By Bill Peters, Argus Media
California Air Resources Board (ARB) staffers intend to propose capping Low-Carbon Fuel Standard (LCFS) credit prices at $200/metric tonne using a credit clearance mechanism.
ARB is proposing the credit price ceiling along with several tentative possible slopes for the LCFS's targets from 2016-2020. The proposals were disclosed in a staff presentation released yesterday ahead of an ARB workshop on 27 October.
At $200/t, the LCFS would add about 6¢/USG to the cost of unblended gasoline and diesel in 2020, when the program reaches carbon intensity reductions of 10pc from 2010 levels. At current allowances prices, California's greenhouse gas cap-and-trade program will add 9.66¢/USG to the price of gasoline and 12.35¢/USG to the price of diesel when those fuels come under the cap in January.
LCFS credits have traded at around $25/t this week as the program remains well-oversupplied because it is frozen at a 1pc reduction target under a court order. LCFS prices hit a high of $85/t last fall before tumbling to their current levels in the first quarter of this year.
Under a credit clearance mechanism, ARB would allow covered entities to roll over unfilled compliance obligations from one year to the next if they can show that there are insufficient credits available in the market. The $200/t price cap would be adjusted upward for inflation annually subsequent to 2016.
ARB would determine whether regulated parties lack sufficient credits to cover the deficits they generated selling gasoline and diesel into California. If there are parties that need more credits, the state would issue a call for any excess credits in the LCFS program to be pledged into a state-facilitated sale. Regulated parties with excess deficits would be required to buy their share of those credits at or around the price ceiling.
ARB is also proposing that carried-over deficits would be subject to an interest rate of 3pc, so an entity that carried over 1,000t would be responsible for 1,030t the next year.
LCFS compliance is determined by the generation of credits or deficits, depending on whether a fuel sold in California beats or exceeds each year's carbon intensity target.
One reason ARB staff prefers the credit-clearance approach over other cost-containment methods, such as an alternative compliance payment, is that it would not result in the state receiving money from regulated parties. ARB is being sued over the use of auctions for its cap-and-trade program on the grounds it is an illegal tax under the state constitution.
ARB says it is also concerned that it would need legislative authorization to direct the funds to low-carbon fuel providers.