Dec 20 (Reuters) - A new proposal by California regulators to further reduce the carbon intensity of transportation fuels will likely balance the market for one of the state's carbon credits, which saw prices fall nearly 65% in recent years due to oversupply, analysts said on Wednesday.
The California Air Resource Board (CARB) issued a proposal on Tuesday to tighten requirements for fuelmakers to generate tradable credits after a glut of low carbon fuels like renewable diesel pushed credit prices notably lower. Higher prices for the credits incentivize investment in producing low carbon fuels that help the state meet its climate change targets.
California's Low Carbon Fuel Standard (LCFS) credits have fallen from $200 per ton in 2018 to about $71 per ton currently and are still forecast to trade at weaker levels until late 2024 at the earliest, Jason Gabelman, analyst at Cowen Research, said on Wednesday.
The LCFS currently requires fuelmakers to buy tradable credits if their products generate more carbon emissions than a baseline set by regulators. Refiners that produce low carbon fuels and gases can generate credits to sell.
This drove a boom of renewable diesel and renewable natural gas production in recent years, which has devalued the price of the credits as larger fuel-consuming states like New York failed to adopt similar programs.
"These changes should begin tightening up supply and demand of the LCFS program in 2025, which will be supportive for LCFS prices," wrote Matthew Blair, refining analyst at Tudor, Pickering and Holt.
Regulators proposed targeting a 30% carbon intensity reduction in transportation fuels from a baseline level, up from 20% currently, a new 90% carbon intensity reduction target by 2045, and interim reduction targets.
Among other changes, CARB added a mechanism that will pull forward the standards by one year if the program is in credit surplus for the previous year and the bank of credits exceeds the quarterly surplus by three times.
CARB will also require producers of crop-based biofuels to have independent certification that the crops are not contributing to deforestation.
The public comment period will run from Jan. 5, 2024, to Feb. 20, 2024, with a hearing on March 21, 2024. (Reporting by Laura Sanicola; Editing by Josie Kao)
