Top 3 Takeaways – OPIS LCFS and Carbon Markets Workshop San Diego

This week’s OPIS Low Carbon Fuel Standard (LCFS) and Carbon Markets Workshop in San Diego was my first immersion in the capital of low carbon fuels regulation, California.

As expected, the program was rich in content, highlighted by professionally-moderated panel discussions with experts on every topic I’d hoped to learn about, and I learned a lot.

My top three takeaways are drawn partly from that content and partly from hours of behind-the-scenes discussions:

Takeaway Number 3

The west coast regulatory branch of the industry seems like more than a regional regulatory branch.  It seems more like an industry unto itself, involving perhaps more 15-year career professionals than the industry it regulates.

Takeaway Number 2

California is rightly recognizing the success of its 15-year program to reduce the carbon intensity of California’s transportation fuels, a program that is unquestionably successful, having over-achieved on its carbon intensity reduction goals. 

But that success came with a bad aftertaste – because the carbon intensity reduction was mostly achieved by refiners who converted big refinery units, and whole refineries, to produce a flood of less carbon intense liquid fuels to be burned in California. The program worked as designed, but backfired big time on those who thought its goal was to eliminate liquid fuels.

The same story is playing out now in the agricultural branch of the industry.  Dairy farm methane, which otherwise escapes Earth’s service to float up and hang there as potent greenhouse gas, is now instead being collected, transported through existing distribution systems and burned cleanly in new internal combustion engines designed and sold by Cummins. 

These new Cummins engines are powering truck fleets by converting that potent greenhouse gas to the same gasses we humans exhale, carbon dioxide and water.  This is another great greenhouse gas solution driven by California’s program.  But it’s another backfire for those who thought the goal was to eliminate Cummins engines.

The existing transportation industry, based on hydrocarbon fuels and internal combustion engines, has proven it is more innovative and resilient than its critics knew.

Takeaway Number 1

I solved a puzzle I’ve been researching.

A legion of consultants produces and sells expensive environmental credit price forecasts in the form of curves showing the predicted future credit price. The puzzle is who keeps demanding and paying $millions for these forecasts?  My research indicates the answer is: private equity investors, investment committees of banks, and some corporate boards of directors who rely on the curves to make decisions on environmental investments.

It was puzzling because everyone involved, including those who produce the curves, knows they are predicting the unpredictable. Yet, I am told, that chart with the curves is what the deciders demand and pay $millions for as the decisive factor in their environmental investment decisions.

In the case of RINs and LCFS credits, I’ve got a list with more than 20 sources for the credit price forecast curves, none of which forecasted the two things that ended up driving the curves of actual credit prices, namely, the renewable diesel investment boom and the consequent crash of that industry’s margins. This RINs-LCFS case study provides strong evidence supporting the unanimous belief the million dollar curves are predicting the unpredictable.

Despite this learning about the method used to decide environmental investments, I still believe most investments are made with more deliberate consideration.

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