U.S. Energy Firms Push States for Carbon Markets to Spur Renewable Fuel Growth

by Laura Sanicola (Reuters) U.S. energy companies are pressing states to speed development of low-carbon fuel markets, warning that numerous proposed projects to make renewable natural gas and other biofuels may fizzle.

State programs, led by California's Low Carbon Fuel Standard (LCFS), reward fuel producers for decarbonizing by producing renewable fuels, who have responded by ramping up their production of such "greener" supply.

As a result, the price of credits that refiners and other polluters can generate has dropped sharply - thereby making it less likely that companies will invest in more production facilities in coming years.

Nearly every U.S. independent petroleum refiner has announced plans to produce fuel from waste and vegetable oils because the incentives can prove profitable for their industries. The U.S. Energy Department projects renewable diesel will be about 7% of the overall diesel pool by 2030; it is currently just 5%.

However, the price of LCFS credits in California, which are generated and traded by companies that produce fuel at a lower carbon intensity than a benchmark set by various states, has fallen nearly 30% in the last two months to below $145 per metric ton of carbon, according to California's Air Resources Board (CARB).

That is the result of rising renewable diesel sales as refiners plan to boost output of the fuel, according to industry experts. If oversupply continues to lower the price of these credits, investor interest to build more advanced biofuel projects will wane, the industry warned.

Only a handful of U.S. states have LCFS markets. California has created one of the biggest regional carbon markets for the transportation sector, which state regulators say is one of the most effective ways of reducing carbon emissions from road fuel.

In 2020, CARB said LCFS credit generation met nearly all of the state's target reduction for carbon emissions.

Last month, an East Coast low-carbon program five years in the making that would have included Massachusetts and Connecticut died after various governors expressed concern that the program would raise gasoline prices.

The program would have required large gasoline and diesel suppliers to purchase auctionable “allowances” for the pollution caused by combustion of fuels sold in participating areas.

Stakeholders are now eying New York, which may adopt a policy backed by the New York Climate Action Council that would call for significantly increased investment in renewable diesel through 2030. READ MORE