The Federal Renewable Fuel Standard
Q: What is the US Renewable Fuel Standard (RFS) and how does it work?
A: Under the Energy Policy Act of 2005, the EPA is authorized to set annual quotas dictating what percentage of the total amount of motor fuels consumed in the US must be represented by renewable fuel blended into fossil fuels. Companies that refine or import fossil fuels are obligated to meet certain individual RFS quotas based on the volume of fuel they introduce into the market. These companies are considered “obligated parties.”
In order to track compliance, the RFS established a system where a serial number, known as a Renewable Identification Number (RIN), is assigned to each batch of renewable fuel for the purpose of tracking its production, trade flow, and use. Obligated parties must produce, and/or buy, volumes of four categories of biofuels or buy the appropriate RINS. They otherwise face stiff fines and penalties that far outweigh the cost to meet annual compliance requirements.
Q: How many RINs are produced for each gallon of fuel?
A: The number of RINs generated per gallon of fuel produced is based on their energy content relative to ethanol which is defined to have a 1.0 energy density. As a result, the number of RINs generated per gallon of LGF’s diesel and is 1.7 and is 1.5 for naphtha. For example, if the price of D3 RINs was $2.00, each gallon of diesel would produce $3.40 worth of RINs and each gallon of naphtha would produce $3.00.
Q: How is the price of the RINs established?
A: RINs generated are registered by the producer with the EPA and must follow mandated record-keeping requirements. RINs are only able to be generated if the registered fuel was produced in accordance with the rules established by the Energy Independence and Security Act of 2007 (EISA). These regulations are enforced against both domestic and foreign biofuel producers. Renewable Identification Numbers can be sold and traded separately from the biofuels that created them in an open market trading system. The market determines the value of each RIN type.
Q: Does the Federal Government pay any money to the producers of the fuel or RINs?
A: Although the incentives are often spoken of as Federal Credits no government or public funds are involved. It is the obligated parties that pay for the RINs directly by buying them on the open market.
Q: Where can I find out more information on the Federal Renewable Fuel Standard?
A: The US EPA provides an overview of the program at this link: Federal Renewable Fuel Standard
The California Low Carbon Fuel Standard
Q: What is the California Low Carbon Fuel Standard (LCFS) and how does it work?
A: The California Air Resources Board (CARB) established the LCFS program as part of a comprehensive set of programs in California to cut greenhouse gas emissions and other smog-forming and toxic air pollutants by improving vehicle technology, reducing fuel consumption, and increasing transportation mobility options. The LCFS is designed to decrease the carbon intensity of California’s transportation fuel pool and provide an increasing range of low-carbon and renewable alternatives, which reduce petroleum dependency and achieve air quality benefits. Carbon intensity is the amount of carbon by weight emitted per unit of energy consumed.
The LCFS is designed to encourage the use of cleaner low-carbon transportation fuels in California, encourage the production of those fuels, and therefore, reduce GHG emissions and decrease petroleum dependence in the transportation sector. The LCFS standards are expressed in terms of the “carbon intensity” (CI) of gasoline and diesel fuel and their respective substitutes. The program is based on the principle that each fuel has “life cycle” greenhouse gas emissions that include CO2, CH4, N2O, and other GHG contributors. This life cycle assessment examines the GHG emissions associated with the production, transportation, and use of a given fuel. The life cycle assessment includes direct emissions associated with producing, transporting, and using the fuels, as well as significant indirect effects on GHG emissions, such as changes in land use for some biofuels. The carbon intensity scores assessed for each fuel are compared to a declining CI benchmark for each year. Low carbon fuels below the benchmark generate credits, while fuels above the CI benchmark generate deficits. Credits and deficits are denominated in metric tons of GHG emissions. Providers of transportation fuels must demonstrate that the mix of fuels they supply for use in California meets the LCFS carbon intensity standards, or benchmarks, for each annual compliance period. A deficit generator meets its compliance obligation by ensuring that the amount of credits it earns or otherwise acquires from another party is equal to, or greater than, the deficits it has incurred. The goal of the California LCFS is to reduce the CI of the transportation fuel pool by 20% by 2030. This LCFS target is to be achieved by setting a declining annual target, or compliance standard.
Although further percentage reductions in carbon intensity are not mandated past 2030 under the LCFS, there is a strong drive in California to continue to reduce GHG emissions beyond that date. California Governor Brown signed into law SB-100 on September 11, 2018 which requires all California retail electricity supply to come from renewable energy and zero-carbon resources by 2045. On the same day he issued Executive Order B-55-18 which ordered reduction in carbon emissions beyond the current 2030 LCFS goal (40% reduction relative to 1990) to 80% reduction (relative to 1990) by 2050. His successor, Governor Newsom, has continued support of both initiatives.
Q: How does Carbon Intensity (CI) work?
A: The California LCFS provides for additional (higher) credits, depending on the degree to which the renewable fuels GHG reduction exceeds the threshold level. This calculated value for the degree of lifecycle GHG reduction is defined by the fuel’s carbon intensity (CI). The lower the carbon intensity, the greater the GHG reduction. Lifecycle emissions for this calculation include growing/harvesting the raw materials that turn into fuel; transporting and processing it; and, finally, consuming it. Renewable fuels also reduce fine particle pollution and other types of emissions, like nitrogen oxides and carbon monoxide that impact air quality.
