A Low Carbon Fuel Standard: State and Federal Legislation and Regulations

Summary

On January 18, 2007, California Governor Arnold Schwarzenegger issued an executive order directing the California Environmental Protection Agency to establish a Low Carbon Fuel Standard (LCFS). The California LCFS would require a 10% reduction in the carbon intensity of fuels in the State of California by 2020. It would require fuel suppliers to reduce the expected lifecycle greenhouse gas emissions from motor fuels, based on fuels’ energy content. In this way, the greenhouse gas intensity of transportation fuels would decrease, regardless of the growth in transportation or fuel demand. While California has not formally proposed regulations, the state Air Resources Board has released drafts of possible regulations.

Several bills were introduced in the 110th Congress to establish a similar national LCFS. These bills varied based on their target dates and required reductions; some were stand-alone bills, while others were proposed as part of more comprehensive greenhouse gas legislation. None were adopted; one was discussed on the Senate floor.

The establishment of a low carbon fuel standard could significantly affect fuel supplies and fuel prices. However, the details of any program are key to determining those effects. The stringency, scope, time frame, and flexibility of the program would determine its ultimate effects on both fuel markets and greenhouse gas emissions. The development of California’s rules could inform policymakers looking to establish a federal LCFS. However, the scope of a federal program—requiring compliance nationwide—would likely affect the fuel system in ways not comparable to California’s experience. If more low-carbon fuel is needed in California, supply can be shifted from other parts of the country not under an LCFS. If more low-carbon fuel is needed nationwide, higher production and/or imports would be necessary. If the requirements of a low carbon fuel standard get ahead of the necessary supply, conventional fuel supply would need to be curtailed, or the program would need to be delayed. It is likely that the proposals with later time frames would be less disruptive to the fuel supply.