BC-LCFS 101

Situated in the Pacific Northwest between the Pacific Ocean and the Rocky Mountains, the Province of British Columbia (B.C.) has a diverse geography, with an estimated population of over 5.6 million as of 2024, almost half of which lives in the Vancouver metropolitan area. The major sectors of BC’s economy include forestry, mining, filmmaking and video production, tourism, real estate, construction, wholesale, and retail. Its main exports include lumber and timber, pulp and paper products, copper, coal, and natural gas.

Source: Environmental Reporting BC, B.C. Population – Environmental Reporting BC

The Rocky Mountains and the ranges west of them constitute a significant obstacle to overland logistics. There are only five major road and two rail routes to the rest of Canada, and there are several international highway and rail crossings to the states of Washington, Idaho, and Montana. Two major seaports are Canada’s only Pacific tidewater ports. Additional information about BC’s energy use and supply are available here and here.

For the transportation sector, liquid petroleum fuels are supplied to B.C. via the Trans Mountain Pipeline System (TMPS) which transports both crude oil and products from Alberta to the 55,000 barrel per day (BPD) Burnaby refinery in greater Vancouver and terminals along its route located in BC. Additional refined petroleum fuels are supplied from the 12,000 BPD Prince George refinery in central BC, and also arrive in B.C. via marine receipts. Non-liquid and renewable fuels are supplied via the existing natural gas and electricity systems, the 3,000 BPD renewable diesel (RD) plant in Prince George, or by rail primarily from sources east of the Rocky Mountains in Canada or the U.S.

BC’s energy systems share many characteristics with Washington, Oregon, and California – all are isolated by geography and distance from non-West Coast energy sources, the electricity grid and natural gas systems are interlinked, there are regular marine movements of crude oil and petroleum products, rail lines link the region to renewable energy sources to the east.

Introduction of the BC-LCFS Program

In 2008, B.C. implemented the Greenhouse Gas Reduction (Renewable and Low Carbon Fuel Requirements) Act, which established requirements for renewable content and greenhouse gas (GHG) emission reductions. The program was implemented in 2010 and included mandates for a minimum 5% renewable content in gasoline and a minimum 3% renewable content in diesel (increased to a 4% minimum starting in 2011).¹ Effective January 1, 2024, the Low Carbon Fuels Act (the Act) replaced the Greenhouse Gas Reduction (Renewable and Low Carbon Fuel Requirements) Act. Today, the Low Carbon Fuels Act and its regulations are known as the British Columbia Low Carbon Fuel Standard (BC-LCFS). Among other adjustments, the Low Carbon Fuels Act incorporated a minimum renewable volume for jet fuel beginning at 1% in 2028 and increasing to 3% for 2030 and subsequent compliance periods.

The British Columbia Ministry of Energy, Mines and Low Carbon Innovation (MEMLCI) administers the BC-LCFS program, and data published to-date indicate that there has been a steady and significant increase in the renewable content of both the gasoline pool (from 5% to 10% in 2023) and diesel pool (from 3% to 22% in 2023) since the BC-LCFS was implemented.

Part 3 of the Act requires that each supplier of fuel has the specified minimum percentage of biofuels (e.g., ethanol, biodiesel, and renewable diesel). Part 4 of the Act requires that fuel suppliers must also meet annual carbon intensity (CI) reduction targets by securing program credits to offset the deficits incurred by the fossil fuels they supply. Deficits represent the difference between the CI of a petroleum fuel and the target CI for the program based on the reduction schedule for that year. Likewise, credits represent how much lower the CI is for a given renewable fuel versus the target CI for the program that year. Compliance is measured in terms of the balance of these credits and deficits with net deficit generators purchasing credits from net credit generators to cover their deficits. The current schedule of BC-LCFS CI reductions is shown in the figure below; all reductions are vs. a 2010 baseline.

BC-LCFS CI Reduction Schedule
Source: BC-LCFS Requirements

BC-LCFS Program vs. Other LCF Programs

The BC-LCFS is fundamentally similar to the California Low Carbon Fuel Standard (CA LCFS), Oregon Clean Fuels Program (OR CFP), Washington Clean Fuel Standard (WA CFS) and Canada’s national Clean Fuel Regulations (CFR). These Low Carbon Fuel (LCF) programs create incentives to decarbonize transport fuels by establishing a set schedule of declining aggregate CI targets that is met by using credits (generated from the production and use of fuels with CIs lower than the targets) to retire deficits (generated by fuels, usually fossil based, that are higher than the target CI). Similar to the U.S. Renewable Fuels Standard (RFS), the Canadian CFR is a federal program and is stackable with provincial or state programs. The RFS, however, is a volumetric program for renewable fuels rather than an LCF program.

