Big Changes in California LCFS Are Called for in a New Report
by John Kingston (Platts) The University of California-Davis has a new study out about California’s Low Carbon Fuel Standard. Once you get past the standard dry academic writing, much of it is fairly startling.
We care about the source of the report because the school’s Institute of Transportation Studies is essentially the intellectual center of the LCFS. And what it calls for in the study, released last month but published on an LCFS-centered Twitter feed just a few days ago would, if implemented, mark a significant change in the way the state’s LCFS is administered.
“We find that compliance costs may increase rapidly in the future if there are large differences in marginal costs between traditional fossil fuels and alternative, low carbon intensity fuels; or if there are capacity or technological constraints to deploying alternative fuels, particularly those with low carbon intensity,” the report said.
“In the absence of readily available, low CI fuel alternatives, the fuel market will adjust along two dimensions to maintain compliance with the LCFS: (i) increase the use of cheaper fuels below the Standard such as ethanol derived from corn starch and sugarcane; or (ii) increase fuel prices and reduce fuel consumption to a level where the (LCFS) is technologically feasible.”
That second development might be a bit of an issue in California, or anywhere, for that matter.
So there are a few suggestions in the report on how to deal with that. One is that the state implement a credit “window,” where the state can create and sell credits at a given price. The report notes this would effectively put a cap on the price of LCFS credits.
A second is to hit individual suppliers–such as refiners–with non-compliance penalties if they post a CI deficit in a given year. Now, they need to buy their way out of that situation, since suppliers aren’t permitted to carry over deficits. But under this proposal, the penalty would be at a set price, and that price would then effectively act as a cap on the price of LCFS credits. Such a policy would also expand enforcement of the LCFS to a company-by-company basis, something the LCFS now lacks. READ MORE Download Report