SUBSCRIBER NOTE: Platts revises California ethanol assessment CI proposal

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

This decision follows a second proposal published April 17, 2017, and an initial proposal published February 3, 2017.

Platts will assess ethanol basis California that has a carbon intensity (CI) equal to the annual gasoline CI standard as set by the California Air Resources Board, referred to as "non-obligated" ethanol.

Platts will not publish the previously proposed assessment using a CI based on the published average of the previous four quarters in California. Feedback showed that the lower CI assessment would not reflect the market and responses saw little use for the second assessment.

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

For the 2017 calendar year, Platts will assess ethanol with a CI of 95.02 gCO2e/MJ, the gasoline standard.

The 95.02 CI level is based on the annual 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.

In a non-obligated ethanol trade, the seller will retain any obligation for credits or deficits generated by the actual CI of the ethanol sold.

For the price assessment, Platts will take into consideration transactable market information such as bids, offers and trades that do not have a 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 values received from market participants and the assessed reference ethanol CI, taking into account the value of the carbon credits under the LCFS as defined by CARB and as assessed by Platts.

The daily assessments impacted by this proposal are: South California Rail Car Ethanol forward 7-14, Platts code: AAMNK00; North California Rail Car Ethanol forward 7-14, Platts code: AAMFT00.

Both daily assessed values appear in the Platts Biofuelscan, Weekly Global Ethanol Report and on the Platts Biofuels Alert real time system pages 10 and 210.

The change will also impact the monthly averages:

South California Rail Car Ethanol monthly average: AAMNM00 North California Rail Car Ethanol monthly average: AAMFW00

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, and finally 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 of the ethanol published by Platts and the gasoline standard CI ethanol, Platts will 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 2017 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 will 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 will publish 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 will 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

Platts Welcomes all further feedback. 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.