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Cap and Trade Costs at the Rack: The Basics for Fuel Buyers

Posted by Jessica Nesterak on Aug 5, 2019, 8:00:00 AM
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“Cap and trade” is a regulation designed to reduce greenhouse gases by setting a firm limit – or cap – on emissions.

Here's how the California Air Resources Board describes it: 

Cap-and-trade is a market based regulation that is designed to reduce greenhouse gases (GHGs) from multiple sources. Cap-and-trade sets a firm limit or cap on GHGs and minimize the compliance costs of achieving AB 32 goals. The cap will decline approximately 3 percent each year beginning in 2013. Trading creates incentives to reduce GHGs below allowable levels through investments in clean technologies. With a carbon market, a price on carbon is established for GHGs. Market forces spur technological innovation and investments in clean energy. Cap-and-trade is an environmentally effective and economically efficient response to climate change.

Got all that? Here's a blog we did (plus a podcast) on the program if you are looking to go more in-depth? 

What Does Cap and Trade Mean When I Buy Gas and Diesel?

The cost of complying with cap and trade can increase the price paid for gasoline and diesel fuel at the wholesale rack in certain locations. 

In 2014, OPIS began accounting for these compliance costs by showing California Cap at the Rack (CAR) in its gas and diesel reports.

However, suppliers have not standardized how they reflect compliance costs in their prices.   

Some suppliers include it as a line item on invoices. Others wrap the cost into their posted rack price. Thanks for keeping us on our toes!

In response to the lack of standardization, OPIS "normalizes," prices so our rack data compares "apples to apples." 

This normalization has resulted in three OPIS report options. Check them out below, or watch this quick video:

 

 

Option 1: Non-Adjusted -- Prices are shown just as a supplier delivers them

Here's what those prices look like in a gasoline rack report.

Cap at the rack

 

Option 2: Normalized -- Includes compliance costs

We adjust the prices of suppliers who do not wrap in compliance values by adding OPIS’ CAR assessment or the suppliers’ own costs. Like this:

Cap at the rack with CAR

 

Option 3: Normalized -- Excludes compliance costs

OPIS adjusts prices for suppliers who do wrap in compliance values by removing OPIS’ CAR or the suppliers' own costs. Here's a peek:

Cap at the rack without CAR 

Note: The OPIS “CAR” value accounts for costs associated with BOTH Cap and Trade  (Cap at the Rack) regulations AND the Low Carbon Fuel Standard (LCFS).

If you are a California rack fuel buyer and are not getting your report in the format you need, get in touch with us and we can get you sorted out.  And, in the meantime, find out more about OPIS coverage of compliance costs, here: 

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Tags: Rack Market, Carbon

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