Fuels in the California transportation fuel pool that have a CI lower than the CI value for conventional crude oil- sourced fuels established by the California Air Resources Board (CARB) generate LCFS credits. Those fuels in the transportation fuel pool with CIs higher than the target generate deficits. A fuel producer with deficits must have enough credits through generation and acquisition to be in annual compliance with the standard. Many crude oils produced in California have significantly higher CI than the US average crude oil as they are highly aromatic and require more effort to recover and refine into compliant fuels than other crude oils.
Q: What is the difference between CARB diesel and ASTM Diesel?
A: California established requirements for diesel fuel (“CARB diesel”) that mandate either much lower aromatics content than ASTM diesel fuel or the emissions equivalent thereof. CARB diesel must have only 10% aromatics to meet the same emissions standards as 10% aromatic-content diesel fuel or require extensive testing to demonstrate emissions equal to or better than this fuel. Fuels produced by the Fischer-Tropsch (FT) process such as the fuel from Louisiana Green Fuels are aromatic-free. The California market already uses Renewable Diesel (RD) fuel that is essentially identical to that produced by the F-T process, so there are no barriers to utilization of our F-T fuels there.
Q: How do the LCFS credits work?
A: Petroleum importers, refiners, and wholesalers are Regulated Parties (RPs) under the LCFS similar to the “Obligated Parties” in the Federal Renewable Fuel Standard. When transportation fuels (both conventional/CARB and alternative/renewable) are imported, refined, or sold in California, RPs must enter the transaction level information into CARB’s central data system for the standard, the LCFS Reporting Tool (LRT). The LRT tracks each transaction of fuel with its corresponding credit or deficit position and provides a net position for each RP. Credits are retired when used to cover deficits per annual compliance reporting. Unlike Federal RIN credits, LCFS credits do not have a vintage and do not expire. All credit transactions are reported to the LRT and include the transaction price in units of dollars ($) per metric tons (MT) of CO2 equivalents. Credit owners can only sell or trade their credits with RP deficit holders.
Q: Does the California government pay any money to the producers of the LCFS credits?
A: Although the incentives are often spoken of as California Credits no government or public funds are involved. It is the regulated parties that pay for the LCFS credits directly by buying them on the open market.
Q: Where can I find out more information on the California Low Carbon Fuel Standard?
The California Air Resources Board provides an overview of the program at this link: Low Carbon Fuel Standard This includes additional links showing the number of credits traded and their price.
The Federal Blender/Biofuel Tax Credit (BTC)
Q: What is The Federal Blender/Biofuel Tax Credit?
A: On December 21, 2019, the BTC was signed into law retroactively to 2018 and forward through 2022. This legislation provides a tax incentive credit for blending certain advanced biofuels into transportation fuel. This credit is generated by the biofuels producer and the value was set at $1/gallon by Congress. The intent is for the credit to pass along the value chain from the renewable fuel that is produced to the point of blending. To qualify, fuel has to be produced in or be imported into the US, meet the US EPA fuel RIN requirements, and be consumed in the US market. The incentive is allowed as a credit against the producer’s income tax liability if the producer is the blender of record. This tax credit has strong bipartisan support, and we believe is likely to be reauthorized after its 2022 expiration.
Geologic Carbon Sequestration and Carbon Sequestration Wells
Q: What is geologic carbon sequestration?
A: Geologic sequestration is the process of storing carbon dioxide (CO2) in underground geologic formations. Geologic Sequestration (GS) is the process of injecting carbon dioxide (CO2), captured from an industrial (e.g., steel and cement production) or energy-related source (e.g., a power plant, natural gas processing facility, fuel production facility), into deep subsurface rock formations for long-term storage. This is part of a process frequently referred to as “carbon capture and storage” or CCS.
Underground injection of CO2 for purposes such as enhanced oil recovery (EOR) and enhanced gas recovery (EGR) is a long-standing practice. CO2 injection specifically for geologic sequestration involves different technical issues and potentially much larger volumes of CO2 and larger scale projects than in the past.
The US EPA finalized requirements for geologic sequestration, including the development of a new class of wells, Class VI, under the authority of the Safe Drinking Water Act’s Underground Injection Control (UIC) Program. These requirements, also known as the Class VI rule, are designed to protect underground sources of drinking water. The Class VI rule builds on existing UIC Program requirements, with extensive tailored requirements that address carbon dioxide injection for long-term storage to ensure that wells used for geologic sequestration are appropriately designed, executed, and monitored.
In a separate, yet complimentary, rulemaking under authority of the Clean Air Act, EPA has finalized reporting requirements under the Greenhouse Gas Reporting Program for facilities that inject CO2 underground for geologic sequestration and all other facilities that inject CO2 underground. Information obtained under the Greenhouse Gas Reporting Program will enable EPA to track the amount of carbon dioxide received by these facilities.
Q: What is required for a carbon sequestration well?
A: For geologic carbon sequestration the primary subsurface risk is potential loss of CO2 storage integrity that results in unplanned CO2 migration out of the storage reservoir. The test well is used to establish that there are a proper containment layers above and below the CO2 injection layer to prevent the CO2 from leaking out. As long as those confinement layers are present the biggest risk is associated with previously deep wells that penetrate the confinement layers within the radius of the CO2 plume growth resulting from injection. If such wells were not properly plugged, they would represent a potential leak path. For the Louisiana Green Fuels Project there are no deep wells that penetrate the containment layers within the expected plume radius after 30 years of operation.
Q: Has a geologic sequestration well ever leaked?
A: There has never been a leak from a commercial carbon sequestration well.