What is a Low Carbon Fuel Standard?

What it is

An LCFS sets a target trajectory for the average carbon intensity of transportation fuels sold in a state, where carbon intensity is measured in grams of CO2-equivalent per megajoule of energy delivered. Fuel suppliers must comply by:

• Blending lower-carbon fuels (ethanol from corn or sugarcane, renewable diesel, biogas) with conventional gasoline and diesel
• Earning credits by selling lower-carbon fuels (electric vehicle charging, hydrogen)
• Buying credits from other suppliers who are below the target
• Or paying penalties for exceeding the deficit allowance

The standard tightens each year on a published schedule. California's standard, for example, requires a 30 percent reduction in average carbon intensity by 2030 and an 80 percent reduction by 2045.

What it costs drivers

The compliance cost of an LCFS is paid by fuel suppliers and passed through to retail consumers. Our regression analysis isolates the effect of these programs by using Washington's January 2023 program turn-on. The estimated combined effect of Washington's Climate Commitment Act (cap-and-trade) and Clean Fuel Standard (LCFS) is about 48 cents per gallon, with the LCFS-specific portion roughly 22 cents. Across the three current LCFS states, our model estimates an average pass-through of about 19 cents per gallon in 2026.

Which states have LCFS programs

New Mexico enacted its LCFS in 2024, with implementation phased in starting 2026. Multiple other states (New York, Michigan, Minnesota, Vermont) have proposed LCFS programs that have not yet become law.

How the math works

Each gallon of fuel sold in an LCFS state has a calculated carbon intensity. If the carbon intensity is above the annual target, the supplier accumulates a "deficit"; if below, a "credit." Suppliers must balance their books each year. The credit price (set by the trading market) determines the cost of compliance. As the standard tightens, the credit price tends to rise, increasing the per-gallon pass-through to consumers.

For example, with California's 2026 LCFS credit trading at roughly $70 per ton of CO2-equivalent, a gallon of gasoline with average carbon intensity carries about a 20-cent embedded compliance cost. As the standard tightens through 2030, that figure is projected to rise toward 30 to 40 cents per gallon absent offsetting technology improvements.

How it differs from cap-and-trade

An LCFS and a cap-and-trade program both put a price on motor-fuel emissions, but they work differently:

• An LCFS targets the carbon intensity of fuels (carbon per energy unit). Compliance is achieved by blending or substituting cleaner fuels.
• A cap-and-trade program targets total absolute emissions. Compliance is achieved by buying allowances or reducing fuel sales.

The two policies can be stacked. California's LCFS operates simultaneously with California's cap-and-trade program; both impose costs on motor fuel, and both are reflected in California's pump prices. Washington's CCA and CFS similarly stack.

History and debate

The LCFS concept was originally proposed by University of California Davis researchers in the early 2000s and first adopted by California in 2007 under Governor Schwarzenegger. The California LCFS took effect in 2011. Oregon followed with the Clean Fuels Program in 2016, and Washington became the third state in 2023.

Supporters argue LCFS programs accelerate the transition to lower-carbon transportation fuels and provide market signals for biofuel and EV-charging investment. Critics, including the Institute for Energy Research, have argued that LCFS programs raise consumer fuel prices, distort fuel markets, and may favor imported biofuels over domestic crude oil. The American Petroleum Institute and refining-industry groups have generally opposed LCFS proposals on similar grounds.

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