California Air Resources Board Passes LCFS Amendments & No One Is Happy
11.13.24 | Member Reports & Posts | By: Tammy Klein
After a 12-hour meeting featuring over 180 public speakers and a more than three-house deliberation process, the California Air Resources Board (CARB) members approved Resolution 24-14 in a 12-2 vote[1] amending and strengthening the Low Carbon Fuel Standard (LCFS) program. Key provisions included the following:
The staff presentation from the meeting is linked here and provides a full summary of the range of amendments proposed. This post first provides background on the current structure of the LCFS, then provides detail on the amendments and hearing.
My assessment: The LCFS amendments were passed with controversial provisions that did not sit well with various industry sectors, the public, NGOs and environmental justice groups. Two board members refused to vote for the amendments. And one former staff member was highly critical of the amendments in public comments. CARB staff and other Board members played defense on several fronts: higher gasoline prices, a lack of transparency, failing to listen to consumers and members of disadvantaged communities. At the end of the day, staff and most of the Board were determined to move forward, and they did. That may come back to haunt them down the road if any one of the constituencies that were so critical of the amendments and the rulemaking process decide to take legal action. That’s certainly not out of the realm of possibility.
The LCFS is a key part of a comprehensive set of programs in California to cut GHG emissions and other smog-forming and toxic air pollutants by improving vehicle technology, reducing fuel consumption, and increasing transportation mobility options. The LCFS is designed to decrease the carbon intensity (CI) of California’s transportation fuel pool and sets annual CI standards, or benchmarks, which reduce over time, for gasoline, diesel, and the fuels that replace them. CI takes into account the GHG emissions associated with all of the steps of producing, transporting, and consuming a fuel—also known as a complete lifecycle of that fuel. The figure below summarizes 2011-2023 LCFS performance and current compliance targets prior to the passage of the amendments last week.
Source: California Air Resources Board
There are three ways to generate credits in the LCFS: fuel pathways, projects, and capacity-based crediting. Under fuel pathway‐based crediting, all transportation fuels need a CI score to participate in the LCFS, and the fuel type dictates which process is used to determine that CI. Fuel providers can apply for and receive specific scores from CARB for their products. Providers of low carbon fuels used in California transportation generate credits by obtaining a certified CI and reporting transaction quantities on a quarterly basis. Credits are calculated relative to the annual CI benchmark and undergo verification post credit generation. CI benchmarks for each year through 2030 (as the program is currently structured) are shown in the figure below.
CI Benchmarks for Gasoline and Diesel Fuel and Their Substitutes
Source: California Air Resources Board
Under project‐based crediting, projects include actions to reduce GHG emissions in the petroleum supply chain, and also CCS using Direct Air Capture. Crediting for projects is based on lifecycle emission reductions, and credits are issued after the reported reductions are verified. Finally, 2018 amendments added a new crediting mechanism to the LCFS which is designed to support the deployment of zero emission vehicle infrastructure. Crediting for ZEV infrastructure is based on the capacity of the hydrogen station or EV fast charging site minus the actual fuel dispensed.
The LCFS lets the market determine which mix of fuels will be used to reach the program targets. The figure below shows the types of fuels generating credits under the program, which includes ethanol, biodiesel, renewable diesel, electricity (for EV charging) and biomethane.
Alternative Fuel Volumes and Credit Generation
Source: California Air Resources Board
According to CARB staff, the fuel mix is evolving, and alternative fuels now represent 23% of fuel supply compared to 5% in 2006, shown in the figure below.
Evolving Alternative Fuel Mix in California Due to the LCFS
Source: California Air Resources Board
According to CARB, regulated entities have consistently “over-complied” with the standard, generating a bank of credits which can be sold or retired to meet compliance obligations at any time. This is shown in the figure below. At the end of Q2 2024, the bank stood at nearly 29.19 million credits. As the standard becomes more stringent post the passage of the amendments last week, regulated entities can rely on these banked credits to ease compliance obligations and meet targets. That is expected to tighten up the credit market, driving credit prices higher, which will be good for credit generators and the state, which is relying on the income to fund projects from LCFS, such as transportation electrification projects.
Total Credits and Deficits for All Fuels Reported Q1 2011-Q2 2024
Source: California Air Resources Board
According to CARB, by 2024, the program achieved a 15.3% reduction in the carbon intensity of transportation fuels, displacing over 31 billion gallons of petroleum with low-carbon alternatives. Notably, biomass-based diesel (renewable diesel and biodiesel) replaced 75% of fossil diesel in 2024, contributing to reductions in particulate matter (PM) and nitrogen oxides (NOx) emissions. Financially, the LCFS has generated approximately $4 billion annually to support low-carbon investments and $341 million cumulatively for public transit initiatives.
