By Laura Sanicola

(Reuters) – U.S.-based energy companies have urged states to accelerate development of low-carbon fuel markets. They warn that many proposed projects for renewable and other biofuels could fail.

California’s Low Carbon Fuel Standard, (LCFS) is the state program that rewards fuel producers who decarbonize by using renewable fuels. They have responded to this by increasing their supply of “greener” fuels.

This has resulted in a sharp drop in the cost of credits, which refiners or other polluters are able to generate. It is now less likely that companies will be able to invest in new production facilities over the next few years.

Nearly every U.S. independent refiner of petroleum has stated plans to make fuel from oil and vegetable oils as incentives for the success of their businesses. Renewable diesel is projected to make up approximately 7% of total diesel supply by 2030, compared with 5% currently.

California’s Air Resources Board has reported that the price for LCFS credits, which are produced and traded by companies producing fuel with a lower level of carbon than the benchmark established by different states, fell nearly 30% over the past two months, to just $145 per metric tonne of carbon.

Industry experts believe this is because of increased sales of renewable diesel fuel as refiners increase production. Industry experts warned that investors may lose interest in advanced biofuel projects if there is an increase in oversupply.

Eric McAfee (chairman and chief executive officer of Aemetis), a company that produces renewable fuels, told California regulators at a Wednesday virtual workshop, “Every $5 of credit falls,”

McAffee was joined by other biofuel producers in arguing that faster action from regulators is required to protect investors, who have hoped for LCFS prices to stay within the $200 mark.

FEW MARKETS TO CHOOSE FROM

Only a few states in the United States have LCFS markets. California’s LCFS market is one of the top regional markets in carbon for the transportation sector. State regulators claim it is one of most efficient ways to cut carbon emissions from roads.

CARB stated that LCFS credit generation achieved nearly all the state’s 2020 carbon emission reduction targets. The LCFS creates standards or benchmarks for annual carbon intensity (CI) that become increasingly stringent with time.

However, other states are having difficulty coordinating with one another to implement their low-carbon programs. This would allow them to open new markets and increase credit prices.

Five years after being in development, an East Coast program low on carbon that would have included Connecticut and Massachusetts died last month. This was after governors raised concerns that the program might raise gasoline prices. California has currently the highest gasoline prices at $4.70 per gallon.

The program would have required large gasoline and diesel suppliers to purchase auctionable “allowances” for the pollution caused by combustion of fuels sold in participating areas.

The idea was opposed by gasoline trade associations, who claimed it would encourage the use of cleaner fuels and discourage investment in alternatives.

Now, stakeholders are watching New York closely. New York may be implementing a New York Climate Action Council policy that calls for significant increases in investment in renewable diesel by 2030.

The council released a draft plan in October that stated, “The substitution of diesel by renewable diesel and green hydrogen will reduce harmful fine particle matter emissions in disadvantaged community,”