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CARB Amends Low Carbon Fuel Standard Regulation - Potential Impacts to Fuel Prices


By: Suzanne Seivright-Sutherland, CalCIMA Director of Regional Governmental Affairs
 
On Friday, the California Air Resources Board (CARB) approved amendments to the Low Carbon Fuel Standard (LCFS), potentially raising fossil fuel prices, increasing the state's emission reduction targets, funding charging infrastructure for zero-emission vehicles, and phasing out incentives for capturing methane emissions from dairy farms for fuel production.

Concerns over transparency and price impact: Critics argue that CARB has not been transparent about the amendments' potential impact on gas prices. While a previous cost-benefit analysis estimated a potential 47-cent increase per gallon by 2025, CARB did not update this analysis for the final amendment, citing an inability to accurately predict gas prices.
 
Understanding the LCFS: The LCFS aims to decrease the carbon intensity of California's transportation fuel and promote low-carbon and renewable alternatives which would reduce petroleum dependency and achieve air quality benefits. Fuel producers can meet the LCFS by either reducing emissions within their supply chains or by purchasing credits from lower-carbon fuel producers.
 
Projected cost increases: The financial impact of the LCFS amendments varies depending on the analysis since projections are not apples to apples since some entities are using 2023 dollars and CARB is using 2021 dollars. Danny Cullenward, Vice Chair of California's Independent Emissions Market Advisory Committee, estimates that LCFS credit price impacts could increase gas prices by up to $0.65 per gallon in the near term, $0.85 by 2030, and nearly $1.50 by 2035 (these are in 2023 USD units). However, these are upper-bound estimates and depend heavily on LCFS credit price trends, which remain uncertain.
 
California already faces gas prices about $1.47 per gallon above the national average, mainly due to state gas taxes, adding urgency to stakeholders' concerns about further price increases.
 
CARB's response and price control measures: CARB maintains that the LCFS program will ultimately reduce the cost of sustainable transportation fuels. They plan to monitor price impacts, reporting on retail gasoline fuel price trends annually. CARB also limits companies' ability to pass on costs by capping credit prices for high-carbon-intensity fuel producers. Currently, according to CARB, LCFS-related costs for consumers amount to around $0.10 per gallon.
 
Controversies around LCFS implementation:
The Kleinman Center for Energy Policy highlights three key debates surrounding the LCFS:
  1. Biofuels vs. Electrification: Although California's goal is to transition to zero-emission vehicles, most LCFS credits (worth $17.7 billion in 2023) have supported biofuels, potentially diverting resources from electrification.
  2. Environmental Impact of Biofuels: Renewable diesel, largely derived from crops like soybean and canola, competes with food production and contributes to land-use concerns, including deforestation. Additionally, biomethane projects, credited under the LCFS, often claim methane reduction without delivering fuel to California, raising environmental justice concerns.
  3. Fuel Price Impact: Historically, the LCFS only marginally affected fuel prices due to modest carbon intensity reductions. However, the new regulations aim for faster reductions and higher credit prices, which could lead to significant price increases.
 
Looking ahead: CARB's amendments set the stage for further discussions on state climate policies including the cap-and-trade program which faces similar scrutiny regarding consumer price impacts. By addressing the LCFS program first, CARB may shape the future of cap-and-trade policy developments and potentially impact climate finance beneficiaries.

Public reactions:
CARB Governing Board Chair Liane Randolph – “The proposal approved today strikes a balance between reducing the environmental and health impacts of transportation fuel used in California and ensuring that low-carbon options are available as the state continues to work toward a zero-emissions future. Today's approval increases consumer options beyond petroleum, provides a roadmap for cleaner air, and leverages private sector investment and federal incentives to spur innovation to address climate change and pollution.”

 


Senator Brian Jones – “The Air Resources Board's 65-cent gas price hike is a direct assault on hardworking Californians. This evening's vote is nothing short of blatant price gouging by the Newsome Administration. This unelected group of wealthy bureaucrats, handpicked and directed by Governor Newsom, is shamelessly increasing gas prices so Californians are forced into electric vehicles against their will. And conveniently, they pushed this costly regulation through right after the election, late at night, hoping no one would notice. Californians have had enough – we already pay the highest gas prices in the nation, and they are about to get much higher. It's time to rein in CARB's unchecked power, starting by revoking the federal waivers that allow them to do whatever they want, whenever they want without the consent of Californians who pay the price for their political agenda.”
 


Resources:
• California Air Resources Board. (November 8, 2024). CARB updates the low carbon fuel standard to increase access to cleaner fuels and zero-emission transportation options. https://ww2.arb.ca.gov/news/carb-updates-low-carbon-fuel-standard-increase-access-cleaner-fuels-and-zero-emission 
• CBS News. (November 8, 2024). California Air Resources Board approves controversial emissions program changes that could raise gas prices. https://www.cbsnews.com/sanfrancisco/news/california-air-resources-board-vote-controversial-emissions-program/
• D. Cullenward. (October 7, 2024). California's low carbon fuel standard. https://kleinmanenergy.upenn.edu/research/publications/californias-low-carbon-fuel-standard/ 

Contact: Suzanne Seivright-Sutherland

 

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