Outlook on Current and Emerging Programs: Demand, Supply and Pricing of Credits
This report looks at key markets operating in North America: California’s Low Carbon Fuel Standard, the Oregon Clean Fuel Program (CFP) and the British Columbia Low Carbon Fuel Standard (BC-LCFS), a term used interchangeably with the Renewable and Low Carbon Fuel Requirements Regulation (RL-CFRR). There are two other markets that are in the pipeline for development: the Transportation and Climate Initiative-Program (TCI-P) (a collaboration between North-eastern and Mid-Atlantic US) and the Canada Clean Fuel Standard (CFS), also known as the Clean Fuel Regulations (CFR). The report examines the current state and outlook for these markets, the credits that are/ will be required, and the economics behind them.
With the advent of climate change and the growing need to implement emissions reductions policies, there is a rising movement for government regulation to promote the use of low-carbon fuels in North America. These markets aim to reduce the magnitude of greenhouse gas emissions from the transportation sector - often the hardest sector to decarbonize. To do so, they have imposed market-based mechanisms to ensure that fuel suppliers play their part in reducing emissions.
These markets achieve these emissions by aiming to reduce the carbon intensity (CI) of transportation fuels. The CI is defined as the amount of carbon dioxide equivalent emissions (CO2e) per unit of energy produced by a vehicle and is given in units of g CO2e/MJ. The carbon intensity value is specific to each fuel type and takes into account the extraction, processing, distribution and combustion of the fuel; this is known as a ‘well-to-wheel analysis.
Each clean fuel market creates an emissions reduction schedule which mandates a decline in the baseline fuel CI; as the program evolves, there is an increasing demand on fuel producers to provide lower carbon fuels which generally becomes harder as the restrictions become more stringent. In general, credits are generated for providing a fuel with a carbon intensity under this limit while deficits are created by providing fuels with a CI above this limit, with each credit being equivalent to one metric ton of CO2 equivalent emissions. These credits can then be traded, banked and retired to fulfil an entity’s compliance obligations.
We demonstrate how ethanol and electricity, both low-carbon fuels can generate credits by having CIs below the low carbon fuel standard requirement, with electricity-generating more credits as it has a lower carbon intensity. On the other hand, gasoline, having a CI above the LCFS requirement, will accrue deficits annually and a fuel supplier providing gasoline will need to meet their compliance obligations in the program by purchasing a sufficient number of credits.
Table of Contents
1. Context and Role of Carbon Intensity-based Clean Fuel Standards in North America
1.1 Role of Carbon Intensity-based Clean Fuel Standards in Various Transportation Markets
1.2 Comparison between the Clean Fuel Standards
2. California Low Carbon Fuel Standard
2.1 Background and history of California Low Carbon Fuels Standard
2.1.1 Regulatory context: AB 32 Scoping Plan and role of LCFS
2.1.2 Introduction to program design
2.1.3 2015 Readoption of LCFS Program: Credit Clearance Market
2.1.4 2018 Amendments to LCFS Program: Alignment with SB-32 Plan
2.1.5 Historical emission trends
2.1.6 Summary of LCFS Trading
2.2 Key components of California’s LCFS
2.2.1 Market Composition - Credit & Deficit Generators
2.2.2 Low Carbon Fuel Supply Assessment
2.2.3 Compliance categories
2.2.4 Credit trading system
2.2.5 Credit generation pathways
2.2.6 Annual cycle and timeline of activities (including verification)
2.3 Key market variables at play in LCFS (i.e., influencing supply and demand)
2.3.1 Vehicle Stock and Energy Demand
2.3.2 Growth of electric vehicles
2.3.3 Demand and supply outlook for LCFS credits: possibilities till 2030
3. Canada Clean Fuel Standards
3.1 Background and History of the Market
3.2 Policy & Regulatory Overview: Pan Canadian Framework on Clean Growth and Climate Change
3.2.2 Summary on Industries Impacted
3.3 Key constructs of the Market
3.3.1 Market Overview
3.3.2 Different players
3.3.3 Compliance categories
3.3.4 Credit trading system
3.3.5 Credit generation pathways
3.3.6 Annual cycle and timeline of activities
3.3.7 Timeline for CFS launch
4. Oregon Clean Fuels Program
4.1 Background and History of the Market
4.1.1 Policy & Regulatory Overview
4.1.2 2022 Policy Target and Proposed Timeline
4.1.3 Overlapping Policies - Federal Renewable Fuel Standard & Oregon Renewable Fuel Standards
4.1.4 Summary on Industries Impacted
4.1.5 Key Constructs of the Market
4.1.6 Key market variables at play
4.1.7 Regulatory variables influencing the market outlook
4.1.8 Market Perspectives and Further Reading
5 British Columbia Low Carbon Fuel Standard
5.1 Background and History of the Market
5.1.1 Policy & Regulatory Overview
5.1.2 Summary on Industries Impacted
5.2 Key Constructs of the Market
5.2.1 Market Composition
5.2.2 Compliance Categories
5.2.3 Low Carbon Fuel Supply Assessment
5.2.4 Credit Trading System
5.2.5 Summary on Trading
5.2.6 Annual Cycle and Timeline of Activities
5.3 Key Market Variables at Play
5.3.1 Vehicle Stock and Energy Demand
5.3.2 Fossil Fuel Demand
5.3.3 Role of Clean Fuels
5.3.4 Role of Electric Vehicles
5.3.5 Other Credit Generating Options
5.4 Regulatory Variables Influencing Market Outlook
5.4.1 Target CI Compliance Targets
5.4.2 Market Flexibility and Stability Mechanisms
5.5 Market Perspectives and Further Reading
5.5.1 Market Perspectives
5.5.2 Further Reading
6 Transportation and Climate Initiative of North East and the Mid Atlantic States
6.1 Regional low-carbon transportation policy development process
6.2 Clean Vehicles and Fuels
6.2.1 North East Electric Vehicle Network
6.3 Sustainable Communities
6.3.1 Freight Efficiency
6.4 Development of a Market-Based Emission Reduction Policy
6.4.1 The Transportation Climate Initiative Program (TCI-P)
6.4.2 Further Reading
Samples
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