LCFS Overview Summary
The California Low Carbon Fuel Standard (LCFS) is a market-based program that requires transportation fuel suppliers to reduce the carbon intensity (CI) of their fuel sales. The LCFS program has been successful in attracting investments in low-carbon fuel infrastructure as the market value of the program has increased to over $4 billion, attracting over 400 market participants. These investments have helped the state reduce its petroleum dependency, as low carbon fuels now make up 20% of the volume of transportation fuels in California.
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Currently the fuels with a net deficit generation within the program are petroleum based products, gasoline and diesel. The demand for these two fuels has dropped by over 3 billion gallons since 2016 to 14.3 billion gallons. While on the flip side, the demand for net credit generating fuels has increased by 1.5 billion gallons to 3.6 billion gallons in 2022. The growth in volume and credit generation has primarily came from lower CI fuels such as renewable diesel (RD), electric vehicles (EVs), and renewable natural gas (RNG), as opposed to first generation renewable fuels such as biodiesel and corn based ethanol.
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As a result of the LCFS program being a success, CARB is currently undergoing a formal rulemaking process to increase the existing 2030 CI reduction target from 20% to around 30%. Essentially all fuels sold in the state of California to end customers are already at or below the 30% reduction target except for gasoline. Diesel in the aggregate - a blend of diesel, renewable diesel, and biodiesel - nearly meets the 30% reduction already in 2022, making future deficit generation highly dependent on gasoline demand.
Overview: LCFS Market
California LCFS Value Transfer
The annual LCFS transfer value between market participants has increased from $540 million in 2016 to over $4 billion for the past 3 years (2020-2022). The volume of LCFS credits transferred, measured in metric tons of CO2e, has steadily increased from roughly 5 million MT in 2016 to over 32 million MT in 2022 as the price per MT has fluctuated between $80-$200 per MT.
Market Participants, Credits & Deficits vs Transfers
The rise in value of the LCFS market in the past decade has attracted over 400 participants, primarily those investing into low carbon fuel infrastructure as the majority of the participants selling credits to capture a return on investment made for steel in the ground. Due to increasingly successful projects, LCFS credit generation and respective LCFS transfers have outpaced deficit generation since 2020.
Overview: Deficit Generation
Deficit Generating Fuels
The only fuels which create LCFS deficits are CARBOB (California Reformulated Blendstock for Oxygenated Blending, 90% of gasoline sold in the state) and petroleum based diesel. The demand for these fuels has dropped by over 3 billion gallons since 2016 to 14.3 billion gallons in 2022, thus slowing the growth of deficit generation. Incremental deficits were added to the program to account for the higher carbon intensive crude processed primarily at California refineries.
Fuels vs 30% Reduction Target
As a result of successful low carbon fuel infrastructure projects along with lower demand of deficit generating fuels partly stemming from work-from-home hybrid models put in place during COVID, CARB is currently undergoing a formal rulemaking process to increase the existing 2030 CI reduction target from 20% to around 30%. However essentially all fuels sold in the state of California to end customers are at or below the 30% reduction target except for gasoline. Therefore future deficit generation will be highly dependent on gasoline demand as ULSD in the aggregate - a blend of diesel, renewable diesel, and biodiesel - nearly meets the 30% reduction already in 2022, a full 8 years ahead of schedule.
Overview: Credit Generation
Primary Credit Generators
LCFS credit generation has more than doubled since 2016 to over 26 million MT in 2022 as renewable fuel volume has increased by 67% over the same time frame to 3.6 billion gallons. The growth in volume and credit generation has primarily came from lower CI fuels such as renewable diesel (RD), electric vehicles (EVs), and renewable natural gas (RNG), as opposed to first generation renewable fuels such as biodiesel and corn based ethanol.
Renewable Diesel
Renewable diesel (RD) volumes have increased dramatically to nearly 1.4 billion gallons in 2022 or just under 40% states diesel market share, a 5x increase since 2016. RD is seen as a drop-in fuel due to little-to-no infrastructure upgrades needed downstream of production and compatible with existing diesel engines at very high blends making it the largest credit generator within the program at nearly 10 million MT in 2022.
Electricity
It is no secret CARB is requiring the transportation sector to undergo a market transformation towards Zero Emission Vehicles predominately coming from electric vehicles (EVs). Electricity is now the second largest credit generator growing to over 6 million MT in 2022 from both on-road and off-road applications at roughly a volume of 200 million gasoline equivalent gallons (gge). The electricity CI reported within the program has reduced significantly to about 10 gCO2e/MJ as a consequence of a cleaner grid and the successful implementation of the book-and-claim process by CARB allowing participants to match lower CI electric fuel sources with electric vehicle miles to generate more from the same vehicle.
