California’s new clean-fuel plan makes old problems worse

For years, environmental groups and climate and energy experts have complained that California’s landmark clean-fuels program, the Low Carbon Fuel Standard, misdirects billions of dollars per year to subsidize unsustainable crop-based and cow-manure-derived biofuels.

Instead of addressing those longtime concerns, on Friday the California Air Resources Board approved highly controversial amendments to the decade-and-a-half-old program that critics say could cause the price of gasoline and diesel fuel to spike across the state.

That’s because the amendments fail to address the program’s biggest flaw, according to these groups, which is that it allows biofuels with dubious or even harmful climate impacts to flood the market, depressing prices for LCFS credits that are also vital for expanding electric-vehicle charging in California. About 80 percent of LCFS funding over the program’s history — roughly $22.1 billion — has gone to combustion biofuels rather than electric vehicles.

CARB’s new amendments seek to reverse falling LCFS credit prices over the past few years by ratcheting up the mechanism that forces fossil-fuel producers to increase their purchases of credits from low-carbon producers certified by the program. LCFS collects between $2 billion and $4 billion per year through this market mechanism, with most of the costs that fuel producers incur being passed on to Californians buying gasoline and diesel fuel.

But if LCFS credit prices rise too quickly, it could cause prices at the pump to surge, energy experts contend. That could spark a public backlash to the LCFS program as a whole — even as biofuel and biogas producers, many of them majority owned by oil and gas companies, reap the benefits.

“If this money was actually directed in the right way, to support electric vehicles to clean up the air and improve people’s lives, that would be very different,” Matt Vespa, a senior attorney at the environmental group Earthjustice, told Canary Media.

Opponents of the proposed rules far outweighed supporters during the 12 hours of discussion and public commentary that preceded CARB’s vote late Friday night. Of the board’s 14 members, only two voted against the proposed rule changes: Dean Florez and Diane Takvorian, both of whom have raised significant concerns about plans for amending the program that critics say CARB staff has ignored.

CARB Chair Liane Randolph defended the changes, saying they were necessary to meet state-mandated targets to reduce the carbon intensity of California’s transportation fuel pool by 30 percent by 2030 and by 90 percent by 2045 from a 2010 baseline.

“We cannot afford to continue with the status quo. The climate crisis is accelerating,” she said. ​“We must continue to chart a path away from fossil fuels while designing policies that protect and mitigate against other harms.”

But Florez, a former state senator, wrote in an op-ed published the day before the vote that the new rules risk ​“enabling practices that actually increase pollution, undermining the very climate goals the fuel standard aims to achieve.”

“If the air board genuinely supported California’s climate and equity objectives, fuel standard revenue would help fund in-state electric vehicle infrastructure and other public benefits,” Florez wrote.

LCFS’s biofuel and biogas problems

Florez’s comments echo years of testimony from environmental groups such as Earthjustice, the Union of Concerned Scientists, Food and Water Watch, and the Leadership Counsel for Justice & Accountability pointing out flaws in the existing LCFS program. They also repeat concerns from energy and climate experts — including those involved in advising the state’s carbon cap-and-trade program and in designing the LCFS program — that the new amendments fail to correct a lucrative and poorly policed crediting system for biofuels that is undermining its objectives.

The LCFS mandates that fossil-fuel importers, refiners, and wholesalers purchase credits to reduce the carbon intensity of their operations. Those credits are generated and sold by operations ranging from biofuels production to EV-charging stations, setting up a system that’s meant to make polluters pay for the state’s transition to cleaner transportation.

Some of those operations include refineries that produce renewable diesel made from crops like soybeans and oil palm. Critics say this drives up prices for people who rely on those crops for food and encourages deforestation as more of those crops are planted across the world. Recent research indicates that these impacts outweigh any environmental benefits of switching from fossil fuels to renewable diesel.

CARB’s newly passed amendments will set some limits on crop-based renewable diesel, but advocates say those limits aren’t sufficient.

Another big flaw of the LCFS program is its unique treatment of methane captured from dairy manure lagoons as carbon-negative — that is, as if it removes carbon from the atmosphere. This makes dairy biogas digester projects extremely valuable for fossil-fuel producers because they can use a relatively small amount of dairy biogas credits to offset much greater real-world carbon emissions from the fossil fuels they sell. 

