2017 Progress Report on theLow Carbon Fuel Standard

June 22, 2017Board Hearing

California Environmental Protection Agency

Air Resources Board

LCFS Update

• Background on LCFS• Current Status of LCFS and Progress against Targets• Comparison of Actual Performance to Prior Scenario

Analysis• Availability and Use of Low Carbon Fuels• Status of Refining and Crude Oil Crediting Provisions• Future Work on LCFS

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LCFS History

• Original adoption in 2009, first compliance year in 2011, re-adopted in 2015

• Goal: Reduce carbon intensity (CI) of transportation fuel pool by at least 10% by 2020

• Expected benefits:• Reduce greenhouse gases• Transform and diversify fuel pool • Reduce petroleum dependency • Reduce emissions of criteria pollutants and toxics

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Who are the Low Carbon Fuel Industry in California?

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https://www.arb.ca.gov/fuels/lcfs/dashboard/dashboard.htm

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Low Carbon Fuel is Produced and Sold Throughout CA

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LCFS-like Policies Have Emerged Worldwide

• US EPA’s Renewable Fuel Standard

• Pacific Coast Collaborative

• Oregon’s Clean Fuels Program – Fully implemented in 2016, Requires 10% CI reduction by 2025

• BC’s Renewable and Low Carbon Fuel Requirement –In place since 2010, standard requires 15% reduction in CI by 2030

• Canada’s Clean Fuel Standard – Expected in 2019

• EU’s Renewable Energy Directive

• Brazil considering Renova Bio 2030

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Key Requirements and Features

• Sets annual carbon intensity (CI) standards for transportation fuels (e.g., gasoline, diesel and the fuels that replace them)

• CI based on complete lifecycle analysis• Providers in California of petroleum fuels are “regulated

parties” under the LCFS• Providers of clean fuels can “opt in” to program and earn

credits• Generated credits can be bought and sold by regulated

parties7

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-0.25% -0.5%-1% -1% -1%

-2%

-3.5%

-5%

-7.5%

-10%

-2.64%

-20.0

-18.0

-16.0

-14.0

-12.0

-10.0

-8.0

-6.0

-4.0

-2.0

0.02011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Perc

ent R

educ

tion

in C

arbo

n In

tens

ity

Compliance Curve

Reported % CI Reduction

Compliance Curve

How Credits and Deficits are Calculated

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Fuels above standard generate deficits

Fuels below standard generate credits

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9https://www.arb.ca.gov/fuels/lcfs/dashboard/dashboard.htm

Over-Compliance has Created a Significant Credit Bank

9

0123456789

10

Q1

2011 Q

2Q

3Q

4Q

1 20

12 Q2

Q3

Q4

Q1

2013 Q

2Q

3Q

4Q

1 20

14 Q2

Q3

Q4

Q1

2015 Q

2Q

3Q

4Q

1 20

16 Q2

Q3

Q4

Mill

ion

Met

ric T

ons (

MT)

Total Credits and Deficits (MT) for All Fuels Reported, Q1 2011 - Q4 2016

CreditsDeficitsBank

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Low Carbon Fuel Use Continues to Grow. Sources of Credits Continue to Diversify.

100.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

10.0

2011 2012 2013 2014 2015 2016

Mill

ion

Met

ric To

ns (M

T)

Fossil Natural Gas Biomethane Electricity

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

2011 2012 2013 2014 2015 2016

Mill

on G

allo

n Eq

uiva

lent

s (G

GE)

Ethanol Biodiesel Renewable Diesel

Alternative Fuel Volumes Credit Generation

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0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

$0

$20

$40

$60

$80

$100

$120

$140

J2013

FMAMJ J ASOND J2014

FMAMJ J ASOND J2015

FMAMJ J ASOND J2016

FMAMJ J ASOND J2017

FMAM

Volu

me

Tran

sact

ed (m

etric

tons

CO

2e)

Cred

it Pr

ice

($/M

etric

Ton

)

Volume of Credits Transacted (MT)

ARB Monthly Average Credit Price

LCFS Credit Market is Working Well

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Sources: https://www.arb.ca.gov/fuels/lcfs/dashboard/dashboard.htm

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July 2013: POET Lawsuit decision

