Cal. Code Regs. tit. 17 § 95485

Current through Register 2024 Notice Reg. No. 23, June 7, 2024

Section 95485 - Demonstrating Compliance

(a)Compliance Demonstration.

(1) A fuel reporting entity must demonstrate that it met its annual compliance obligation by submitting an annual compliance report, showing that it possessed and has retired a number of credits from its credit account that is equal to its compliance obligation.

(2)Mandatory Retirement of Credits for the Purpose of Compliance. At the time of annual compliance report submission, for a fuel reporting entity that possesses credits and has also incurred deficits, the LRT-CBTS will retire a sufficient number of credits so that:

(A) Enough credits are retired to completely meet the fuel reporting entity's compliance obligation for that compliance period, or

(B) If the total number of credits available in entity's account is less than the total number of deficits incurred, all the credits within entity's possession will be retired.

(b)Calculation of Credit Balance and Annual Compliance Obligation.

(1)Compliance Period. Beginning in 2011 and every year thereafter, the annual compliance period is January 1st through December 31st of each year.

(2)Calculation of Compliance Obligation and Credit Balance at the End of a Compliance Period. The Executive Officer will calculate each LRT-CBTS account holder's compliance obligation and credit balance at the end of a compliance period as follows:

ComplianceObligation = Deficits^Generated + Deficits^CarriedOver CreditBalance = (Credits^Generated + Credits^Acquired + Credits^Released + Credits^CarriedOver) - (Credits^Retired + Credits^Sold + Credits^OnHold + Credits^CCMPledge + Credits^Adjustments)

where:

Deficits^Generated are the deficits generated pursuant to sections 95486 and 95489 in the current compliance period;

Deficits^CarriedOver are the deficits carried over from the previous compliance period and not deferred pursuant to section 95485(c);

Credits^Generated are the credits generated pursuant to sections 95486 and 95489 in the current compliance period;

Credits^Aquired are the credits purchased or otherwise acquired in the current compliance period, including carryback credits acquired pursuant to section 95486;

Credits^Released are the credits released from the hold due to enforcement or administrative action;

Credits^CarriedOver are the credits carried over from the previous compliance period;

Credits^Retired are the credits retired within the LCFS in the current compliance period;

Credits^Sold are the credits sold or otherwise transferred in the current compliance period;

Credits^OnHold are the credits placed on hold due to enforcement or administrative action. While on hold these credits cannot be used for meeting an annual compliance obligation;

Credits^CCMPledge are the credits pledged for the Credit Clearance Market and withheld from the ongoing LCFS market; and

Credits^Adjustments are the credits adjusted or invalidated due to administrative or enforcement action.

(c)Credit Clearance Market.

(1) If a fuel reporting entity does not retire sufficient credits to meet its year-end compliance obligation under section 95485(a), that party must purchase its pro-rata share of credits in the Credit Clearance Market, if one occurs.

(A)If the Credit Clearance Market occurs, a fuel reporting entity that fails to comply with section 95485(a) is nevertheless in compliance if the party:

1. Retires all credits in its LRT-CBTS account;

2. Acquires its Pro-Rata Obligation in the Credit Clearance Market and retires that number of credits by August 31^st of the year subsequent to the compliance year in question; and

3. Retires the remaining balance of its annual obligation, with interest, within five years.

(B)If no Credit Clearance Market occurs, the Executive Officer will record any entity's unmet compliance obligation, and the fuel reporting entity will be deemed in compliance for that year, provided that it has retired all credits in its account, and retires credits equivalent to the Accumulated Deficits, with interest as explained in section 95485(c)(5) below, within five years.

(2)Acquisition of "Clearance Market" Credits to Meet an Annual Compliance Obligation.

(A)Clearance Market Period. The Clearance Market, if one occurs, will operate from June 1^st to August 30^th. A fuel reporting entity subject to section 95485(c)(1) must acquire credits pledged into the Credit Clearance Market to be retired toward compliance in the previous compliance year. Credits acquired for this purpose are defined as "Clearance Market" credits.

