Falling LCFS Credit Prices Boost Attractiveness of Lump-Sum Payments

Electric charging of forklifts and other material handling equipment is one of the categories eligible for credit generation under the State of California’s Low Carbon Fuel Standard (LCFS). These credits are issued in recognition of electric charging of these vehicles as an alternative to carbon-based fuels such as diesel or propane. The credits, which trade in the open market, are typically purchased by refiners or importers of gasoline or diesel into the California market. Beginning in 2018, the price of LCFS credits in the California market steadily began to increase, reaching a peak of over $200 per credit (representing one metric ton of carbon emissions) in 2020. However, beginning in Spring 2021, the price of LCFS credits began to fall sharply. LCFS credit prices have now declined more than 50% in value over the past 12 months, and are currently trading at ~$90 per credit.

Why have LCFS credit prices fallen so much in value? There are a number of culprits. First, starting last summer there were a series of announcements from major California refiners (Chevron, Marathon, Phillips 66) announcing their intention to switch from traditional diesel refining operations to renewable and biodiesel production. These plans, if realized, have the potential not only to reduce demand for LCFS credits given the anticipated blending of the new diesel fuels, but also to increase the supply of credits given the converted refineries themselves will be eligible to generate credits under the LCFS. 

Adding to fears about an oversupplied market for LCFS credits, recent disclosures from the California Air Resources Board (CARB), which administers the LCFS, reveal a rapidly expanding “credit bank” whose credits have the potential to flood the market once monetized. Renewed concerns about a slowdown in economic activity amid rising energy costs have also contributed to downward price pressure as lower gasoline and diesel demand may ultimately translate into reduced refining activity, and therefore less demand for the credits themselves. There is growing speculation that CARB may step in to support LCFS credit prices given that many California renewable energy projects are reportedly not economically viable at prices below $110 per credit. However, it is unclear what tools may exist in the short term for CARB to support the market.

What does this mean for owner/operators of electric forklifts? For those who have registered their equipment with credit aggregators using traditional revenue share models, the dramatic drop in credit pricing means the quarterly checks they receive will likely begin to shrink if they have not already done so. For owner/operators who rely on the cash flow provided by monetizing carbon credits, we suggest considering an upfront cash deal which provides a lump-sum payment in exchange for a multiyear credit administration agreement. Our company, Greenscape Financial, is the only aggregator in the California market which regularly provides upfront cash for LCFS credits, and we do it by using a proprietary remote metering solution that is hassle-free to our customers. Our payments are not loans and can be used to offset the cost of new equipment or for any other corporate purpose. We invite you to contact us at info@greenscapefinancial.com to receive a proposal covering new or existing electric forklift fleets. Don’t let falling LCFS prices prevent you from investing in your business or your future!