California’s Low Carbon Fuel Standards (LCFS) program is working to decrease the carbon intensity of the state’s transportation fuel pool, but it relies on accurate data monitoring, reporting, and verification to meet its goals. This year marks the first year that entities participating in the LCFS program are required to have third-party verification to ensure all 2020 reported data is accurate and in full conformance with the regulation. Because of the newness of this part of the program, it’s natural that there may be questions from the regulated parties or their assigned representative, but it’s important that firms begin addressing those questions today.
August 31, 2021, marks the deadline for independent third-party verification of Annual Fuel Pathway Reports and Quarterly Fuel Transactions Reports, but organizations should not delay in selecting a verification provider. While the actual verification process typically takes between 30 to 60 days, depending on a number of factors, starting well in advance of this deadline is critical for the success of the verification process and to alleviate any last-minute stress on regulated parties or their verification provider. There are several hundreds of reports that must be verified by this date, which could lead to delays as the deadline approaches. What’s more, preparing today could give firms the time they need to take necessary actions to prevent an adverse verification outcome.
To meet this deadline with ample time to address any reporting issues or abnormalities, reporting organizations should take the steps below today.
Find a verification provider
The first step is to find a verification provider. Fortunately, finding a provider is relatively simple, as organizations must use a provider accredited by the California Air Resources Board (CARB). This list is updated on a continuous basis on the CARB website.
The next step is to find the specific provider that best meets your needs. It is important to note that not all accredited verification providers provide a complete range of services. Prior to selecting an accredited firm with which to work, it’s important to ensure that this firm has experience in this type of fuel pathways and reporting verification, as well as verification experience for other CARB programs such as mandatory reporting regulations. Ask questions about how long they have provided GHG-related verification services and other subject matter expertise on the type of project for which you need verification.
Understand the LCFS verification process
Understanding the verification process will help reporters plan to have the appropriate documentation and information on hand when they need. This will also assist reporters in selecting the right verification body and determining verification pricing. The process includes a thorough review of all documentation and evidence so that the verification provider can independently confirm that your submitted emissions data reports are free of “material misstatement”—or within an allowable error range —and in full conformance with regulatory requirements.
There are roughly six steps to this process for which reporters should plan. They are:
- Verification planning: Before committing to this process, the verification provider must first confirm that there are no potential conflicts of interest (per section 95133 of the LCFS regulations). The operator may be asked to provide additional information to confirm no conflict exists. In fact, verification services cannot begin until CARB approves the Conflict of Interest and a Notice of Verification Service form submitted by the verification provider. The verification plan includes dates of proposed meetings and site visits; a list of personnel to be interviewed; a list and types of document and data to review; and the expected date for completing verification services.
- Project kickoff and coordination: The kick-off meeting is the time to identify contacts, lay out expectations for timing and ask questions about the process. Plan to provide copies of relevant information for the verification year in question, including a copy of the Monitoring Plan. The verification provider will use all of the information provided to create a formal verification plan.
- On-site verification: The verification provider is required to conduct an in-person site visit to verify the supporting evidence used to develop reports and data management systems. Expect this visit to include inspections of facility operations, metering equipment calibration records, and other areas. Interviews will be conducted with personnel involved in recording, storing, managing, and generating reports related to LCFS reporting.
- Sampling plan development: A sampling plan is created, based on a strategic analysis of information gathered during the site visit, to assess the likely nature, scale and complexity of the verification services. It will rank data sources by relative contribution to the data type to be assessed for material misstatement, and by their largest calculation uncertainty. It will also include a risk assessment around data gathering, calculating and reporting.
- Compliance assessment:The verification provider will review the operator’s calculation data to ensure there is no material misstatement and it is in full compliance with the regulation. At this point, there may be requests for additional documentation or explanation to ensure that the reported data is accurate. Your verification provider should have an internal quality control process to confirm the outcome of this assessment.
- Verification report: In addition to background around the verification plan and checks of the emission data report, a detailed verification report should include a log of issues identified in the course of verification activities, the resolution of any issues, and any qualifying comments on verification findings.
Verification outcomes to expect
The verification process will result in one of three possible outcomes. They are:
- Positive Verification: If the verification process confirms that all reporting is in order and meets regulatory requirements, then the reporter receives a Positive Verification.
- Adverse Verification: If the verification determines that there is a material misstatement or correctable error and the reporter does not address or fix the issue within the allowed minimum 14 calendar days, an adverse verification is then submitted to CARB.
- Qualified Positive Verification: If the reporter is determined to have a conformance issue, but no indication of a material misstatement, then they receive a Qualified Positive verification.
Reporters that begin to work toward this verification process now will be able to maximize that 14-day period to address correctable errors and lead to more positive results. While the verification provider can’t tell you how to fix what’s wrong, they can refer reporters towards appropriate CARB personnel or regulation section.
If there are any outstanding issues between your submission and the verification providers’ findings that cannot be resolved, then organizations should consider reaching out to their consultants or to CARB for clarification on how to address these issues.
Timing is of the essence
Complying with LCFS program requirements is important for all businesses regulated under this regulation. As recent settlements have indicated, underreporting or misreporting is a costly mistake. However, not all mistakes are willful. Some are simply the result of failing to take the time to understand or work through the process. Beginning the work of selecting a verification provider today can give organizations the time to gain clarity and certainty around the verification process.
Annual Fuel Pathway reports and 4th quarter fuel transactions reports are due to the CARB Executive Officer on March 31, and final Annual Compliance Reports for 2020 are due April 30. By that point, organizations should be ready to start the process of securing verification statements to meet the August 31 deadline. For the complete list of LCFS deadlines, see CARB’s Reporting, Verification & Annual Compliance Calendar.
Or, if you’re ready to secure a partner in this verification process, contact Lincus today.