California LCFS presents opportunities for ethanol producers

Source: By John Sens, Ethanol Producer Magazine • Posted: Monday, December 21, 2015

CARB readopts standards, and sets time lines and treatment for legacy pathways. This contribution appears in the January issue of EPM.

In the first three quarters of 2015, California Low Carbon Fuel Standard credits increased in price by 212 percent. October saw another big jump with average prices for the month touching $60 per metric ton of CO2 equivalent in greenhouse gas (GHG) reduction. The GHG reduction schedule in the LCFS rule is intentionally back-loaded in order to allow advanced low-carbon fuel and vehicle markets to develop and mature. As the compliance pressure intensifies, credit prices are projected to increase, creating greater incentive for biofuel producers to lower the carbon intensity (CI) of their fuel through efficiencies and improved technology.

Domestic ethanol producers can benefit from these market forces by aggressively lowering their CI to increase the value of their product in the California market. With the readoption of the LCFS on Sept. 24, there are some specific actions that need to be completed to take advantage of this opportunity.
EcoEngineers staff members attended the re-adoption public workshop in Sacramento and gathered the required information for a biofuel facility to successfully navigate the transitional period over the next 12 months.

Key points of the readopted LCFS include:

• Cost containment measures, including a price ceiling of $200 per LCFS credit in 2016.

• A two-tiered system in GREET 2.0 for pathway applications. Tier 1 consists of conventional fuels, including sugar and starch ethanol, biodiesel and renewable diesel from conventional feedstock, natural gas and landfill gas. Tier 2 consists of all fuels not included in tier 1, such as cellulosic alcohols or electricity, and tier 1 fuels using one or more innovative production methods.

• Revised indirect land use change (ILUC) values. The new ILUC value for corn ethanol is 19.8 grams CO2 per megajoule.

• An electronic registration system on the Alternative Fuels Portal with a revised application process.

• A legacy pathway option for currently certified GREET 1.8b pathways that were approved under a method 2 application.

One of the biggest changes under the re-adopted LCFS is the replacement of GREET 1.8 with GREET 2.0. All fuel producers are now required to use the GREET 2.0 model to measure the carbon intensity of their fuels. As a result, all currently registered fuel pathways modeled under GREET 1.8 will only remain valid for one year from Jan. 1, 2016, the effective date of the new regulation.  On Jan. 1, 2017, these pathways will be automatically deactivated. During the one-year transitional period, the California Air Resources Board allows for the recertification of method 2A2B pathways to gain legacy status.

Recertifying Pathway 
Applicants seeking to recertify a legacy pathway must first complete an online account registration in the Alternative Fuels Portal, and submit an electronic request indicating that they are seeking recertification for their pathway. This must happen before Feb. 1, 2016, for guaranteed approval before Dec. 31, 2016, when all the current pathways are automatically deactivated. Applicants will also be required to attest that the inputs they originally submitted in the GREET 1.8 and the 2A2B application have either remained the same or decreased (resulting in no increase in GHG emissions).

CARB staff will pull the information from the previous 2A2B application and GREET 1.8 to create the legacy pathway with the new GREET 2.0 model. At this point, CARB may ask applicants to provide additional information for review. When CARB completes its modeling of the legacy pathway in GREET 2.0, the applicant will be given the opportunity to accept the value modeled, or decline and apply for a new GREET 2.0 modelled pathway.

CARB is promising that all legacy pathway recertification requests received before Feb. 1, 2016, will be reviewed and modeled in GREET 2.0 before Dec. 31, 2016. The recertification of a previous 2A2B pathway to gain legacy status is not guaranteed. If a recertification application is denied, the producer must apply for a new tier 1 or tier 2 pathway using the GREET 2.0 model in order to participate in the LCFS program.

Recertifying a pathway to gain legacy status may be the better option for facilities with stable operations, as remodeling in GREET 2.0 can consume valuable staff time and resources. Obtaining recertification assumes that the facility operations and fuel delivery methods have not changed significantly since the facility was initially registered.

If there have been changes, and the changes result in a net reduction in GHG emission, then the fuel producer has the option of both recertifying the pathway for legacy status and applying for a new pathway application. However, if changes at the facility result in a net increase in GHG emissions, then the low-carbon fuel producer is ineligible for recertification and must remodel the pathway in GREET 2.0.

CARB has stated that all applications for recertification and new GREET 2.0 pathways received by Jan. 31, 2016, will be guaranteed to be reviewed and approved by Jan. 1, 2017, assuming the applications are valid. CARB has not guaranteed that applications submitted after Jan. 31, 2016 will be reviewed in 2016. The biggest risk to a low-carbon fuel producer is being denied a recertification under a legacy pathway and not getting approval for a new pathway before Jan. 1, 2017.

EcoEngineers has worked with CARB staff and renewable fuel producers to register more than 30 LCFS pathways.  The most important thing is to make sure that you are not caught without a pathway in 2017 due to poor planning.

Author: John Sens
LCFS Program Manager, EcoEngineers

Co-author:  Zhichao Wang, PhD, lead carbon analyst, EcoEngineers