At the Argus LCFS conference earlier this year, Rajinder Sahota, the Deputy Executive Officer for Climate Change and Research (and the head of the LCFS program) mentioned that linking LCFS programs could be beneficial. This idea has been thrown out many times over the history of the North American LCFS programs but it’s always hand-waved away as being too difficult. But now hard would it really be?

Why link Programs?

1) Economic efficiency

Climate change is a global problem and at some point in the future we are going to have to have a global carbon price. Right now in the low carbon fuels space we have at least 11 different prices (that I know of): California LCFS, Oregon CFP, Washington State CFS, British Columbia, LCFS, Canada CFR, German THG, Netherlands hBE, Austrian KVO, French TIRUERT, and Denmark Biobrændstofloven. Within some of these programs, like the Canada CFR, there are potentially two different prices (Gaseous and Liquid). And that’s just carbon prices for low carbon fuels and electric vehicle charging – it doesn’t include all the carbon reduction programs for carbon offsets and other markets. It’s a mess. It’s great if you’re a trader and understand all of these programs (because you can find arbitrages between them) but it’s terrible for economic efficiency because if you’re a company selling fuel or charging vehicles in all of these markets you needs teams of experts in each program. At some point we’ll have to have a global price to increase economic efficiency, and the only way to do that is to start linking programs.

2) Political Entrenchment

Businesses need market certainty in order to make investments in low carbon fuels, hydrogen vehicle fuel production, EV charging. If there is the potential for a program to be rolled back or eliminated (due to political uncertainty) it slows down investments in the infrastructure needed for our energy transition. If programs are linked it markets it slightly harder for politicians in one jurisdiction to eliminate their low carbon fuel program because they need to think about the political fallout that the elimination of their own program would have on the other states or countries who have linked programs. Linking programs creates political pressure to keep the programs running, which results in more market certainty, which helps encourage business investment and accelerate the energy transition.

Downsides of Linking Programs

The main downside of linking programs is that because the market is pretty efficient at finding the optimal way to reduce carbon for the least amount of cost, companies may choose to put all of their investments into states that are logistically advantaged. If the dollar per metric ton is identical for all LCFS states than the only differentiating factors in producers choosing where to send their renewable fuel will be the alternative fuel price in the location (the basis) and the transportation and logistics costs of landing and blending the fuel. It’s really hard to say how this would play out. California and Washington are advantaged over Oregon when it comes to deepwater ports for importing fuel by sea. But ships have to be Jones Act to land renewable fuel from the Gulf Coast into California, Oregon, and Washington, making them potentially disadvantaged to a future LCFS state like New Mexico or Minnesota, which have potentially easier rail access.

The flip side of this argument is that by linking programs the market will find the best way to reduce carbon in each market. Perhaps in California this mean more electric trucks, since they have large ports with warehouses and lots of short-haul trucking; perhaps in Washington it means more light duty electric vehicles because their grid is comparably cleaner with all of their hydro power.

LCFS Math Overview

Generating credits and deficits in LCFS programs typically involves this formula:

Credits/Deficits (MT per unit of fuel) = (((Benchmark Fuel CI * (1 – Compliance Target )) – ( Fuel CI / EER )) * (Fuel Energy Density * EER) * 10^-6

For example in 2024 in California if you charged an electric vehicle using grid electricity your factors would be:

Benchmark Fuel CI (CaRFG): 87.01 gCO2e/MJ (Table 1)

Compliance Target for 2024: 12.5% (here)

Fuel CI: 80.55 gCO2e/MJ (annual pathway)

Fuel Energy Density: 3.60 MJ/kWh (Table 4)

EER (LDV): 3.4 (unitless) (Table 5)

((99.44 *(1-.125 )-(87.01/3.4)) * (3.6*3.4) * (10^-6) = 0.00075 MT per kWh

Which at the current price of about $77/MT would be be about 6 cents per kWh.

