California air board issues guidance on LCFS cap

Houston — The California Air Resources Board on Friday clarified its regulations concerning prices for Low Carbon Fuel Standard credits, which have seen a steep increase in recent weeks.

In a Frequently Asked Questions document released Friday, CARB said its recent amendment that places a "hard cap" on LCFS credit prices is not scheduled to go into effect until July 1.

Any LCFS transfers posted to CARB's reporting system after the effective date must be priced below the hard cap, CARB said. Any LCFS transfers posted before the effective date can exceed the cap.

Carbon credits under the fuel standard have toppled all-time records five times in the last two weeks. On Monday, S&P Global Platts assessed first-quarter credits at $219/mt. The same credits were assessed at $217.50/mt on Friday.

As credits rose, confusion arose in the market on how CARB would handle the hard cap, which was among a bevy of amendments passed in November. A source told Platts earlier that the market expected the hard cap to be set at $217/mt, which prices easily surpassed. The higher prices forced CARB to issues its guidance on Friday.

LCFS credits are generated as obligated parties produce fuels below the annual carbon intensity requirement. For example, in 2020 the gasoline standard is 91.98 CI. If a party produces gasoline that is 90 CI, it generates credits that can be sold in the market to parties that generated a deficit, or gasoline above 91.98 CI.

Each credit represents 1 mt of carbon emissions.

Since reaching $174/mt on April 16, 2019, LCFS front-quarter credits have been steadily rising, breaking $200/mt on August 28.