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California sets sights on tougher LCFS

  • Market: Emissions
  • 20/12/23

California will target deeper cuts to its transportation fuel carbon intensity and be pickier about the alternatives it allows to achieve them under a proposal issued late Tuesday.

Potential revisions to the Low Carbon Fuel Standard (LCFS) include a 50pc tougher target in 2030 accelerated with a 5pc more restrictive target in 2025. The agency will propose an automatic mechanism to advance to tougher annual targets when unused credits more than triple average deficit generation. And California would for the first time impose emissions reduction requirements on jet fuel used in intrastate flights, which the agency estimated at about 10pc of the jet fuel supplied in the state.

The agency would explore new restrictions on credit-generating fuels, including tracking requirements for crop-based feedstocks and a phase-out of new renewable natural gas (RNG) used directly in transportation by 2041. But CARB would only apply new, tougher eligibility for out-of-state RNG to projects built next decade.

Today's filing allows market participants a pre-holiday look at where regulators want to move the program, but does not mark the beginning of a required 45-day public comment period. CARB now expects to begin that clock in early January, with a public hearing scheduled for 21 March.

Board members must approve the proposal by vote after the public comment period, and language will also undergo a standard review by the state's Office of Administrative Law.

LCFS programs require yearly reductions to transportation fuel carbon intensity. Conventional, higher-carbon fuels that exceed the annual limit incur deficits that suppliers must offset with credits generated from approved, lower-carbon alternatives.

CARB began workshop discussions on how to change the LCFS in late 2021, with spot credits above $140/t. Spot credits have traded at less than half that level through large swaths of 2022 and 2023.

Prices have groaned under the weight of new credits generated in excess of obligations that have doubled since the workshops began, to more than 18mn t — nearly enough to satisfy all the deficits generated in the 2021 compliance year. These credits do not expire. Tougher targets and the mechanism to make the benchmarks harder if credits greatly exceed deficits would attempt to address that imbalance.

The agency advanced the current rulemaking in September with draft documents suggesting a 30pc reduction target, new obligations for intrastate jet fuel and a reduced role for RNG. The new language also included requirements to trace crop-based and forestry-based feedstocks to their point of origin, with independent certification. The agency would also formally remove palm-derived fuels from eligibility — no palm-based fuel has received credits under the program so far.

California's proposed changes come after other jurisdictions had already completed updates to their programs.

Oregon in September 2022 extended the state's Clean Fuels Program through 2035 with tougher targets. Washington regulators will begin a rulemaking to better incorporate aviation fuels into that state's program early next year, but will not touch the decade of annual targets set by lawmakers.

Canada's new Clean Fuels Regulation began enforcement this year. British Columbia adopted North America's steepest 2030 target and will next year set targets for jet fuel supplied in the province.


