium-duty hydrogen refueling stations was set at 50% for public stations and 25% for private stations.
Second 15-Day Notice: The capacity factor has been increased to 100% for public stations and 50% for private stations, with a maximum creditable capacity raised to 1,200 kilograms of hydrogen per day. This adjustment aims to stimulate investment in hydrogen infrastructure by making it more financially viable.

Electric Distribution Utilities (EDUs) Credit Allocation and Spending

First 15-Day Notice: EDUs were mandated to spend 75% of their base credit proceeds on equity projects.
Second 15-Day Notice: This requirement has been reduced to 50% for smaller EDUs, while larger utilities will still be required to allocate 75% of their proceeds. Additionally, a rollover provision has been introduced that allows unspent funds to be applied toward future spending obligations.

OEM Credit Allocation and Revocation

First 15-Day Notice: Original equipment manufacturers (OEMs) were allowed to opt into the LCFS program and generate credits for residential charging.
Second 15-Day Notice: Clarifications have been made regarding eligibility revocation; OEMs must spend their base credit proceeds within three years or face revocation of their credits. They can also invest in EV charging infrastructure as separate eligible projects.

Verification Thresholds for Hydrogen and Electricity Transactions

First 15-Day Notice: The verification threshold was set at 6,000 credits, which could pose a burden on smaller entities needing verification services.
Second 15-Day Notice: This threshold has increased to 10,000 credits, reducing the administrative burden on smaller entities while ensuring that larger transactions remain verified.

RNG Crediting Periods

First 15-Day Notice: Staff proposed to limit the total number of crediting periods for RNG projects to two consecutive 10-year periods for projects starting before January 1, 2030. T
Second 15-Day Notice: The updated proposal reinstated the possibility to receive three consecutive 10-year crediting period for RNG projects.

RNG Book-and-Claim Accounting

First 15-Day Notice: The proposal included a condition which would have allowed CARB to approve a directional flow map of gas pipeline system prior by July 1, 2026, which would have limited the book-and-claim accounting for out-of-state RNG coming in.
Second 15-Day Notice: The staff proposes to also allow book-and-claim accounting for RNG when it is used to generate electricity using fuel cells for EV charging pathways. Additionally, staff proposed to change the RNG deliverability requirements based on of the number of MDV/HDV ZEV in the state instead of relying on the CARB-approved gas pipeline flow map.

Public Data Availability for ZEV Infrastructure

First 15-Day Notice: Data on hydrogen refueling stations and EV charging stations were made publicly accessible but lacked comprehensive details.
Second 15-Day Notice: Additional details such as station owners and operating hours have been included in publicly available data, improving transparency regarding zero-emission vehicle infrastructure.

Verification Flexibility for Site Visits

First 15-Day Notice: Annual site visits by verifiers were mandatory at central record locations, which could be resource-intensive.
Second 15-Day Notice: Risk-based site visits can now be conducted based on verifier judgment rather than requiring annual visits. This provides greater flexibility while maintaining program integrity.

Verification Delay for Hydrogen and Electricity Transactions

First 15-Day Notice: Verification requirements for hydrogen and electricity transactions were initially proposed to take effect starting January 1, 2025, requiring entities to secure verification services without delay. This introduced a tight timeline for compliance, as entities had limited time to arrange verification services for these transactions.
Second 15-Day Notice: The verification requirements have been delayed by one year, now taking effect on January 1, 2026. This delay gives reporting entities additional time to secure the necessary verification services.

Environmental Impact Assessment

Both notices confirm that proposed modifications do not lead to significant new environmental impacts. The Second 15-Day Package includes new supporting documents such as instruction manual for soeme Tier 1 CI Calculators . These calculators will aid in determining carbon intensity values accurately while ensuring adherence to regulatory standards.

Assessment

In summary, the Second 15-Day Notice introduces refinements to the previously proposed changes, several of which are based on public feedback. In several cases it provides flexibility to the program participants, and in a few cases it clarifies requirements that were announced earlier. Besides RNG pathway crediting provisions, most of the material changes were all captured in the first 15-day package.

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