The California Air Resources Board (CARB) published quarterly program data for the Low Carbon Fuel Standard (LCFS) on January 31, 2023. In this piece, we will provide some analysis of the new data and highlight interesting trends.
But First: What is the Credit Bank and Why is it Growing?
Each quarter, CARB issues credits and deficits based on the carbon intensity (CI) and volume of fuel reporting under the program. The cumulative credit bank, a measure of net credit generation over the lifetime of the program, is often used as a proxy for credit supply and demand. This credit bank grew for the first few years of the program, reaching about 10M MT by the end of 2016. From 2017 through the first half of 2021, the credit bank remained largely stable as quarterly net gains were balanced by quarterly net reductions. However, the credit bank has increased significantly since then, reaching about 13.5M MT according to the latest data.
The immediate reasoning behind the growing bank is simple:
- An increase in the production and use of low carbon fuel, which creates credits
- A simultaneous decrease in the use of gasoline and diesel, which creates deficits
The forces behind these trends are much more complex, but the LCFS is itself one of those forces. For example, the production of renewable diesel (RD) is incentivized by LCFS and now makes up almost 40% of the diesel fuel reported in the program. RD displaces the use of conventional diesel which would otherwise create deficits. As more RD is produced, more credits and fewer deficits will be generated each quarter. And RD happens to be the single largest source of credits in the program, making up about ⅓ of all credits last quarter.
Of course, RD is not the only fuel generating credits and contributing to the growing credit bank…
Q3 2022 Credit Trends
- The largest quarter-over-quarter increases came from renewable natural gas (10%), ethanol (6%), and electricity (6%).
- RD declined slightly (-3%) for the first time since 2020
- The primary driver of credit growth from renewable natural gas (RNG), the third largest credit source in the program, has been declining average CI. While RNG volume is only 7% up from the same quarter last year, the average CI is now -111 gCO2e/MJ compared to -60 last year. The lower the CI of a fuel, the greater number of credits it will generate.
Spotlight on EV Credits
Credits from electric vehicles continue to be a major source of growth in LCFS, reaching a record share of credits generated Q3 2022 (24%). Consistent with previous quarters, almost 90% of credits from EV charging came from just three categories: residential (49%), eForklifts (23%), and non-residential light/medium-duty (15%).
CARB is expected to release Q4 2022 data by April 28, 2023.
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