Continued growth in renewable diesel and biogas supplied to California in the fourth quarter of 2023 lifted Low Carbon Fuel Standard (LCFS) credits available for future compliance by a record 2.9mn metric tonnes (t), according to state data published today.
A widening gap between newly generated credits and deficits has helped to drag credit prices down to roughly six-year lows. Credits available for future LCFS compliance, which do not expire, increased by more than half in 2023 to a volume able to satisfy an additional year of new deficits without any new lower-carbon fuel use.
Rising renewable diesel and biogas for transportation continued to drive the build in credits in excess of current compliance needs, which increased by 14pc in the fourth quarter. New renewable diesel credits rose by 6.7pc from the previous quarter to make up 40pc of all new credits for the final period of 2023. The fuel made up 58pc of the liquid diesel pool and petroleum diesel shrank to less than a third. Biogas, the second largest source of LCFS credits, grew by 6pc to hold about 17pc of all new credits in the quarter.
CARBOB consumption meanwhile fell by 3.3pc from the previous quarter. The fuel still makes up 89pc of all new program deficits.
LCFS programs require yearly reductions in transportation fuel carbon intensity. Higher-carbon fuels that exceed the annual limits incur deficits that suppliers must offset with credits generated from the distribution of approved, lower-carbon alternatives.
The previous quarter recorded a 2.2mn t build in credits available for future compliance, helping to drop confirmed trade to $56.60/t in February.
An ongoing California Air Resources Board (CARB) rulemaking could rebalance the widening gap between new credits and new deficits. Staff continue to seek comment on the approach participants would prefer.
Scenarios offered at a mid-month workshop considered different paths through a 30pc reduction target, compared to the current 20pc target, by the end of the decade. A 9pc reduction in 2025 targets — a drop more than seven times steeper than recent 1.25pc annual target adjustments — would trim available credits for future compliance by more than 8mn t before continuing to work toward a 30pc target in 2030, according to CARB.
A 5pc reduction in 2025 would have limited immediate effect on banked credits, based on staff simulations. Conditions would instead trigger a proposed mechanism that automatically accelerates to tougher targets at least once before 2030, and potentially twice — toughening the reduction target to 39pc.
Public comment on this balancing of program pace continues to 10 May.
