PA Senate Republicans Propose Low Carbon Fuel Standard (LCFS)

A significant development occurred in the state Capitol this past week on the climate change front. Two senior, conservative Republican Senators Gene Yaw (Environmental Committee Chair) and Scott Martin (Appropriations Chair) filed a co-sponsorship memo asking for the support of their colleagues of legislation they intend to introduce that would create a Low Carbon Fuel Standard (LCFS) in Pennsylvania.

A Low Carbon Fuel Standard was first enacted in California and followed by Oregon and Washington. Other states such as New York, New Mexico, Minnesota and others are seriously considering the policy. A LCFS is described by supporters as a free market and fuel neutral approach to gradually increase renewable fuel products in a feasible manner. The policy also does not mandate the use and/or amount of a specific fuel.

In a typical LCFS program, a designated state agency develops a system and timeline for meeting greenhouse gas reduction goals established by the Governor and the legislators. For example, the structure could include a 25% reduction in emissions (based upon a previous baseline year) from all transportation fuel used within the state by 2035.

A properly structured LCFS would use a greenhouse gas lifecycle scoring methodology (GREET model) to determine the carbon intensity for each energy source. The company making the first sale of a fuel in the state would be designated as the obligated party. The requirement of the obligated party is to to report the amount of its sales within the jurisdiction (state) which generates a corresponding credit or deficit position.

For diesel and heating oil for example, the renewable target could be met by blending a percentage of renewable diesel or biodiesel into the fuel. In that case, the obligated party that sold the renewable diesel would earn a credit (specific value of the credit(s) would depend on the structure of the program). An obligated party not reducing the carbon it’s fuel would need to buy these credits to ultimately sell its product. Critical to understanding this system is that all the requirements to meet the greenhouse reductions are at the “first sale level” with no penalties on downstream marketers.

The PPA has not yet taken a formal position on this concept and would need to evaluate specific policy verbiage prior to doing so. However, after discussions with another fossil fuel industry in the state, we did support their request of Senator Yaw and Senator Martin to begin a serious discussion of the policy consideration. The PPA did formally advocate for heating fuels to be referenced in the memo as a part of this dialogue. A properly designed LCFS program could be appealing for heating fuel (heating oil and propane) marketers depending on the emission reduction goals.

It is highly unusual for conservative Republicans to introduce legislation such as this, but this does reflect on the new political reality in Harrisburg with a new Democratic Governor and a majority Democratic House for the first time in 12 years.

The political upside of this approach is that it gives Republican lawmakers a serious alternative to offer the new Governor in any upcoming discussions on the climate change issue. It would be a state energy  policy that bans no fuels, continues to give customers choice, and utilizes all the energy sources with which Pennsylvania is blessed.

The push from the environmental groups, the Biden Administration, and progressive politicians for electrification of our economy will intensify and not necessarily solely be stopped by a LCFS. The policy could however politically protect and preserve market share for the liquid fuels industry in the Pennsylvania. It also would be helpful for legislators in fighting bans on combustion engine vehicles and the installation of fossil fuel appliances being proposed in neighboring states.

PPA will have a seat at the table in drafting this legislation. We will be seeking the input of all members including the refiner and wholesale community. Specifically in terms of supply issues and their ability to work within a proposed LCFS system. The PPA is also values the opportunity to include heating fuels as a part of this consideration. Other states that have adopted an LCFS have limited it to the transportation sector.