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12/07/24

Australia's Climate Active program drives ACCU demand

Australia's Climate Active program drives ACCU demand

Sydney, 12 July (Argus) — The Australian federal government-backed Climate Active certification program continued to drive voluntary demand for Australian Carbon Credit Units (ACCUs) last year, although future growth remains uncertain as the scheme will undergo a planned reform. Cancellations of ACCUs for Climate Active certification reached 592,837 units in 2022, down from an all-time high of 625,705 in 2021, according to estimated data that the Department of Climate Change, Energy, the Environment and Water (DCCEEW) recently disclosed to Argus . Figures for 2023 are not yet available, according to the department, but cancellations may have reached a new high between 650,000-700,000 units, according to Argus estimates ( see table ). Each ACCU represents 1t of CO2 equivalent (CO2e) stored or avoided by a project. The Clean Energy Regulator (CER) said it does not have a dataset of ACCU cancellations for Climate Active certification, despite having disclosed figures in some of its quarterly carbon market reports in recent years. It mentioned late last year that the program accounted for around 0.5mn of a total 0.8mn cancelled for voluntary purposes in the first three quarters of 2023, and later reported total voluntary cancellations of 290,146 units in the fourth quarter alone. Voluntary cancellations reached nearly 1.1mn units in 2023 , a new record high. Certification under the Climate Active standards is awarded to businesses that measure, reduce and offset their carbon emissions to achieve carbon neutrality. More than 700 certifications have been provided to entities including large and small businesses, local governments, and non-profit organisations. But significant changes in climate science, business practices and international benchmarks since the program was established in 2010 prompted the federal Labor government to seek modifications aimed at driving a more ambitious voluntary climate action in Australia, following its separate reform of the compliance market's safeguard mechanism . The DCCEEW late last year launched a consultation with proposals to reform Climate Active, which would require more climate ambition from businesses seeking to be certified under the program. The use of carbon credits to offset emissions that have not been reduced by businesses would be tightened, with a requirement that all eligible international offset units meet a five-year rolling vintage rule, replacing the existing post-2012 vintage requirement. Other proposals include mandating a minimum level of gross emissions reductions and a minimum percentage of renewable electricity use. "The government is working through feedback on these proposals and will announce the consultation outcome later this year," a DCCEEW spokesperson told Argus . No expected changes in eligible offsets ACCUs have been representing a small share of the total offsets used for Climate Active certification at between 5.7-10.8pc in recent years, despite the estimated record high last year, according to DCCEEW estimates ( see table ). Organisations can currently use certified emissions reductions (CERs) and removal units (RMUs) under the program, as well as verified carbon units (VCUs) from the Verra registry and verified emissions reductions (VERs) from Gold Standard. The DCCEEW did not provide a breakdown of cancelled volumes per credit type. No minimum use of ACCUs and no changes to the list of eligible international units are expected in the near term, following advice from a review from Australia's Climate Change Authority (CCA) in 2022. But some market participants have been asking for the removal of CERs, which account for the "vast majority" of carbon offsets surrendered by Australian organisations, according to utility AGL. CERs are "outdated", utility Origin Energy said in its submission to the Climate Active consultation. "We consider it would be consistent with international carbon reduction mechanisms to introduce a clear end date to phase out the use of CERs from the program and ensure greater alignment with the more relevant Paris Agreement," Origin said. "This reform is considered an immediate priority, and of more urgent need than some of the other proposals in this consultation." Uncertainties over future demand More investor and activist pressure in recent years over the use of carbon offsets with perceived low levels of integrity have also been forcing companies to review not only their offset standards, but also claims of ‘carbon neutrality' and similar terms. One of the DCCEEW's proposals is to discontinue the use of ‘carbon neutral' to describe the certified claim and to choose a different description. "A lot of the voluntary demand for carbon offsets in Australia has traditionally come from Climate Active, but the landscape is indeed moving quickly and the concept of carbon neutrality is being replaced by net zero," said Guy Dickinson, chief executive of Australia-based carbon offset services provider BetaCarbon and head of carbon trading at sister company Clima. This should drive more price stratification between carbon removals and carbon avoidance credits, he noted. Telecommunications firm Telstra, one of the biggest companies in Australia, recently announced it will stop using carbon offsets to focus instead on reducing its direct emissions. It will no longer seek Climate Active certification as a result and will remove references that its plans are ‘carbon neutral' or ‘carbon offset'. This could prompt other businesses to follow suit, market participants said. Another source of uncertainty over future voluntary demand comes from a DCCEEWW proposal that abatement from all ACCUs used under Climate Active would count towards meeting Australia's Nationally Determined Contribution (NDC) under the Paris Agreement. The use of ACCUs under the program have so far been treated as ‘additional' to Australia's emissions reduction target through accounting under the Kyoto Protocol. If the government goes ahead with such a proposal, this could disincentivise participation in Climate Active as organisations might consider this as "paying to help the government meet its targets through the voluntary action of businesses," utility EnergyAustralia warned in its submission. There has been increased interest in emerging and alternate standards to those acceptable under Climate Active, such as the American Carbon Registry, Climate Action Reserve and Puro.Earth offsets, according to environmental marketplace Xpansiv's vice president of carbon and Australian energy, Peter Favretto. But Climate Active has reported positive growth in certified brands since its inception and will likely continue to create demand for offsets in the international voluntary market and the Australian ACCU market, he said. "With the upcoming mandatory climate reporting legislation in Australia , and a similar atmosphere in other global jurisdictions such as the US and the UK, there is a growing demand that could lead to further growth in Climate Active certifications," Favretto added. By Juan Weik ACCUs used for Climate Active certification units Year Volume Total voluntary ACCU use Climate Active % 2019 243,105 329,145 73.9 2020 417,405 605,499 68.9 2021 625,705 844,445 74.1 2022 592,837 855,081 69.3 2023 650,000-700,000* 1,090,575 60-64* DCCEEW, CER *Argus estimates Total offsets under Climate Active unit Year ACCUs Total offsets ACCUs % 2019 243,105 4,230,011 5.7 2020 417,405 6,857,628 6.1 2021 625,705 5,796,466 10.8 2022 592,837 7,472,711 7.9 DCCEEW Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

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Boeing used less SAF in 2023 than planned