A summary-level comparison of the existing North American LCF programs’ structures and functionality to-date are outlined in the table below. Notice there is a range of CI-reduction targets across the programs as well as differing start dates and baseline years. Importantly, credits generated are unique to that program and cannot be traded across programs. All programs typically review the feasibility of more ambitious CI reduction targets as part of periodic updates to the regulations.

Comparison of North American LCF ProgramsSources: Washington Department of Ecology (Ecology), Oregon DEQ, CARB, MEMLCI, and Environment and Climate Change Canada (ECCC), Statistics Canada

* The CFR was implemented July 1 rather than on January 1.
** Proposed
^{^} The 5.3% CI reduction requirement applies to the gasoline pool. The 5.4% CI reduction requirement applies to the diesel pool.
^{^^} Includes exempt volumes

The fundamental credit or deficit calculation across these LCF programs is:
Source: Stillwater analysis of LCF program information

Each specific factor – baseline year, baseline fuel CI, target CI, fuel CI, energy density, and energy efficiency – may vary by program, but the fundamental credit or deficit calculation is the same across all LCF programs. Aside from this formula, the LCF programs share other similarities.

1. Fuel CI is determined by GHG emissions accounting called a lifecycle analysis which calculates the GHG emissions per unit of energy.
2. The initial point of obligation for credits and deficits consistently rests with fuel producers and importers. In each program except for the Canadian CFR, the obligation can be moved down the supply chain to the rack if agreed to by both the buyer and seller involved in the transaction.
3. Fuel pathways are approved by the regulating entity using a program-specific lifecycle analysis model. Pathways are typically specific to each production facility and CIs are based on data submitted by the producer to the regulating entity. Conservative (i.e., higher CI) default pathways are also available for use in each program.
4. Penalties for failing to cover deficits, misreporting data, transactions or CIs that are erroneous, and other violations are specified in each regulation.
5. Importantly, none of the LCF jurisdictions depend solely upon their LCF program to reduce the carbon intensity of the transportation fuel. Each jurisdiction also has other polices that drive lower aggregate transportation fuel CI. B.C. has a carbon tax on fuels, renewable blend mandates, and programs to incentivize the proliferation of zero emission vehicles (ZEVs). California has a Carbon Cap & Trade Program (C&T) with low-carbon transport projects funded by revenues, ZEV mandates and subsidies, and other programs to reduce petroleum fuel usage. Oregon had a version of a C&T program, the Climate Protection Program (CPP) that was nullified by Oregon’s Court but is in process of being reauthorized. Oregon has also established incentives for the use of ZEVs. Washington State has its own ZEV mandate and a C&T program called the Cap and Invest (C&I).

There are also differences and unique provisions associated with the LCF programs. The key differences within the BC-LCFS program as compared to the others are highlighted here:

1. The GHGenius model is used in B.C. while state-specific versions of the Greenhouse gases, Regulated Emissions, and Energy use in Technologies (GREET®) Model are used for the CA LCFS, OR CFP, and WA CFS. These models are similar in concept but have some significant differences leading to CI calculations which are not directly comparable. To complicate matters, the Canadian CFR uses yet another model – the Fuel Life Cycle Assessment Model developed in accordance with ISO Standard 14040.
2. The absence of indirect land-use change (ILUC) considerations is unique to the BC-LCFS program. Combined with model differences between the jurisdictions, this results in higher biofuels credit generation for crop-based fuels in BC.
3. The low initial ethanol content (4.7%) in B.C. gasoline allowed ethanol volume increases (with associated credit generation) without exceeding the generally acceptable level into gasoline vehicles of 10% until the past couple of years. By contrast, the baseline ethanol content in California and Oregon gasoline was 10% which essentially limited incremental ethanol volumes and the associated credit generation.
4. The BC-LCFS contains a provision requiring a minimum amount of renewables content in the fuel pool while the other U.S. LCF programs do not. The Canadian CFR also has such a minimum renewables percentage volume provision. These provisions are similar to the Renewable Fuel Standard (RFS) which drives a minimum amount of renewables content in the fuel pool in the U.S.
5. In addition to allowing credits to be generated via the consumption of low-CI fuels, the BC-LCFS, Canadian CFR, and CA LCFS also allow approved projects to generate credits. These projects generally involve reduction of carbon emissions in the production, distribution or delivery of transportation fuels.
6. The California, Oregon, Washington, and Canadian LCF programs each have a Credit Clearance Market (CCM) provision to allow obligated parties to obtain any additional credits needed for compliance in the prior calendar year if direct credit trading was insufficient to cover an entity’s deficits. BC, however, does not have a CCM.
7. There is no absolute cost containment mechanism in either B.C. or Oregon while California has a credit price cap. Oregon and Canada have a price cap for credits traded in their CCMs, but this cap does not apply to credits sold outside of the CCM.
8. California has an Incremental Crude oil CI provision that may add additional deficits to petroleum gasoline and diesel fuel based on the three-year average CI of the crude oil refined in California.
9. Unlike all the other LCF programs, the Washington Department of Ecology charges a participation fee for the WA CFS program that covers the cost of administering the program.