(B)Use of Clearance Market Credits. A Clearance Market credit can only be used for the purpose of meeting the fuel reporting entity's compliance obligation from an immediate prior year.

(C) A regulated entity that participates in the Credit Clearance Market for two consecutive years must submit a Compliance Plan to CARB, by August 31^st of that second consecutive year, detailing its plan to obtain sufficient credits to meet future annual compliance obligations within a five-year period.

1.Compliance Plan Requirements. Submitted Compliance Plans must include the following:

a. A detailed list of specific business initiatives, strategies, and actions that, if implemented, will achieve a positive credit balance within a five-year timeframe;

b. Quantification of anticipated LCFS credit generation and acquisition, and discussion of uncertainties and contingencies associated with each listed initiative, strategy, or action;

c. Quantification of anticipated annual credit shortage and uncertainties over the following five compliance years;

d. A target timeline for implementing all outlined provisions in the plan;

e. Data and underlying calculations used to arrive at emission reduction quantification and timelines;

f. Reference to management policies or practices applicable to implementing listed plan initiatives, strategies, and actions;

g. List of key roles or positions within the company involved in executing and completing implementation of provisions of the plan;

h. Data records, including written contracts and associated verbal or electronic records, and invoices used to demonstrate actions underway consistent with the submitted plan;

i. Any other information related to or supporting demonstration of plan requirements necessary to allow CARB to develop a general understanding of the approaches being taken to implement the plan.

2.Compliance Plan Approval. The Executive Officer shall approve each submitted compliance plan if it meets the requirements of section 95485(c)(2)(C) paragraph 1. If the Executive Officer determines that the requirements for approval have not been met, the Executive Officer will notify the regulated entity of which specific requirements of section 95485(c)(2)(C) paragraph 1 have not been met. The regulated entity must then submit additional information to correct deficiencies identified by the Executive Officer. If the regulated entity is unable to correct any deficiencies found with their plan within 45 days of the Executive Officer's receipt of the original plan, the plan will be denied on that basis, and the regulated entity will be informed in writing. At any point during the evaluation process, the Executive Officer may request in writing additional information or clarification from the regulated entity.

3.Compliance Plan Implementation Reporting. In addition to other reports required to be submitted by this subarticle, entities required to submit compliance plans must submit annual compliance plan implementation reports that clearly demonstrate actions taken and progress made to comply with the approved plan. The regulated entity must disclose and explain any deviations from the submitted plan in their compliance plan implementation report and identify the actions that will be taken to correct these deviations.

a. Annual compliance plan implementation reports must be submitted by April 30^th each year for a five-year period starting the calendar year after the plan was approved.

b. If a regulated entity's annual credit shortage in any given year is greater than the annual credit shortage that was approved in the original compliance plan, implementation reports that identify deviations from the approved compliance plan will be made public on the CARB website.

(D) Entities required to acquire credits in the Credit Clearance Market must complete payment to the seller before the credit transfer is initiated, unless the buyer and seller agree on other payment terms. All credit transfers must be completed on or before the final date of the Clearance Market Period.

(3)Procedure for Selling in the Clearance Market.

(A)Call for Credits. On the first Monday in April, the Executive Officer shall issue to all fuel reporting entities and credit generators a call for credits to be pledged for sale in the Clearance Market. When calling for credits, the Executive Officer will inform fuel reporting entities of that year's Maximum Price for Credits as determined in section 95487(a)(2)(D).

(B)Pledging Credits for Sale into the Clearance Market. Fuel reporting entities and credit generators pledging credits for sale into the Clearance Market must report to the Executive Officer in the Annual Compliance Report (on or before April 30^th) the number of credits they are pledging for sale.

