Insights: States with Low Carbon Fuel Standards & Those Considering One

Insights: States with Low Carbon Fuel Standards & Those Considering One

States with Low Carbon Fuel Standards or Considering a LCFS-Like Program

Updated November 16th, 2020

California is well known for being at the forefront of economic and environmental issues. They were one of the first states to develop a comprehensive air quality improvement plan and were granted the authority to set vehicle standards that are more stringent than the Federal standards.  California’s economy is the largest in the United States and would rank as the fifth largest in the world, ahead of the UK and behind Germany. California was the first state to adopt a Low Carbon Fuel Standard (LCFS) in an effort to curb pollution, reduce greenhouse gas emissions, and transition away from liquid transportation fuels.

California’s LCFS program has grown from a startup that encouraged 1.8 million gallons of renewable diesel consumption in 2011 to a Nationally recognized program that consumed 384 million gallons of renewable diesel in 2018.  LCFS credit prices have moved from the upper teens in 2014 to over $200 per credit today.  Revenue generated through credit trading, which is used to further incentivize progress within the program, increased from $723.5 million in 2017 to $2.7 billion in 2019.

California’s LCFS program has shown a certain resiliency and foresight that the US Renewable Fuel Standard (RFS) has not.  While the RFS has been plagued by an on again/off again blenders tax credit problem and small refinery exemptions (SREs) that undermine mandates.  California’s LCFS continues to move forward and has become a role model that is being looked at and/or adopted in other states and countries.

The Oregon Clean Fuels Program

Oregon was the first state within the US to follow California with a LCFS-like program.  In 2009, the state legislature authorized the Environmental Quality Commission to reduce the average carbon intensity of transportation fuels 10 percent over a 10-year period.  In 2015, the state legislature directed the Department of Environmental Quality (DEQ) to fully implement the Clean Fuels Program (CFP), which began in 2016. The baseline year for the program is 2015 and the rule requires a 10 percent reduction in average carbon intensity from 2015 levels by 2025.

Governor Kate Brown signed Executive Order 20-04 on March 10, 2020.  The new EO directs the Department of Environmental Quality (DEQ) and the Environmental Quality Commission (EQC) to expand the CFP to achieve reductions in average carbon intensity of transportation fuels used in Oregon by at least 20 percent (relative to 2015) by 2030, and 25 percent by 2035, making it one of the most aggressive goals in the US.  The new Clean Fuels Program is targeted for formal rulemaking in July 2022 with a January 1, 2023 effective date.

CFP requirements set annual carbon intensity (CI) standards for gasoline, diesel and the fuels that replace them. CI is the measure of greenhouse gas (GHG) emissions associated with producing and consuming a fuel, which is measured in grams of carbon dioxide equivalent per megajoule.  Fuel providers that import gasoline, diesel, ethanol, biodiesel, and renewable diesel into Oregon are referred to as ‘Regulated Parties’ and must meet the annual targets stated within the program or purchase credits from registered parties to meet their obligation.  This program is very similar California’s LCFS program. In fact, if a regulated party has an approved fuel pathway by the California Air Resources Board, they only need to adjust for the difference in the transportation distance to Oregon and submit it to the Oregon DEQ.

British Columbia: The BC-LCFS

In 2008 British Columbia implemented The Greenhouse Gas Reduction Act, a LCFS program largely based on California’s Policy.  The Act establishes requirements for renewable content and greenhouse gas emission intensity reductions.  The initial goal was to decrease the average CI of transportation fuels 10 percent by 2020 relative to 2010. Part of the Clean BC initiative extends the BC-LCFS to a 20 percent carbon intensity reduction by 2030, relative to a 2010 base year.

BC formally passed the 20 percent reduction by 2030 on July 15, 2020. The new regulatory rates under the Low Carbon Fuel Standard ease the carbon intensity reduction required of fuels by 1.09 percent annually, requiring only a 9.1 percent reduction instead of a 10 percent reduction starting in 2020.  The reason for the easing was “to take some of the pressure off the oil and gas sector as it deals with the significant economic impacts resulting from reduced fuel demand due to COVID-19. Fuel suppliers providing 75 million liters or less of fuel may apply for an exemption from the renewable or low carbon requirements. The limit will be reduced to 25 million liters in 2021 and 200,000 liters starting in 2022.  As of 2018, less than five percent of the fuel supplied in BC is exempt from the requirements of the Regulation. The BC, Oregon, and California programs are aligned with a 20 percent by 2030 objective and they all follow the same framework to a large extent.

