California’s Low Carbon Fuel Standard (LCFS), a state policy that supports clean transportation fuels, generated $92 million to support transportation electrification in 2016.
This support helps make electric vehicles more affordable for drivers, transit agencies, and private businesses.
As the EV market matures and more electricity is generated from renewable resources, the positive impact of the LCFS will also grow. The LCFS will continue to accelerate EV adoption, and therefore help California meet carbon emission goals. But to tap the program’s full potential, the state should extend it through 2030, and refine it to further accelerate EV deployment.
What is the LCFS
The LCFS is a program designed to help California meet its global warming emissions reduction goals and boost innovation for cleaner transportation fuels. Established in 2009, the LCFS has a goal of reducing the carbon intensity of the state’s fuel mix 10% by 2020. To comply with the law, petroleum refiners and importers can either blend low-carbon biofuels into the fuel they sell, buy credits generated by low-carbon fuel producers and users, or both. While the LCFS was initially understood as a policy to support the growth of biofuels, the policy increasingly plays an important role supporting the growth of electricity as a transportation fuel. The LCFS provides benefits for EV drivers as well as transit agencies and ride-hailing services, which help to make electric cars and buses cheaper and more accessible.
LCFS credits boost the EV market
The LCFS functions through a credit system, whereby carbon-intense petroleum refiners and importers support the use of low-carbon fuels by buying credits generated when clean fuels are used. One credit represents one metric ton of avoided carbon dioxide emissions. Credit prices fluctuate with supply and demand, and averaged approximately $90 in 2017. As renewables like wind and solar make California’s energy grid cleaner, charging electric vehicles will generate even more credits. Thanks to this phenomenon and the sheer volume of electric vehicles expected to hit the road in the next decade, LCFS credits are expected to provide billions of dollars for vehicle electrification by 2030. Those dollars provide serious incentives for drivers, transit agencies, and ride-hailing services that want to go electric.
Electric utility companies generate credits when EV drivers plug in their cars, and in several locations, have passed that money along to drivers in the form of a rebate on their bills:
- Pacific Gas and Electric – Residential EV drivers can claim a one-time $500 rebate.
- Sacramento Municipal Utility District – Residential EV drivers can either claim $599 one-time rebate or receive a free level 2 charger.
- San Diego Gas & Electric – Residential EV drivers can claim an account credit of at least $50 annually through 2020. The total rebate amount will depend on the number of participants each year. (Participants receive $200 bill credit in 2017.)
- Southern California Edison – Residential EV drivers can claim a one-time $450 rebate.
LCFS also benefits operators of larger vehicles
LCFS helps larger vehicles (transit buses, delivery trucks, freight trucks) reduce their emissions through special incentives. Transit agencies can earn up to $9,000 per year for each electric bus in their fleet, bringing the already low cost of bus charging down to $7,000 compared to the $24,000 a year spent on fuel for the average bus running on diesel. Other heavy-duty vehicle companies can put LCFS credits to use in whatever way serves best their business.
Even with LCFS' successes, there are changes that could increase its effectiveness in the years ahead. These changes include:
- Strengthening and extending the LCFS — The original LCFS had a target of 10 percent carbon intensity reduction by 2020. When CARB extends it to 2030, they should set a new target of at least a 20 percent reduction.
- Refining utility incentive programs — Policymakers and utilities should consider what works under the LCFS and refine incentive program to support EV adoption most effectively.
- Small businesses and transit agencies — Smaller transit agencies and vehicle fleets could more easily benefit from the LCFS if CARB chooses to streamline its administrative requirements.