California’s AB 32 Law Has Been Generating LCFS Credits,
Fleets & Fuel Suppliers Are Learning How to Take Advantage
Fleets and alternative fuel suppliers are tapping into credit trading and funding programs that come from California’s AB 32 Global Warming Solutions Act of 2006. The Low Carbon Fuel Standard and cap-and-trade program are offering incentives for adopting renewable diesel, renewable natural gas, advanced biofuels, and clean vehicles. This fall, California Air Resources Board voted to readopt LCFS, and several states and Canadian provinces are considering adopting similar programs.
Ryder System’s announcement last week that its natural gas vehicles fueling in Orange and Fontana, Calif., will use “Redeem” brand renewable natural gas from Clean Energy Fuels, has been driven by these credits. “The use of renewable LNG is a key contributor toward the achievement of the Low Carbon Fuel Standard in California. Where credits may be applicable under this standard, Ryder and Clean Energy will work together to determine what impact those credits may have on our collective operations and how best to utilize such for the benefit of our customers,” said Scott Perry, VP of supply management and global fuel products at Ryder System.
Last month, the City of Oakland’s switch from diesel vehicles to renewable diesel affects approximately 250 on-road diesel vehicles and 100 off-road vehicles, said fleet director Richard Battersby. He noted that subsidies and support related to California’s LCFS offset the higher cost of producing the renewable fuel, while the fuel’s ASTM D-975 rating makes it a 100% drop-in replacement for petroleum diesel.
During the launch the world’s largest cellulosic ethanol plant last month, DuPont cited California’s LCFS as a measure to follow. Steve Ogle, the cellulosic ethanol commercial leader for DuPont, says that LCFS has become the standard bearer that several states and Canadian provinces are adopting.
LCFS Credits and Greenhouse Gas Reduction Fund
The LCFS was adopted in California in 2009 and is a performance-based regulation that requires regulated parties to reduce the carbon intensity of their fuel mix by at least 10% by 2020. The program incentivizes the adoption of low-carbon fuels based on its calculation of the fuelʼs lifecycle emissions through its credit-trading system.
If you view the state’s Greenhouse Gas Reduction Fund that’s administered by CARB and comes from AB 32’s quarterly cap-and-trade auctions, you’ll notice that there’s $230 million available in Low Carbon Transportation funds. This program funds zero and near-zero emission passenger vehicle rebates; heavy duty hybrid/ZEV trucks and buses; freight demonstration projects; and pilot programs (car sharing, financing, etc.) in disadvantaged communities. Funds are also available for high-speed rail and public transit systems.
Daniel Sperling, founding director of the Institute of Transportation Studies at UC Davis, says that the LCFS credit trading system has been structured similar to California’s zero emission vehicle program. These are called bilateral trades, Sperling said, where company-to-company sales transactions take place with public reporting of buyers and sellers.
In the ZEV program, an automaker will purchase credits from another OEM such as Tesla Motors to comply with these regulatory requirements. With LCFS, an oil company or refinery may purchase credits from a clean fuel supplier (such as RNG or renewable diesel). LCFS credits provide alternative fuel suppliers with the opportunity to keep the price of their alternative fuels cost competitive with traditional gasoline and diesel, Sperling said. Fleets can utilize these alternative fuels such as renewable diesel and RNG in their current diesel and natural gas vehicles, allowing them to meet sustainability targets without additional fleet vehicle investments.
Fleets that have their own electric vehicle charging stations may be able to sell LCFS credits, Sperling said. The California Public Utilities Commission will be issuing guidelines on that process sometime soon. Fleets may also want to research and consider an electric vehicle rebate program coming from the Greenhouse Gas Reduction Fund, Sperling said.
RFS and LCFS Credits
Sonia Yeh, research scientist and lecturer at UC Davis, says that most biofuel producers are supportive of LCFS but can’t ignore the federal Renewable Fuel Standard requirements and its Renewable Identification Number credit trading system. The U.S. Environmental Protection Agency is expected to issue final rules soon on the RFS volumes for the next several years.
Support for corn ethanol blends in gasoline will likely stay at E10 and not increase to E15, while mandates should increase for advanced biofuel volumes under the upcoming EPA rules, Yeh said. One alternative fuel option gaining interest is E30, or 30 percent ethanol blend. The BP oil company is funding a study for OEMs and fuel suppliers to test out E30 vehicles, which is gaining interest and support, Yeh said.
Commercial scale production of advanced alternative fuels such as cellulosic ethanol, RNG, and renewable diesel is likely to increase under both the RFS and LCFS structures, Yeh said. The chart in the article shows LCFS credit generated. Biodiesel and renewable diesel have generated increasing higher number of credits since the second half of 2013.
Support for corn ethanol has been subject to heated debate that continues, on the “food vs. fuel” front and soil erosion; environmental concerns have been expressed over palm oil in biodiesel; and soy biodiesel has been more vulnerable when analyzing its carbon intensity, she said.
For companies such as oil producers and utilities complying with LCFS and AB 32 requirements, the credit system has been hard to predict. Oil producers have complained about the instability in federal RIN credits. LCFS credits have been more cost competitive and stable, but they are being carefully followed by oil and energy companies and alternative fuel producers. For those interested in tracking cap-and-trade auction results, see this CARB site. For viewing news reports on LCFS credit trading, visit Prima’s site.
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Source: Fleets & Fuels follow-up