Current through Register 2024 Notice Reg. No. 38, September 20, 2024
(a)
Compliance Demonstration.
(1)
A fuel reporting entity must demonstrate that it met its annual compliance
obligation by submitting an annual compliance report, showing that it possessed
and has retired a number of credits from its credit account that is equal to
its compliance obligation.
(2)
Mandatory Retirement of Credits for the Purpose of Compliance.
At the time of annual compliance report submission, for a fuel reporting entity
that possesses credits and has also incurred deficits, the LRT-CBTS will retire
a sufficient number of credits so that:
(A)
Enough credits are retired to completely meet the fuel reporting entity's
compliance obligation for that compliance period, or
(B) If the total number of credits available
in entity's account is less than the total number of deficits incurred, all the
credits within entity's possession will be
retired.
(b)
Calculation of Credit Balance and Annual Compliance
Obligation.
(1)
Compliance
Period. Beginning in 2011 and every year thereafter, the annual
compliance period is January 1st through December 31st of each year.
(2)
Calculation of Compliance
Obligation and Credit Balance at the End of a Compliance Period. The
Executive Officer will calculate each LRT-CBTS account holder's compliance
obligation and credit balance at the end of a compliance period as follows:
ComplianceObligation =
DeficitsGenerated +
DeficitsCarriedOver CreditBalance =
(CreditsGenerated +
CreditsAcquired +
CreditsReleased +
CreditsCarriedOver) -
(CreditsRetired +
CreditsSold +
CreditsOnHold +
CreditsCCMPledge +
CreditsAdjustments)
where:
DeficitsGenerated are the
deficits generated pursuant to sections
95486 and
95489 in the current compliance
period;
DeficitsCarriedOver are the
deficits carried over from the previous compliance period and not deferred
pursuant to section
95485(c);
CreditsGenerated are the
credits generated pursuant to sections
95486 and
95489 in the current compliance
period;
CreditsAquired are the
credits purchased or otherwise acquired in the current compliance period,
including carryback credits acquired pursuant to section
95486;
CreditsReleased are the
credits released from the hold due to enforcement or administrative
action;
CreditsCarriedOver are the
credits carried over from the previous compliance period;
CreditsRetired are the
credits retired within the LCFS in the current compliance period;
CreditsSold are the credits
sold or otherwise transferred in the current compliance period;
CreditsOnHold are the
credits placed on hold due to enforcement or administrative action. While on
hold these credits cannot be used for meeting an annual compliance
obligation;
CreditsCCMPledge are the
credits pledged for the Credit Clearance Market and withheld from the ongoing
LCFS market; and
CreditsAdjustments are the
credits adjusted or invalidated due to administrative or enforcement
action.
(c)
Credit Clearance Market.
(1)
If a fuel reporting entity does not retire sufficient credits to meet its
year-end compliance obligation under section
95485(a), that
party must purchase its pro-rata share of credits in the Credit Clearance
Market, if one occurs.
(A)
If the
Credit Clearance Market occurs, a fuel reporting entity that fails to
comply with section
95485(a) is
nevertheless in compliance if the party:
1.
Retires all credits in its LRT-CBTS account;
2. Acquires its Pro-Rata Obligation in the
Credit Clearance Market and retires that number of credits by August
31st of the year subsequent to the compliance year
in question; and
3. Retires the
remaining balance of its annual obligation, with interest, within five
years.
(B)
If no
Credit Clearance Market occurs, the Executive Officer will record any
entity's unmet compliance obligation, and the fuel reporting entity will be
deemed in compliance for that year, provided that it has retired all credits in
its account, and retires credits equivalent to the Accumulated Deficits, with
interest as explained in section
95485(c)(5)
below, within five years.
(2)
Acquisition of "Clearance Market"
Credits to Meet an Annual Compliance Obligation.
(A)
Clearance Market Period.
