California Low Carbon Fuel Standard credits traded at an average $64/ in September in heavy volume, continuing their surge of the past three months, according to the state's Air Resources Board.
CARB readopted the program on September 25 with more stringent carbon intensity reduction targets.
In all, 224,000 credits were traded in 40 transactions in September, CARB reported in its monthly LCFS trading report. That was up from 200,000 credits traded in August and down from the record 322,000 credits traded in July.
Credit prices averaged $57 in August, $44 in July, and $28 in June, CARB said.
The LCFS requires refiners to progressively reduce the life-cycle carbon intensity levels of transportation fuels sold in the state, either directly through running cleaner crudes or by purchasing credits from alternative fuels producers.
Traders have been eager to snap up credits this year, while the CI reduction targets are still relatively low, in anticipation of banking them for later use when the targets ratchet up.
Credits, each of which represents 1 MT of carbon emissions, were heard traded at $80 Monday in large volume, with market observers saying that price appeared to be a stable floor, after steady rises in the wake of CARB's re-adoption vote.
"The bids are beginning to surface as they see this might be a level where they can pick up most of their size," brokerage Progressive Fuels Limited said in a note Monday.
Third-quarter trading volume totaled 747,000 credits in 156 transactions, compared with 474,000 credits in 102 transactions in the second quarter and 343,000 credits in 97 transactions in the first quarter, according to CARB.
September prices ranged from $22-$72/credit, the agency said.
Data released by CARB late September showed 5.42 million credits have been banked through the end of the second quarter. About 1.21 million credits were generated in the quarter, compared with about 658,000 of deficits.
Deficits are generated when a fuel's CI is above the baseline set by CARB, while credits, which do not expire, are generated for alternative fuels production.
LCFS IS 'WORKING': CARB
The readopted LCFS, slated to go into effect January 1, call for CI cuts of 2% below 2010 levels in 2016, 3.5% in 2017, 5.0% in 2018, 7.5% in 2019, and 10% in 2020 and beyond.
The program has been held at 2013 CI reduction levels of 1% below 2010 for the past few years while CARB rewrote the LCFS rules, as ordered by a state appeals court.
The oil industry, which has repeatedly sought to overturn the LCFS, has said there may be fuel shortages in the later years of the program, when refiners will be unwilling to bear the cost of program compliance.
But CARB has said the price of LCFS credits will incentivize and, ultimately, determine which alternative fuels are brought to the market to enable obligated parties to comply with the program. To address volatility concerns, the agency included a cap on the price of credits at $200.
The new rules also include additional pathways for fuels to qualify under the LCFS and revisions to the formulas for calculating CI scores of various biofuels and other alternative fuels.
The program has been praised by environmentalists for reducing the state's dependence on fossil fuels, and California Governor Jerry Brown has said the LCFS was a key tool in meeting the state's goals of reducing greenhouse gas emissions 40% below 1990 levels by 2030.
"The LCFS is working," CARB Chairwoman Mary Nichols said last month just before the board voted to readopt the program.
"We have seen compliance and, in fact, overcompliance. There are credits in the bank. We have seen that the Low Carbon Fuel Standard is spawning cleaner and safer fuels in California, and, in fact, the idea is spreading beyond California."
LCFS proponents have envisioned a robust West Coast credits trading market, with Oregon slated to begin enforcing its LCFS in 2016 and British Columbia, Canada, already having one in place.
Efforts in Washington state to institute an LCFS have been stymied, however, by Republicans in the state legislature, as Governor Jay Inslee, a Democrat, has since dropped his LCFS plan in favor of a yet to be announced carbon emissions cap.
