New Mexico begins LCFS enforcement

New Mexico today began enforcing rules to slash road fuel carbon intensity by 20pc this decade.

Obligations on gasoline and diesel delivered to the state began under the Clean Transportation Fuel Program, the newest low-carbon fuel standard (LCFS). Road fuel suppliers must register in the program by 15 May as the state begins tallying fuel volumes and carbon scores to produce the program's first deficits and credits in October.

New Mexico marks the first US program outside the west coast providing in-state incentives to entice electric vehicle charging, biofuels and other petroleum alternatives. LCFS programs require yearly reductions of road fuel carbon intensity. Suppliers of fuels exceeding the annual limits incur deficits that they must offset with credits generated from the distribution to the market of approved, lower-carbon alternatives. Credit sales help attract and finance those lower-carbon fuels. California, Oregon, Washington, British Columbia and Canada each administer LCFS programs for their jurisdictions.

Obligations in New Mexico begin accruing immediately, but participants will prove compliance with credits gathered to offset their deficits in April 2028. New Mexico will combine 2026 and 2027 into an initial compliance period, similar to the start of Washington's Clean Fuel Standard. Quarterly and annual reporting of credit and deficit generation begin at a pace familiar to other US programs, with details of activity during the April quarter to be reported beginning in July. New Mexico plans to distribute its first credits for trade beginning 1 October.

In Washington, the previous US program to launch, participants saw wide bids and offers of credits through the first quarter of compliance before trade began in its second quarter. New Mexico parties discussed an initial bid but no offers over the course of the trading day. State regulators must approve transfers.

New Mexico set a maximum credit price of $270/t for the first compliance period. LCFS programs do not have a price floor.

New Mexico will grapple with smaller fuel suppliers than other programs. Credits and deficits in LCFS markets occur at wholesale delivery points in each jurisdiction. In New Mexico, companies trucking gasoline or diesel blends retrieved from across state lines for delivery into the state would be responsible for deficits. Oregon has managed similar supply considerations.

The state will recognize carbon intensity pathways already approved in other states. Like Washington, the state will also finance the administration of the LCFS through fees assessed to all participants. Most of the fees will be levied on obligated parties supplying higher-carbon fuels, distributed based on how much fuel they deliver during the initial quarter.

New Mexico lawmakers in 2024 approved creating an LCFS after four consecutive sessions of proposals. The state had initially targeted a 2025 program start, but rulemaking work extended through the end of the year. New Mexico's Environment Improvement Board gave final approval to the current program in January.

The program now begins with surging global transportation fuel prices and sharply higher US demand for biofuels. New Mexico's gasoline demand is the smallest of any of the LCFS states, according to federal data. Gasoline consumption averaged only slightly higher than diesel, an unusual balance among those states.

Compliance costs in LCFS programs can be passed on to drivers. Washington's program averaged 3.5¢/USG for gasoline deficits in March. Oregon averaged 24.9¢/USG.

By Elliott Blackburn