Canada’s Clean Fuel Standard (Work in Progress)

States have been the typical “think tank” for clean fuel and low carbon programs but given the success in California and the increasing problems associated with climate change, countries are also looking for additional methods to lower their overall carbon footprint. The Government of Canada plans to reduce greenhouse gas emissions (GHG) through the use of lower carbon fuels, energy sources, and technologies. Canada currently has a federal Renewable Fuels Regulation (RFR) in place that has no carbon emission reduction goals in place. The RFR is volumetric and will be replaced by the Clean Fuel Standard. The objective is to achieve 30 million tons of annual reductions in GHG by 2030. This will support Canada’s goal to reduce national emissions 30 percent below 2005 levels by 2030.  The Clean Fuel Standard will separate requirements for liquid, gaseous, and solid fossil fuels. This is unique to Canada’s program. The liquid stream will be developed first, with final regulations expected in 2020 for CI limits to be in place starting in 2022. The carbon intensity of liquid fuels will be reduced by 10 g of CO2e per MJ below their reference carbon intensity by 2030.  The 2030 CI reduction requirement represents a decrease of 10 to 12 percent below 2016 levels, depending on the fuel type, which is equivalent to 23 MT of incremental emission reductions in 2030. Regulated parties can meet compliance by reducing the carbon intensity of fuels produced or imported. A key pathway for this will to include renewable content in their product. Compliance credits can be generated by lowering the carbon intensity throughout the lifecycle of the fuel. This can be accomplished through fuel switching and the deployment of energy source and technologies that displace fossil fuels. Credits will be tradeable within each stream of fuels. Consideration is being given to allowing some use of credits across streams.

Timeline:

  • Due to the extraordinary circumstances during the COVID-19 pandemic, Environment and Climate Change Canada will delay the publication of proposed regulations for the liquid fuel class of the Clean Fuel Standard to fall 2020.

Next Steps

  • Spring/summer 2020: Engagement with the Technical Working Group on key regulatory design elements.
  • Fall 2020: Publication of the proposed regulations for the liquid fuel class of the Clean Fuel Standard, in Part 1 of the Canada Gazette, followed by a 75-day formal comment period.
  • Late 2021: Regulations for the liquid fuel class are finalized.
  • 2022: Regulations for the liquid fuel class come into force.

Brazil Low Carbon Fuel Standard

In June 2019, the National Council for Energy Policy (CNPE) Resolution #15 approved the compulsory target to be met by fuel distributors for the 2020-2029 cycles.  In late December 2019, the RenovaBio program was officially launched (December 24, 2019).  The program ratifies the Brazilian government’s commitment to the Paris Agreement from 2016. The RenovaBio program is based on three main instruments:

  1. Annual carbon intensity reduction targets (CO2/MJ) for a minimum period of ten years.
  2. Certification of biofuels by efficiency in reducing GHG emissions.
  3. Decarbonization Credits (CBio).

Carbon intensity reductions in the transportation sector are expected to decline 10.2 percent to 66.1 g CO2/MJ by 2029 from a 2018 base CI of 73.6 g CO2/MJ. In order to guarantee the proposed targets, the Ministry of Mines and Energy (MME) estimated that 95.5 million CBios would need to be traded in 2029. Each CBio corresponds to one metric ton of carbon saved through the utilization of biofuels versus fossil fuels.

Washington State and Puget Sound – Proposed

Washington State had attempted to pass a statewide LCFS, or Clean Fuels Program, in 2019 that would have followed California’s lead.  They tried again in 2020.  On January 29th the Washington House passed House Bill 1110 on a 52-44 vote. However, for the second straight year, the measure did not make it past the Senate Transportation committee The program, if the program had passed, it would have limited greenhouse gas emissions per unit of transportation fuel energy to 10 percent below 2017 levels by 2028 and 20 percent below 2017 levels by 2035. The Washington program excludes exported fuel, electricity, fuel used by vessels, railroad locomotives, and aircraft, and certain other categories of transportation fuel from the Program’s requirements. Washington State CFS timeline:

  • SB 5412/HB 1110 is scheduled for executive session in the Senate Committee on Environment, Energy & Technology on Feb 25, 2020.
  • Feb 25, 2020 – The bill passed from the Senate Energy, Environment & Technology committee and is to be taken up by the Senate Transportation Committee
  • Mar 2, 2020 – Scheduled for public hearing in the Senate Committee on Transportation at 1:30 pm
  • Program does not pass out of Senate Transportation committee prior to 2020 legislative session coming to an end.

