California considers tougher LCFS ‘step down’

California regulators may set more aggressive near-term targets for the state's Low Carbon Fuel Standard (LCFS) to help reduce the large volume of excess credits available in the market as they continue to explore guardrails for crop-based biofuels.

Those are among the changes the California Air Resources Board (CARB) floated in a staff presentation published on Tuesday ahead of a rulemaking workshop taking place tomorrow.

CARB's initial proposal, published in December, included a more stringent target of a 30pc reduction in transportation fuel carbon intensity by 2030, mechanisms to automatically make the program tougher when new credits outstrip new deficits by certain levels, and other modifications to the eligibility of certain fuels to create credits and deficits.

But following significant public feedback, the agency delayed a potential vote on the amendments and scheduled the new workshop.

CARB staff plan to maintain the 30pc by 2030 and 90pc by 2045 targets from the December proposal but are exploring using a steeper "step-down" in 2025 than previously proposed. It could be set at 7pc or 9pc, instead of 5pc. These steeper targets could help draw down the oversupply by 17mn-27mn credits cumulatively from 2024-2046, according to the staff presentation. The program had a record surplus of about 20.6mn credits at the end of the third quarter of 2023, according to the latest program data.

The cumulative drawdown could be even greater, around 170mn credits, if the proposed auto-adjustment mechanism is triggered twice over the next few years, according to the presentation.

Stakeholders have raised concerns on future impacts of crop-based biofuels during past workshops. CARB continues to explore guardrails to encourage the use of waste-based feedstocks and ensure that biofuel production does not come at the expense of deforestation or food production, it said in the workshop materials.

The agency has proposed requiring an independent feedstock certification process, implementing a built-in timeline to develop these standards and approval processes by third-party certifiers, and removing palm-derived fuels from being eligible for credit generation. CARB would leverage existing certification programs, including the International Sustainability and Carbon Certification (ISCC). The agency has proposed that all crop and forest-based feedstocks require certification by 1 January 2028.

For non-waste feedstocks, the carbon intensity score includes land-use change (LUC) value. The agency is evaluating whether to increase LUC for certain fuel/feedstock combinations, in an effort to minimize deforestation risks.

LCFS programs require yearly reductions in the carbon intensity of transportation fuels. Higher-carbon fuels that exceed the annual limit incur deficits that suppliers must offset with credits generated from the distribution of approved, lower-carbon alternatives. The program currently requires a 20pc carbon intensity reduction by 2030.

By Michael Ball and Jessica Dell