California surpassed LCFS targets in 1Q

California exceeded next year's goals for transportation fuel carbon cuts during the first quarter of 2022, piling up compliance credits as regulators consider setting tougher standards.

California's transportation fuel mix during the first quarter of 2022 implied an 11.7pc reduction from 2010 carbon intensity levels, surpassing both this year's mandated 10pc drop and the 2023 target of 11.5pc. The Low Carbon Fuel Standard (LCFS) targets are measured on the basis of a full year, rather than individual quarters.

Spot credit prices immediately sank following last week's data release, and have this summer held at roughly half the price they traded a year ago. A now-record inventory of unused credits spurred regulator and generator interest in setting tougher LCFS targets both before 2030 and beyond.

LCFS programs reduce the allowed transportation fuel carbon intensity each year. Higher-carbon fuels that exceed a year's limit incur deficits that suppliers must offset with credits generated from the distribution of approved, low-carbon alternatives.

The current program mandates a 20pc reduction by 2030.

California Air Resources Board (CARB) staff sought comment on potential 25pc and 30pc targets for 2030 in a workshop held in early July. The regulators also sought feedback on whether to phase out well-established forms of credit generation, such as from charging of electric forklifts, or to restrict credit generation from crop-based feedstocks.

Electric forklift charging and non-petroleum diesel blendstocks from crop feedstocks each accounted for 3.7pc of all new credits generated in the first quarter.

Credits from electric forklift charging grew from less than 2pc of all new credits in 2019 to more than 6pc in 2021. New forklift credit generation increased by 3.4pc from the fourth quarter of 2021 to the first quarter of 2022, a slower pace that tilted forklift charging back below 6pc of all new credits for the quarter.

Biofuels have for years faced criticism for the tension their production represented between food and fuels. The war in Ukraine this year disrupted food supplies and added pressure on the use of crop-based fuels, including soybean oil for renewable diesel and biodiesel and corn for almost all US ethanol.

The number of unused credits would have still grown by roughly 2pc in the first quarter without forklift charging or soy-based diesel alternatives. CARB has not set a timeline for any formal rulemaking to adopt changes.

Deficit generation picked up speed in the first quarter but remained below pre-pandemic levels. Initial state data last month suggested that rising energy prices in the second quarter limited gasoline demand, conditions that could again boost the number of unused credits. New credits have exceeded new deficits for five consecutive quarters.

The agency will take comment on the workshop ideas until 8 August.

By Elliott Blackburn