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SAF's California LCFS credit value tumbles as average carbon score climbs

Highlights

Average SAF CI climbs to 47.02 from 31.4

Value of LCFS credits per gallon of SAF weakens

New York — The value of California Low Carbon Fuel Standard credits generated by a gallon of sustainable aviation fuel (SAF) tumbled in the second quarter amid higher average carbon intensity shown in the most recent data from the state's Air Resources Board.

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S&P Global Platts calculated the value of LCFS credits generated by SAF at $1.0516/gal on Nov. 5, down sharply from nearly $1.4250/gal before the updated data.

The California Air Resources Board reported nearly 1.32 million gallons of SAF were consumed in the state in Q2, generating 7,042 mt of LCFS credits. The volume was up from 284,190 gallons in Q1, when the coronavirus-pandemic decimated demand, and up from 723,532 gallons in Q2 2019. Credit generation was up from 2,028 mt in Q1 and 3,600 mt in Q2 2019.

The implied average carbon intensity (CI) for SAF rose to 47.02 CI from 31.4 CI, which Platts calculates using a formula published by the Air Resources Board.

As a relatively new fuel, the Air Resources Board assigned provisional production pathways to many SAF producers. After submitting additional paperwork for verification, producers are now receiving official CI scores, which has increased the average CI for SAF in California.

Higher CI score can reduce discounts

The lower value from LCFS credits can affect the bottom line for producers, who rely on the credits to make the fuel cost competitive versus conventional jet fuel.

A SAF producer can sell a gallon of fuel with all relevant environmental credits – LCFS credits in California, renewable identification numbers and a $1/gal biomass-based diesel credit – or they can separate the credits and sell the fuel at a discount.

A lower LCFS value reduces the size of that discount.

Platts published the price of SAF with credits attached in California at $3.7422/gal on Nov. 5, down modestly from $3.7440 on Nov. 4. The price of SAF without credits rose to 31.86 cents/gal on the same day from minus 4.08 cents/gal on Nov. 4.

The prices of SAF with no credits can fall into negative territory when the value of credits is higher than the cost of producing the fuel.

Platts publishes SAF prices in California that are calculated based on the cost of production and value of associated environmental credits, such as LCFS credits and renewable identification numbers.

Competition from renewable diesel

Renewable diesel represents significant competition to SAF, as the production processes are similar, and producers generally must choose which fuel to make.

The average CI of the fuel being consumed is only part of the equation, the number of LCFS credits that a gallon of fuel generates also depends on the size of the spread between that CI and the annual compliance standard the Air Resources Board sets.

For SAF, the spread between the conventional jet fuel compliance standard and the average CI is narrower than between renewable diesel's average CI and the conventional diesel compliance standard.

That means renewable diesel producers can generate LCFS credits more efficiently, even if the average CI is slightly higher than that of SAF.