LCFS credit generation stumbles in first quarter

OREANDA-NEWS. July 28, 2015. Credit generation in California's Low-Carbon Fuel Standard (LCFS) program fell in the first quarter as credit prices hovered near record lows and overall fuel use fell.

Credit generation fell to just under 1mn metric tonnes in the quarter, echoing a similar drop below 1mn t in the same quarter of 2014. The program is still producing significant surpluses as regulated fuel producers and importers have had little difficulty meeting the 1pc carbon intensity reduction requirement that has been in place since 2013 because of a court decision.

Just over 4.9mn t of excess LCFS credits werer generated through the first quarter, according to California Air Resources Board data released this week. The state's fuel distributors have generated 12mn t of LCFS credits since 2011 versus 7.1mn t of deficits. The LCFS program measures compliance in terms of credits and deficits. Fuels that beat the carbon intensity requirements generate credits, while those with higher carbon intensities produce deficits.

Low credit prices have squelched improvements in the carbon intensity of the state's ethanol slate. The volume-weighted average carbon intensity of the state's ethanols has increased from a low of 80.47g CO2e/megajoule in the second quarter of 2014 to 82.85g CO2e/MJ in the first quarter of this year.

With credits assessed in the low \\$20s/t for the first quarter, volumes of biodiesel and renewable diesel have stayed at their combined level of about 5pc of the diesel pool. That is down from a high of 8pc in the fall of 2013, when credits were at \\$50-85/t.

The low LCFS credit prices also allowed the use of soybean-based biodiesel, which uses a more carbon-intensive feedstock than other biodiesels, to reach levels not seen since 2012, with more than 2.1mn USG blended in the first quarter, more than double the total blended in all of 2014.

But the jump in the price of LCFS credits to around \\$50/t in the past two months should lead to shifts in the fuel markets by spurring the use of less carbon-intensive gasoline and diesel replacements and increase their blend levels where possible.