The net effects of these differences are: (1) to make it easier for deficit-generators in the BC-LCFS to achieve compliance with crop-based biofuels, and (2) the CIs assigned to neat gasoline and diesel fuel are about 10% lower in B.C. than under the OR CFP, WA CFS or CA LCFS.

For the Canadian market specifically: The BC-LCFS CI reduction targets are more aggressive than the Canadian CFR’s, so the two programs should not experience conflict or onerous complications for fuel suppliers. The ability to stack credits between the BC-LCFS and the federal CFR program adds more value to fuels sold in the B.C. market. The additive value of the BC-LCFS should incentivize low-CI fuels to flow to B.C. if the BC-LCFS values exceed the logistics costs.

In general, the programs are much more similar than different. The structural differences between the programs have enabled B.C. to comply using less expensive low-carbon fuels and allowed credit prices to be lower than California’s through 2019. However, some of the differences have also nudged BC-LCFS credit prices significantly higher than California’s to attract the lowest carbon fuels available.

BC-LCFS Market Fundamentals

Credit trading volumes are much smaller in B.C. than in the U.S. state-level LCF programs.² Recent data on credit trading prices and volumes, displayed in the figure below, show significant variation in the number of credits traded per quarter.³ These data also show an increase in average credit prices over the past five years. We discuss the drivers behind the high credit prices and the wide range between the maximum and minimum prices in the section below.

BC-LCFS Credit Trading Activity
Source: MEMLCI Quarterly Low Carbon Fuel Credit Market Reports, Stillwater Analysis

The trading volumes shown above can be compared to total annual credit and debit generation tabulated below. As can be seen, a large source of credits generated under the BC-LCFS have been from “Part 3 Agreements.” These agreements grant credits for various projects designed to accelerate the adoption of low-carbon fuels. These have included projects to construct low-carbon fuel infrastructure, scrappage of older internal combustion engine vehicles (ICEVs) and replacement with electric vehicles (EVs), and development of new low-carbon fuel technologies.⁴

BC-LCFS Annual Credit and Debit Volumes (MT)
Source: BC-LCFS Information Bulletin RLCF-007-2023

MEMLCI reports the number of trades, credits traded and reported price of BC-LCFS credits that are traded between counterparties, as tabulated below. The number of trades, volume traded, and average price at which credits were transferred all increased substantially in 2021 and beyond. Periodically enormous price ranges occur similar to other programs. This is presumably because the agreed upon price was negotiated in the past when prices were lower and both parties in the transaction did not want to accept the risk of the price changing over time. From 2015 through 2020, there were on average only about 30 deals done per year, or two-to-three transactions per month on average. While the number of deals nearly tripled in 2021, the BC-LCFS credit market still appears to be very illiquid relative to other carbon credit markets.

BC-LCFS Credits Traded and Prices Reported to MEMLCI
Source: BC-LCFS Credit Market Data (2015 to present) – Updated September 2024
Notes: Data excludes credit transfers reported with a zero or near-zero price.
CAD = Canadian Dollar

Key Takeaway: While the structure and rules of the BC-LCFS are quite similar to the CA LCFS, OR CFP, WA CFS, and Canadian CFR programs, there are many differences in the details. In each jurisdiction, the fuel volume, fuel mix, and credit markets differ in scale, transparency, and liquidity. Finally, there a national program differences; the CFR applies in B.C. and the RFS applies in U.S. state jurisdictions. Although all these programs share fuel supply, at least on the increment, the combination of the differences highlighted above makes analyzing and predicting credit market interactions quite complex.

Stillwater’s BC-LCFS credit price outlook (subscription required) considers and integrates these factors to link credit prices between the BC-LCFS and CA LCFS. Incorporated into this complex analysis is our outlook for CA LCFS credit prices which Stillwater produces quarterly using a highly detailed and rigorous forecasting methodology.

Check out Stillwater’s Carbon Market Outlooks Dashboard to learn more!