British Columbia Ministry of Energy, Mines and Petroleum Resources Victoria, B.C. January 31, PDF Free Download

2017/18 REVIEW OF BC-LCFS COMPLIANCE PATHWAYS British Columbia Ministry of Energy, Mines Victoria, B.C. January 31, 2018

Agenda Introduction Progress since 2014 Review of fuel issues Break Review of fuel issues (cont.) Lunch break Review of fuel issues (cont.) Break Scenarios for 2030 Topics for further consultation Adjourn 2

The BC-LCFS is a market based mechanism to reduce GHGs. The market in this context is compliance, not a specific market for a specific fuel. The BC-LCFS is intended to transform the market for transportation energy. The market in this context is the retail supply of transportation energy. This process is not attempting to reach conclusions on all issues there will always be different perceptions of risk, opportunity and costs. 3

The BC-LCFS is: intended to reduce GHG emissions from the fuels we use. intended to diversify the supply of fuel available to consumers. structured to provide incentives for low carbon fuels to be supplied at the expense of high carbon fuels. Any business case to determine pricing and availability of a fuel should include consideration that the supplier of the fuel must comply with the law. 4

The BC-LCFS is (not): not intended to promote any one fuel over any other, except through the valuation of full life cycle GHG benefits. Proponents of specific new fuels or engine technologies are expected to develop their business opportunities in the fuels market. Once this begins, we will include them in future pathway assessments once the likelihood and timing of credit generation is established. not intended to create demand for renewable fuel only. It is because renewable fuels can achieve lower carbon intensity than fossil fuels more economically that the BC-LCFS creates demand for renewable content. not a requirement for minimum renewable fuel content in each litre of fuel. 5

Federal Clean Fuel Standard The Ministry is working closely with our provincial and federal counterparts to ensure the greatest degree of harmonization possible. B.C. will continue to implement the BC-LCFS, including setting targets to 2030 and beyond. 6

Progress up to 2016 Significant credit contributions to date: Ethanol Biodiesel HDRD Electricity (HDV) Part 3 Agreements Emerging CNG LNG 8

Actual performance (2013-2016) Actual performance vs what was anticipated in 2014 (Cumulative 2013-16) Electricity (LDV) -88% Biodiesel -6% Ethanol +28% HDRD +89% CNG +99% LNG +27% Net overall +45% 9

The Transportation Fuel Reporting System (TFRS) is being developed to facilitate compliance reporting and credit trades. The first phase that will go live is credit trading. 10 Ministry of Energy, Mines Credit trading Regulations were amended in 2015 to enable the current credit trading system. The first credit trades were reported in 2015. Currently trades are handled through physical documents.

Year Debits Generated from Fuel Supply Credit Market Credits Generated from Fuel Supply Credits Awarded Under Part 3 Agreements Credits Transferred 2013 161,293 513,367 0 0 2014 322,587 1,026,733 0 0 2015 643,276 1,098,130 66,380 14,354 2016 918,600 1,071,434 166,618 198,705 2017 TBD TBD 97,833 240,164 Year 2016 2017 Total 1 Transfers (number) 15 31 48 Total Volume (credits) 198,705 240,164 453,223 Average Price ($ per credit) $170.93 $164.30 $167.39 Total Value ($) $33,964,850.00 $39,460,021.74 $75,864,301.74 1 January 1, 2015 to December 31, 2017 11

Credit Price ($ / Credit) Volume Transacted (credits) Ministry of Energy, Mines Quarterly LCFS Credit Price and Transaction Volume $200 $180 $160 $140 $120 $100 $80 $60 $40 $20 $0 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017 200,000 180,000 160,000 140,000 120,000 100,000 80,000 60,000 40,000 20,000 0 Total Volume (credits - MTs) Average Price ($ / credit) Min Price ($ / credit) Max Price ($ / credit) 12

A Compliance Scenario From a spreadsheet intended to answer the question: What if I do [something]? This is not a model or a forecast, it is more like a workplan. 13