10/07/24
News
10/07/24

Boeing used less SAF in 2023 than planned

New York, 10 July (Argus) — US aerospace manufacturer Boeing used less sustainable aviation fuel (SAF) in 2023 than it had initially planned, citing "supply chain issues." Boeing doubled its internal SAF consumption in 2023 compared with year-prior levels according to its latest sustainability report, with the fuel making up about 3pc of its total aviation fuel use over the year. But the company's use of around 478,000 USG neat SAF in its own operations was still less than its previously announced purchase commitments. Boeing early last year committed to funding 5.6mn USG of blended SAF from Finnish biofuels producer Neste over the course of 2023, with 2.6mn USG to be used directly by Boeing and another 3mn USG to support SAF use elsewhere as part of a book-and-claim accounting process. Since the Neste blend contains about 70pc conventional jet fuel, the Boeing commitment in essence was to purchase and use within its own operations about 780,000 USG neat SAF. But Boeing's direct SAF consumption last year, which reflects fuel used internally and not fuel it supported for use elsewhere, was around 61pc of its earlier purchase agreement. The company, confirming the discrepancy, said not all the planned 2.6mn USG were received because of "supply chain issues" but declined to elaborate further. Under the initial deal, Epic Fuels and its parent company Signature Aviation were supposed to supply 2.3mn USG of the Neste blend to Boeing, while Avfuel was supposed to supply 300,000 USG. Avfuel manager of alternative fuels Keith Sawyer told Argus that it ended up supplying more than the planned 300,000 USG at Boeing's request last year and that the fuel supplier is on track to meet its obligations to supply 1.5mn USG of blended SAF to Boeing this year. Epic Fuels and Neste declined comment. Boeing has set plans to use 4mn USG of the same Neste SAF blend in its own operations this year, with some coming from Epic and some from Avfuel, and to purchase SAF certificates associated with 5.4mn USG of blended SAF used elsewhere. Boeing added that SAF, which today mostly comes from hydrotreated vegetable oils and waste fats, is "the biggest lever for the industry to decarbonize by 2050." The company plans to use more of the fuel internally and to ensure that all the commercial airplanes it produces are compatible with 100pc SAF by 2030. In short supply Aviation companies see SAF as crucial for meeting climate goals, though usage to date has been limited by SAF's steep premium to conventional jet fuel. Though prices for SAF delivered to the US west coast have recently fallen on expectations of higher supply, it is still more than twice as expensive as conventional jet according to Argus assessments. The fuel's growth thus hinges on government policy, but low environmental credit prices in the US and uncertainty about a clean fuels tax credit kicking off next year have created a difficult investment environment for biofuels producers. Few potential suppliers and thin market liquidity then make it hard for prospective customers to rapidly scale up their SAF consumption. American Airlines for instance wants to replace 10pc of its jet fuel with SAF by 2030, but the US airline reported in its own sustainability report last week that it used 2.7mn USG SAF in 2023, an increase from the prior year but still less than 0.1pc of its total fuel use. Chief executive Robert Isom said that "we've signed commitments with multiple SAF producers, at a premium, to try to secure supply" but that "the volume of SAF available today and likely to be ready over the next several years is a tiny fraction of what's needed." By Cole Martin Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

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EU parliament groups detail climate, energy policy asks


09/07/24
News
09/07/24

EU parliament groups detail climate, energy policy asks

Brussels, 9 July (Argus) — The European Parliament's centre-left S&D and liberal Renew groups are finalising their key policy requests ahead of an expected plenary vote, on 18 July, on the re-appointment of Ursula von der Leyen as European Commission president. Both groups, like the centre-right EPP, are broadly calling for a continuation of the bloc's Green Deal. Von der Leyen, a member of the centre-right EPP's governing body, has already received nomination from EU leaders. But she will also need support from the centre-left, liberals and Greens to gain a majority in plenary on 18 July. The EPP had intended to finalise its policy calls for 2024-29 in Portugal by 5 July. But parliament's largest centre-right party is still working on a "live" document with hundreds of amendments. Core elements remain, including revision of CO2 standards for new cars to allow for alternative zero-emission fuels beyond 2035 and a new e-fuel, biofuel and low-carbon fuel strategy. The centre-left S&D group has already handed von der Leyen its policy wishlist for 2024-30. The group has called for several existing targets to remain in place, including the EU's legal commitment to climate neutrality by 2050 and the 2030 greenhouse gas (GHG) reduction target — cuts of "at least" 55pc by 2030, from 1990 levels. It also wants CO2 standards for cars and the deforestation regulation to remain in place. S&D also wants to extend legal obligations under the EU's Climate Law to establish an "ambitious" intermediate climate target for 2040 of "at least 90pc and up to 95pc of net GHG emissions", compared with 1990 levels. And the group calls for renewable energy, energy efficiency and clean technology manufacturing to be at the core of the EU's energy security strategy. The liberal Renew group does not want the next commission "backtracking" on the Green Deal, and is pushing for affordable energy for households. The group wants a "complete phase-out" of imported Russian fossil fuels, with a strong emphasis on a continued supply diversification and energy efficiency. Renew further calls for a "zero carbon" Energy Union package of legislation with joint purchasing and allowing for more investment in power storage, grids and generation. Other liberal calls are for expanding the emissions trading system (ETS) and expanding the EU's carbon border adjustment mechanism (CBAM) to new sectors, including downstream users such as automotive. A "phase-out" of coal, oil and gas in industry should come through strong market-based ETS measures, while ETS revenues should support accelerated electrification, the group added. And it calls for a science-based 2040 GHG target. The Green group has not prepared a specific post-electoral document for 2024-29 strategy. But its support for von der Leyen is made conditional on not rolling back the Green Deal. By Dafydd ab Iago Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

