101 for Low Carbon Fuel Standard

by Paul Greene (BioCycle Magazine/Montrose Environmental) California’s Low Carbon Fuel Standard, which grew out of the state’s Global Warming Solutions Act, is stimulating markets for biogas, including renewable natural gas -- Biogas project developers and financiers are finding strong offtake opportunities selling their gas into the California Low Carbon Fuel Standard (LCFS) market. This trend is driving a wave of new facility construction to make renewable natural gas (RNG).

The LCFS stems from California legislation focused on climate mitigation, particularly through control of short-lived climate pollutants such as methane gas. In addition to driving biogas opportunities, the LCFS opens markets for other fuels like biodiesel, corn ethanol, and hydrogen, while also spurring development and use of electric, hydrogen and natural gas vehicles.

... California Air Resource Board (CARB) began its LCFS program in April 2009 to meet goals of reduction of greenhouse gas emissions to 1990 levels by the year 2020. This program was fully implemented in 2011, with amendments approved in 2013, and with subsequent 2015 re-adoption that became effective in 2016. In July 2017, AB 398, which included amendments to AB 32, expanded the cap and trade and LCFS programs out to 2030, and with even higher goals — namely 40 percent reduction against the baseline. It passed with strong bipartisan approval.

The LCFS program is designed to decrease the carbon intensity (CI) of California’s transportation fuels by providing a mechanism to introduce a range of low carbon and renewable fuel alternatives. The program works by requiring fuel companies to achieve CI targets by either producing lower CI fuel or purchasing credits from lower CI fuels sold in the California market.

The heart of the LCFS compliance and trading system involves four key variables: Pathway by which the fuel is generated; Carbon Intensity (aka “CI Score”) of a fuel; Reference fuel being replaced; and Overall price per ton of carbon.

The pathway covers the fuel’s life cycle from well to final pump and maps out a process journey for the exploration, feedstock collection, conversion, upgrading, transportation, distribution, and filling practices for a given fuel. Pathways are unique for a given feedstock and conversion system, such as anaerobic digestion of manures, food scraps, or biosolids, with a subsequent gas upgrading system to produce RNG. The RNG may be used for fueling on-site or introduced to a pipeline distribution network accessible to the California transportation market. Applications for a pathway must be completed and approved by CARB using verified, project-specific performance data before credits can be received by the project.

The CI value is calculated by compiling all the carbon emitted along the supply chain for that fuel including all the carbon used to (where applicable) explore, mine, collect, produce, transport, distribute, dispense and burn the fuel.

All renewable fuels and their carbon intensity are compared to a reference fuel being replaced — typically either conventional gasoline or diesel — that has an assigned value that is updated each year. To be eligible for generating credits, renewable fuels must have CI values below the CI of the fuel being replaced. Some renewable fuels have extremely low CI scores. A pathway for at least one project where RNG is generated from anaerobic digestion of dairy manure and will replace diesel fuel, for example, has an assigned CI of a negative (-)250 gCO₂e/MJ.

Such low, or negative, CI scores are possible for some feedstocks and pathways since they both offset use of conventional fuels and mitigate methane releases from a present baseline emission.

Some concerns exist around the potential for market saturation, especially as large municipal users of RNG, such as city buses, reach full conversion of their vehicles to natural gas fueling, or with anticipated future technology improvements, e.g., switching to electrical or hydrogen powering. Because the number of credits generated is in comparison to the actual fuel replaced, a project where RNG replaces fossil natural gas or grid-supplied electricity will not generate the same number of credits as one where diesel is replaced.

2018 LCFS Amendments

Overall market demand for RNG is under the watchful eye of CARB, which has some ability to adjust the LCFS program to perceived market needs, as was recently done with 2018 amendments. One such amendment is approval of a new RNG pathway for LCFS credits that ties into operations of petroleum refineries. These refineries use significant amounts of natural gas that, until now, has come from fossil sources. As a result of 2018 amendments to the LCFS program, these refineries can now use RNG to reduce the carbon intensity of their production process, and hence the CI of the conventional fuel produced. Natural gas is a key feedstock in refinery processes such as the steam methane reformers (SMR) in the refinery. SMRs create hydrogen, which is a chemical intermediate for the hydrocrackers and hydrotreaters that produce gasoline and diesel fuel. Using RNG rather than fossil gas reduces the carbon footprint of these operations.

This “Renewable Hydrogen” pathway, as it is known, is creating a good, new, strong long-term offtake opportunity for RNG, mitigating some emerging concerns about market demand. Note that since this pathway does not involve the direct fueling of a vehicle it does not allow for generating federal RIN credits via the Renewable Fuel Standard (RFS). READ MORE