September 2015: Re-adoption of LCFS

August 2016: Passage of SB 32

LCFS Enforcement Activities

• Undertook 16 audits with 14 facility inspections• Initiated 3 credit adjustments under section 95495

(correcting issues arising out of inspections)• Issued 4 Notices of Violation, including one that settled

for $393,000• One enforcement case filed for compliance violations

and misreporting

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Utilities Now Offering ZEV Rebates Using LCFS Credit Revenue

13https://www.smud.org/en/residential/environment/plug-in-electric-vehicles/https://www.pge.com/en_US/residential/solar-and-vehicles/options/clean-vehicles/electric/clean-fuel-rebate-for-electric-vehicles.pagehttps://www.scecleanfuel.com/https://www.sdge.com/clean-energy/electric-vehicle-climate-credit

Photo Credit: SMUD

• EV charging generates LCFS credits

• Proceeds from the sale of these credits by utilities are returned to EV drivers

• SMUD: $599 per car• PG&E: $500 per car• SCE: $450 per car (up to 3

different owners)• SDG&E: $200 per year

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Comparison of Historical Scenario Analysis of the LCFS to Actual Data from 2016• LCFS regulation requires staff to report on:

• Program’s progress on achieving LCFS targets• Comparison to prior scenarios produced by staff/external parties.

• Scenarios compared:• ARB: April 2015 Illustrative Compliance Scenario Analysis• Boston Consulting Group (BCG) for the Western States Petroleum

Association: August 2014 Analysis• Chevron: December 2014 Analysis

• Comparisons made:• Fuel Volumes• Annual and Banked Credits*

* Estimates of annual and banked credits by BCG and Chevron were adjusted to reflect the LCFS rule adopted in 2015.

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Biodiesel and Renewable Diesel Exceeded all Parties’ Projections

150

50

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150

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250

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BCG Chevron ARB Actual

Mill

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of G

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2016 Forecasted and Actual Volumes of Biodiesel and Renewable Diesel

Biodiesel Use Renewable Diesel Use

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Renewable Natural Gas Growth Exceeded All Parties’ Projections

160

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100

120

140

160

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BCG Chevron ARB Actual

Mill

ions

of G

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2016 Forecasted and Actual Volumes of Conventional and Renewable Natural Gas

Conventional NG Renewable NG

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200

400

600

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1,000

1,200

1,400

1,600

1,800

BCG Chevron ARB Actual

Mill

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2016 Forecasted and Actual Volumes of Lower CI Ethanol

Corn & Related EtOH Cane/Molasses Ethanol Cell. Ethanol

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Overall Ethanol Use is Higher Due to Higher than Expected Total Gasoline Demand (Low CI Sugarcane and Cellulosic Ethanol Fell Short of All Parties’ Expectations)

Electric Vehicle Penetration Exceeded All Parties’ Expectations

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0

100

200

300

400

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BCG Chevron ARB Actual

Thou

sand

s MW

h's

2016 Forecasted and Actual Electricity Use by Light-Duty Vehicles

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Total Credits Generated Were Close to ARB Staff Estimate

190.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

10.0

BCG Chevron ARB Actual

MM

Ts o

f LCF

S Cr

edits

Forecasted and Actual Credits Generated in 2016

LDV Credits HDV Credits

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Deficit Generation Exceeded all Parties’ Expectations

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0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

BCG Chevron ARB Actual

MM

Ts o

f LCF

S D

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its

Forecasted and Actual Deficits Generated in 2016

CARBOB Deficits CARB Diesel Deficits

Banked Credits are Below ARB Expectations (but Above BCG and Chevron Expectations)

210.0

2.0

4.0

6.0

8.0

10.0

12.0

BCG Chevron ARB Actual

MM

Ts o

f LCF

S Cr

edits

Forecasted and Actual Banked Credits Carried Over into 2017

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Additional Near-term Biofuel Production Capacity is Available

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Renewable Diesel Biodiesel Cellulosic Ethanol Sugarcane Ethanol Biomethane

Mill

ion

Gal

lons

of F

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Additional Capacity from Global Supply Additional North American + Pacific Rim Capacity

Additional Capacity from Approved Pathways 2016 Reported Volumes

10% Compliance Volumes (Illustrative Compliance Scenario)

