August 3, 2023

Dr. Cheryl Laskowski

Transportation Branch Chief

California Air Resources Board 1001 I St.

Sacramento, CA 95814

Dear Dr. Laskowski,

The Low Carbon Fuel Coalition (LCFC) is submitting this comment for consideration in the current LCFS rulemaking. The LCFC membership includes a diverse set of companies and stakeholders dedicated to decarbonizing transportation fuels by developing and implementing the use of low carbon fuels. The LCFC coordinated an industry stakeholder group representing all of the primary low carbon fuels currently generating credits in the LCFS program and retained the consulting firm ICF International Inc. (ICF) as our technical partner. ICF has developed scenario analyses to help inform CARB’s public dialog about what level of accelerated carbon intensity reduction is appropriate for 2030. Consequently, while these comments are being submitted by the LCFC, the comments are based on rigorous independent analysis and represent broad clean fuel industry consensus.

The LCFC supports:

  1. A Carbon Intensity (CI) target of 42% for 2030

  2. An Accelerator Mechanism to allow the LCFS program to self-correct in situations of over-compliance

  3. Recognition of Climate Smart Agricultural (CSA) practices within the LCFS program

Strengthened CI target for 2030

The LCFC strongly supports CARB’s signaled intention to strengthen the CI target for 2030. The LCFS is one of the most important policies to decarbonize the California economy. In order to continue the LCFS program’s success, it is critical that the CI targets provide a strong market signal to support investments and long-term market stability.

The ICF modeling results also support more ambitious targets for 2030 and beyond. The ICF analysis was based on broad industry stakeholder input, existing and anticipated and/or feasible policy measures to accelerate decarbonization of the transportation sector, and current and expected market realities embedded in CARB’s modeling. The bottom-line results are summarized in the report:

  • ICF modeling shows that the lifecycle GHG emissions for the transportation sector (including gasoline, diesel, and intrastate jet fuel) can decrease by 42% by 2030 and 77% by 2040 from 2010 values.

The ICF analysis also includes a number of observations related to the analysis and the LCFS program in the coming years:

  • A trajectory with a 30% reduction in CI by 2030 is borderline untenable—ICF estimates this will yield a bank in excess of 100 million credits.

  • Deficits are decreasing. Gasoline and diesel demand are both at or near their peaks; there is only modest room for growth given California regulations. This will limit deficit generation considerably in the next decade, especially for gasoline as transportation electrification accelerates.

  • Credit generating activity is poised to increase rapidly. The diversity of options to achieve the range of CI target is significant. We consider higher liquid biofuels blending, lower CIs across the board, electrification of the light-duty and heavy-duty sectors, SAF deployment, expanded role of biogas, and modest hydrogen deployment. These strategies align closely with the incentive structures of the Inflation Reduction Act, and other programs (e.g., the Renewable Fuel Standard). The LCFS program will certainly help the economics of some of these projects, but many are being developed without expectations of significant price support from the LCFS program.

  • A step-down mechanism is needed sooner than later. The bank of credits will likely be in the range of 30 million credits by the end of 2024 absent intervention—this has the potential to alter the trajectory contemplated in our Central Case. The step-down mechanism is critical for 2024 implementation— another year of banked credits will shift the program trajectory and likely limit low carbon fuel deployment.

  • Diversity of credit-generating options is strength of modeling, not limitation. Though we have under- and over-estimated credit generation for specific strategies previously, ICF analysis has consistently shown that we are in line with LCFS market performance at the top level of credit-deficit balances.

  • Post-2030 considerations. The CI trajectory of the program from 2030 to 2045 will need to be non-linear to prevent another build-up of credits. The full implementation of ACC2 and Advanced Clean Fleets will achieve compliance without any other low carbon fuels by 2036 with a 62% CI standard.

Addition of an Accelerator Mechanism

The addition of an acceleration mechanism would be an effective complement to stronger and extended CI standards within the LCFS program. A mechanism to automatically respond to future LCFS program overperformance can ensure that the program continues to: provide long- term certainty, catalyze innovation, promote investments in alternative fuels, and avoid foregoing potential GHG emissions in the transportation sector.

The LCFC supports the acceleration concept and the following specific provisions proposed in the May 23rd workshop:

  • The credit-to-bank (CPB) mechanism proposed by CARB. For the CPB to be effective and measure the current market price relative to the bank, the price metric used in the CPB formula needs to be the spot price in the market at that time and not a broader average that includes and is obscured by prior forward transactions that do not reflect the current market.

  • Trigger based on calendar year duration for simplicity, and to avoid manipulation and the influence of seasonality

  • Automatic jump forward in carbon intensity standards for future compliance years

  • Automatic repeated triggers limited to two, with CARB Board approval required for a third trigger

  • 7.5-month lead time for stakeholders - May 15 decision for effective date of January 1

The acceleration mechanism as proposed promotes simplicity and transparency; uses easily accessible, public information and clear metrics to trigger LCFS program adjustments; provides the necessary lead time for planning by deficit and credit generators; and dynamically responds to market conditions in the event of future sustained overperformance of the program.

Crediting of CSA practices

We would also like to reiterate our support for the Climate Smart Agriculture (CSA) proposal contained in our March 15, 2023, letter. That letter presents a limited scope proposal designed as a first step toward recognizing CSA within the LCFS. The LCFC’s CSA proposal is supported by a broad group of industry stakeholders including farmers, low carbon fuel producers, non- governmental organizations, and trade associations. The specific recommendation is that CARB recognize certain farming practices that enable feedstock to be produced in a less carbon intensive manner. Specifically, we are encouraging CARB to recognize incremental CI reductions in feedstocks grown with green ammonia, reduced fertilizer or energy inputs, or at high yield rates within the next iteration of the CA-GREET model that underlies the LCFS program. We encourage you to review our full letter that is included in the workshop comment log.

Conclusion

Thank you for all of CARB’s work to receive stakeholder input, and to optimize the overall design and specific components of the LCFS program. The LCFS program structure has proven to be the most effective and versatile program to decarbonize the transportation sector. The LCFC looks forward to the strengthening and lengthening of the LCFS that CARB has undertaken, and the forthcoming LCFS rulemaking package.

We also remain dedicated to the expansion of the LCFS program structures across multiple jurisdictions, and look forward to continuing to work with CARB in these endeavors.

Sincerely,

Graham Noyes

Executive Director

Low Carbon Fuels Coalition