Part 3 Agreements The only mandatory criterion is that the director must be satisfied that the action proposed has a reasonable possibility of reducing GHGs from the use of Part 3 fuels. Agreements are not commercial contracts, they are, effectively, extensions of the Act. There are no penalties for failing to fulfill a Part 3 Agreement, but there would be no credits awarded for milestones that are not met. The program has been fully subscribed to date. Details are available online in Information Bulletin RLCF-014. 14

Agreements have been signed to: Part 3 Agreements Retrofit a bulk fuel terminal to enable the supply of ethanol-blended gasoline. Upgrade a fuel loading arm to enable the transfer of ethanol from marine transport. Provide a Scrap-It incentive for the replacement of an older fossil-fuel vehicle with an electric vehicle or a hydrogen fuel cell vehicle. Research and test production of gasoline and diesel with co-processed renewable feedstock from various sources. Use renewable natural gas at a refinery. Convert light duty gasoline vehicles to use propane as well as gasoline, and supply propane to the converted vehicles. Construct and operate a network of hydrogen fuelling stations, and produce of low carbon intensity hydrogen. Field test and supply biodiesel blends in winter operability zones. Install and operate blending pumps to supply E15, E85, B20, B50, and B100. Supply mid-level biodiesel blends. 15

Basic Principles The Ministry does not expect that suppliers will be regulated to stop selling any particular fuel. Where valid standards exist, the Ministry does not expect fuel that does not meet these standards to be supplied at any time. We are expecting suppliers to implement solutions that have already been shown to work in other jurisdictions. 17

Ministry understanding regarding vehicle warranties OEMs have not done testing on legacy vehicles. This does not mean that an untested fuel is compatible, nor does it mean that the fuel is incompatible. No testing simply means no information; you cannot draw conclusions. The Ministry does not anticipate that OEMs will void a vehicle s warranty only because the vehicle was fuelled with a fuel that was not recommended. The Ministry understands that if a vehicle is damaged through the use of a fuel that is not recommended by the OEM or does not meet standards, the vehicle manufacturer should not be expected to provide warranty coverage if issues result from the use of this fuel. Responsibility for the issue lies with the fuel supplier or the person who put the fuel in the vehicle. 18

Example in the gasoline market Five fuels are being sold through one pump; extra forecourt space is not required. E85 is 28% cheaper than 87 octane (RUL). E15 is 5% cheaper than RUL, and is 88 octane. The extra octane in E15 implies that it was blended with conventional (for E10) BOB. Presumably mis-fueling concerns have been resolved. 19

DME At this time, there are no commercially available vehicles, infrastructure, or production at the necessary scale. Methanol The Canadian Vehicle Manufacturers Association has stated: Current vehicles cannot tolerate methanol concentrations in excess of 0.5% m/m in ethanol when blended into gasoline. Severe fuel system and engine damage will result if this methanol concentration is exceeded. 22

Propane The Canadian Vehicle Manufacturer s Association states: Propane is not compatible with Tier 2 or Tier 3 emissions certified vehicles because of the high sulphur content. propane conversion of any Tier 2 or Tier 3 vehicle will result in permanently increased smog-causing emissions from that vehicle. Credits are being generated through the use of propane, but it is not clear whether the level of use will continue as the current vehicles age. Propane use may increase in vehicles over 14,000 lb. GVWR, which are not subject to Tier 2 or Tier 3 emissions requirements. 23

Renewable or Low Carbon Gasoline and Diesel Co-processing of feedstock from biomass? Parkland David Schick Canfor James Spankie Carbon Engineering Anna Stukas Renewable fuel components? Naphtha? Lower carbon fossil-based gasoline and diesel? Blue Fuel Ainsworth North West Redwater Refinery improvements All have potential for significant carbon intensity improvements, but BC-LCFS policies need to be reviewed and carbon intensity claims need to be approved before we can say what the contribution of these sources could be. 24

Hydrogen The estimated contribution to 2030 is small, but the potential is large. There are business plans with support from major global corporations in place. Presentation from HTEC Rob Purdy 25