(C)Advanced Credits. If, for any compliance year, insufficient credits are pledged for sale into the Credit Clearance Market to fully clear outstanding deficits, the Executive Officer shall issue credits equal to the difference between the number of outstanding deficits and the number of credits pledged for sale in the Credit Clearance Market subject to the following:

1. Advanced credits will be issued to eligible Large IOUs and Large POUs that opt into the LCFS and are eligible to receive base credits per section 95483(c)(1)(A). Advanced credits will be allocated to eligible utilities based on their prorata share of base credits received in the most recent issuance. Advanced credits must be pledged for sale in the current Credit Clearance Market and may only be sold at the maximum LCFS price per section 95487(a)(2)(D). A minimum portion of proceeds generated from the sale of advanced credits must be allocated using the 2023 and onward contribution percentages found in section 95483(c)(1)(A) paragraph 1. to the Clean Fuel Reward program.

2. The first such issuance of advanced credits will mark the start of the six-year "advanced credit window," during which advanced credits can be issued and after which base credit issuances will be adjusted to account for advanced credits.

3.Cumulative Advanced Credits. The cumulative number of advanced credits issued during the advanced credit window shall not exceed 10 million.

4.Adjusting Future Issuance of Base Credits. After the six-year advanced credit window is closed, total base credits issued every year will be adjusted downwards to account for advanced credits as per the following schedule. Base credit adjustment for each EDU will be pro-rated based on their share of total advanced credits received. Annual adjustments will be spread equally across each quarter.

Year	Percent of total advanced credits
Year 7	5%
Year 8	10%
Year 9	20%
Year 10	30%
Year 11	35%

where:

Year n refers to the n^th year from the first year the advanced credits were issued. For example, if the first advanced credits are issued in 2021, marking year 1, then the first year that base credit issuance will be adjusted would be 2027.

(D)Calculation of the Maximum Price for Credits in the Clearance Market. The maximum price for credits acquired, purchased or transferred via the Credit Clearance Market shall be set pursuant to section 95487(a)(2)(D).

(E)Eligibility to Sell. Only fuel reporting entities that demonstrated compliance pursuant to section 95485(a) for the prior year can pledge credits for sale into the Clearance Market. Fuel reporting entities that have an Accumulated Deficit obligation cannot pledge credits for sale into the Clearance Market.

(F)Selling in the Clearance Market. By pledging credits for sale in the Clearance Market, parties agree to the following provisions:

1. Parties pledging credits agree to withhold those credits from sale in the ongoing LCFS credit market until the Executive Officer determines whether a Clearance Market will occur and, if a Clearance Market will occur, until August 31^st.

2. The Executive Officer will announce whether a Clearance Market will occur by May 15^th of each year.

3. If the Executive Officer announces that a Clearance Market will not be held that year, parties who have pledged credits to the Clearance Market shall be released from their agreement to withhold those credits from sale in the ongoing LCFS credit market.

4. If a Clearance Market does occur, parties agree to sell or transfer credits at or below the Maximum Price for the pertinent year, until the Clearance Market closes on August 30^th.

5. Parties that have voluntarily pledged credits to sell into the Clearance Market cannot reject, based on credit pricing terms, an offer to purchase those pledged credits at the Maximum Price, provided they have not sold or contractually agreed to sell those pledged credits.

(4)Clearance Market Operation. The Executive Officer will inform each fuel reporting entity that failed to meet the Annual Compliance obligation under section 95485(a) of its pro-rata share of credits available into the Clearance Market by June 1^st.

(A)Calculation of Pro-Rata Shares. Each fuel reporting entity's pro-rata share of credits available in the Clearance Market will be calculated by the following formula:

Fuel reporting entity A's pro-rata share =

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where:

deficit refers to one fuel reporting entity's obligation for the compliance year that has not been met pursuant to section 95485(a);

total deficits refers to the sum of all fuel reporting entities' obligations for the compliance year that have not been met pursuant to section 95485(a); and

pledged credits means the sum of all credits pledged pursuant to section 95485(c)(3).

(B)Publishing a List of Entities Participating in the Clearance Market. On or before June 1^st, the Executive Officer will post the following information on the LCFS web site:

1. The name of each entity that did not meet the requirement of section 95485(a);

2. The name of each entity that has pledged to provide credits for sale in the credit clearance market and the number of credits that each party has agreed to provide and

3. The name of each entity that received advanced credits and the total number of advanced credits pledged for sale in the credit clearance market.

