SUBSCRIBER NOTE: Platts revises California ethanol assessment CI proposal

Following a review of feedback, S&P Global Platts proposes effective July 12, 2017 to update its California Ethanol Prompt assessments.

This second proposal follows an initial proposal published February 3, 2017.

Platts proposes to assess ethanol basis California that has a carbon intensity (CI) based on the average ethanol CI that was consumed in California over the previous four quarters as published in the California Air Resources Board's Low Carbon Fuel Standard reporting tool. Platts would update the reference CI annually.

Platts also proposes to assess ethanol basis California that has a Carbon Intensity equal to the annual gasoline CI standard as set by CARB, often referred to as "non-obligated" ethanol.

This update to the Platts California methodology follows a move by CARB to review ethanol pathway applications of both new and legacy pathways. The review gave new CI scores to the fuel pathways, where the fuel pathway CI consists of the sum of the greenhouse gases emitted throughout each stage of the ethanol's production and use. CI is expressed in grams of carbon dioxide equivalent per mega-joule (gCO2e/MJ).

CARBON INTENSITY

Platts proposes to assess ethanol basis California that has a CI based on the average ethanol CI that was consumed in California over the previous four quarters as published in CARB's LCFS reporting tool. Platts would update the reference CI annually. The reference CI for the next calendar year would be announced in the fourth quarter of the previous year, with specific timing dependent on CARB's data release.

For the 2017 calendar year, Platts proposes to assess ethanol with a CI of 73.17 gCO2e/MJ and a CI of 95.02 gCO2e/MJ (gasoline standard).

The 73.17 CI is based on the average ethanol CI in California in the fourth quarter of 2015 and the first, second and third quarters of 2016 and as published in CARB's LCFS reporting tool quarterly fuel use summary.

The 95.02 CI level is based the gasoline standard CI published by CARB. That standard will change annually based on CARB's scheduled changes to the standard. The 2018 reference CI for the "non-obligated" ethanol assessment will be 93.55 gCO2e/MJ, the 2018 gasoline standard CI.

For the price assessment Platts will take into consideration transactable market information such as bids, offers and trades that do not have a 73.17 CI or 95.02 CI and normalize them to the assessment reference CI levels. This normalization may reflect a calculated valuation of the differences in carbon intensities between the market values received from market participants and the assessed reference ethanol CIs as well as taking into account the value of the carbon credits under the LCFS as defined by CARB and as assessed by Platts.

CARBON INTENSITY FORMULA

Here is an example of normalization of a market indication received by Platts to the Platts assessed "non-obligated" ethanol value.

To find how many credits were generated from reported transactable data: the quantity of LCFS Carbon Credits in metric tons for reported transactable data is equal to the annual gasoline standard CI in gCO2e/MJ as set by CARB minus the CI of the ethanol indication reported, then the result is multiplied by the energy density of ethanol, which is 81.51 MJ/gallon, divided by 1 million, a factor that converts from grams of carbon dioxide equivalent to metric tons.

To find the value difference between the reported CI ethanol published by Platts and the gasoline standard CI ethanol, multiply the result of the LCFS credit formula by the front quarter value of LCFS carbon credits as published daily by Platts, under the code AAXYA00.

For example: Platts heard a 79.9 CI ethanol trade basis North Terminal California at 162.00 cents/gal, the annual gasoline standard CI is 95.02. * 95.02 minus 79.9 equals 15.12 * 15.12 multiplied by 81.51 (energy density of ethanol) equals 1,232.431 * 1,232.431 divided by 1,000,000 equals 0.001232 mt

The value of LCFS carbon credits for Q1 published by Platts on the corresponding day was $80/mt.

* 0.001232 mt multiplied by 80 equals 0.09856, multiplied by 100, equals 9.856 cents/gallon

The 79.9 CI ethanol trade heard at 162.00 cents/gal can be normalized by 9.856 cents/gal to give 152.144 cents/gal; an equivalent value for a 95.02 CI ethanol.

VOLUME

Platts' assessments will continue to reflect a volume of 800 barrels, or 33,600 gallons, representing one single rail car. Platts proposes to continue publishing North and South California assessments. The basis North California assessment will include the Gardena, Wilmington and Carson terminals. The basis South California assessment will include the Richmond and Selby terminals.

Platts proposes to publish the 73.17 CI North and South California ethanol assessments and the "non-obligated" gasoline standard CI North and South California ethanol assessments as both flat price indications in cents/gallon and as a premium to the Platts Ethanol Chicago front-month swap.

TIMING

Platts proposes to change the Ethanol North California Rail Prompt and Ethanol South California Rail Prompt assessments to reflect a This-Week-Shipment (TWS) and Next-Week-Shipment (NWS) system of delivery. From Monday through Wednesday, the timing of the assessment will be This-Week-Shipment (TWS); on Thursday and Friday, the timing of the assessment will reflect Next-Week-Shipment (NWS).

For example: on February 1, 2017 the loading time will reflect February 2 and 3 loading. On February 2, 2017 the loading time would reflect February 6 through 11.

FEEDBACK PERIOD

Platts welcomes all feedback and questions on the proposed assessment through May 5, 2017. Please send all questions and feedback to america_ags@spglobal.com with CC to pricemethodology@spglobal.com. For written comments, please provide a clear indication if comments are not intended for publication by Platts for public viewing. Platts will consider all comments received and will make comments not marked as confidential available to the public upon request.