Impact of Recent U.S. Renewable Diesel Production Capacity Growth on California’s Low Carbon Fuel Standard

The Low Carbon Fuel Standard (LCFS) is a critical component in California’s policies to reduce greenhouse gas (GHG) emissions from transportation. Managed by the California Air Resources Board (CARB), the LCFS incentivizes low-carbon fuel production through a credit trading system that enforces declining annual carbon intensity (CI) targets for transportation fuels to reduce GHG emissions from the transportation sector. However, a steep decline in LCFS credit prices since late 2020 has reduced incentives for low-carbon fuel producers, raising concerns about the program’s ability to sustain the pace of technological innovation necessary to meet state GHG reduction targets [1] . In response, CARB has initiated a rulemaking process to amend the LCFS, focusing on increasing CI targets and introducing an Automatic Acceleration Mechanism (AAM) that would respond to oversupply of credits in the market.