LCFS in California Means Big Gains for RNG

February 21, 2019

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California’s Low Carbon Fuel Standard (LCFS) began the new year with significant and positive changes, which are looking very beneficial for renewable natural gas (RNG). In ACT News last July, we defined what RNG is, and explained that it is not a fossil fuel, but an ultra-clean and ultra-low-carbon natural gas alternative made from organic-based methane. Here we’ll discuss how the updates to the LCFS regulations are furthering the environmental and market benefits for RNG in California.

To give some history, the LCFS was enacted by Governor Arnold Schwarzenegger by executive order in 2007, in support of California’s Global Warming Solutions Act of 2006 (AB32). Originally adopted in 2009, the program became effective in 2011, and is administered by the California Air Resources Board (CARB) as a statewide policy. The LCFS is a fuel-neutral, market-based state program designed to reduce the lifecycle carbon intensity (CI) of transportation fuels by encouraging the use of cleaner, low-carbon fuels.

Significant and positive changes to California’s LCFS regulations, including extending the program through 2030, are furthering the environmental and market benefits for RNG.

LCFS Credits Generated by Low-Carbon Fuels

A fuel’s CI is determined by assessing its total greenhouse gas emissions from production to consumption, also known as the “cradle-to-grave” analysis. This accounts for each stage of a fuel’s lifecycle, including feedstock types, raw materials, processing, transportation and final use. CI is calculated using the California Greenhouse Gases, Regulated Emissions, and Energy Use in Transportation (CA-GREET 2.0) model developed by the Argonne National Lab. CI is expressed in grams of CO2 equivalent per megajoule (gCO2e/MJ or g/MJ for short).

Fuels that have a lower CI than the target established by CARB generate LCFS credits (for 2019, 94.17 grams of CO2 equivalent per megajoule), while fuels like gasoline and diesel with a high CI generate LCFS deficits. Fuel providers must meet reduction targets by selling more low-carbon fuels, reducing the carbon intensity of fossil fuels, or purchasing credits from producers who supply low carbon fuels.

RNG Poised for Market Growth

In September, 2018, CARB approved several significant changes to the program, which took effect on January 4, 2019. The LCFS initially required a 10% reduction in transportation fuel CI by 2020, but with the new standards, the targeted reduction in CI is now 20% by 2030. By extending the program through 2030, market participants now have more regulatory certainty on the declining CI targets. This will help drive the development of facilities that can produce transportation fuels with low CI scores.

RNG is poised for noticeable market growth as a result of the new standards. Renewable natural gas (also known as biomethane) is an ultra-clean and ultra-low-carbon alternative to geologic, or fossil-based, natural gas, made from the methane that is captured when organic waste from food scraps, animal manure and sewage is broken down, captured and refined. RNG has the potential to offer the lowest CI of all renewable fuels, depending on the feedstock.

The generation of high value LCFS credits from the production of RNG should spur additional investment in California’s renewable fuels industry for years.

Anaerobic digester projects using livestock manure in particular should gain traction. The CI of RNG generated from these digesters, based on the Legacy California Bioenergy LLC value established in 2016, is approximately negative 272.97 gCO2e/MJ because it displaces traditional fossil fuel use, while also mitigating business-as-usual emissions from agriculture. Biomethane in general is rated as a very low CI fuel under the LCFS because it is treated as a byproduct of existing activities, meaning that little additional energy or resources are typically used for its production. While RNG produced from livestock manure offers the highest LCFS credits, there is also high value in producing RNG from landfills, wastewater treatment plants and other agricultural activities.

California’s LCFS Leads by Example

To illustrate just how the LCFS is encouraging fuel producers to buy and sell emission credits to develop profitable products, the CARB website tracks the weekly credit transfers in an activity report. From February 11 until February 17, 2019 the average LCFS credit price was $179.96 ($/MT). The total volume transferred was 149,110 (MT), for a total value of $26,833,700. To sum it up, the credit generation possibilities and high price of LCFS credits should spur additional investment in California’s renewable fuels industry for years to come. California’s LCFS is currently one of the most advanced programs in the world, and California is proud to be leading by example.