Legal Quick Hit: Top Five Issues when Complying with California s Low Carbon Fuel Standard

Transcription

1 Susan Lafferty David McCullough January 15, 2014 Legal Quick Hit: Top Five Issues when Complying with California s Low Carbon Fuel Standard

2 What Is the LCFS and How Does It Compare with the RFS?

3 Do I Have to Comply with the LCFS? Regulated Party = Producer or Importer in California Importer is person who owns the liquid transportation fuel or blendstock in the transportation equipment at the point it enters California Transportation fuel = Any fuel used or intended for use as a motor vehicle fuel or for transportation purposes in a non-vehicular source. Includes: California reformulated gasoline and CARBOB California diesel fuel (i.e., ULSD) Denatured fuel ethanol (e.g., fuel ethanol) Biomass-based diesel blends and B100 Opt-In for alternative fuels where fuel provider can elect to generate credits Unregulated Fuels Fuels that are not derived from biomass and less than 420 million megajoules (equivalent of 3.6 million gallons of gasoline) of the fuel are used in California Liquefied petroleum gas Fuel used in the following applications Aircraft Racing vehicles Certain military vehicles Locomotives Ocean-going vessels

4 How Do I Transfer the Compliance Obligation? LCFS is designed to keep compliance obligations upstream, but Regulated Parties may contractually transfer obligations downstream Contracts and PTDs are key documents Regulated Party status may be transferred, but with most fuel types: If the recipient is also a producer/importer, transfer of status is automatic If recipient is not a producer/importer, transferor remains the regulated party Regardless, parties may elect to retain or transfer Regulated Party status through mutual agreement in a written contract and statement on PTD If transferring Regulated Party status, PTD must include: Prominent statement on who is the Regulated Party Volume and Carbon Intensity Unless transferring Regulated Party status, transferor must include an incremental deficit in its compliance calculations Recipient must include a base deficit in its compliance calculations Recommend always: Enter transactions into LRT Use PTD and written contract to define who is the Regulated Party Specifically state that transferring both base deficit and incremental deficit obligation

5 How Do I Determine Carbon Intensity and Which Fuels Does the LCFS Incentivize? Phases of Production California Reformulated Gasoline (CARFG) GHG Emission Drivers CARBOB Gasoline (~90%) Corn Ethanol (~10%) Extraction and Transport Refining and transport Recovery method Refinery energy use Fuel use for corn production Corn transportation Energy for Ag inputs Natural gas in refining process End Use Vehicle emissions N/A Land Use Change N/A Displacement of food crops

6 Will the Courts Strike Down the LCFS?

7 Susan G. Lafferty Counsel Susan Lafferty is a member of Sutherland s Energy and Environmental Practice Group and advises clients on a broad array of energy and environmental matters in the climate change and the petroleum and biofuels trading arenas. Susan counsels on the regulatory and commercial issues related to EPA's Renewable Fuel Standard (RFS) program, including helping clients navigate enforcement matters related to the trading or use of invalid RINs (Renewable Identification Numbers). Susan also works with clients to develop risk management and mitigation tools to address potential spills or releases that may occur when transporting and storing products like crude oil, distillates, liquefied natural gas and coal. 7

8 David M. McCullough Associate David McCullough is an attorney in Sutherland s Energy and Environmental Practice Group. David regularly counsels clients on the regulatory landscape governing the trade and movement of renewable fuel, petroleum products, crude oil and natural gas. Among the areas that David counsels clients on are the Renewable Fuel Standard, RIN trading, crude oil export controls, state low carbon fuel standards, the Jones Act, Customs and Census reporting requirements, greenhouse gas reporting and spill liability under the Oil Pollution Act (OPA), Clean Water Act, Superfund and state analogues. David s work in this area includes providing clients with regulatory compliance advice, assistance with drafting commercial agreements and representation in enforcement proceedings, administrative litigation and commercial disputes. 8

9 SUTHERLAND S ENERGY AND ENVIRONMENTAL PRACTICE Sutherland s Energy and Environmental Group has more than 60 lawyers representing every major sector of the energy industry. Our 40-year history of excellence in serving the regulatory, compliance and policy needs of our clients is matched by the commercial and operational experience we bring to increasingly complex transactions. Complemented with our team of wellregarded, high-profile litigators, Sutherland s energy practice is well positioned to provide the full range of legal services to our energy clients. Our clients include crude oil and natural gas refiners and producers, domestic and multinational traders, energy lenders and marketers, hedge funds and financial institutions, independent power producers and electric cooperatives, international oilfield service providers, and renewable energy developers.