California’s Low Carbon Fuel Standard Updates Could Yield $20 Billion in Annual Savings by 2045

The California Air Resources Board on Nov. 8 announced updates to its Low Carbon Fuel Standard, or LCFS, program that would speed up the decarbonization of the state’s transportation sector by increasing clean fuel and transportation options for consumers. The updated LCFS sets new targets to reduce the carbon intensity of transportation fuel by 30 percent in 2030 and 90 percent in 2045. These changes to the LCFS could cut down fuel costs per mile by 42 percent, translating to $20 billion in annual fuel cost savings by 2045.

For light-duty, the updates could reduce fuel costs by as much as 50 percent. Additionally, the changes to the standard could cut greenhouse gas emissions by 558 million metric tons and nitrous oxide emissions by 25,500 tons.

The LCFS works by establishing a carbon intensity target for transportation fuels. Fuel producers that exceed the targets will purchase credits from others who meet the specifications. This system has resulted in $4 billion in annual private sector investment toward California’s clean transportation sector.

Thanks to the LCFS, the carbon intensity of California’s transport fuel has decreased by 13 percent and has replaced around 70 percent of California’s diesel with cleaner transport fuel options. The program has also led to a 320 million reduction in carbon emissions from gasoline and diesel vehicles, translating to 85 percent of California’s current annual emissions. Last month, the board released a report showing a 20 percent decline in emissions between 2000 and 2022.

The economic impact of the LCFS amendments is a key priority for the board, which has directed its staff to evaluate any effects of the updates on retail gas prices every six months. Currently, the LCFS caps the price of credits bought by fuel producers who exceed the carbon intensity target to avoid passing high costs to consumers. With the current LCFS, consumers bear costs of around $0.10 per gallon of gasoline, based on estimates.

The amendments also include additional funding to expand zero-emission vehicle charging and hydrogen fueling infrastructure. To meet the objectives of the 2022 Scoping Plan, the new LCFS also aims to phase out avoided methane crediting through the use of biomethane as a combustion fuel but support the use of biomethane in renewable hydrogen production.

Furthermore, the LCFS updates placed new guidelines in place to ensure that biofuel production does not compromise land needed for food crops or lead to deforestation. To prevent these issues, the new standard requires fuel producers to be fully transparent about the origin of their crop or forestry-based feedstocks used for biofuel production.