This article was published in the December 2021 Stillwater Associates LLC California LCFS Newsletter. Stillwater Associates publishes a weekly, monthly and quarterly edition of its Stillwater’s LCFS Newsletter, trusted by decision makers throughout the transportation energy industry. Its senior consultants are the leading experts on California’s LCFS and Cap & Trade, as well as Oregon’s Clean Fuels Program.  

Highlight 1: LCFS Amendment Tales – Chapter 2
By Leigh Noda & Nathalie Hoffman
On December 7th, the California Air Resources Board (CARB) held their second workshop for the current round of potential regulatory amendments to the Low Carbon Fuel Standard (LCFS). The first workshop, Chapter 1, was held more than a year earlier over two days – October 14-15, 2020. CARB staff use these workshops with several objectives. First, they aim to inform interested parties about their thinking on regulatory concepts, modification, and timing of the amendment process. Second, CARB uses these workshops to solicit input from parties on the program and their concepts, modifications, and timing. Lastly, these workshops satisfy the California regulatory process requirements, specifically the California Administrative Procedure Act (APA). For interested parties, these workshops provide the opportunity to provide comment to CARB staff and importantly get a view into how the regulation may be evolving as it moves toward approval by the Board.

Chapter 1
In the October 14, 2020 workshop, staff gave indications that this cycle might result in two amendment packages – one containing ministerial changes to the LCFS, anticipated to become effective in 2023; and one containing changes requiring the more extensive APA considerations. A change that would require more extensive APA considerations would be an extension of the reduction schedule past 2030. It was expected that this second amendment would become effective in 2024 or 2025. In the first workshop, CARB staff presented primarily ministerial type modifications without any new regulatory concepts. Potential extension of the reduction schedule beyond 2030 was discussed, but a specific schedule extension was not included in the workshop, although the ultimate reduction schedule would be the headliner of any amendment. In addition to the potential LCFS regulatory changes, staff also presented version 3.0 of the Oil Production Greenhouse Gas Emissions Estimator (OPGEE model). OPGEE is the life cycle analysis tool used for estimating greenhouse gas emissions from the production, processing, and transport of crude. Version 3.0 should be finalized and included in the next set of regulatory amendments.

Chapter 2
CARB’s December 2021 workshop did not add much in the way of specifics to inform parties except on probable timing of the amendments but added a couple of notable items discussed here.

  1. CARB staff expressed that 2024 could be the date when this cycle of amendments would become effective based on their current timeline. This timing is based on approval of the 2022 Scoping Plan required by Assembly Bill 32 (AB32) that is in the process of being approved in 2022. The LCFS amendments would need to be in alignment with the approved Scoping Plan, and the LCFS regulatory amendment process will require some 12 to 24 months to gain Board approval. A key consideration of the Scoping Plan, and thus any LCFS amendment, is consideration of Executive Order N-79-20 that set California’s zero-emission goals for all new cars, light-duty trucks, off-road vehicles, and equipment by 2035, and all medium and heavy-duty by 2045.
  2. Regarding the headliner of the proposed amendment: CARB staff’s presentation indicated that they are considering proposing to strengthen pre-2030 targets in addition to proposing the extension of the targets post-2030, potentially at an accelerated reduction rate.
  3. CARB staff also introduced a new regulatory concept, adding intrastate jet fuel as required fuel. The addition of jet fuel used in intrastate flights would add the petroleum jet fuel as an additional deficit-generating fuel. Currently, jet fuel is exempt from the LCFS although alternate jet fuel (AJF), also known as sustainable aviation fuel (SAF), can earn LCFS credits as an opt-in fuel. This concept could add a significant demand for additional credits depending on the volume of jet fuel used in intrastate flights and how quickly that volume could be converted to AJF.
  4. The CARB staff package also included their goal to streamline implementation and enhance exportability. Per CARB: “California’s greatest influence is the exportability of its programs for adoption in other jurisdictions.” In fact, several other jurisdictions are adopting or seriously considering LCFS programs of their own.
  5. Lastly, the presentation included a stated goal to “limit and ultimately phase out credit generation for petroleum projects.”