The same crediting structure also permits fuel-burning trucks or fossil fuel–based hydrogen to be considered as cleaner than EV trucks or hydrogen made with carbon-free electricity, as long as dairy biogas is used as an offset.

CARB’s newly passed amendments retain this treatment for dairy biogas projects. They also allow dairy biogas projects that begin construction before 2030 to avoid being subjected to pending state regulations on agricultural emissions of methane, a powerful global-warming gas.

Much of the biofuels that LCFS subsidizes are produced outside California’s borders, Florez noted in his op-ed. California consumes almost all the country’s renewable biodiesel, but most of that fuel is made outside the state, per federal data. And much of the biogas earning credits in the program isn’t actually used as transportation fuel. 

Biofuel and biogas interests dominated the groups speaking in support of CARB’s amendments at Friday’s meeting. ​“A yes vote today is a vote for taking the most cost-effective path to a stable climate,” Sam Wade, public policy director at the Coalition for Renewable Natural Gas trade group, said at Friday’s CARB meeting.

Wade previously served as CARB transportation-fuels branch chief from 2015 to 2019. CARB’s last major update to LCFS rules, which took place in 2018 during his tenure, established the lucrative negative-carbon-intensity treatment for dairy methane produced by companies he now represents.

The upside — and downside — for EVs and EV charging 

Critics contend that biofuels are also undermining the LCFS program’s important role in funding the state’s transition to electric vehicles. But at Friday’s CARB meeting, EV industry representatives also spoke in support of CARB’s amendments, saying they’re necessary to increase the price of credits that help fund the buildout of EV-charging infrastructure in the state.

“The program revisions will serve to accelerate the transition to electric vehicles that is central to the state’s climate strategy,” said Spencer Reeder, director of government affairs and sustainability at Audi of America.

Over the past few years, major expansion of renewable diesel and dairy biogas production capacity has flooded the LCFS market with credits, driving down prices from about $200 per ton of abated carbon in 2020 to between $60 and $70 per ton in 2023.

That’s bad for biofuels. But it’s also bad for public EV-charging stations that earn LCFS credits for every kilowatt-hour of electricity they sell and for the charging capacity they provide. The drop in credit prices has also depleted an LCFS-funded program administered by California utilities to assist first-time EV purchases.

The amendments CARB approved on Friday aim to address this problem by raising the carbon intensity (CI) values of fossil fuels sold in the state over the coming years. That will require companies that refine and sell those fossil fuels to purchase more credits from LCFS-approved alternative fuels to make up their increasing deficits, driving up credit prices to support investments needed to reach the state’s clean transportation goals, according to CARB staff. 

But ratcheting up the demand for credits for fossil fuels without restricting the supply of credits from biofuels and biogas creates several risks, critics say.

The first is that it fails to address the fact that, unlike EVs, vehicles burning biofuels continue to emit carbon and air pollution that are harmful to the environment and to people living in communities with heavy vehicle traffic.

“The LCFS is a failed policy, and the communities most impacted by air pollution in California will be the ones breathing the price for it,” Adrian Martinez, deputy managing attorney at Earthjustice, said in a Friday statement. ​“Most of the program’s billions will go to combustion fuels.”

Privileging biofuels over electricity also provides fossil-fuel companies a pathway to have their cake and eat it too, so to speak. Fossil-fuel companies happen to be some of the biggest investors in renewable diesel refining and in dairy gas projects eligible for LCFS credits in California and across the country. The more biofuels they produce, the more they can use the credits generated by them to offset the rising costs of continuing to sell fossil fuels in the state.

The threat of rising prices at the pump

The third risk — and the one that’s caught the attention of news outlets from across the state — is that increasing demand will drive up the cost of gasoline and diesel fuel. These concerns were fueled by a December CARB staff report that analyzed the new rules and found a maximum ​“pass-through” cost increase of 47 cents per gallon of gasoline in 2025.