The Clearance Market, if one occurs, will operate from June
1st to August 30th. A
fuel reporting entity subject to section
95485(c)(1) must
acquire credits pledged into the Credit Clearance Market to be retired toward
compliance in the previous compliance year. Credits acquired for this purpose
are defined as "Clearance Market" credits.
(B)
Use of Clearance Market
Credits. A Clearance Market credit can only be used for the purpose of
meeting the fuel reporting entity's compliance obligation from an immediate
prior year.
(C) A regulated entity
that participates in the Credit Clearance Market for two consecutive years must
submit a Compliance Plan to CARB, by August 31st of
that second consecutive year, detailing its plan to obtain sufficient credits
to meet future annual compliance obligations within a five-year period.
1.
Compliance Plan
Requirements. Submitted Compliance Plans must include the following:
a. A detailed list of specific business
initiatives, strategies, and actions that, if implemented, will achieve a
positive credit balance within a five-year timeframe;
b. Quantification of anticipated LCFS credit
generation and acquisition, and discussion of uncertainties and contingencies
associated with each listed initiative, strategy, or action;
c. Quantification of anticipated annual
credit shortage and uncertainties over the following five compliance
years;
d. A target timeline for
implementing all outlined provisions in the plan;
e. Data and underlying calculations used to
arrive at emission reduction quantification and timelines;
f. Reference to management policies or
practices applicable to implementing listed plan initiatives, strategies, and
actions;
g. List of key roles or
positions within the company involved in executing and completing
implementation of provisions of the plan;
h. Data records, including written contracts
and associated verbal or electronic records, and invoices used to demonstrate
actions underway consistent with the submitted plan;
i. Any other information related to or
supporting demonstration of plan requirements necessary to allow CARB to
develop a general understanding of the approaches being taken to implement the
plan.
2.
Compliance Plan Approval. The Executive Officer shall approve
each submitted compliance plan if it meets the requirements of section
95485(c)(2)(C)
paragraph 1. If the Executive Officer determines that the requirements for
approval have not been met, the Executive Officer will notify the regulated
entity of which specific requirements of section
95485(c)(2)(C)
paragraph 1 have not been met. The regulated entity must then submit additional
information to correct deficiencies identified by the Executive Officer. If the
regulated entity is unable to correct any deficiencies found with their plan
within 45 days of the Executive Officer's receipt of the original plan, the
plan will be denied on that basis, and the regulated entity will be informed in
writing. At any point during the evaluation process, the Executive Officer may
request in writing additional information or clarification from the regulated
entity.
3.
Compliance Plan
Implementation Reporting. In addition to other reports required to be
submitted by this subarticle, entities required to submit compliance plans must
submit annual compliance plan implementation reports that clearly demonstrate
actions taken and progress made to comply with the approved plan. The regulated
entity must disclose and explain any deviations from the submitted plan in
their compliance plan implementation report and identify the actions that will
be taken to correct these deviations.
a.
Annual compliance plan implementation reports must be submitted by April
30th each year for a five-year period starting the
calendar year after the plan was approved.
b. If a regulated entity's annual credit
shortage in any given year is greater than the annual credit shortage that was
approved in the original compliance plan, implementation reports that identify
deviations from the approved compliance plan will be made public on the CARB
website.
(D)
Entities required to acquire credits in the Credit Clearance Market must
complete payment to the seller before the credit transfer is initiated, unless
the buyer and seller agree on other payment terms. All credit transfers must be
completed on or before the final date of the Clearance Market
Period.
(3)
Procedure for Selling in the Clearance Market.
(A)
Call for Credits. On the
first Monday in April, the Executive Officer shall issue to all fuel reporting
entities and credit generators a call for credits to be pledged for sale in the
Clearance Market. When calling for credits, the Executive Officer will inform
fuel reporting entities of that year's Maximum Price for Credits as determined
in section
95487(a)(2)(D).
(B)
Pledging Credits for Sale into
the Clearance Market. Fuel reporting entities and credit generators
pledging credits for sale into the Clearance Market must report to the
Executive Officer in the Annual Compliance Report (on or before April
30th) the number of credits they are pledging for
sale.
