On Friday June 27th, the California Air Resources Board (CARB) announced that the Office of Administrative Law (OAL) approved the 2024 Low Carbon Fuel Standard (LCFS) Amendments and that the new reduction schedule will become effective on July 1, 2025. According to CARB, the amended 2025 carbon intensity (CI) benchmarks “apply to fuel transactions occurring on and after July 1, 2025. The new benchmarks are in effect on July 1 and apply to fuels supplied in Q3 and beyond.”
Background: The Amendments were approved by the Board on November 9, 2024, and the proposed regulations were submitted to the OAL on January 23, 2025. OAL must approve any regulation prior to that regulation becoming effective. On February 18th, OAL disapproved CARBs submittal because the proposed regulatory changes failed to comply with the State’s clarity standard. A formal 15-day comment period was held after the proposed amendment was revised and resubmitted to OAL on May 16th. OAL had until June 30th to respond.
Schedule Change: The LCFS carbon intensity reduction schedule will increase by 9.0% from 13.75% to 22.75% on the first of July as shown in the figure below. This will be the first time since the LCFS was implemented in 2011 that the reduction schedule has changed in the middle of a calendar year. This step-change in CI reduction will undoubtedly raise LCFS credit prices.
LCFS Carbon Intensity Reduction Schedules
Fuel Price Impact: On July 1st, two items will raise the price of gasoline in California. The first is a 1.6-cent-per-gallon (cpg) increase in the state’s excise tax on gasoline; the second is a rise in the cost of the LCFS program on the petroleum portion of gasoline. We estimate that, based on LCFS credit prices observed on Friday, June 27th, gasoline prices in California will rise 5 cpg due solely to the 9.0% step change in CI-reduction schedule. Assuming a $20 bump in LCFS credit prices (triggered by the CI reduction schedule change on July 1st), the resulting impact of the LCFS amendments would raise gasoline prices by 10 cpg.
Our estimate is consistent with that stated in CARB’s Friday announcement and far short of the 65 cpg from the regulatory rulemaking documents that CARB distanced itself from in the OAL approval announcement. In any case, we expect that the sharply accelerated reduction schedule (shown in the figure above) will rapidly increase the cost of the LCFS on gasoline prices as contributions will come from both the step-change in reduction schedule and rising LCFS credit prices from the higher demand for credits.
