Single dirt bike rider in a dusty, smoggy atmosphere

Guide to State Low-Carbon Fuel Standards (LCFS) and LCFS Credits

by kirkcoburn
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Low-carbon fuel standards (LCFS) are rules enacted by states to reduce carbon intensity (CI) in transportation fuels like gas and diesel. In layman’s terms, carbon intensity is the weight of carbon released into the environment per a given amount of fuel.

For the sake of readability, we won’t get too deep in the technical aspects of CI and leave that to the chemists. For now, know that all the standard transportation fuels you’ll use as a commuter or transporter are given a CI score for emissions.

  • If you really must know, CI is expressed in grams of CO2 equivalent per megajoule: gCO2e/MJ or g/MJ. The score is then adjusted for the energy economy rate (EER) to produce a final EER-adjusted CI score.

Traditional diesel fuel, for instance, has a higher CI score of 82, according to the California Air Resources Board (CARB). Other CI scores include corn ethanol at 70; landfill gas generally scores about 10-20, and biodiesel is a 50. Other lower-carbon fuel options include:

  • Natural gas
  • “Cleaner” fossil fuels blended with renewable fuels
  • Alternative fuels

All these fuel options are net carbon-positive, meaning they all put some CO2 in the environment.

  • The primary purpose of low-carbon fuel standards is to decrease carbon dioxide or greenhouse gas (GHG) emissions associated with internal combustion engines while considering the entire life cycle (“well to wheels”) of fuel to reduce the carbon footprint of transportation in a state.

California — always recognized for its progressive position on environmental issues — was the first state to enact low-carbon fuel standards in 2007. Since then, other states, provinces, and nations, as well as the European Union, have adopted similar programs.

Why Low-Carbon Fuel Standards Matters (And to Whom)

There are only a few reasons you’ve come to this page in your online surfing.

You might be involved in the trucking and transport industry and need to know the news in various states regarding low-carbon fuel standards regulation.  You have compliance questions that cross several state lines — particularly California.

Or, you might be a relocating worker or small business owner, hoping to navigate the laws of a new state as you enter or leave California, as so many others have.

Perhaps a regulated party — fuel producers, importers, fuel wholesalers, etc. — employs you.

And finally, you might be interested in trading LCFS credits as part of your (or your organization’s) investment portfolio. If this is you, you’re making a great choice. LCFS credits, RECs/SRECs, and RINs are hot topics right now. Some have — inaccurately — called them a currency. You can learn more about RECs and RINs by spending time on my blog.

Regardless of the reason for your research, we’ll discuss your questions about LCFS as they relate to regulatory, commercial, and policy news in 2021. We’ll focus mostly on California LCFS credits. But the same concepts apply to other states and provinces that have enacted similar regulations, like Oregon and British Columbia.

California’s Transport Industry

California approved the LCFS under Executive Order S-1-07. Governor Arnold Schwarzenegger signed it. As mentioned above, it’s an effort to lower the carbon intensity (CI) of the transportation fuel industry responsible for 40% of GHG emissions in the state.

  • Remember, the transportation industry in California is massive.
  • Not only is it the most populous state in the union with more than 36 million residents, but it’s also a large state at 163,696 square miles.
  • It’s also home to several key coastal ports and an international border.
  • California is agriculturally abundant and produces $50 billion in crops annually.
  • Oilfields there are capable of producing up to 394 million barrels its best year (and when domestic oil production is “in”).

While a hard number is difficult to establish for the whole state, the Department of Transportation (DOT) says 447 million tons (that’s 894,000,000,000 lbs) of freight move through SoCal alone, every year by truck. That’s a lot of trucks and a lot of diesel.

Back to Low-Carbon Fuel Standards

In 2011, California LCFS underwent some amendments, and the program was re-adopted in 2015. At that time, the plan called for reducing at least 10% CI of transportation fuel by 2020, compared to a 2010 baseline. It was amended again in 2017.

More recently in 2019, LCFS was amended once more. As of today, the target goal is a CI reduction of 20% by 2030. 

That leads us to LCFS credits.

LCFS Credits

One LCFS credit is issued per 1MT (one metric ton) of CO2 equivalent reduced.