(C)
Advanced
Credits. If, for any compliance year, insufficient credits are pledged
for sale into the Credit Clearance Market to fully clear outstanding deficits,
the Executive Officer shall issue credits equal to the difference between the
number of outstanding deficits and the number of credits pledged for sale in
the Credit Clearance Market subject to the following:
1. Advanced credits will be issued to
eligible Large IOUs and Large POUs that opt into the LCFS and are eligible to
receive base credits per section
95483(c)(1)(A).
Advanced credits will be allocated to eligible utilities based on their prorata
share of base credits received in the most recent issuance. Advanced credits
must be pledged for sale in the current Credit Clearance Market and may only be
sold at the maximum LCFS price per section
95487(a)(2)(D). A
minimum portion of proceeds generated from the sale of advanced credits must be
allocated using the 2023 and onward contribution percentages found in section
95483(c)(1)(A)
paragraph 1. to the Clean Fuel Reward program.
2. The first such issuance of advanced
credits will mark the start of the six-year "advanced credit window," during
which advanced credits can be issued and after which base credit issuances will
be adjusted to account for advanced credits.
3.
Cumulative Advanced
Credits. The cumulative number of advanced credits issued during the
advanced credit window shall not exceed 10 million.
4.
Adjusting Future Issuance of Base
Credits. After the six-year advanced credit window is closed, total
base credits issued every year will be adjusted downwards to account for
advanced credits as per the following schedule. Base credit adjustment for each
EDU will be pro-rated based on their share of total advanced credits received.
Annual adjustments will be spread equally across each quarter.
| Year | Percent
of total advanced credits |
| Year 7 | 5% |
| Year 8 | 10% |
| Year 9 | 20% |
| Year 10 | 30% |
| Year 11 | 35% |
where:
Year n refers to the
nth year from the first year the advanced credits
were issued. For example, if the first advanced credits are issued in 2021,
marking year 1, then the first year that base credit issuance will be adjusted
would be 2027.
(D)
Calculation of the Maximum Price for Credits in the Clearance
Market. The maximum price for credits acquired, purchased or
transferred via the Credit Clearance Market shall be set pursuant to section
95487(a)(2)(D).
(E)
Eligibility to Sell.
Only fuel reporting entities that demonstrated compliance pursuant to section
95485(a) for the
prior year can pledge credits for sale into the Clearance Market. Fuel
reporting entities that have an Accumulated Deficit obligation cannot pledge
credits for sale into the Clearance Market.
(F)
Selling in the Clearance
Market. By pledging credits for sale in the Clearance Market, parties
agree to the following provisions:
1. Parties
pledging credits agree to withhold those credits from sale in the ongoing LCFS
credit market until the Executive Officer determines whether a Clearance Market
will occur and, if a Clearance Market will occur, until August
31st.
2.
The Executive Officer will announce whether a Clearance Market will occur by
May 15th of each year.
3. If the Executive Officer announces that a
Clearance Market will not be held that year, parties who have pledged credits
to the Clearance Market shall be released from their agreement to withhold
those credits from sale in the ongoing LCFS credit market.
4. If a Clearance Market does occur, parties
agree to sell or transfer credits at or below the Maximum Price for the
pertinent year, until the Clearance Market closes on August
30th.
5.
Parties that have voluntarily pledged credits to sell into the Clearance Market
cannot reject, based on credit pricing terms, an offer to purchase those
pledged credits at the Maximum Price, provided they have not sold or
contractually agreed to sell those pledged
credits.
(4)
Clearance Market Operation. The Executive Officer will inform
each fuel reporting entity that failed to meet the Annual Compliance obligation
under section
95485(a) of its
pro-rata share of credits available into the Clearance Market by June
1st.
