An Analyst s View of the California Low Carbon Fuel Standard

Transcription

1 An Analyst s View of the California Low Carbon Fuel Standard Comments on HB 2338 David Hackett President January 9, 2018

2 Stillwater is a transportation energy consulting company 1. David J. Hackett, President of Stillwater Associates 2. The firm is based in Irvine, CA and established in Our practice includes energy policy issues like the LCFS 4. Stillwater has been following the LCFS since it was announced by Governor Schwarzenegger ten years ago 5. We publish a newsletter that analyzes the LCFS program 6. Member, California Energy Commission s Petroleum Market Advisory Committee 1

3 We have a number of clients in the energy policy space Stillwater has also provided support to Washington s Attorney General 2

4 How does the California LCFS program work? Objective, starting in 2010, was to create a 10% reduction of GHG by

5 The program reduces Carbon Intensity (CI) of transportation fuels Fuels have a CI set by CARB, and the volume is tracked by CARB 4

6 The program is back-end loaded Over time, more CI reduction will be required 5

7 The LCFS program generates Credits & Deficits, measured in tons Credits Deficits Renewable & Alternative fuels create credits, petroleum creates deficits 6

8 The difference between credits and deficits has been banked The bank is beginning to draw as deficits exceed credits 7

9 There is uncertainty about where the Credit Bank balance will be at the end of 2020 Most of the easy-to-find CI reduction is already in the program 8

10 LCFS costs are passed through to consumers Image: San Clemente Patch The revenue from LCFS credits flows to low-ci fuel producers 9

11 The cost of the LCFS to consumers has been nominal so far 10

12 What happens over the next three years? 11

13 Our view: Deficits will continue to exceed credits CARB will need to find significant new sources of CI reduction 12

14 We see consumer costs soon going up considerably if deficits exceed credits and the market goes to the Credit Clearance Market price 13

15 How does this apply to Washington? Starting in 2020, you propose reducing CI from 2017 base by 10% by

16 There are a number of points to consider 1. Using California s rules, a 10% reduction by 2028 will be a heavy lift a. Increased use of ethanol will be hemmed in by the Clean Air Act, for example b. Few expect that low-ci cellulosic ethanol volumes will be material c. Aggressive transition to electric vehicles seems unlikely 2. Assuming the Department of Ecology piggybacks on California s LCFS rule infrastructure, your rule will be tied to California s needs a. Ecology may need to tune the rules as Oregon did b. This could reduce the fungibility of the credits between programs, raising costs 3. California s program has to evolve to create additional CI reduction by 2020 a. CARB has a scoping plan for a another 8% reduction in LCFS by Washington consumers will have to pay California prices for CI reduction in order to attract low-ci blendstocks 15

17 In summary 1. In seven years, the California LCFS has created a reduction in greenhouse gases from transportation fuels of about 3.5% from a 2010 baseline. 2. It is clear that CARB will need to find significant new sources of low-ci fuels in order to achieve a 10% reduction in the next three years to meet the 2020 goal. 3. Assuming the Washington LCFS program mirrors the California program, consumer costs in Washington in 2020 could be surprisingly high because the cost of low carbon fuels will be set by the California program. 16

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