Natural Gas Vehicle adoption rates forecast by FortisBC as part of their business plans. There is strong interest in Renewable Natural Gas. Presentation from FortisBC Tyler Bryant 26

Electricity Presentation from BC Hydro Warren Bell ChargePoint Suzanne Goldberg 27

Ethanol and vehicles OEMs are still offering FlexFuel vehicles in the 2018 model year, but the Ministry understands the concerns regarding the future potential for FlexFuel, given the lack of commitment from the OEMs and the lack of mandates in the U.S. and Canadian standards. The U.S. EPA has approved the use of E15 in model 2001 and newer vehicles, but this is not a simple path to success. EPA approval is to clarify that the EPA testing shows that if the fuel is used in those vehicles, it will not cause unacceptable environmental consequences. EPA approval is not saying that there will be no consequences to the engines and fuel systems of those vehicles. CRC testing is showing that some vehicles may be impacted. It is not yet clear how to identify vehicles that will have long-term problems. Many new vehicle manuals identify ethanol blends up to E15 as recommended fuel. 28

Ethanol and vehicles The Ministry anticipates that there will be significant opportunity through the rapidly increasing number of E15 compatible vehicles, and the anticipated need for high octane fuels to achieve 2025 fleet fuel economy requirements. CVMA has identified that at the end of 2018, 12% of light duty gasoline vehicles in operation in Canada are certified to run on E15 blends, and 8% are certified to run on E85, which means that 20% of vehicles on the road today can use E15. Over 80% of new vehicles are E15 compatible. 29

Ethanol availability vs Carbon Intensity 32

Ethanol The ethanol industry will need to respond to demand for more very low carbon ethanol. Given the appropriate signals, the Ministry believes that the ethanol market will respond. 33

Biodiesel Biodiesel blends include B2 (or any other blend where biodiesel is <=5%). As stated in the assessment, the Ministry believes that a year-round minimum of 2% biodiesel makes a meaningful contribution to generate credits. 34

Biodiesel availability vs Carbon Intensity 35

HDRD CFA member s technical concerns regarding the impact of low aromatics and lubricity are based on analogous experience with low aromatic fossil diesel. HDRD producers have identified tested solutions to these concerns. 36

HDRD availability vs Carbon Intensity 37

Biofuel carbon intensities Most biofuel carbon intensities can be improved. Facility efficiency and retrofits Facility waste management and co-product production Carbon Capture and Storage Improved agricultural practices Given the appropriate price signals, the producers will respond. 38

A 10% by 2020 Compliance Scenario Recall the previous scenario 41

A 15% by 2030 Compliance Scenario In 2025: Ethanol 10.9% Biodiesel 4.6% HDRD 7.4% In 2030: Ethanol 10.9% Biodiesel 5.0% HDRD 11.9% 42

A 20% by 2030 Compliance Scenario In 2025: Ethanol 11.7% Biodiesel 4.9% HDRD 11.0% In 2030: Ethanol 11.7% Biodiesel 5.4% HDRD 17.6% 43

Topics for further consultation Credit clearance mechanism Refinery improvements and new refineries Point of compliance for unconventional fuels in the market could be clarified by regulation: CNG LNG Electricity Hydrogen Propane 45

Topics for further consultation Should we allow traders of compliance credits? What limitations need to be considered? New fuels? New fuel pools? Aviation and International Marine fueling The Ministry is considering whether to add the capacity to allow optin reporting of low carbon fuels in these areas to incent the development and supply of these fuels, and to provide additional credit generation opportunities. 46

Topics for further consultation Are there any other issues of concern that have not already been identified? Please contact me at any time michael.rensing@gov.bc.ca 47

Thank you Michael Rensing, Ph.D. Director, Low Carbon Fuels Branch B.C. Ministry of Energy and Mines gov.bc.ca/lowcarbonfuels lcfrr@gov.bc.ca www.bclaws.ca 49

British Columbia Ministry of Energy, Mines and Petroleum Resources Victoria, B.C. January 31, 2018