LCFS Re-adoption: How the provisional credit clause affects your pathway

On June 4, 2015, ARB issued a 15-day rule change notice to the LCFS. The rule change contains amendments that the ARB is expected to vote on next month when the Board re-adopts the LCFS program. Do you know how the proposed changes will affect your pathway? Read the information below and contact us, if you have any questions.

LCFS Provisional Credit System

One significant amendment under consideration is the application of a “Provisional Credits System”. The provisional credit system allows facilities to receive carbon intensity (CI) values after one calendar quarter of operation. However, any provisional credits generated may not be sold, transferred, or retired for compliance, nor may fuel with a provisional CI be transferred with obligation until ARB gets enough data to revise the carbon intensity score and confirm the CI value with two years’ worth of operational data.

As proposed, this provision essentially means that LCFS credits earned within the two-year provisional period are “banked” until the ARB has determined the operational CI. The credits have value, but they are not of value for two years (or longer) and the value may change if the CI is revised based on operational data.

The point of the LCFS program is to drive innovation and commercialize new low-carbon fuels to help meet California’s GHG reduction goals. This provisional credit provision creates two years of delayed revenue and uncertainty for affected producers, leaving them with two options:

1. Purchase credits on the open market to attach to the fuel, and bank the provisional credits for two years.
2. Wait until they have two years’ worth of data before selling fuel to California.

The comment period ends tomorrow, Friday June 19, 2015. The link to submit comments is: www.arb.ca.gov/lispub/comm/bclist.php

For your reference, the language of the rule change is as follows (pg. 53 of the 15 day rule change document):

 “Provisional Pathways. As set forth in sections 95488(c)(3) and (c)(4)(I)2., LCFS fuel pathways are generally developed for fuels that have been in full commercial production for at least two years. In order to encourage the development of innovative fuel technologies, however, applicants may submit New Pathway Request Forms, as set forth in section 95488(c)(1), covering Tier 1 and Tier 2 facilities that have been in full commercial operation for less than two years, provided they have been in full commercial production for at least one full calendar quarter. If that form is subsequently approved by the Executive Officer, as set forth in section 95488(c)(2), the applicant shall submit operating records covering all prior periods of full commercial operation, provided those records cover at least one full calendar quarter. The following subsections govern the development, evaluation, and post-certification monitoring of such provisional pathways.

Following the provisional certification of a fuel pathway application, the applicants shall submit copies of receipts for all energy purchases each calendar quarter until the Executive Officer is in possession of receipts covering two full calendar years of commercial production. At any time during those two years, the Executive Officer may revise as appropriate the plant’s actual operational CI based on those receipts. Based on timely reports, the applicant may generate provisional credits. Such credits may not be sold, transferred, or retired for compliance, nor may fuel with a provisional CI be transferred with obligation. The applicant may not sell credits generated under a provisionally-approved fuel pathway, or transfer the provisional fuel with obligation, until the Executive Officer has adjusted the CI or informed the producer that the provisional CI has been successfully corroborated by operational records covering a full two years of commercial operation.

(A) If the plant’s operational CI is higher than the provisionally-certified CI, the Executive Officer will replace the certified CI with the operational CI in the LRT-CBTS system and adjust the producer’s credit balance accordingly.

(B) If the plant’s operational CI appears to be lower than the certified CI, the Executive Officer will take no action. The applicant may, however, petition the Executive Officer for a provisional CI reduction to reflect operational data. In support of such a petition, the applicant must submit a revised application packet that fully documents the requested reduction.”