Stationary Source Cap & Trade Benchmark Cost is Way Down due to Increased Allowances
Stillwater publishes our proprietary daily benchmark price to demonstrate the cost of California’s Stationary Source Cap & Trade (SSC&T) program to refiners. Our readers may have observed that the benchmark SSC&T cost has recently dropped significantly, which begs the question: Why? On December 6, 2019, the California Air Resources Board (CARB) released its 2020 Cap & Trade Vintage Allowance Allocation Summary, providing a sharp increase from the number of vintage 2019 allowances. According to the Cap & Trade (C&T) regulation, industrial allowance allocation values reflect the current assistance factors (AFs) assigned to industrial facilities based on their risk of leakage (or departure from the state because of economic pressure from C&T). AFs were updated as part of the 2018 C&T amendments and became effective April 1, 2019. Under this update, allowances for petroleum refining and hydrogen production, which qualify for the higher rate of AFs, increased from 22.1 million in 2019 to 34.4 million for 2020. Allocations have increased from about 63% of stationary emissions to about 96%, allowing refiners to only pay for 1.5 million tons for 2020 vs. 12.8 million tons for 2019. This increase in allowances has driven the cost of SSC&T to refiners markedly down, from over one cent per gallon (cpg) based on 2019 vintage allowances to about 0.15 cpg based on 2020 vintage allowances.
Stillwater’s benchmark is calculated using annual GHG Facility and Entity Emissions (published by CARB), 2020 vintage Allowance Allocations (offsets distributed by CARB), CARBOB gasoline and CARB diesel volumes supplied (obtained through the LCFS Reporting Tool), and a daily assessment of allowance trading (reported by OPIS). We also adjust the calculation with a “correction factor” to exclude emissions and allowances included in CARB’s petroleum refining grouping but not associated with the manufacturing of transportation fuels. The calculation, shown below, represents the benchmark cost of SSC&T currently incurred by refiners for the supply of CARBOB gasoline and CARB diesel. The table below demonstrates the drop in SSC&T cost comparing the average cost in November 2019, before CARB’s announcement, with the average January 2020 cost, after CARB’s announcement.
This drop in the cost of SSC&T to refiners represents a significant improvement to the overall cost of refining gasoline and diesel in California.