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Calif. LCFS credit prices down $1 on month to average of $76/tonne in July

California Low-Carbon Fuel Standard, or LCFS, credit prices were down $1 in July to post an average of $76.00/tonne, as trading volumes dropped on the month.

Monthly data released by the California Air Resources Board on Aug. 8 show California LCFS prices ranged from a low of $66.00/tonne to a high of $98.00/tonne in July.

The agency said 72 transfers took place in July, for a total volume of 565,000 on the month, down from 765,000 in June.

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The CARB data show 79 entities were sellers of California LCFS credits in July, while 22 parties were buyers of credits that month. A total of 57 entities were both sellers and buyers of California LCFS credits in July.

The average price for California LCFS credits was $81/tonne during the second quarter, $92/tonne in the first quarter, and $93/tonne in the fourth quarter of 2016.

The monthly statistical data from the CARB includes transfers that have been proposed and completed as well as those that were are still pending confirmation from buyers.

The LCFS requires California fuel providers to calculate the carbon intensity of fuel sold for transportation, including imported fuel. The program requires the reduction of average carbon intensity of fuels by 10% by 2020, imposing a gradual cap on carbon intensity levels in the years preceding.

In early 2014, CARB staff proposed making several revisions to the LCFS after an appeals court ruling in the POET I lawsuit upheld the challenged LCFS but said some adjustments to the program were needed. In the lawsuit, ethanol producer POET LLC and others claimed that the CARB, during the initial adoption process of the rules, violated the California Administrative Procedure Act and the California Environmental Quality Act.

Although the CARB made revisions and re-adopted the LCFS in 2015, POET said that the changes failed to properly meet the agency's responsibilities to fix the violations of the CEQA that originally took place.

In an opinion published in early April of this year, the California Court of Appeal for the Fifth Appellate District reversed the lower court's decision, concurring with POET, stating that the agency failed to comply with CEQA's requirement that it analyze the degree to which nitrogen oxide emissions from biodiesel fuels had been and would be impacted by the implementation of the LCFS. The court instructed the CARB to conduct a year-by-year analysis of whether the implementation of the LCFS rules may have caused an increase in NOx emissions.

Although the CARB subsequently asked for a rehearing, the California Court of Appeal reissued its opinion at the end of May, without substantively altering its April ruling.

Meanwhile, in a parallel legal challenge to the readopted LCFS by POET, known as POET II, a hearing on the merits of the case was delayed from July 26 until Dec. 21. The postponement in POET II was requested by the CARB since it said that the NOx analysis required under POET I would not be completed by the end of July. Due to the overlapping nature of the two cases, the agency said it would be premature to hold a hearing on the merits of POET II before the issues under POET I are resolved.

At the same time the CARB requested the postponement of the POET II proceedings, it said that it would be seeking California Supreme Court review of the May opinion in POET I, looking for clarification regarding the standards by which compliance with a CEQA-related writ should be measured. The Supreme Court has until early September to decide whether to take the case, but potentially could extend that deadline to October.

"If Supreme Court review is granted, then the POET I proceeding would be lengthened by months or even years, potentially leading to even further delay in the resolution of POET II (i.e., in addition to the aforementioned continuance approved by the Superior Court)," according to a July report from Latham & Watkins LLP.

"Further delay in the resolution of POET I and POET II could prolong uncertainty for LCFS market participants, particularly if future ARB administrative proceedings (if any) undertaken in response to the Writ, or future writs of mandate flowing from POET II (if any), intersect with ARB's planned 2018 rulemaking to increase the LCFS's carbon intensity reductions and extend the program to 2030," Latham & Watkins wrote.

Market prices and included industry data are current as of the time of publication and are subject to change. For more detailed market data, including power and natural gas index prices, as well as forwards and futures, visit our Commodities Pages.