The Digest’s 2024 Multi-Slide Guide to Clean Fuel Standards

July 25, 2024

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by Jim Lane (Biofuels Digest) Low carbon fuel standards are on the march. New states, new regulations, much to consider — what states are on the opportunity map, what carbon targets are coming, what new pathways, what is the regulatory framework going to be in the “God is in the details” department? To help sort it out, LCFC executive director Robin Vercruse presented these slides at ABLC 2024. READ MORE

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Excerpt from Politico Pro Climatewire: Some Washington state motorists are getting deep discounts on gasoline prices from an unusual source: a political committee trying to kill the state's fledgling carbon cap-and-trade market.

Let’s Go Washington, which is backing a November ballot measure to repeal the market’s authorization, has reimbursed owners of seven gas stations since late July for briefly cutting gas prices by more than $1 per gallon.

Opponents of the ballot question, who support the carbon market, filed a complaint with the state saying the tactic amounts to bribing voters.

The discounts aim to highlight gasoline price increases that Let’s Go Washington says the carbon market has triggered since it launched in 2023. Campaign workers and volunteers explain the issue to motorists as they fill up with discounted gasoline.

“We get people that don't know why” gas prices have gone up, said Brian Heywood, a major Republican donor who is heavily supporting Let’s Go Washington. READ MORE

Excerpt from Stillwater Associates: The Washington State Clean Fuel Standard (CFS), signed into law in May 2021 via HB 1091, was modeled after California and Oregon’s low carbon fuel (LCF) programs. Like California’s Low Carbon Fuel Standard (LCFS) and Oregon’s Clean Fuels Program (CFP), the Washington CFS aims to reduce vehicle emissions of greenhouse gases (GHGs) by reducing the average carbon intensity (CI)[1] of transportation fuels used in Washington state compared to a 2017 baseline. Specifically, the CFS mandates a 20% CI reduction below 2017 levels by 2034. The program’s CI reduction schedule is displayed in Figure 1 below.

Figure 1. CFS Carbon Intensity Reduction Schedule

Source: Washington Department of Ecology

Note: This graph shows the fastest CI reduction schedule within the existing regulation. The legislature may modify the legislation in the future. In fact, the pause in annual CI reductions in 2032 and 2033 is intended to give the legislature time to review the program and consider amendments prior to the scheduled step to a 20% CI reduction in 2034.

The CFS became effective January 1, 2023 – thirteen years after the California LCFS – and is managed by the Washington Department of Ecology (hereafter Ecology). The first compliance period for obligated parties was 2023-2024.

Primary Sources of Credit and Deficit Generation

The CFS is a market-based system in which there is a demand for credits (generated by fuels with CIs below the annual standard) to offset deficits (generated by fuels with CIs greater than the annual standard). Currently, the deficit-generating fuels are the petroleum portions of gasoline and diesel. Other fuels may become deficit-generating in future years as the CFS standards are reduced below those fuels’ CIs.

Like California’s LCFS, the underlying rationale of the CFS is that, by providing a structure which allows the market to pick the mix of fuels used to comply with the regulations, the mandated CI reduction targets can be achieved at the lowest cost. As shown in Figure 2, the near-term is dominated by the mix of fuels which can be utilized by vehicles already in service in Washington. The longer term allows time for the fleet to turn over to vehicles capable of utilizing a different, lower-CI mix of fuels.

Figure 2. Credit Generation by Fuel as a Percentage of Total Low-Carbon Fuel Credits (First Half 2024)

Source: Washington Department of Ecology, Stillwater analysis

In 2023, the contributions of credit-generating fuels include a mix of electricity (38.8%), ethanol (36.9%), renewable diesel (17.4%), biodiesel (4.6%), natural gas (1.2%), and renewable propane (0.2%).

Figure 3 below shows the steady growth in the percent of energy supplied by renewable and alternate sources over the first six quarters of the CFS which has increased from 2.5% to 6.0% since the CFS was implemented. The greatest growth is from RD, but electricity, BD, and CNG have also contributed.

Figure 3. CFS Alternative and Renewable Fuel as % of Transportation Fuel Energy

Source: Washington Department of Ecology, Stillwater analysis

Historic Credit and Deficit Balance Trends

Figure 4 illustrates the CFS program’s historical quarterly and accumulated credits. As can be seen, Washington’s credit bank has grown steadily throughout the first six quarters of the program.

Figure 4. Net CFS Credits Quarterly and Cumulative

Source: Washington Department of Ecology, Stillwater analysis

Stillwater anticipates that as the supply and demand balances for CFS credits continue to evolve, the regulation will continue to advance through periodic amendments. Importantly, any changes in the CI reduction schedule in Washington require approval from the legislature. Furthermore, as additional states adopt LCF programs – as did New Mexico in 2024 with an effective date in 2026 – the interactions among programs may require program adjustments.

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The key question for many market participants is: How will the multi-state market interplay impact CFS credit prices? Stillwater has an expert view on that! Visit Stillwater’s Carbon Market Outlooks Dashboard to learn more about the likely future of Washington CFS credit prices!

[1]

CI is a measure of the lifecycle GHG emissions for a given unit of energy; it is expressed in grams of carbon-dioxide-equivalent (CO2e) emissions per megajoule of energy – gCO2e/MJ or simply g/MJ. READ MORE