(A)
Calculation of Pro-Rata Shares. Each fuel reporting entity's
pro-rata share of credits available in the Clearance Market will be calculated
by the following formula:
Fuel reporting entity A's pro-rata share =
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where:
deficit refers to one fuel reporting
entity's obligation for the compliance year that has not been met pursuant to
section 95485(a);
total deficits refers to the sum of
all fuel reporting entities' obligations for the compliance year that have not
been met pursuant to section
95485(a);
and
pledged credits means the sum of all
credits pledged pursuant to section
95485(c)(3).
(B)
Publishing a List of Entities
Participating in the Clearance Market. On or before June
1st, the Executive Officer will post the following
information on the LCFS web site:
1. The name
of each entity that did not meet the requirement of section
95485(a);
2. The name of each entity that has pledged
to provide credits for sale in the credit clearance market and the number of
credits that each party has agreed to provide and
3. The name of each entity that received
advanced credits and the total number of advanced credits pledged for sale in
the credit clearance market.
(C)
Submission of Amended Annual
Compliance Reports. Fuel reporting entities that purchased credits in
the Clearance Market must submit to the Executive Officer an Amended Annual
Compliance Report by August 31st that accounts for the acquisition and
retirement of their pro-rata share of Clearance Market credits, and for all
deficits carried over as Accumulated Deficits.
(D)
Accumulated Deficits.
If, after purchasing its pro-rata share of credits and retiring those credits,
a fuel reporting entity retains an unmet compliance obligation, the Executive
Officer shall record remaining deficits from that compliance year in the
entity's account.
(5)
Rules Governing Accumulated Deficits.
(A)
Compound Interest on Accumulated
Deficits. Fuel reporting entities with an Accumulated Deficit will be
charged interest to be applied annually to all deficits in a fuel reporting
entity's account. Interest will be applied on Accumulated Deficit from previous
compliance years in terms of additional deficits that must be retired pursuant
to section
95485(c)(1)(A) at
a rate of 5 percent annually, applied on each September 1st.
(B)
Repayment of Accumulated
Deficits. Fuel reporting entities that participate in the Clearance
Market in order to meet their compliance obligations must repay all deficits,
plus interest no later than five years from the end of the compliance period in
which any such deficit was incurred.
(C)
Restrictions on the Repayment of
Accumulated Deficits. Fuel reporting entities may repay Accumulated
Deficits as part of a subsequent annual report. However, no repayment of any
Accumulated Deficits is allowed unless the fuel reporting entity meets 100
percent of its current compliance obligation.
(D)
Prohibitions on Credit
Transfers. Fuel reporting entities that have an Accumulated Deficit
obligation cannot transfer or sell credits to another fuel reporting
entity.
1. New
section filed 1-12-2010; operative 1-12-2010 pursuant to Government Code
section
11343.4
(Register 2010, No. 3).
2. Amendment of subsections (a)-(a)(1) and
(a)(3)(C) filed 11-26-2012; operative 11-26-2012 pursuant to Government Code
section
11343.4
(Register 2012, No. 48).
3. Repealer and new section filed
11-16-2015; operative 1-1-2016 (Register 2015, No. 47).
4. Editorial
correction of subsection (b)(2) (Register 2019, No. 1).
5. Amendment
filed 1-4-2019; operative 1-4-2019 pursuant to Government Code section
11343.4(b)(3)
(Register 2019, No. 1).
6. Amendment of subsections within
subsection (c) filed 5-27-2020; operative 7-1-2020 (Register 2020, No.
22).
Note: Authority cited: Sections
38510,
38530,
38560,
38560.5,
38571,
38580,
39600,
39601
and
43018,
Health and Safety Code; 42
U.S.C. section 7545; and Western Oil and Gas
Ass'n v. Orange County Air Pollution Control District, 14 Cal.3d 411, 121
Cal.Rptr. 249 (1975). Reference: Sections
38501,
38510,
39515,
39516,
38571,
38580,
39000,
39001,
39002,
39003,
39515,
39516
and
43000,
Health and Safety Code; Section
25000.5,
Public Resources Code; and Western Oil and Gas Ass'n v. Orange County Air
Pollution Control District, 14 Cal.3d 411, 121 Cal.Rptr. 249
(1975).
