Understanding the California Low Carbon Fuel Standard (LCFS) | U.S. Gain
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Understanding the California Low Carbon Fuel Standard (LCFS)

Published:

July 20, 2020

Category:

Regulatory

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Many have heard about the Low Carbon Fuel Standard (LCFS), from energy developers to station owners and fleets. But with all its complexity, the program can be difficult to navigate. Read below to understand more about why the Low Carbon Fuel Standard was created, how it works and specifically how it can benefit you.

LCFS: Program Overview

The Low Carbon Fuel Standard is a market-based program that focuses specifically on reducing carbon intensity (CI) of fuels used within California. It was created in 2011 by the California Air Resources Board (CARB) as part of several AB32 measures to reduce greenhouse gas emissions throughout the state 20% by 2030 and 80% by 2050.

The LCFS program provides several credit generation opportunities to incent production and use of low carbon fuels, increasing attainment of AB32 goals. Below are three ways to generate credits under the LFCS program:

  • Fuel pathway-based crediting: Low-carbon fuels in the California fuel pool can generate credits based on emissions reduced compared to the established CI baseline. These credits incent developers to bring more clean fuel options to California.
  • Project-based crediting: This category includes projects to reduce emissions across the petroleum supply chain as well as carbon capture and sequestration (CCS) using direct air capture.
  • Zero-emissions vehicle infrastructure (Capacity-based) crediting: Installation of hydrogen and DC fast charging electric infrastructure can generate credits based on capacity, then credited in accordance to fuel pathways. Infrastructure for zero emission vehicles, especially medium and heavy duty, is limited; these credits solve for that

For the purpose of this blog post, we’ll focus on fuel pathway-based crediting.

Fuel Pathway-Based Crediting: FAQs

  • What are LCFS Credits and Deficits? Each LCFS credit represents one metric ton (MT) of Carbon Dioxide reduced. Credits are generated as fuel is consumed within transportation, specifically when the fuel has a CI score lower than the target established by CARB. Fuels with a CI score higher than the CARB target generate deficits. Deficits need to be offset by generating or purchasing LCFS credits. The graph below shows the line used to determine credits and deficits.
LCFS credit and deficit generation graph.
  • Who Generates LCFS Credits and Deficits? Typically, regulated parties (RPs) such as refiners, petroleum importers and wholesalers are the ones generating credits and/or deficits. Alternative fuel producers can opt-into the program as RPs, if they choose to do so. Each RP along the fuel supply chain either generate LCFS credits or deficits as they bring fuel into the state of California, noted in the graphic below.
Image displaying which entities produce credits and which entities have to buy credits.
  • What is a CI Score? Carbon Intensity (CI) is used to measure all greenhouse gas emissions associated with the production, distribution and consumption of a fuel. Each year new CI benchmarks are set to reach LCFS program goals. The CI score is part of the equation to establish the amount of credits or deficits a fuel can generate. Each fuel has a range of CI scores, shown in the graph below. Markers represent the CI score for certified fuel pathways and the length of each bar represents the range of CI scores that may be achieved by each fuel. CI scores are developed based on life cycle analysis methodology, with varying scores due to feedstock types, origin, raw material processing efficiencies and use within transportation. Lower CI scores are most favorable because they are the cleanest solutions and therefore, awarded the highest LCFS credit values.
Carbon intensity values for different types of fuel.
  • What happens if when RPs generate deficits? RPs that have generated deficits and not enough credits themselves must then find credits to buy and satisfy their required obligation per CARB. Alternative fuel producers, that typically generate more LCFS credits than needed, sell their credits to RPs using the LCFS Credit Banking and Transfer System, which is a CARB-administered platform. Credit owners can only sell to other RP deficit holders, meaning entities not registered by CARB as a regulated party are not allowed to hold LCFS credits.

Why the LCFS Program is so important

  • Air Quality Improvements: California is home to some of the most problematic air quality, largely caused by transportation-related emissions. The LCFS marks a sharp turning point in addressing California’s air quality, thanks to its immediate and long-term environmental goals. Below is a graph the compares greenhouse gas emission reductions over time. As you can see, the LCFS is successfully reducing transportation-related emissions and improving air quality for regions that need it most.
Graph of the improvements in carbon intensity in CA from 2011-2020.
  • Clean Fuel Development & Adoption: LCFS credit values have spurred new interest in clean fuel development, resulting in job creation and economic growth. Landfills, agricultural facilities and wastewater treatment plants can now transform their waste to a beneficial product, in addition to reducing methane that otherwise would have been emitted into the atmosphere. More clean fuel production translates to greater supply, creating confidence fleets need to consider a transition from diesel. Couple increased supply with a portion of the LCFS credit value California fleets often retain and the incentive for fleets to make the shift to clean fuel intensifies, adding to the positive environmental impact.
Leafy gas pump with cash coming from pump

What’s on the Horizon?

While the LCFS program is here to stay, benchmark emissions rates change over time in addition to compliance and reporting requirements. It can be challenging to stay current with evolutions to the LCFS, which is key to optimizing returns on clean fuel development projects and clean fuel usage. We can help – reach out to learn how.

Other states are also implementing LCFS-like programs to reduce their emissions. Oregon has the Clean Fuels Program, and the Renewable Fuel Standard is a federal program that continues to drive clean fuel production, aiding state-level programs that incent adoption.

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