The regulatory process and the Board meeting itself was extremely contentious and well attended by industry, NGOs and equity/environmental justice and community advocates. Staff, in the introductory presentation to the Board and public, pushed back hard on charges that the program is contributing to higher gasoline prices (see more below) and lacks transparency. Staff distanced themselves from their own analyses estimating at least a 47 cent per gallon impact on fuel prices and generally blamed the refining industry for prices spikes that have plagued consumers in California. This is shown in the figure below, which reproduces two slides from the staff presentation.
CARB Blames Refining Industry for Higher Fuel Prices, Not LCFS
Board members generally tended to argue the same, supporting staff. One exception was Board member Dean Florez, who argued in an op-ed before the vote that:
“One of the most pressing issues is the projected economic impact. A former CARB branch director has warned that, while program-related costs to consumers are currently modest, they could rise sharply as stricter targets are enforced. We cannot assert that fuel standard credit prices do not directly impact gasoline costs because this position overlooks how costs ultimately reach consumers at the pump.”
The branch chief in question was Jim Duffy (2019-2020), who retired from CARB in 2022. He noted in comments that: “Claims that the regulation does not and/or will not increase the cost of gasoline are, in my opinion, absurd.” He provided an estimate in his letter: “pass-through ranges of $0.15 to $0.64 in 2025, $0.19 to $0.84 in 2030, and $0.34 to $1.47 in 2035.”
Two other contentious issues surrounded the 20% cap on virgin oil feedstocks for RD and biomethane. Many environmental groups supported the stricter CI targets and sustainability criteria, viewing them as necessary steps to mitigate the unintended consequences of biofuel production. They emphasized the importance of addressing indirect land-use change (ILUC) and ensuring that biofuel expansion does not compromise food security or biodiversity.
Industry stakeholders expressed concerns about the feasibility of the proposed biofuels caps and the potential economic impact on biofuel producers and supply availability. They argued that the cap on crop-based feedstocks could hinder the growth of the RD sector and affect investments in biofuel infrastructure. Farmers and agricultural organizations highlighted the role of biofuel and RNG production in providing a market for their crops and contributing to rural economies. They cautioned that stringent caps could disrupt these markets and negatively impact farm incomes.
Board members had differing views on whether the cap was sufficient, too strict, or too lenient, but ultimately left the cap in place as proposed by CARB staff. There was an extended discussion on RNG, with a discussion on a proposal by Board member Diane Takvorian to direct CARB to immediately initiate a rulemaking process to more directly control livestock methane under the LCFS aligning with requirements under existing legislation (SB 1383).
Takvorian highlighted the extensive stakeholder input received over several years, including from environmental justice advocates and community members affected by dairy operations. The proposal faced opposition from board members concerned about the potential economic impacts on the dairy industry and the complexity of implementing such regulations. Chair Lianne Randolph was concerned about the potential for such a proposal to derail the current rulemaking altogether. Ultimately, Takvorian’s proposal did not pass.
Jet fuel was originally slated to be included in the LCFS amendments as a way to foster the growth of sustainable aviation fuel (SAF). In August, CARB staff determined that it was not the right time to include jet fuel in the program and was concerned about SAF supply availability. Jet fuel was dropped from the amendments put before the Board. Instead, prior to the Board meeting on Oct. 30, 2024, Board staff announced a partnership with San Francisco International airport and
Airlines4America, an industry trade organization representing nearly a dozen major airlines, to a goal of increasing the availability of SAF for use within California to 200 million gallons by 2035. This amount is expected to meet about 40% of intrastate travel demand, a more than tenfold increase from current levels.
Responding to growing consumer complaints and concerns around gasoline price spikes, Governor Gavin Newsom late last month issued a directive to CARB to “expedite measures that could lead to lower gas prices without compromising environmental protections.” The Governor’s order directs CARB to accelerate studying how California could increase ethanol blending in gasoline (E15), which studies have shown could reduce prices while maintaining environmental protections.
The Governor cited a study conducted by the University of California, Berkeley and the United States Naval Academy, this could lower gas prices by up to $0.20 per gallon and save Californians as much as $2.7 billion annually, but also would require strategic considerations regarding market structure and infrastructure modifications.
It is a really interesting turn of events, to say the least. First, California is the only state in the country at this point that has not approved the use of E15. It has been “slow walking” E15’s approval for years, though it effectively has all the data it needs to make a decision (and has for several years now). Second, CARB staff are not “fans” of ethanol – they favor electrification. Gas price spikes and perhaps a realization that its EV targets may not be met is fostering a new look. From the Governor’s perspective, it’s every solution on deck to try and calm angry consumers.
[1]Board members Dean Florez, a former state senator from the Central Valley,and Diane Takvorian, an environmental justice advocate, voted no. Florez took issue with potential gasoline price impacts, while Takvorian opposed the continued inclusion of RNG in the program out of health and welfare concerns for those impact by emissions from dairies.
