Viewpoint: LCFS plans could grow biofuels market

Next year could prove to be a transformational period for new clean fuels programs, with lawmakers and regulators poised to take up low-carbon fuel standard (LCFS) proposals across North America.

Recent growth in renewable fuel sales has been largely concentrated in California, where producers can layer the value of federal renewable identification numbers (RINs) on top of lucrative California LCFS credits, which have averaged $200/metric tonne this year for spot delivery.

The California experience has provided a model for other jurisdictions interested in mandating use of less carbon-intensive fuels such as renewable diesel, biodiesel, ethanol and renewable natural gas.

Renewable fuel producers are closely watching the development of Canada's Clean Fuel Standard, because it could lead to a significant increase in biofuel blending over the next decade. The program, which will cover fuels such as gasoline, diesel and fuel oil, is scheduled to be rolled out in 2022. The environment ministry recently issued its proposed regulations, and next year will be devoted to finalizing the program's elements. US renewable diesel producers view Canada as a new target market for their fuel.

In Washington state, prospects for an LCFS program appear to have improved following the 3 November election, according to state representative Joe Fitzgibbon (D), who has sponsored LCFS bills in each of the past two legislative sessions.

His proposal, which governor Jay Inslee (D) has made part of his 2021 climate policy agenda, would require a 10pc cut in the carbon intensity of transportation fuels by 2028 and 20pc by 2035. While Fitzgibbon's previous bills have come up short in the state legislature, supporters believe 2021 is the year that it will make it across the finish line. With a large refining complex in Washington state, biofuels producers are eyeing a large source of demand if that clean fuels program becomes law in the spring session.

New York lawmakers could take action on an LCFS as part of the state budget process, which will begin in January and must be finished by 1 April.

"We hope we can get legislation through that vehicle, which would make it conceivable that regulations could be in place by the end of 2021, going into effect in 2022," New York League of Conservation Voters president Julie Tighe said at Argus' biofuel conference in November. "We are going to push for the state to move quickly and aggressively."

Tighe is leading a coalition of environmental groups and biofuel producers pushing for lawmakers to back an LCFS. The policy could also get a boost from a separate process to develop a plan for implementing major climate legislation the state enacted last year.

Other states, nearly on a monthly basis, have announced plans to explore the use of an LCFS. There is strong interest in the Midwest — particularly Illinois, Minnesota and Wisconsin. A task force advising Wisconsin governor Tony Evers (D) recently recommended that the state consider developing a LCFS proposal as soon as next summer as part of a broader plan to address climate change. The state, along with Minnesota and Illinois, have embraced the work done by the Midwestern Clean Fuels Policy Initiative.

Colorado completed an LCFS feasibility study this year, while Nevada officials earlier this month said they are considering an LCFS to help reach the state's climate policy goals.

Biofuel producers have already benefited from the trio of LCFS mandates on the Pacific coast — California, Oregon and British Columbia. All of these programs are poised for further growth. British Columbia over the summer extended its LCFS to 2030 with a 20pc carbon intensity reduction mandate. The Oregon Department of Environmental Quality next year plans to begin work on a Clean Fuels Program extension requested by governor Kate Brown (D) that would set a 25pc by 2035 mandate. And California – the largest renewable transportation fuels market in the US – will tighten the carbon intensity targets in its LCFS program to 8.75pc in 2021, up from 7.5pc this year.

These developments signal much greater demand for renewable fuels and greater compliance obligations for fossil fuel producers.

By Jessica Dell