So in order to match up programs we would need to match up every single one of these factors, which for 2024 are:

Factor	California	Oregon	Washington
Benchmark Fuel CI for Gasoline	99.44	98.06	98.93
Target	-12.5%	-8%	-1%
Fuel CI	88.55	132.55	63.39
Fuel Energy Density (scientific constant)	3.6	3.6	3.6
EER	3.4	3.4	3.4
MT/kWh	0.00075	0.00063	0.00097

As you can see, the EERs are the same, and the fuel energy density is the same (because it is a scientific constant), but the benchmark fuel CIs and the Targets are different in each state.

Pathways and Fuel CIs

The fuel CIs in these three markets are different because the mix of electricity generation in these states is different. California is lower than Oregon because it has a nuclear power plant (Diablo Canyon) and far more solar generation. Washington has a lower grid CI than both because they have so much hydro power.

In order to link programs there’s no need to link up the grid CIs – they should reflect the local grid conditions in the same way that biodiesel produced with different feedstocks has different CIs.

Benchmark CIs

When you buy gasoline in the United States you’re almost always buying a blend of “blendstock” and ethanol (a tiny number of stations sell ethanol-free gasoline). In most states the “blendstock” is “neat” gasoline (with summer and winter blends with different Reid Vapor Pressure to reduce emissions in the summer). As you can see in the table above, the Oregon and Washington benchmark fuel CIs for gasoline are very similar – this is because they use the same fuel but they have slightly different distribution energy use, which results in slightly different CIs.

In California, however, the blendstock is CARBOB – California Reformulated Gasoline Blendstock for Oxygenate Blending – a special formula of gasoline designed to further reduce pollution that can only be made by California refineries (although in 2016 a refinery in Singapore was able to manufacture and import it into California).

Similar to fuel CIs, there’s no need to link up benchmark CIs of the different states because with their different fuel mixes and distribution they are displacing different levels of fossil fuel carbon.

Compliance Targets

The primary different between these markets are their compliance targets. California’s program started first so it is further along in it’s transportation decarbonization journey; as such it has a stricter compliance target. Washington’s program just recently started up so for 2024 it has a more lenient target in it’s early years.

Linking these compliance targets is the primary hurdle to linking programs. In order to link programs and have fungible, tradable credit between them, each state would have to go through a rulemaking process. This would require other programs, like Oregon and Washington, to significantly accelerate their compliance curves so that they matched California. Since we just finished up a multi-year rulemaking process in California it is unlikely that we will see another rulemaking cycle in California for a few years (unless they do a “technical rulemaking” to address some of the smaller technical concerns that were brought up but not addressed during this past rulemaking).

Legal Issues

It is possible that if states tried to link LCFS programs there could be industry players that try to sue, citing the Interstate Commerce Clause (Article I, Section 8, Clause 3) of the US constitution. The Supreme Court has often interpreted the clause to give Congress the sole authority to regulate interstate commerce. Opponents might also cite the Compact Clause of the US Constitution (Article I, Section 10, Clause 3) which prohibits states to “enter into any Agreement or Compact with another State.” At the outset of the creation of the California LCFS program, CARB had was sued twice by an ethanol producer, POET. In the first case in 2009 (called “POET I”) the ethanol producer argued that CARB failed to properly follow the California Environmental Quality Act (CEQA) and the Administrative Procedure Act (APA). In the second case (called “POET II”), the company again cited CEQA. In both cases the court actually ruled in favor of POET, but the LCFS program was allowed to remain in place with small changes. It’s possible that if states tried to link programs there would be lawsuits, but it’s also possible that they would be resolved in a similar manner.

So would it be difficult to link programs? Yes. It would require states to incorporate these changes into their rulemaking and accelerate their climate targets. Regulators would also have to brace themselves for lawsuits and work hard to defend their new rules. But the benefits of linking the programs would far outweigh the temporary pain of overcoming these hurdles. As JFK said “We choose to [do these things] not because they are easy, but because they are hard.”

