UC Davis Analysis Finds Industry Surpasses California Low Carbon Fuel Standard

A UC Davis report documents industry response since 2011 to California’s Low Carbon Fuel Standard (LCFS), one of several state policies targeting greenhouse gas (GHG) emission reductions. The report finds that industry exceeded LCFS requirements for 2011 and the first quarter of 2012 by a substantial margin, though the requirements for the first few years of the LCFS program are rather modest.

“Status Review of California’s Low Carbon Fuel Standard (LCFS) 2011- August 2012” by UC Davis researchers Sonia Yeh and Julie Witcover, starts a planned series. Each status review will examine how industry is complying with the regulation and will analyze credit trades and prices. Each report will address a special topic; for this initial report, the special topic is the effect of the 2012 summer drought, the nation’s worst in half a century, on LCFS compliance.

Yeh, who leads the UC Davis LCFS research team, says this report aims to provide as much information as possible about the performance of this important state policy and is useful for policy makers and stakeholders in California, the United States and beyond.

Sonia Yeh, the ITS-Davis researcher who led the Calif. LCFS review

“Our initial findings indicate that companies are responding to the state policy, and the low-carbon fuel market in California is growing,” Yeh says. “The question is how fast and at what scale companies will respond as the requirements are strengthened over time.”

Witcover adds that the LCFS is designed to be transparent.

“Getting data about LCFS performance into the public realm is key to meeting that important goal,” she says.

Adopted in 2009, California’s LCFS is a performance-based regulation that requires the state’s transportation fuel providers, such as oil producers and importers, to reduce incrementally the carbon intensity of their fuels starting in 2011. It phases in gradually with small reductions required in the early years and grows more stringent, requiring a 10 percent reduction, by 2020.

“The gradual carbon intensity reduction built into the standard is one reason companies are able to exceed the goal in these early years,” Yeh notes. Excess credits generated now can help companies meet requirements in later years.

Among the status report’s key findings are the following:

  • Companies required to meet the LCFS exceeded the standard’s carbon reduction targets for each quarter of 2011 and for the first quarter of 2012.
  • Based on available data, the average compliance cost in August 2012 was $13 per equivalent metric ton of carbon (MT CO2e), adding about a tenth of a penny per gallon to the production cost of gasoline.
  • Summer drought increased costs of corn ethanol, but the full impact of the drought on California LCFS compliance and compliance costs will not be known for some time.

The European Union and the Canadian province of British Columbia have adopted policies modeled after California’s LCFS. Other U.S. states are considering adopting LCFS-like policies to incentivize long-term emission reduction in the transportation sector.

Yeh also co-directs the National LCFS Project, which last summer released a series of reports on the prospects of a national LCFS policy.  Witcover is an ITS-Davis postdoctoral researcher working on indirect land use effects of biofuels policy. The analysis was conducted under a UC Davis research contract with the California Air Resources Board.

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