California may still apply tough new carbon-reduction requirements to fuels delivered in the first quarter this year, regulators said today.
California State Air Resources Board (CARB) staff said that they had not yet ruled out applying a 9pc reduction requirement proposed for fuel in 2025 under California's Low Carbon Fuel Standard (LCFS). The speed at which the reduction can take effect — six times greater than past yearly requirements — may determine the ultimate size of a ballooning credit reserve weighing on prices in a key US low-carbon fuel incentive program. But implementing the standards would depend on how quickly regulators can resolve more than two dozen issues raised by California's Office of Administrative Law (OAL).
Fuel suppliers could use the new standards CARB adopted in November if that state watchdog approves them before 30 June, staff said during a presentation on reporting processes today. If the work misses that deadline, CARB may consider options including applying the requirements to a portion of the year, branch chief Greg Mayeur said.
"That is something we will have to discuss with our legal team, depending upon the effective date of the regulation," Mayeur said. "As we come closer to knowing the effective date, we will put out that guidance."
LCFS programs require yearly reductions of transportation fuel carbon intensity. Higher-carbon fuels that exceed the annual limits incur deficits that suppliers must offset with credits generated from the distribution to the market of approved, lower-carbon alternatives.
California credits have swollen with the rapid supply of especially renewable diesel and tepid gasoline demand demand. Participants expect the continued use of standards set in July 2020 will extend more than three years of steady growth of excess credits available for future compliance, to more than 1.5 times all obligations generated in 2023.
OAL last month disapproved a long-awaited rulemaking, interrupting immediately tougher program targets intended to apply to fuels delivered to California so far this year, as well as other changes to the LCFS program. The office reviews all rulemakings for compliance with state laws on regulation and procedure. Staff said changes that CARB adopted in November must be revised to address vague or overly broad language. OAL flagged sections on determining the carbon intensity scores of certain feedstocks, the distribution of credits to electric vehicle manufacturers and renewable natural gas crediting for revision.
CARB has 120 days to revise and resubmit the rulemaking. That will include a 15-day public comment period for any substantive changes, after which staff must review and respond to relevant submissions.
Any changes to deadlines staff considered necessary due to the delay would be included for public comment, Mayeur said.
The disapproval news slashed spot credit prices by 20pc in the first trading session to follow. Credits were trading at their lowest levels in more than five months by the end of February as participants waited for more clarity about the path ahead.