LCFS applies to the sale or supply of any fuel in California. Regulated parties include fuel producers and importers. Not all produced or imported fuel is “low-carbon.” When a regulated party exceeds the carbon intensity (CI) compliance limit by creating or importing standard diesel, they can purchase credits from other organizations that have exceeded their obligation. They may also buy credits from private holders or organizations who purchased them. 

Ultimately, the LCFS system should create a declining CI curve every year. The transportation industry’s environmental impact should lessen over time.

Trading LCFS

If you’re interested in buying credits or generating them to sell, you’ll want to look into the business of low-carbon credit fuels and blendstocks. While technology is advancing at breakneck speed, recognized low-emission fuels include:

  • Ethanol
  • Hydrogen
  • Bio-based natural gas
  • Fossil natural gas
  • Biomass-based diesel
  • Renewable diesel

But we can surely expect more low-carbon fuels to arise in the next few years. So keep an eye out for these new ideas. And watch my blog, since I am investing into a few of these new fuels. 

Historically, from 2016 to 2019, CA LCFS credits’ spot prices ranged from $65 to $200. Throughout the fourth quarter of 2020, the LCFS market remained steady, with credit prices ranging from $193 to $199. On January 29, 2021, CARB released the Q3 2020 credit and deficit report. There was an overall increase in carbon deficits, more credits generated in Q3 2020, and a 1.5% increase in the cumulative total.

LCFS credits will likely become more valuable and more readily available during the Biden administration — and not only in California. Many states in the US considering an LCFS program could move forward with federal funding, grants, tax rebates for producers, and lots of positive press.

While clean fuel credits generated in one state probably won’t be valid in another for some years, that is a possibility if LCFS ever becomes a federal rule. 

Don’t forget, 2020 was a pandemic year. Supply chains were choked, and commuter traffic was nearly nil. As things eventually normalize and our stockpile of toilet paper diminishes, there will be more demand for low-carbon fuels from both the transport industry and consumers. Americans are eager to get back to work and travel!

On the Future of LCFS for Investors

Group of bikers on a clear clean highway
If LCFS programs continue to grow across the country, they will have a significant impact on air quality, the economy, and human health.

Overall, California’s LCFS program has shown respectable growth that resulted in a stable and reliable offtake market for biogas and similar projects. From 2011 to 2018, the LCFS program led to $2.8 billion in capital investment both inside and outside the state. According to, those weren’t the only attributes:

  • California created over 20,000 jobs. 
  • Greenhouse gases fell by 38 million metric tons of CO2. This is equal to taking more than 6 million cars off the road.
  • There was a 74% increase in the use of renewable fuels.
  • Californians did not use 3.7 billion gallons of higher CI petroleum fuel.’s sources also estimate $2 billion potential future health care costs have been avoided due to reduced GHG and cleaner air. Less smog? But these numbers surely give significant pause to producers and importers of classic fuel types — diesel and gasoline, in particular.

The Future of LCFS for Regulated Parties

Recently, Gabriel E. Lade and CY Cynthia Lin of UC Davis published “A Report on the Economics of California’s Low Carbon Fuel Standard and Cost Containment Mechanisms.” They investigated key concerns regarding California’s LCFS program and market power, incentives to innovate and invest in renewable fuels, and potential interactions with cost containment mechanisms.

They discovered that “compliance costs may increase rapidly… if there are large differences in marginal costs between traditional fossil fuels and alternative, low carbon intensity fuels; or if there are capacity or technological [challenges associated with these] alternative fuels, particularly those with low carbon intensity.”

In other words, the switch to low-carbon fuels is expensive for regulated parties. There are reports to be filed, storage and transportation questions to be asked, and continual HAZMAT compliance concerns. As we develop new low-carbon fuel sources, we must also create new ways to blend and store them and pay all the scientists, laborers, and regulatory overseers along the way.

Ultimately, the market for LCFS credits looks bullish. But it will find itself capped by the penalties — fees and fines — faced by producers who aren’t dealing in low CI fuels. As penalties increase, so will LCFS prices, but only to the point that it’s cheaper to buy credits than pay a hefty fine. 

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