Everything you need to know about Low Carbon Fuel Standards (LCFS)

Photo by Andreas Strandman on Unsplash

California consistently ranks among the worst states in America for air pollution. The topography of the state means that air pollution becomes trapped, often resulting in a thick smog enveloping the cities below.

The Golden State is the most populous state in the US, with the fifth largest economy in the world. Transportation is the largest contributor to greenhouse gas (GHG) emissions in California, accounting for 50% of the states emissions. The sector is also responsible for 80% of the nitrogen oxide and 95% of particulate matter emissions within the state.

The Californian carbon market will be familiar to regular readers of Carbon Risk. However, there is another carbon market in the state that is deigned to tackle the main source of its pollution - the transportation sector. It forms part of a portfolio of complementary policies that work alongside the emissions trading scheme, the Renewable Portfolio Standards and other policies aimed at improving the fuel efficiency of vehicles.

The objective of California’s Low Carbon Fuel Standard (LCFS) program is to reduce the carbon intensity of the states transportation fuel pool by 20% by 2030, and by 80% by 2050, compared with a baseline year of 2010. The LCFS was introduced in 2011 and imposes a market based carbon cost on transport fuels that have carbon intensity (CI) score above the state’s requirements. The beauty of the scheme relative to more prescriptive policies is that it is technology neutral - it is up to the market to decide where to invest in innovation and how much capacity is required to meet the target.