Natural Gas (Methane)
Natural gas as a transportation fuel source has grown to just under 200 million diesel equivalent gallons (dge), a 36% increase since 2016, but is highly limited CNG & LNG on-road vehicles. Credit generation from this fuel source has grown to over 4 million MT thanks to a similar book-and-claim process initiated by CARB matching vehicle fuel consumption to bio-methane production from anaerobic digesters located on large animal farms, waste-water treatment plants, and landfills.
Ethanol
Ethanol was the largest credit generator until 2017 as the state has a year-round gasoline ethanol blend rate of 10%. Even though California sells the most E85 of any state in the US at over 100 million gallons, ethanol volumes in the state have dropped to 1.4 billion gallons as consumers use less gasoline. Credit generation has been able to remain flat at under 4 million MT per year as ethanol producers and marketers ship lower CI fuel to California.
Biodiesel
Both biodiesel volumes and credit generation have grown slightly to just under 300 million gallons and a little over 2 million MT, respectively per year. Biodiesel as a blend of total diesel in California has struggled to get above 8% due to issues with higher tailpipe NOx emissions versus conventional diesel.
Sources
• American Lung Association, State of the Air Most Polluted Cities (link)
• Argonne National Lab Light Duty EV Monthly Sales (link)
• CalEPA Fuels Guidance Document (pdf link)
• California Clean Fuel Reward (link)
• California Clean Vehicle Rebate Project, Rebate Statistics (link)
• California DMV Statistics, Outstanding Drivers Licenses (link)
• California DMV Statistics, Vehicle by Fuel Type (link)
• California EDD Employment by Industry Data (link)
• California HVIP, HVIP Impact (link)
• California ISO, Monthly Renewables Performance Report (link)
• California ISO, GHG Emissions Tracking (link)
• California ISO, Managing Oversupply (link)
• CARB Alternative Fuels, Annual E85 Volumes (link)
• CARB Alternative Diesel Fuel Regulation (link)
• CARB California GHG Emission Inventory Program (link)
• CARB Clean Miles Standard (link​)
• CARB LCFS Credit Clearance Market (link)
• CARB LCFS Crude Oil Life Cycle Assessment (link)
• CARB LCFS Data Dashboard, LCFS Value Calculator (link)
• CARB LCFS Guidance Documents, User Guides and FAQs (link)
• CARB LCFS Monthly Credit Transfer Reports (link)
• CARB LCFS Registration & Reporting (link)
• CARB LCFS Regulation (link)
• CARB LCFS Reporting Tool Quarterly Summaries (link)
• CDFA Dairy Digester Research & Development Program (link)
• CDTFA Fuel Taxes & Statistics Reports (link)
• CEC CalEVIP Rebate Statistics Dashboard (link)
• CEC California Energy Consumption Database (link​)
• CEC Weekly Fuels Watch Report (link)
• CEC ZEV & Infrastructure Statistics, Vehicle Population (link)
• Chevron Renewable Diesel Locations (link)
• Cox Automotive US EV Sales (link)
• CPUC, Energy Storage (link)
• Edison Electric Institute, Industry Data (link)
• EIA Company Level Imports (link)
• EIA Petroleum & Other Liquids Supply & Disposition (link)
• EIA US Renewable Diesel Capacity Expansion (link)
• EPA Livestock Anaerobic Digester Database (link)
• EPA Renewable Fuel Standard RIN Generation (link)
• Experian Auto Market Trends Review (pdf link)
• FTC Fuel Rating Rule (link)
• Neste Market Data, LCFS Credit Price (link)
• Neste My Renewable Diesel Locations (link)
• Neste Investor Relations Materials (link)
• Propel Fuels Station Locations (link)
• Phillips 66, 76 Brand Renewable Diesel Locations (link)
• REG Renewable Diesel Fueling Stations (link)
• SSRC, Survey of Large Spark-Ignited Engines in California (pdf link)
• Stillwater Associates, LCFS 101 - an update (link)
• Stillwater Associates, LCFS 101 - a 2022 refresher (link)
• UC Davis, LCFS Dashboard (link)
• US DOT FWHA, Traffic Volume Trends (link)
• Valero IR Indicators, Key Commodity Prices (xls link)
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