CARB Proposes Plan for Retiring CIs Tied to Exported Fuel

Source: By Jeff Barber, OPIS • Posted: Thursday, March 17, 2016

The California Air Resources Board is seeking stakeholder comment on draft regulatory guidance that would require parties exporting ethanol, biodiesel or renewable diesel out of state to account for the fuels’ carbon intensity (CI) scores to ensure associated credits under the Low Carbon Fuel Standard (LCFS) are removed from the program’s database.

Under the LCFS program, which is designed to reduce carbon emissions from the state’s transportation sector 10% by 2020 from a 2010 baseline, all fuels receive a CI number. Because they emit less carbon than conventional gasoline, biofuels’ CIs are below the program’s baseline and generate tradable credits.

All fuels imported into or made in California generate carbon credits or deficits and CARB wants to ensure that the credits associated with biofuel exported out of the state are retired to maintain the correct balance of credits and deficits, a CARB official said this week. “Once the fuel is reported in the system it accrues credits and if the fuel is exported then it has to accrue deficits, otherwise the number of credits would be incorrect,” she explained.

In the guidance, CARB said that under certain circumstances, including fuel swaps at trading hubs, sellers of ethanol, biodiesel and renewable diesel “may not want to pass along” the CI value and biofuel facility information. In such cases, the agency is proposing establishing “conservatively low” substitute CIs that may be used for certain transactions.

The proposed substitute CIs are 40 for ethanol, 15 for biodiesel and 30 for renewable diesel. CARB said fuel exporters may use these numbers only when the fuel is bought or sold without obligation, exported, is reported as lost inventory or is not used for transportation.

The agency also said that a reporting party that does not wish to report the CI and biofuel facility information will be able to report using one of the substitute CIs. The CARB official said the agency expects that in most cases if the actual CI is known, then the exporter will use that number. Substitute CIs are to be used when the original CI is not known or in cases involving frequent fuel swaps when sellers do not wish to report the CI.

One LCFS observer this week said the guidance is potentially significant because it will apply to any fuel leaving the state that contains a low-carbon fuel component. While most finished gasoline remains in California because of the state’s stricter requirements, any conventional gasoline or diesel blended with ethanol, biodiesel or renewable diesel will need to be tracked to conform to the new requirement.

“In instances where a market participant does not wish to reveal what the blend is, as in ‘We are blending with this particular fuel, from this particular company that has this particular pathway,’ they can give the standard CI and the person who is covering the books has to go back and true up the numbers,” the source said.

“I would expect this change to happen quickly and it is absolutely going to mean more tracking and paper work.”