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The last time I had a blog was about 15 years ago when I was an MBA student at Cornell. Our Energy Economics professor Ben Ho (former lead energy economist at the White House) gave us extra credit if we did a blog entry about an energy topic. At the time there was a very interesting debate going on about Peak Oil on a forum called The Oil Drum. I did some blog entries about energy and oil depletion and quickly found a group of interesting people with similar blogs. In the years that followed, the internet, and the sites people used to discuss energy issues, changed in dramatic ways. Apple introduced the iPhone app store in 2008 and content slowly shifted from websites to apps. Individual blogs were replaced by social media apps. What blogging remained then shifted to platforms like Substack and Medium. The pendulum has now swung so far towards these apps that almost nobody maintains an individual blog any more. But I believe there are some important forces at play that will swing the pendulum back.

First, social media apps have been overrun with bots. In the early days, bad actors would use these bot farms to simply boost posts by giving them hundreds of likes and replying with one-word responses like “agreed!” But starting in November of 2022, with the release of ChatGPT and other LLM AIs, these bots have now evolved to where they hold entire conversations with people (and each other) in order to boost certain viewpoints and suppress opposing viewpoints. This is explained extremely well by UT Professor Samuel Woolley in his book The Reality Game. In a vicious cycle, these bots pollute the comment sections and drown out the conversations taking place between real people; this discourages most average users, so the only people who remain tend to have stronger or more fringe opinions. This vicious cycle has caused discussions to devolve into the remaining (more extreme) users and bots simply yelling at each other. Look at any energy debate on any social media site and the “signal to noise” ratio has gotten so out of whack that these apps have become almost unusable for discussing energy policy. Cory Doctorow calls it the “enshittification” of the internet, and it seems to be accelerating.

Second, search engines are also being overrun with bots. A decade ago people were trying to game the results of search engines by creating thousands of pages of drivel content to try to hit all the keywords and rank higher on search engines. Many of these pages were generated by content mills that paid freelance writers to hastily churn out reams of low-quality gibberish. This is why now whenever you search for a recipe online you have to scroll down through a thousand word screed before you finally get to the actual recipe. Since the introduction of LLM AIs in November of 2022 the companies that try to game search engines have shifted to using chat bots to push out content at an exponentially higher rate. Google has become so unusable that people now append “reddit” to the end of search queries in an attempt to see content written by actual people. Extending this to it’s logical extreme would result in something resembling the “dead internet theory” where it becomes nearly impossible to find real discussions from real people taking place. Making matter worse, it was recently revealed via a leak of their API documentation that Google demotes search results for small personal sites and blogs, like this one. It’ll probably get worse before it gets better, but this collapse of search engines has also made it extremely difficult to find relevant information on energy debates.

Third, if you don’t pay for the service you are the product. Social media and blogging apps don’t exist to show you the best content, they exist to show you the content that is statistically most likely to keep you on the app as long as possible so you view as many ads as possible. Users of these “walled gardens” have no control over the algorithm or visibility into how the algorithm determines what content is relevant to them. Beyond control over what they see, users of these apps also have no control over their own content. People regularly get locked out of their own accounts or have accounts disabled without any recourse; sometimes this happens simply because their account has been inactive for too long. Moreover, the centralization of the internet has resulted in people’s data being concentrated into fewer and fewer hands. Today almost half of all internet traffic goes to just six companies. Yanis Varoufakis calls this “Technofeudalism” and I personally believe we should be doing everything we can to reverse this trend and re-decentralize the internet.

So what’s the solution to all of this? Creating a Web 1.0 blog of course! The best way to combat an internet that is increasingly centralized and overrun with bots is to go back to the early days of the internet where content was decentralized and generated by real people. I love to talk with people about energy and decarbonization and I’m hoping this blog will give me an avenue for thinking through ideas and connecting with people who are similarly as nerdy as I am about energy topics.