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South Korea pledges $7mn for loss and damage fund


09/07/24
News
09/07/24

South Korea pledges $7mn for loss and damage fund

London, 9 July (Argus) — South Korea today has pledged $7mn to the UN loss and damage fund, to address the unavoidable and irreversible effects of climate change in developing countries. Loss and damage falls under a wider climate finance theme. Discussions of the topic, often fraught, can hold back progress in other areas, such as mitigation — cutting emissions. After years of negotiations, countries agreed at the UN Cop 27 climate summit in November 2022 to establish the loss and damage fund . Talks on the fund dominated Cop 27 and climate finance is set to take centre stage again at Cop 29 in November. The second meeting of the fund's board is underway in Songdo, South Korea until 12 July. Countries agreed on the loss and damage fund's setup at last year's Cop 28 , while several made financial pledges totalling over $700mn. The fund's board has 26 members, including 12 representing developed countries and 14 from developing nations. Of the latter, there are two apiece representing small island developing states and least developed countries, according to UN classification. These countries are among the most vulnerable to the effects of climate change. Board members decided today that the Philippines will be the board's host country. The board had previously approved the World Bank as the fund's interim host . The board meeting this week should agree on the workplan for this year, and "kick off discussions on key issues around observer participation, communities' direct access to funding, and the types of financial instruments", director of policy and campaigns at non-governmental organisation ActionAid Brandon Wu said. But "most major decisions on those topics will likely come later this year", Wu added. By Georgia Gratton Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

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New Zealand launches CCUS framework consultation


09/07/24
News
09/07/24

New Zealand launches CCUS framework consultation

Sydney, 9 July (Argus) — New Zealand's coalition government today launched a consultation for a planned regulatory framework for carbon capture, utilisation and storage (CCUS), proposing that project operators receive New Zealand emissions units (NZUs). Establishing a regulatory regime for CCUS could reduce the cost of gas production, especially for higher CO2 content fields. This could attract investment and help to reverse the current decline in output , supporting supply security, the government said on 9 July. The government recently said it plans to introduce legislation later this year to overturn a 2018 ban on new oil and gas exploration . The New Zealand Emissions Trading Scheme (ETS) currently does not include mechanisms to recognise emission reductions or removals resulting from carbon capture and storage (CCS) activities, apart from forestry removals and geothermal reductions. The government is proposing that one tonne of CO2 captured and stored would be equivalent to one tonne of emissions reduction under the ETS. ETS participants, which include oil and gas companies, could be allowed to subtract emissions captured and stored from their own activities through CCS projects, for the purpose of estimating their ETS liability. Businesses deploying storage technologies could also choose to capture CO2 to receive NZUs for their removals, which might enable a market for CO2 storage from third-party emitters. The government noted that the Australian Carbon Credit Unit (ACCU) scheme allows CCS projects to be awarded carbon credit units if project activities capture greenhouse gases and inject them for permanent underground storage. Implementing CCUS could reduce New Zealand's net CO2 emissions by 4.65mn t over the country's next two emission reduction plan periods — 2026-30 and 2031-35 — energy minister Simeon Brown said. CCUS could become commercially and technically viable from 2027 for gas production and 2030 for the petrochemical industry if a suitable regulatory regime is put in place, according to the government's assumptions. Commercial viability would be driven by the cost of CCUS compared to ETS carbon prices. The consultation is open until 6 August, with the government seeking feedback on several other proposals around the type of monitoring regime for CCUS projects and how liability for CO2 storage sites should be managed. By Juan Weik Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

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