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News Update
- Canadian Fuel Regulation Credits Trade. Canadian regulator Environment and Climate Change Canada (ECCC) announced the first trades for the program in early July without releasing volumes or pricing. Credits generated in 2022 and 2023 became eligible for trade on June 30th, 2023. The Clean Fuel Regulations (CFR) target a 30% reduction in transport fuel carbon intensity by 2030. AEGIS saw CFR credits bid at C$205/t for 2023 transfer on July 12, 2023.CARB breaks down LCFS auto-acceleration design concepts.
- EIA Trims its 2024 Renewable Diesel Production Forecast. The US Energy Information Administration (EIA) trimmed its 2024 by 2.8% to 219,000 Bbl/d. The Administration assumed lower plant utilization rates and more plant cancellations in response to the June 21st release of the Environmental Protection Agency’s (EPA) final Renewable Fuel Standard rule. The rule set biofuel requirements for 2023-2025, with the advanced biofuel requirement falling short of expectations. The EIA increased its 2023 production estimate by 2.2% from its June forecast to 161,000 Bbl/d as the Administration is citing recent production increases.
- California LCFS Transfers set June Record. California Air Resources Board (CARB) data showed a total volume of 2,470,000 t of LCFS credits across 222 transfers, a record for June and almost double year-prior levels. The average transfer price fell to $79/t from $81/t the month prior, marking the lowest since April 2023. June transfers increased 41% over May levels but were down from 547 transfers in April 2023.
- CARB Breaks Down LCFS Auto-acceleration Design concepts. On May 23rd, 2023, California Air Resources Board (CARB) released two considerations for the auto-acceleration mechanism designed to increase stringency in the LCFS program. The first design would be triggered by a “credit to price bank (CPB)” ratio dropping below a threshold calculated by dividing the average credit price by the total number of banked credits. The second design would be triggered by a “credit to deficit (CtD)” ratio calculated by dividing the total number of credits generated by the total number of deficits generated. Both designs, if triggered, would advance the CI reduction schedule by one year, starting the following year after the trigger ratio is met. Regarding implementation, CARB noted that quarterly LCFS data is finalized at the end of the following quarter that a fuel was used and published one month later, meaning that Q2 is the earliest that a trigger announcement could be made using complete, prior-year data. CARB also noted that if an auto-acceleration trigger occurred in the immediate prior year, then the current year cannot also activate the mechanism as the annual data used to determine the impacts of the newly ratcheted standard would not be ready for analysis. For example, if data for 2024 were to meet trigger criteria, the targets would be advanced starting in 2026, with triggers “locked” until 2028.
- CARB Mulls Over More Stringent Changes to LCFS. California’s LCFS program currently requires a 20% CI reduction by 2030 with a target of 13.75% CI reduction for 2025, but CARB is considering increasing the 2030 LCFS CI reduction target to 25%, 30%, or 35% below 2010 levels. In the May 23rd workshop, CARB discussed potential auto-acceleration mechanisms and whether to take a linear path to a new 2030 target or use a step-down with more aggressive reductions in the short-term. If CARB were to set a new 2030 target of 30% CI reduction, it could set a new 2025 mandate of 15.4% through a linear path, or between 15.75% - 18.75% using a step-down approach. According to CARB models, a 2% step down (15.75% by 2025 mandate) would generate 1 million deficits through 2030, and a 5% step down (18.75% by 2025 mandate) would generate nearly 12 million. While these changes were widely expected to start in January 2024, regulators have suggested that they may not take effect until later in the year. The complexity of the potential acceleration and step-down mechanisms has led staff to take feedback on the timing of new targets and other potential changes in the event that these new regulations are postponed.
- PG&E offers record high LCFS credit volume. Pacific Gas & Electric (PG&E) offered a record volume of 289,000 LCFS credits in their most recent auction at the end of May, ~20% more than the previous auction in March. PG&E generates credits by supplying low-carbon electricity for vehicle charging, and its quarterly offerings have climbed steadily from 72,000 credits in December 2020.
- Xpansiv to Launch California LCFS Spot Contract in July. Carbon market exchange Xpansiv launched the first exchange-traded California LCFS spot contract on July 10th. The LCFS contract is fully integrated with Xpansiv spot market CBL’s central limit order book enabling instant execution on an open electronic platform with same-day (T+0) settlement of cash and credits through the exchange’s post-trade infrastructure. The contract saw seven trades totaling 44,000 metric tons in its first week of trade.
Market Update
- CARB reported the California LCFS average traded price was $81.00 in May 2023, which is 9.46% higher than the April 2023 average of $74.00.
- CARB reported 222 transfers in June 2023, a 41% increase from the 158 transfers reported in May but down from 547 transfers in April. The total credit transfer volume was 2,470,000 t compared to 1,684,000 t in May.
- California LCFS credits traded lower over June 2023, trading as low as $76.00/t to close the month after starting the month at $85.00. This marks a $9/t rout, or losses of 11%. Prices tumbled to $71.50/t in the first half of July, marking the lowest level since March 31, 2023.
- Oregon DEQ reported a transfer volume of an estimated 123,494 metric tons of credits in June 2023, up 1.59% from a downward-revied May 2023 level of 121,556 metric tons. June transfer volumes were up 233% on June 2022 levels of 37,135 credits. June saw 28 transfers with an average transfer price of $130.21/credit, down $0.83/t, or less than one percent, from May.
- Oregon LCFS credits traded higher over the month of June, starting at $138.50 and surpassing a three-year high of $143.00 by the close of the month. Prices in the first half of July climbed to $146.00/t, the highest level since March 31, 2020.
