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June LCFS volumes dipped before end month price surge

Credit transfer volume under California’s Low Carbon Fuel Standard (LCFS) dipped MoM in June to 151,000/t CO2e, down from 160,000 in May as the number of transfers fell from 38 to 35, California’s Air Resources Board said on Tuesday. The average price per credit however edged up from $22/t CO2e in May to $28 in June, missing the sustained surge to current levels just below $50 from the end of the month.

California’s efforts to tweak its fuel carbon reduction ticketing program as it mulls much deeper carbon cutting plans have focused fuel suppliers’ minds on the reality of the already steep carbon reduction targets they will need to hit over the next five years. LCFS credits surged more than 60% from $33/t CO2e to a $53 high between 25 June and 29 June, before retreating back below the $50 threshold in early July. Credits previously languished in the in the $20s for more than a year of soporific trade.

California’s LCFS aims to cut the state’s carbon emissions by more than 10% by 2020. Under the scheme, renewable fuel producers generate tradeable and bankable credits based on headline greenhouse gas savings relative to fossil fuels, against baseline yearly emission reduction targets. California harbours much greater carbon cutting ambitions for the next 15 years. The state’s air and transportation bodies met on Wednesday to plot a route towards Governor Jerry’s Brown’s plan to cut the state’s petroleum use in half by 2030. California aims to cut its greenhouse gas emissions by a massive 80% relative to 1990 levels by 2050.

LCFS default carbon reporting intensities strongly benefit Midwest soy-based biodiesel and renewable diesel, allowing biodiesel and HVO to gain renewables market share continuously last year and generate roughly 40% of total credits in the last quarter. Ethanol’s credit generation contribution has been falling, reflecting punitive well to wheel carbon values for corn ethanol. Overall the carbon intensity of ethanol supplied under the scheme dropped from over 88% in 2011 to just above 82% at the end of 2014. LCFS’ ambitious 2020 carbon reduction target should support increasing demand for biodiesel and sugarcane ethanol across the state over the next five years.

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