Low-Carbon Fuel Standard and Credit Market

Summary#

SB-1190 would create a new Michigan law setting a low-carbon fuel standard and a market for trading carbon credits. It directs the Department of Environment, Great Lakes, and Energy (DEGLE), with input from other state offices, to reduce the carbon intensity of covered transportation fuels; its stated goal is to cut emissions from those fuels.

  • DEGLE must set annual standards aimed at reducing the combined carbon intensity of covered fuels by at least 35% below the 2019 baseline by the end of 2035. The department may make the 2035 target stricter.
  • Fuel providers that produce or import fuels above the applicable standard must address their deficits by supplying lower-carbon fuel, buying credits, or both.
  • Providers of eligible lower-carbon fuels could generate and trade credits. The market must allow credits to be banked for future use.
  • Aviation fuel and fuel used to power marine vessels are exempt from the standard. Sustainable aviation fuel and competitive marine fuel may opt in to earn credits.
  • DEGLE must make rules, including rules for credit prices, electric-vehicle charging credits, and biofuel pathways. The bill is introduced and is not law.

What it means for you#

  • Fuel providers: Producers and importers of covered fuels would have to meet annual standards or offset deficits with credits. A provider that fails to do so may face a civil fine of 200% of the value of the credits needed to offset the violation.
  • Credit generators: Eligible producers and importers of lower-carbon fuels could register to generate credits, or use a registered credit aggregator. This may include providers of electricity used for transportation. DEGLE must create procedures for credits from electric-vehicle charging at homes.
  • Biofuel producers and farmers: Rules must allow biofuel producers to seek a unique carbon-intensity score for certain cropland-derived biofuels. That option requires monitoring and annual third-party audits of specified farming practices. Related verified data would be confidential.
  • Consumers and vehicle owners: The bill does not directly require consumers to buy particular fuels or pay a new tax or fee. Whether fuel prices would change is unknown.
  • Communities: During rulemaking, DEGLE must seek input from groups including rural, urban, and tribal communities. The bill does not specify how those communities would take part in later program decisions.

Money#

The bill requires DEGLE to set up and run the program, but the available material gives no estimate of public costs.

  • Credit-market transaction fees must cover program administration, with more than half of fee revenue designed to come from deficit generators.
  • Deficit generators that do not meet their obligations may be fined; the bill does not estimate fine revenue.
  • The rules must set a goal for how much revenue from residential electric-vehicle charging credits should support transportation programs primarily benefiting disadvantaged, low-income, or rural communities. The bill does not set a required spending amount.

What is unclear#

  • The bill does not provide a program start date or say when fuel providers’ first compliance obligations would begin. It sets deadlines for rules but leaves key operating details to those rules.
  • The calculation, reporting, verification, and enforcement procedures—and how the annual standards would apply to individual providers—are not fully set out in the bill.
  • The bill requires an automatic adjustment to annual standards after two years of sustained credit oversupply or undersupply, but does not specify how that adjustment works.
  • The bill does not state what staffing or funding DEGLE and other state offices will need, or how this program would interact in practice with existing fuel and transportation programs.

Case for#

  • The bill appears intended to reduce the life-cycle emissions of transportation fuels, not just emissions from using a fuel. It uses a 2019 baseline and sets a measurable 2035 target.
  • A credit market could give fuel providers more than one way to meet the standards: reduce the carbon intensity of their fuels or buy credits from eligible generators.
  • The bill requires consideration of fuel quality, availability, technology, and credit supply when setting standards.
  • Required safeguards, price controls, and farming-practice audits could help address cost, land-use, and environmental concerns as the program is designed.

Case against#

  • The bill sets a demanding target but leaves many important details to future rules, making the costs and practical effects hard to judge now.
  • Fuel providers that cannot reduce their fuel’s carbon intensity may need to buy credits or face substantial fines. The bill does not estimate whether those costs would affect fuel prices.
  • DEGLE may make the 2035 target stricter, and the bill does not set a maximum target or fully explain how credit-market adjustments would work.
  • The bill requires a goal for directing some residential charging-credit revenue to specified communities, but does not require a particular share to be spent there.