Project Summary
The Low Carbon Fuel Standard (LCFS), operated by the California Air Resources Board (CARB), is one of the cornerstone policies directed at reducing greenhouse gas (GHG) emissions from transportation fuels. The LCFS requires producers of petroleum-based fuels to reduce the carbon intensity of their products. Petroleum importers, refiners and wholesalers can either use low-carbon fuel in their own products, or buy LCFS credits from other companies that sell low-carbon alternative fuels. One distinguishing characteristic of the LCFS is the fact that the marginal incentive (e.g., carbon price) provided to fuel producers is diluted as it is transmitted through to end-use customers. This dilution effect has drawn criticism from economists who have focused on the prospect that the LCFS can subsidize the use of fuels that are relatively cleaner but still produce GHGs. Proposals have been implemented to allow credit for low carbon fuel (such as hydrogen and electricity) beyond levels of actual fuel use. The prospect of LCFS credits being applied to or generated from fixed expenditures, rather than implicit subsidies of marginal fuel costs, changes the theoretical and practical impact of such policies on consumer prices for both conventional and alternative fuels. This project will explore the implications of these changes and apply rough estimates of the potential magnitude of the impacts of these implications on low carbon fuel use, infrastructure generation, and cost effectiveness, depending on capacity use rates and other factors. The project will analyze CARB’s mechanisms for channeling LCFS credit value to fuel delivery infrastructure for electricity, including dairy biomethane projects, and assess the credit’s efficacy. Investments in infrastructure such as electric vehicle charging stations have additional benefits because the availability of charging stations may cause more people to buy electric cars, in turn leading to lower carbon vehicle miles. Researchers will analyze not only methods for assigning an appropriate number of credits, but also the likely uncertainty in such methods.