(C)Submission of Amended Annual Compliance Reports. Fuel reporting entities that purchased credits in the Clearance Market must submit to the Executive Officer an Amended Annual Compliance Report by August 31st that accounts for the acquisition and retirement of their pro-rata share of Clearance Market credits, and for all deficits carried over as Accumulated Deficits.

(D)Accumulated Deficits. If, after purchasing its pro-rata share of credits and retiring those credits, a fuel reporting entity retains an unmet compliance obligation, the Executive Officer shall record remaining deficits from that compliance year in the entity's account.

(5)Rules Governing Accumulated Deficits.

(A)Compound Interest on Accumulated Deficits. Fuel reporting entities with an Accumulated Deficit will be charged interest to be applied annually to all deficits in a fuel reporting entity's account. Interest will be applied on Accumulated Deficit from previous compliance years in terms of additional deficits that must be retired pursuant to section 95485(c)(1)(A) at a rate of 5 percent annually, applied on each September 1st.

(B)Repayment of Accumulated Deficits. Fuel reporting entities that participate in the Clearance Market in order to meet their compliance obligations must repay all deficits, plus interest no later than five years from the end of the compliance period in which any such deficit was incurred.

(C)Restrictions on the Repayment of Accumulated Deficits. Fuel reporting entities may repay Accumulated Deficits as part of a subsequent annual report. However, no repayment of any Accumulated Deficits is allowed unless the fuel reporting entity meets 100 percent of its current compliance obligation.

(D)Prohibitions on Credit Transfers. Fuel reporting entities that have an Accumulated Deficit obligation cannot transfer or sell credits to another fuel reporting entity.

Cal. Code Regs. Tit. 17, § 95485

1. New section filed 1-12-2010; operative 1-12-2010 pursuant to Government Code section 11343.4 (Register 2010, No. 3).
2. Amendment of subsections (a)-(a)(1) and (a)(3)(C) filed 11-26-2012; operative 11-26-2012 pursuant to Government Code section 11343.4 (Register 2012, No. 48).
3. Repealer and new section filed 11-16-2015; operative 1-1-2016 (Register 2015, No. 47).
4. Editorial correction of subsection (b)(2) (Register 2019, No. 1).
5. Amendment filed 1-4-2019; operative 1-4-2019 pursuant to Government Code section 11343.4(b)(3) (Register 2019, No. 1).
6. Amendment of subsections within subsection (c) filed 5-27-2020; operative 7-1-2020 (Register 2020, No. 22).

Note: Authority cited: Sections 38510, 38530, 38560, 38560.5, 38571, 38580, 39600, 39601 and 43018, Health and Safety Code; 42 U.S.C. section 7545; and Western Oil and Gas Ass'n v. Orange County Air Pollution Control District, 14 Cal.3d 411, 121 Cal.Rptr. 249 (1975). Reference: Sections 38501, 38510, 39515, 39516, 38571, 38580, 39000, 39001, 39002, 39003, 39515, 39516 and 43000, Health and Safety Code; Section 25000.5, Public Resources Code; and Western Oil and Gas Ass'n v. Orange County Air Pollution Control District, 14 Cal.3d 411, 121 Cal.Rptr. 249 (1975).

1. New section filed 1-12-2010; operative 1-12-2010 pursuant to Government Code section 11343.4 (Register 2010, No. 3).
2. Amendment of subsections (a)-(a)(1) and (a)(3)(C) filed 11-26-2012; operative 11-26-2012 pursuant to Government Code section 11343.4(Register 2012, No. 48).
3. Repealer and new section filed 11-16-2015; operative 1/1/2016 (Register 2015, No. 47).
4. Editorial correction of subsection (b)(2) (Register 2019, No. 1).
5. Amendment filed 1-4-2019; operative 1/4/2019 pursuant to Government Code section 11343.4(b)(3) (Register 2019, No. 1).
6. Amendment of subsections within subsection (c) filed 5-27-2020; operative 7/1/2020 (Register 2020, No. 22).