The four counties around Puget Sound proposed the Puget Sound Clean Fuel Standard (CFS).  The Puget Sound CFS is more ambitious than California’s LCFS program and is similar to Oregon in its approach. Its purpose is to reduce GHG and prevent air pollution by reducing full fuel-cycle carbon intensity of the transportation fuel pool by 25 percent below 2016 levels by 2030. If passed, it will face legal opposition; its first compliance year would be 2021 for reporting purposes only.  Emissions reductions would begin annually in 2022. Covered fuels, Opt-In fuels, and exemptions follow Oregon’s framework. The CFS will help achieve the Agency’s adopted target to reduce GHG equivalent emissions by 50 percent below 1990 levels by 2030m and 80 percent below 1990 levels by 2050.

Puget Sound timeline:

  • Oct 9, 2019 – release draft Clean Fuel Standard rule and the start of the public comment period
  • Feb 10, 2020 – Close of the extended public comment period
  • First Quarter 2020 – Agency will consider all comments received during public comment period. Agency’s Board of Directors will review a summary of public comments and discuss next steps at its next meeting on Feb 27, 2020

April 6, 2020 – Puget Sound Clean Air Agency is suspending any action by the Board of Directors on the Agency’s draft Clean Fuel Standard.

New York LCFS – Proposed – Did not move out of committee in 2019 or 2020.

On February 8, 2019, Assembly Bill 5262 was advanced to establish a low carbon fuel standard in New York.  The New York LCFS is intended to reduce carbon intensity from the on-road transportation sector by 20 percent by 2030, with further reductions to be implemented based upon advances in technology. This bill was amended on May 30, 2019 and referred to Environmental Conservation January 8, 2020.  The bill did not make it out of committee during the 2020 legislative session. The New York LCFS claims to be the most ambitious in the country due to its climate goal of reaching net-zero emissions by 2050.

While a LCFS program for the NY transportation sector has not been enacted there is still reasons to believe it may become a reality.  New York has taken important initial steps to electrify trucks and buses, recently signing onto a 15 state Memorandum of Understanding (MOU). The MOU sets a goal for 100 percent of truck and bus sales to be electric by 2050 and for 30 percent to be electric by 2030. According to the National Resources Defense Council (NRDC), New York will need to support nearly 38,400 electrified buses and trucks to reach the 2030 goal.  The cost of doing so is estimated to be $2.02 billion. Adding in infrastructure costs of $23.93 million, the total estimated cost may be $2.06 billion.  Additional policy pathways are expected to be adopted. One suggestion has been to use a model based on California’s Advanced Clean Truck Rule to incentivize sales of truck and buses along with utilizing a Low Carbon Fuel Standard to supplement the Transportation Climate initiative.

New York LCFS Timeline:

  • Feb 8, 2019 – Referred to Environmental Conservation
  • May 30, 2019 – Amend and recommit to Environmental Conservation
  • Jan 8, 2020 – Referred to Environmental Conservation

Colorado CFS Feasibility Study

Colorado launched a feasibility study to potentially implement a Clean Fuels Standard to help achieve their climate goals. Colorado’s Climate Action Plan aims to reduce greenhouse gas emissions by at least 26 percent by 2025, at least 50 percent by 2030, and at least 90 percent by 2050 from greenhouse gas emission that existed in 2005. Colorado has joined California and nine other states in adopting zero emission vehicle (ZEV) mandates to supplement reaching their climate goals.  The Colorado CFS feasibility study was completed by September of 2020 and the near-term decision to address climate change was a recommendation not to implement a CFS program at this time.  The reasoning was the state has not made a comprehensive analysis or public process examining the tradeoffs involved with large scale use of conventional biofuels and fear compliance costs may be too high.  Public comments on Colorado’s GHG Reduction Roadmap, which excludes a CFS program will be accepted through November 1, 2020.

Utah – The Utah Roadmap

A 37-person Technical Advisory Committee prepared the Utah Roadmap to assist with legislative policymaking to improve air quality and address causes and impacts of a changing climate. Public comment on the report ended January 27, 2020.  Seven strategies, called mileposts, are the first areas of focus. 1. Adopt emission-reduction goals and measure results. Reduce criteria pollutant air emissions below 2017 levels by 50% by 2050.  Reduce CO2 emissions statewide 25% below 2005 levels by 2025, 50% by 2030, 80% by 2050. 2. Lead by example. 3. Create a premier air quality/changing climate solutions laboratory. 4. Accelerate quality growth efforts. 5. Position Utah as the market-based EV state. 6. Provide economic transition assistance to rural communities. 7. Participate in national dialogue about market-based approaches to reduce carbon emissions. Unfortunately, the roadmap is a recommendation without any timeline at this point, more of a loose guide for state lawmakers rather than a set of specific policies.

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