Low Carbon Fuel Standards in North America 101


Aug 26, 2019

Brandon Chow

Low Carbon Fuel Standards in North America 101

As recently as mid-summer 2019, California and Canada signed a memorandum to collaborate on future clean vehicle and fuel standards. The shift to green fuels and vehicles is accelerating.

Source: Alternative Fuels Data Center
Graphic: Graph depicting the number of fueling stations for alternative fuels.

Canada aims to cut emissions in 2030 by 30 million tons, and California has already displaced 3.3 billion gallons of petroleum-based fuels with low-carbon alternatives. Beyond the positive impact cleaner fuels has on our environment, policies encouraging their use significantly impact our economy.

While emissions reductions targets and lower petroleum consumption may be off-putting to some, others are cashing in on the lucrative incentives for using renewable natural gas (RNG) and other alternative fuels offered through Canada’s Clean Fuel Standard (CFS), California’s Low Carbon Fuel Standard (LCFS), and other states’ Alternative Fuel Standards (AFS).

How CFS, LCFS, and AFS Affect You

Standards directly impact a company’s bottom line. 

To encourage fuel consumers and producers to meet mandated requirements, the United States implemented the Renewable Identification Number (RIN) system. RINs carry extra value which is paid for along the way, thus subsidizing extra production and compliance costs.

RINs are broken down into four category types:

  • D3 Cellulosic Biofuel: D3 RINs are created when ethanol is blended into gasoline. That ethanol must be made from cellulosic material, e.g. wood chips, corn stover, etc.
  • D4 Biomass-based Diesel: D4 RINs are created by blending oils sourced from soybean, canola, and wastes or animal fats, into diesel.
  • D5 Advanced Biofuel: D5 RINs are created when sugar-cane based ethanol, biobutanol, or bio-naphtha is blended into gasoline.
  • D6 Renewable Fuel: D6 RINs are created when corn-based ethanol is blended into gasoline.

RINs are created by renewable fuel producers. They are then sold with the renewable fuel to a refiner or importer. Only at that point may the RIN be bought or sold by an independent party. The RIN’s final transaction comes in the form of retirement towards meeting an entity’s renewable volume obligation.

Stay informed of the latest opportunities created by LCFS policy change through our e-newsletter here.

State Policy: Low Carbon Fuel Standard & Alternative Fuel Standard

Because the industry is heavily influenced by policy, it’s critical to stay abreast of policy shifts and developments. Below are the latest updates from across the United States, followed by an analysis of how this impacts renewable natural gas markets.

Low Carbon Fuel Standard

  • California: The Low Carbon Fuel Standard began taking shape in California more than a decade ago.

Since 2011, a patchwork of standards has formed together from an assembly bill, a governor’s executive order, and regulations from California’s Air Resources Board. The resulting LCFS required companies in California to comply with carbon intensity reduction targets, and over the last several years, California Congress has continued to revise its target. As recently as a 2018 mandate, the reduction in carbon intensity of fuels has been increased to 10% by 2020, and 20% by 2030.

Some states have modelled their targets to reflect the modified California LCFS, while others have developed their own alternative fuel standard.

Alternative Fuel Standards and Low Carbon Fuel Standards

  • Oregon: Oregon enacted its own alternative fuel standard as early as 2007. Oregon’s HB 2210 required all gasoline sold in the state to contain at least 10% ethanol. Diesel fuel was further required to contain at least 5% biodiesel.

In 2009, Oregon’s legislature authorized the Oregon Environmental Quality Commission to implement a low carbon fuel standard that would reduce the average carbon intensity of transportation fuels used in Oregon by 10 percent over a 10-year period.

  • Washington: In 2006, Washington’s ESSB 6508 required that at least 2% of gasoline sold in the state be denatured ethanol. Furthermore, the state requires biodiesel make up at least 2% of total diesel sales.
  • Louisiana: Louisiana’s 2006 Act 313 contains two requirements for ground transportation vehicles. Denatured ethanol produced from agricultural products or other biomass must make up 2% of total gasoline sales in the state. The same requirement is in place for biodiesel with respect to diesel. Those requirements will increase alongside in-state production capacity, with a cap set at 20%.
  • Minnesota: At least 10% of all gasoline sold in Minnesota must be corn-based ethanol and other biofuels,  according to Minnesota’s HF 976. Diesel must also contain biodiesels, with the percentage varying by season: 5% in the winter months; 10% in the spring; 20% in the summer.
  • Missouri: Missouri’s 2008 Renewable Fuel Standard Act mandates that all gasoline must contain at least 10% ethanol.

Pennsylvania: When Pennsylvania passed its Biofuel Development and In-State Production Incentive Act in 2008, it also required that gasoline contain at least 10% cellulosic ethanol. The act contains a unique provision that the requirement is only effective after in-state production of cellulosic ethanol tops 350 million gallons for at least three consecutive months.

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