California already has some of the highest fuel prices in the country, which oil companies blame on state regulations. Today, the role of the LCFS in California’s higher prices is relatively small at about 10 cents per gallon, according to prior CARB analysis. But under the newly approved higher carbon-intensity targets, that impact could quickly escalate, critics say.

“If you approve this measure, California drivers will pay over $2 more a gallon than other drivers across the country,” state Assemblymember Tom Lackey said at Friday’s meeting. Lackey, a Republican, represents a district centered on the city of Palmdale, where many residents commute about 120 miles per day to jobs in the Los Angeles region.

CARB staff have refused to offer projections on the new rules’ potential impact on prices at the pump, despite growing pressure from the media and lawmakers. In an October online press conference, Steven Cliff, CARB’s executive officer, said that agency staff are ​“not aware of economic models that can accurately predict gas prices with any certainty for many complex reasons.”

CARB board member Florez pushed back against this stance in his op-ed explaining his opposition to the new rule. ​“One of the most pressing issues is the projected economic impact,” he wrote. ​“A former CARB branch director has warned that, while program-related costs to consumers are currently modest, they could rise sharply as stricter targets are enforced.”

Florez was referring to Jim Duffy, a 13-year veteran of the agency who submitted a letter to CARB last month. Duffy served as branch chief of the LCFS program from 2019 to 2020 and retired in 2022.

“Claims that the regulation does not and/​or will not increase the cost of gasoline are, in my opinion, absurd,” Duffy wrote. In his letter, he provided his own estimate, using a ​“reasonable bound for future credit prices” from ​“a low of $60 to a high at the current program price cap, which is approximately $260.”

“Using this credit price range and the minimum targets to be set by the proposed amendments,” he continued, ​“I estimate pass-through ranges of $0.15 to $0.64 in 2025, $0.19 to $0.84 in 2030, and $0.34 to $1.47 in 2035.” An adjustment mechanism built into the new rule, which Duffy described as ​“both poorly written and poorly designed,” could trigger even higher increases. ​“Under such a scenario, pass-through costs near $1.50 per gallon by 2032 are quite possible.”

Danny Cullenward, a climate economist and lawyer and senior fellow at the University of Pennsylvania who serves as vice chair of California’s carbon market advisory committee, wrote in an Oct. 30 op-ed that state legislators ​“should be particularly concerned that CARB staff are being dishonest about LCFS costs.”

“So are biofuel subsidies really a top state priority, and how many billions of dollars should California drivers be asked to pay for them?” Cullenward wrote. ​“According to the staff of the Air Resources Board, no one can tell you.”

The road not taken 

CARB had other options. Last year, CARB’s Environmental Justice Advisory Committee (EJAC), a group created to advise the board on environmental-justice issues, laid out an alternative proposal that would cap the amount of crop-based renewable diesel eligible for credits, and end the negative-carbon-intensity treatment provided to dairy biogas.

By reducing the expansion of credits from these fuels, this alternative approach could restrict supply, and thus increase prices for credits from other sources such as EV-charging stations and renewable diesel made from waste oils and non-food crops, according to analysis from a team of climate scientists led by Michael Wara, director of Stanford University’s Climate and Energy Policy Program. That analysis also found the EJAC plan would drive greater reductions than the CARB staff proposal of harmful local air pollution from large-scale dairy farms and refineries that produce renewable diesel. 

CARB staff rejected the EJAC proposal, saying it would lead to higher price spikes and fail to achieve equivalent carbon reductions. Wara and colleagues involved in the EJAC analysis challenged that finding in comments submitted to CARB in February, and Wara told Canary Media in March that CARB staff have refused to provide information necessary to conduct an independent analysis.

Florez brought up that point as well in his Nov. 7 op-ed, noting that EJAC has ​“raised strong objections, pointing to CARB’s refusal to conduct a comprehensive assessment of emissions. Without transparent analysis, the air board cannot assure the public that its policies will protect California’s most vulnerable residents.” 

Environmental and energy experts say the flawed LCFS program could have ramifications beyond California. Today, two other states — Oregon and Washington — have adopted clean fuel standards largely based on LCFS. New Mexico passed a law this year to establish a clean-fuels program, and eight other states are considering similar legislation. LCFS critics fear those programs will mimic CARB’s problematic biofuels policies.