- Based on the most recent CARB calculations, the California LCFS maximum credit price is now $253.53/t. as of June 1, 2023, up from the 2022 maximum of $239.18/t. LCFS maximum credit prices are determined by a $200/t cap in 2016 dollars adjusted by a consumer price index.
- The California LCFS market remains acutely oversupplied with the bank of available credits at its highest levels in program history and credits outpacing deficits by an increasing gap since July 2020. Prompt spot prices have trended lower since June, sliding to the lowest level since March 31, 2023, at $71.50/t. Prices rebounded off lows of $59.00/t earlier this year to $84.00t in May given the regulatory push to increase the pace of reductions in the program. Though likely not to be finalized until 2024, the market expects prices to rise by next year. Spot forward structure has wavered between flat and a slight contango, with a carry heading into the first two quarters of 2024.
LCFS & CFP Schedule
California LCFS Q1 2023 Data Release |
July 31st, 2023 |
Oregon CFP Verification Statements Due
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August 31st, 2023
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California LCFS Q2 2023 Reporting Deadline |
September 30th, 2023 |
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California LCFS Q2 2023 Data Release |
October 31st, 2023 |
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LCFS Credit & Futures Pricing
Credit Prices as of July 14th, 2023: |
California Futures Prices as of July 14th, 2023: |
- California - Spot Delivery: $ 72.00
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- Oregon - Spot Delivery: $ 146.00
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LCFS Cost for Gasoline and Diesel
California, as of July 14th, 2023:
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Oregon, as of July 14th, 2023:
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- Carbob (No Cl ethanol) - Vintage 2022: 9.74 cents per gallon
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- E10 gasoline - Vintage 2022: 11.03 cents per gallon
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- Carbob (79.9 Cl ethanol) - Vintage 2022: 9.25 cents per gallon
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- B5 diesel – Vintage 2022: 12.57 cents per gallon
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Monthly Credit Transfer Activity for California
Time
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Transfers
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Total Volume
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Avg $/credit
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23-Jun |
222 |
2,470,000 |
$79 |
23-May |
158 |
1,684,000 |
$81 |
23-Apr |
547 |
5,596,000 |
$74 |
23-Mar
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252
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2,702,000
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$73
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23-Feb
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161
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1,293,000
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$71
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23-Jan
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470
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4,564,000
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$81
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22-Dec
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292
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3,001,000
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$86
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22-Nov
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181
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2,379,000
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$81
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22-Oct
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555
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5,005,000
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$106
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22-Sep
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179
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1,759,000
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$102
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22-Aug
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153
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1,624,000
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$97
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22-Jul
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439
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3,680,000
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$117
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22-Jun
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133
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1,268,000
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$113
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CY 2022
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3,137
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30,641,000
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$125
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CY 2021
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2,664
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25,279,000
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$187
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CY 2020
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2,461
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21,728,000
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$199
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CY 2019
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1,656
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14,146,000
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$192
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CY 2018
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1725
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13,334,000
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$160
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CY 2017
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1226
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8,875,000
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$89
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CY 2016
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929
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5,343,000
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$101
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CY 2015
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578
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2,852,000
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$62
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CY 2014
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304
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1,667,000
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$31
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CY 2013
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202
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887,000
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$55
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Source: https://ww2.arb.ca.gov/resources/documents/monthly-lcfs-credit-transfer-activity-reports
Monthly Credit Transfer Activity for Oregon
Time
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Transfers
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Total Volume
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Avg $/credit
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23-Jun |
28 |
123,494 |
$130.21 |
23-May |
30* |
121,556* |
$131.04* |
23-Apr
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69*
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322,461
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$121.73*
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23-Mar
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50
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345,944
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$118.85
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23-Feb
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24
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130,929
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$119.73
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23-Jan
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41
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212,109
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$116.98
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22-Dec
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47
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329,116
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$118.02
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22-Nov
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24
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132,299
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$117.80
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22-Oct
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40
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176,986
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$115.55
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22-Sep
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35
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215,128
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$114.74
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22-Aug
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13
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43,724
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$110.83
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22-Jul
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23
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89,873
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$117.44
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22-Jun
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5
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37,135
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$115.95
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CY 2022
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319
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1,607,127
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$119.01
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CY 2021
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245
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1,035,306
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$125.30
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CY 2020
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151
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806,028
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$128.08
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Source: https://www.oregon.gov/deq/ghgp/cfp/Pages/Monthly-Data.aspx
*Revised as of 7/3/2023
Figure 1. California LCFS Prompt USD/mt May 2022 - Present
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2022 Average Daily Price: $ 98.35
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2023 Average Daily Price: $ 73.36
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2022 Highest Daily Price: $ 153.50
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2023 Highest Daily Price: $ 86.00
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(January 6th, 2022)
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(May 9th, 2023)
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Figure 2. Oregon LCFS Prompt USD/mt May 2022 – Present
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2022 Average Daily Price: $ 117.85
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2023 Average Daily Price: $ 130.09
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2022 Highest Daily Price: $ 126.50
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2023 Highest Daily Price: $ 146.00
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(February 17th, 2022)
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(July 14th, 2023)
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Figure 3. California LCFS Net Credits & Cumulative Bank Volume - Quarterly
Figure 4. California LCFS Net Credits & Cumulative Bank Volume - Yearly
Figure 5. Oregon CFP Net Credits and Cumulative Bank Volume - Quarterly
Figure 6. Oregon CFP Net Credits and Cumulative Bank Volume - Yearly
Questions? Contact our team for more information: environmental@aegis-hedging.com
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