Advanced BioFuels USA

by Allison Bergquist (Stillwater Associates) A quick Google image search of “state LCFS policy maps” results in numerous versions of a U.S. map (and sometimes Europe or Canada) with different states annotated as considering a low carbon fuel standard (LCFS). Note: Program names vary, so LCFS is used throughout this article for simplicity. Though British Columbia (2010), California (2011), and Oregon (2016) were alone for many years in the LCFS world, activity over the last couple of years indicates momentum is gaining in this space. Multiple states proposed LCFS legislation during the 2021-2022 sessions, and new programs were started this year in Washington State and Canada. Watching the west coast markets “storm and norm” over the next couple years will be interesting, insightful, and may portend a future with a patchwork of LCFS programs throughout the U.S.  In addition, Canada’s federal program is working to harmonize with British Columbia’s provincial program, the outcome of which is unclear.

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Some businesses may be focused primarily on national-level policies such as the Renewable Fuel Standard (RFS). They may be waiting for Congress to pass a national LCFS, which is in the works under the Drive Clean banner and had its first Senate hearing on February 15^th. However, a key principle of the Drive Clean effort is to complement existing or future state LCFS programs, not supersede them. As such, it remains prudent to pay attention to the impact of state policies.

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If state LCFS programs proliferate in a patchwork fashion across the U.S. but are still somewhat contained in local markets, things may get complicated. Arbitrages seem inevitable. It would be challenging to predict the arbitrages that may develop, to what extent, where, and what market signals will impact them. The associated logistics with all these new markets may also present complications with which the industry is currently unaccustomed to dealing, since LCFS is a west-coast-only reality to date. And let’s not forget our Canadian friends north of the border, which would be logistically close to these new state markets (except New Mexico). To top it off, while there has been some vague discussion of potentially considering “harmonizing” state-level LCFS programs, no serious efforts have been made in that area.

Bottom line: If your five-year business plan doesn’t include a projection of likely state LCFS programs, supply/demand changes and impacts to your specific business, you may find yourself behind the 8-ball in a few years. Most LCFS watchers anticipate a proliferation of state policies over the next couple years.  While it generally takes about two years from passing legislation to LCFS program implementation, that’s not enough time for business strategies to make major pivots and may be especially challenging for smaller companies.  READ MORE