Stakeholder Comments
As noted above, the workshop added little in the way of specific proposals; we expect specific proposed changes will be presented in future workshops. The majority of the more than three-hour December workshop was taken up with comments from stakeholders after each slide of the presentation material. Some of the themes that emerged from these comments were:

  1. In the arena of dairy digester RNG (DDG), there will be a fierce battle between some in the environmental justice (EJ) community and proponents of DDG. The EJ community commenters requested the elimination of dairy manure RNG entirely as an LCFS credit generating transportation fuel or, alternatively, asked that CARB include enteric methane emissions in the system boundary. These requests were made prior to the workshop in a written Petition to CARB on October 27, 2021 by proponents of the anti-dairy manure position where the petitioners claimed that dairy operations have a disproportionate negative impact on disadvantaged communities. When asked about the status of the petition, Dr. Cheryl Lastkowski, Chief of CARB’s Transportation Fuels Branch, said that CARB staff are reviewing the petition and are going through the required process. There were also commenters in favor of dairy manure RNG who attended the workshop, making counterarguments to the requests made by the anti-dairy-manure contingent. They pointed out the imperative to reduce methane emissions from California dairy manure under S81383, in conjunction with the general worldwide imperative to reduce methane as the predominant short-lived climate pollutant. We expect this to be a hot-button issue for proponents of each position in this amendment rulemaking.
  2. Several stakeholders with interests around a wide variety of alternative transportation fuels noted the steep decline in LCFS credit prices and forcefully expressed their position that CARB must steepen the compliance curve as soon as possible rather than waiting until 2024 (the date staff gave in the workshop for the projected effective date of the amendment). Stakeholders said that the cratering of the credit price has imperiled the viability of alternative fuel projects. Dr. Cheryl Lastkowski replied that the LCFS has successfully spurred innovative alternative fuel projects.
  3. Several stakeholders asked that hydrogen producers be able to use book-and­claim accounting for hydrogen injected into a North American pipeline. Also relating to hydrogen, some stakeholders asked that the hydrogen refueling infrastructure credit opportunity be extended to medium and heavy-duty vehicles.
  4. Another series of commenters urged CARB to give Cl credit to agricultural practices that reduce GHG emissions from soil. A related set of comments asked CARB to reduce the indirect land use change (ILUC) penalty in view of recent studies that conclude that the actual ILUC is much less than the amount incorporated into the design of the LCFS. Included in the studies are the peer­reviewed 2020 one by the team of academics at Purdue who designed the Global Trade Analysis Project {GTAP) model used to calculate ILUC. Dr. Lastkowski replied that there’s not a clear-cut consensus on ILUC, but that CARB staff believe they’re sending the right signal about it. Even so, she said CARB would review and consider the arguments for an ILUC reduction. Since agricultural practices and ILUC are relevant to biofuel pathways, look for both issues to be hotly contested during the rulemaking.
  5. CARB has contracted with the National Aeronautics and Space Administration’s (NASA) Jet Propulsion Laboratory (JPL) to determine actual methane emissions from CA landfills through aerial mapping. JPL has discovered that CARB’s assumption of 75% of landfill emissions being capped is inaccurate, and that the actual amount of methane escaping is far higher. During the December 2021 workshop, stakeholders asked CARB to update the CA-GREET model to include actual methane emissions data instead of the current assumptions. Floyd Vergara, formerly Chief of CARB’s Industrial Strategies Group, of which LCFS staff is a part, pointed out that the updated data can be incorporated through an administrative proceeding, rather than requiring a full rulemaking. Given SB 1383 requirements to reduce methane from landfill emissions, this comment would appear to be particularly timely. We will dive into SB1383 in the following highlight article.