What are Low Carbon Fuel Standards?
A Low Carbon Fuel Standard (LCFS) sets annual targets for reducing lifecycle greenhouse gas (GHG) intensity for the entire transportation fuel pool (i.e., gasoline, diesel, and fuels that replace them), incentivizing regulated entities such as refineries to produce fuels with lower GHG intensities. The greenhouse gas intensity (e.g., grams of GHGs per unit of fuel energy) for a fuel is calculated on a lifecycle basis, which includes the production, transport, and combustion emissions associated with the fuel.
Unlike a Renewable Fuel Standard, an LCFS employs a technology-neutral approach, which allows for a wider range of compliant fuel options. An LCFS could spur increased use of biofuels, natural gas vehicles, electricity for transportation, and lower-carbon production of petroleum-based fuels (e.g., through efficiency improvements at refineries).
How do Low Carbon Fuel Standards work?
Currently, nearly all transportation sector GHG emissions come from the combustion of petroleum. Switching to lower-carbon fuel is one way to help reduce emissions from the transportation sector.
An LCFS allows manufacturers to produce and retailers to purchase the mix of fuels that most cost-effectively meets the standard. Any entity that reduces GHG intensity by more than the requirement for that year can generate and sell surplus credits. Some LCFS programs may also allow fuel providers to comply with the LCFS by saving credits for use in later years or borrowing credits from later years (i.e., committing to generating a credit). Additionally, incorporating carbon capture and storage compliance into an LCFS can be a tool to reduce GHG intensity for a fuel. This flexible, market-based approach gives fuel providers more options to meet the standard, lowers the overall cost of compliance for the program, and supports innovation of low-carbon fuel technologies. Moreover, an LCFS could provide a level playing field for all transportation fuels by focusing on life-cycle GHG emissions.
Key Design Considerations
Which transportation energy sources (or fuels) are included? Which transportation modes does the standard cover (i.e., fuel use in which types of vehicles)?
Where in the fuel supply chain is the regulation applied?
What are the reduction targets and relative to what baseline years?
What is the methodology for calculating the GHG emissions in the lifecycle of the fuel? How are the boundaries of the GHG lifecycle defined (e.g., are land use changes from growing biomass to produce biofuels included, and if so, how)?
What actions count toward compliance? Should entities be able generate and save previously surplus credits or acquire surplus credits from others who have outperformed the standard? How and when can those surplus credits be utilized?
How do regulated entities overcomply and generate surplus credits?
How does the LCFS interact with other state and national policies to reduce GHG emissions in the transportation sector?
LCFS programs can control the upper and lower bounds of the price by implementing a price floor or ceiling. A ceiling could provide certainty for the fuels market, but might discourage industry since it would cap their return on investment/revenue from the program. On the other hand, a price ceiling can be a market signal to reduce the risks of economic consequences that might result from a high market price.
U.S. experience with Low Carbon Fuel Standards
As of June 2020, two U.S. states have implemented Low Carbon Fuel Standards.
California was the first state to adopt an LCFS in 2011, requiring fuel suppliers to reduce their carbon intensity by 10 percent by 2020. In 2018, California updated the LCFS, requiring fuel suppliers to reduce their carbon intensity by 20 percent by 2030. The LCFS program was expanded to include additional incentives for emissions reduction, including: credits for alternative aviation fuels; credits for the use of EV charging and hydrogen refueling; credits for the use of carbon capture and sequestration, including direct air capture, as well as the allowance of the sale of LCFS credits from electric utilities to fund rebates for new EV purchases.
Oregon’s LCFS (known as the Clean Fuels Program) requires fuel suppliers to reduce their overall fuel carbon intensity by 10 percent by 2025 from a 2010 baseline. In 2020, Governor Brown signed an executive order requiring Oregon’s Environmental Quality Commission to strengthen the program to reduce the carbon intensity of transportation fuels 20 percent by 2030 and 25 percent by 2035 (from a 2015 baseline).
Oregon’s LCFS (known as the Clean Fuels Program) requires fuel suppliers to reduce their overall fuel carbon intensity by 10 percent by 2025 from a 2010 baseline. In 2020, Governor Brown signed an executive order requiring Oregon’s Environmental Quality Commission to strengthen the program to and reduce the carbon intensity of transportation fuels by 20 percent by 2030 and 25 percent by 2035 (from a 2015 baseline).
- Decarbonizing U.S. Transportation
- Policy Options for Reducing GHG Emissions from Transportation Fuels
- Policies to Reduce Emissions from the Transportation Sector
- California Air Resources Board LCFS Basics
- C2ES S. State Low Carbon and Alternative Fuel Standard map
- ICCT Low-carbon fuels
- UC Davis Status Review of California’s LCFS
- California’s Low Carbon Fuel Standard
- Oregon’s Clean Fuels Program