California LCFS bank grows: Update

Updates with changes throughout

California Low Carbon Fuel Standard (LCFS) credit prices sank today, as new data showed their supply outstripping demand for a second consecutive quarter.

The California Air Resources Board (CARB) today reported that cumulative credits in the third quarter of 2021 grew by 5.5pc to 8.4mn metric tonnes — their largest quarterly net increase since 2016.

Credits generated from the supply to California of lower-carbon fuels in 2021 have exceeded deficits from higher-carbon road fuels, as the rate of increase for the state's overall transportation demand trails the pace elsewhere in the US.

Third quarter credit generation rose by 11pc from the previous quarter to 5.5mn t, and deficits associated with higher-carbon fuels increased by 6.6pc to 5.1mn t.

Credit prices were discussed lower in the market following the data release, although without any immediate trades.

LCFS programs set maximum carbon intensity levels for transportation fuels that fall each year. Higher-carbon conventional fuels incur deficits for exceeding the annual limits that suppliers must offset by distributing credit-generating low-carbon fuels. CARB publishes data on the balance of these deficits and credits four months after the end of each quarter.

Deficits associated with CARBOB increased by 4.5pc from the previous quarter and remained by far the largest source of all deficits under the program. The fuel generated 26pc more deficits during the third quarter of 2021 than during the same period of 2019, although total consumed gallons fell by 3.9pc over the same period.

But that has not kept pace with rising credits supplied by renewable diesel and from renewable compressed natural gas (CNG), or bio-CNG.

Bio-CNG generated 31pc more credits than the previous quarter to account for 15pc of all credits generated in the third quarter. That was a 3.2pc increase in total credit share compared with the same quarter of 2020.

Renewable diesel generated 16pc more credits than the previous quarter, rising to 31pc of all credits generated during the period.

Electric vehicle charging also rose, with total credits for all charging sources higher by 8.9pc to about 21pc of all credits generated during the quarter.

Spot LCFS was discussed around $143/t, $5 below the 28 January assessment, immediately after the release. Spot LCFS credits sank in November following the late October release of data showing a second quarter build in credits. Credits following the release were rangebound between about $142/metric tonne — a more than three-year low — and $155/t.

Today's credit increase was roughly twice the volume credits added to the cumulative bank in the second quarter.

Some credit generators have urged CARB to respond to falling prices with tougher targets. But staff have pointed to an ongoing and sweeping review of state climate goals, working toward a broad target of carbon neutrality by 2045. Changes to LCFS targets could wait until 2024 to stay in alignment with the scoping process.

By Elliott Blackburn