Key Takeaways

• CARB approved significant updates to the Low Carbon Fuel Standard (LCFS) with a 12-2 vote after a 12-hour meeting.
• The LCFS amendments raise the carbon intensity reduction target to 30% by 2030, with new mechanisms to adjust targets automatically based on market performance.
• The amendments phase out credits for biomethane used in combustion engines while promoting its use for renewable hydrogen production, aligning with the state’s carbon neutrality goals. Stricter guidelines are introduced to prevent deforestation and ensure sustainable sourcing of biofuel feedstocks, with independent certification required to track the origin of crop-based and forestry-based fuels.
• The meeting saw extensive public participation, with environmental justice advocates urging a reconsideration of the amendments due to their health impacts on vulnerable communities. While critics raised concerns about potential fuel cost increases, CARB staff clarified that previous estimates of a 47-cent per gallon rise are outdated, and new assessments will be conducted annually.
• CARB will collaborate with the California Energy Commission to conduct yearly assessments of the LCFS amendments’ impact on retail gasoline prices, ensuring transparency and accountability.

CARB’s Bold LCFS Overhaul Spurs Market Optimism: Proposal of New Amendments Ignited Market Discourse

On 12th August, the California Air Resources Board (CARB) issued a pivotal ‘Notice of Public Availability of Modified Text and Availability of Additional Documents and/or Information for the Proposed Low Carbon Fuel Standard (LCFS) Amendments,’ setting a public comment deadline of 27th August, 2024. This notice outlined several key updates to the LCFS program, which cCarbon analyzed in detail.

The public comment period concluded on 27^th August, and stakeholders anticipated further guidance from CARB. CARB received 249 comments, primarily from industry associations (52) and clean fuel providers (43), reflecting significant interest in the proposed changes. Please read the full analysis of these public comments here.

Key amendments included a 9% carbon intensity (CI) reduction target for 2025, limiting credits from biodiesel using virgin soybean and canola oil to 20% of annual production, and phasing out credits for avoided methane emissions. Stakeholders largely supported tightening CI targets, with some advocating for a more aggressive 12% reduction. However, concerns were raised over the potential economic impact of new sustainability certification requirements and stricter feedstock regulations. The proposal to exclude fossil jet fuel from generating deficits and to cap credits for virgin vegetable oils generated mixed reactions, with calls for greater flexibility to mitigate industry challenges.

The modifications, which built on prior proposals and public input, were detailed in the Second 15-Day Notice released on 1 October 2024.

The Second 15-Day Notice reflects CARB’s efforts to incorporate stakeholder feedback, increase program flexibility, and ensure regulatory compliance, while providing participants with additional time and clarity for implementing changes. Most substantial changes were already addressed in the first notice, with these recent updates focusing on refinements to support market stability and ease compliance burdens for program participants. For more details on the second proposed amendments, read here.

Market Surges as CARB’s LCFS Amendments Drive Optimism

Fig.: California LCFS Average spot prices and benchmark (*CC.Info OTC: Numbers are an average of broker prices reported to CC.info)

The market reacted favorably to CARB’s proposed LCFS amendments. On 13th August, the day after the initial proposal was released, spot prices surged by 12.98%, reaching $55.17. This increase reflected optimism around market stability and anticipated future investments, suggesting confidence in the updated program’s ability to align with California’s climate goals.

Following the final approval of these amendments during CARB’s Board meeting on 8th November, spot prices rose sharply again, reaching $76.75 by 11th November. This was the highest level seen since 1st September 2023, when prices were at $76.58 before they began to decline. The market’s positive response highlights the anticipated impact of these regulatory changes, which are set to be implemented in Q1 2025, following extensive stakeholder engagement.

For more real-time, detailed insights on credit prices, credit and deficit generation, banking trends, and other key indicators, visit our dashboard.

Visit our dashboard for real-time, detailed insights on credit prices, credit and deficit generation, bank trends, and other vital indicators.

CARB Approves Major LCFS Updates After Marathon Meeting

CARB approved significant updates to the Low Carbon Fuel Standard (LCFS) program with a 12-2 vote after an extensive 12-hour board meeting on 8^th November 2024. This decision came after months of public consultation and stakeholder engagement, reflecting California’s aggressive push towards its climate goals.

The amendments set a new CI reduction target of 30% by 2030, up from the previous goal of 20%. This includes a new Automatic Acceleration Mechanism (AAM) to adjust targets based on market conditions. The flexibility aims to balance stringent environmental goals with market stability.

Biomethane credits for combustion engines are being phased out, with a focus on promoting its role in renewable hydrogen production. This aligns with California’s broader methane reduction targets under SB 1383.

Effective January 2028, the revised regulations introduce a cap on credits from biofuels derived from virgin soybean, canola, and sunflower oils to 20% of a company’s total production. This is to promote the use of waste-based feedstocks and prevent deforestation.

The changes will stimulate significant private investment in zero-emission vehicle (ZEV) infrastructure. Projections indicate up to $3 billion in credits for EV charging and $773 million for hydrogen fueling by 2045.

Hydrogen refueling infrastructure has also seen significant support, with 71 hydrogen stations and 749 fast EV charger sites approved as of October 2024. These initiatives are crucial in reducing pollution-related health care costs, with CARB estimating $5 billion in savings between 2024 and 2046.

New Transparency Measures and Fuel Price Monitoring to Boost Market Confidence

CARB staff addressed concerns regarding potential fuel price increases, clarifying that previous estimates of a 47-cent per gallon rise were outdated and highlighting that fuel price impacts are primarily influenced by broader market dynamics, especially crude oil prices. They emphasized that the LCFS program has historically had a minimal effect on retail fuel costs. In her closing statement, Chair Randolph acknowledged the diverse public feedback and underscored the need for decisive action to maintain California’s leadership in climate initiatives. She reaffirmed CARB’s commitment to ongoing stakeholder engagement, with continuous monitoring and adaptation of the amendments to address emerging challenges.

To enhance transparency, CARB plans to launch a new data dashboard for more frequent tracking of fuel production, credit transactions, and carbon intensity metrics, providing stakeholders greater visibility into program performance.

Next steps

Moving ahead, CARB staff will submit the final regulatory package to the Office of Administrative Law (OAL) by January 2025. This will allow the new regulations will become effective Q1 2025.

Additionally, an annual report on the impact of LCFS amendments on fuel prices will be conducted in collaboration with the California Energy Commission (CEC) to ensure transparency and accountability in the program’s economic effects.

Related Articles:

1.Washington’s 2025 Fuel Forecast Insights: Renewable Fuels, Credit Balances, and the Path to Clean Energy Compliance

2.Decoding Stakeholder’s Voices: Ensuring Integrity and Growth in Washington’s Clean Fuel Standard

3.Oregon’s Proposed CFP Rulemaking to Streamline and Revamp Carbon Intensity Measurement

4.Oregon’s Move to Delay Clean Truck Regulations: An In-Depth Look at DEQ’s Updated Plan

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

6.Decoding Public Feedback: Insights from the 15-Day LCFS Proposal Review