OPIS Biofuels Headlines

July 6, 2016
Proposed LCFS Verification Program Met With Wide-Ranging Opposition

The California Air Resources Board's (CARB) proposal to create a monitoring and verification program for carbon credits generated under the state's Low Carbon Fuel Standard (LCFS) is drawing criticism from market participants, who worry that it may be too complex and costly.

At a June 2 workshop, CARB said its monitoring and verification plan would safeguard against fraud, boost buyer confidence and promote greater transparency in the rapidly growing and maturing market for LCFS credits.

Under the proposed program, all LCFS participants -- renewable fuel producers and refiners -- would undergo quarterly LCFS verifications provided by a CARB- approved verification body and its verifiers, including a life cycle specialist and a fuel transactions specialist.

CARB has proposed a requirement that the fuel pathway carbon intensity (CI) holder and LCFS participant be held responsible for an annual site visit for verification that would include a desk audit, a sampling of CI inputs such as feedstocks, energy, finished fuel and co-products and would potentially require a risk-based feedstock supplier site visit.

The scope of the proposed verification program would include a confirmation of geographic coordinates and verifications of a process flow diagram and materials balance, data management systems, monitoring plans and practices and the identification of high-risk pathway contributors.

LCFS participants currently send necessary information to CARB for review before receiving a final CI value.

While the market, particularly those parties more frequently on the buying side of LCFS credits, has called for improved assurance for a while, many now fear that the proposed program's added costs could outweigh the benefits.

One biofuel producer estimated the added annual costs under the proposed verification plan in the "tens of thousands" of dollars per plant, depending on the size and type of facility as well as the scope of what CARB implements in its final decision. Those costs would then likely trickle down to the blender by way of the credits and ultimately be paid for by the consumer.

With nearly 500 registered LCFS pathways under obligation, the added costs could become problematic for everyone involved, participants said.

In written comments submitted to CARB, nearly all of the 21 stakeholder who have thus far weighed in have expressed opposition to the verification program.

"We believe the quarterly review process as proposed is unduly burdensome and costly without any corresponding increasing in compliance," Renewable Energy Group director of corporate affairs Scott Hedderich wrote in his letter posted to CARB's website.

In addition to concerns over the program's costs, several stakeholders questioned the need for a verification program at all, citing the lack of any known cases of LCFS credit fraud.

"If it ain't broke, don't fix it," said Geoff Cooper, vice president of research and analysis at the Renewable Fuels Association. "There is absolutely no evidence that such a program is necessary, and this appears to be yet another solution in search of a problem. Generation and trading of credits has worked efficiently and effectively. Parties seeking additional assurance have used private sector services for due diligence and verification, and there's no reason that can't continue to work."

But it's not just the low-carbon fuel producers and biofuels interest groups who oppose the proposed verification program -- even those on the side of the petroleum side of things have taken issue with the draft.

"Some provisions go beyond what is needed for an effective program and create burdensome requirements," Western States Petroleum Association Vice President Thomas Umenhofer told CARB in WSPA's comments. In its proposal, CARB laid out stringent requirements for third-party verifying bodies, including training, exams, accreditation cycles and CARB audits of the verifiers, themselves.

CARB's proposal didn't specify the anticipated costs of more than 150 reporting parties verifying nearly 500 pathways, but said it planned to conduct an informal survey. CARB's proposal also limits a responsible party from using the same verification body for more than six consecutive years.

CARB also acknowledged that the added verification processes would not provide a significant positive or negative environmental impact.

One industry source said a major reason that CARB's draft has been met with such friction is because many of the provisions for verification were lifted "almost verbatim" from the compliance sections for the state's Cap-and-Trade program.

"We disagree with CARB's approach of borrowing the standards for qualification, training and conflict of interest as-is from another program without reviewing its utility and practicality for LCFS," said John Sens, the LCFS manager at compliance consulting firm EcoEngineers.

Even auditing interests who could potentially stand to gain business from the proposed program have expressed concern with the framework.

"It seems unnecessary to re-invent the wheel with regards to accrediting verification bodies and individuals for certain roles related to the LCFS verification program," accounting firm Weaver and Tidwell wrote.

EcoEngineers suggested integrating the LCFS verification program with the EPA's Quality Assurance Plan (QAP) by simply establishing the QAP program as a baseline monitoring program and then attaching CARB-specific requirements on top of it, minimizing added costs.

Similarly, fellow QAP provider, Genscape suggested building on compliance and auditing measures already in place for producers under the Renewable Fuel Standard. The industry source, however, said that, given CARB's history with keeping a firm distinction between state and federal compliance, that route was "highly unlikely."

"They seem pretty intent on setting up their own system, but hopefully, we can reach a good compromise where nobody's happy but everybody's happy enough," the source said.

The next workshop is scheduled for July 29, when CARB hopes to discuss the revised draft regulation. CARB said in its presentation that it hopes to release the final regulation package this fall.

--Jordan Godwin, jgodwin@opisnet.com

Copyright, Oil Price Information Service

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