US: Data shows fuel sector compliance more than 35m for first quarter

Fuel suppliers will have to submit more than 35.8m California carbon allowances to cover gasoline and diesel supplied to end users during the first quarter, according to recently released state data.

As of 2015, California requires natural gas and fuel suppliers to cover emissions tied to gasoline, diesel and natural gas supplied to end users. Those entities will have to surrender allowances for part of their 2015 emissions in November 2016. Their inclusion was expected to dramatically increase demand for California carbon allowances.

According to state data, gasoline suppliers will have to surrender at least 29.2m for first quarter emissions. Diesel emissions would add an additional 6.6m compliance obligations to the fuel sector’s compliance obligations.

In total, fuel suppliers should have an estimated compliance obligation of roughly 35.8m allowances in the first quarter for emissions tied to gasoline and diesel sold in the state. Second quarter data will not be available until October, because state data is delayed by three months.

The estimated compliance obligation for the first quarter is roughly 4% higher than the total for the same quarter in 2014 and 3% higher than the median for the first quarter from 2010-2014.

Tesoro, Chevron and Phillips 66 accounted for more than half of that demand, according to detailed state data. Those three fuel suppliers have an estimated carbon compliance obligation of 18.1m for gasoline sold during the first three months of 2015, or roughly 62% of the entire gasoline demand for the quarter.

Tesoro had the largest obligation at 8.6m, according to state data.

All three companies have taken part in at least one California carbon auction, according to Air Resources Board (ARB) data. Market participants said Tesoro and Chevron are active on the secondary market, but Phillips 66 may only be participating in ARB auctions.

It is not possible to accurately calculate natural gas compliance obligations, because the fuel source is not taxed in a similar fashion to diesel or gasoline. California places a per gallon tax on gasoline and diesel sold inside of the state.

Natural gas suppliers are also allocated allowances by the ARB, meaning those entities would have to buy fewer allowances at auction or on the secondary market.

Fewer CCAs in compliance account

Compliance entities submitted 18.3m Vintage 2015 allowances into compliance accounts during that time period. A total of 24.8m CCAs were deposited into compliance accounts in the first quarter.

If all those allowances were deposited by fuel suppliers, it means that sector would still need to surrender 11m allowances to cover emissions from that period, but those additional allowances could be held in general accounts for added flexibility.

The ARB, the cap-and-trade regulator, does not allow market participants to trade allowances out of its compliance accounts to a non-affiliated participant. Under ARB rules, compliance entities only have to cover 30% of the previous year’s emissions in the first year though.

For 2015, compliance entities would have to submit a maximum of 118.2m allowances. Compliance entities already had 76.74m Vintage 2015 in compliance accounts, and the number was just shy of 118 by the end of the second quarter, according to ARB data. dan.mcgraw@icis.com