Volumes derived from Bloomberg, Lux, EPA LMOP, Billion Ton Study, and LRT data

**

* This remaining global capacity exceeds the y-axis bounds and is truncated** The Biomethane capacity are for North American landfill projects, where the biogas is currently being upgraded to high-BTU biomethane

* *

Refinery/Crude Crediting Options

Credit TypeCredits for producing crudes using innovative methods

Low-Complexity/Low-Energy-Use Refinery Credits

Refinery Investment Credits

Renewable Hydrogen Refinery Credits

Incremental deficits that result from increases in carbon intensity of crude 23

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Credits for Producing Crudes using Innovative Methods• North Midway Sunset Oil

Field Solar Project (2.5 MW)• Seneca Resource

Corporation• Interest in other solar

electricity projects• Potential solar steam

project to be announced• Potential for significant

GHG and criteria pollutant emission reduction in San Joaquin Valley

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Seneca’s solar farm

GlassPoint’s solar steam generation technology

Low-Complexity/Low-Energy-Use Refinery Credits• Adopted in 2015 in response to Board resolution 11-39 to

consider a provision to the LCFS to address the unique business models of small refineries

• Kern Oil Company met these criteria and will be awarded credits for operations in 2016

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Renewable Hydrogen Refinery Credit Pilot Program• Adopted in 2015 to incent GHG reductions at the refineries• Can produce renewable hydrogen from renewable natural gas

or renewable electricity• No approved projects but interest from some refineries • Credit generation is capped at meeting ten percent of deficits

in a given year

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A steam methane reforming facility.Photo courtesy of Air Products and Chemicals Inc.

Refinery Investment Credit Pilot Program

• Adopted in 2015 to incent GHG reductions at the refineries• No approvals but preliminary discussions with a few refineries

on small projects• Considering amendments to clarify and improve this provision • Need continued engagement from industry to make this pilot

program more workable

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Carbon Capture and Storage• Carbon Capture and Storage (CCS) can

reduce fuel production emissions from:• Biofuels (e.g. ethanol or biogas)• Refineries• Crude Oil

• No CCS credits in LCFS so far• Staff developing a “CCS protocol” to ensure

uniform quantification and permanence requirements

• Guidance for LCFS CCS credit generation:• Credit allocated to the capture facility• Fuel or crude oil supplied to California

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Shell quest oil upgrader, Alberta

ADM ethanol plant, Illinois

Change in Crude Oil Carbon Intensity

• One LCFS goal is to discourage the use of high CI crudes• Additional deficits for gasoline and diesel are added if the average CI

of crude exceeds 2010 baseline value by more than 0.1 g/MJ• Additional deficits have not yet been assessed, but recent years

show a slight upward trend in average crude CI

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-0.1

-0.05

0

0.05

0.1

0.15

CI D

iffer

ence

(gCO

2/M

J)(2

010

= 0)

Annual Crude Average CI minus 2010 Baseline Crude Average CI

De Minimis ThresholdDe Minimis Threshold

2013 2014 2015 2016

Developing Amendments to Strengthen and Improve LCFS• Average carbon

intensity requirements through 2030 in line with the Proposed Scoping Plan process

• Allow alternative jet fuel to generate credits

• Addition of third party verification

• Continue to streamline CI pathway application process

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Public Process

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LCFS Progress Report

to Board

Q3

Regulation Notice, Staff Report,

Environmental & Economic Analyses

Workshops

1st Board Hearing

Q4 2018

2nd Board Hearing

Q2

Fuel-Specific Working Meetings

2016 Q1 2017

Comment Periods & 15-day Changes

Effective Jan 1, 2019

Workshops

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In Summary…• LCFS is ahead of schedule having achieved a 2.6%

reduction in average CI so far• Low carbon diesel substitutes made up over 12% of the

energy used in heavy duty vehicles in California in 2016• Nearly 10 million excess credits banked• LCFS targets through 2020 ambitious but achievable

• ARB’s understanding of the low carbon fuel market is strong• Existing low carbon fuel supply is available in the near term but

expansion of advanced low carbon fuel production capacity will be needed in the future

• Development of post-2020 program underway with Board consideration in early 2018 32

Thank You

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