Biofuels Driving the California Low Carbon Intensity Standard Program Credits

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S. Patricia Batres-Marquez
Decision Innovation Solutions
11107 Aurora Avenue
Urbandale, IA 50322

Decision Innovation Solutions LogoIn order to reduce greenhouse gas (GHG) emissions from transportation fuels such as gasoline and diesel, the California Low Carbon Fuel Standard (LCFS) policy employs a market-based credit trading system in which providers select how to reduce emissions. A 10% reduction in carbon pollution by 2020 has been set by the LCFS program (interested readers in the performance of LCFS since 2011, please follow this link [ and check tab 1]) . Petroleum importers, refiners, and wholesalers can either produce their own low carbon fuel products or buy LCFS credits from companies that produce and sell lower carbon alternatives in order to comply with the law each year (California Energy Commission). Each LCFS credit represents one metric ton (MT) of carbon dioxide equivalent (CO2e) in GHG reduction. Credits can be sold, banked, or used to help meet a compliance obligation (CARB, a).

Ethanol Credits

Among all credit-generating products used in the California market, ethanol biofuels have generated the largest number of credits in the LCFS since 2011.There has been a total of 16.550 million MT (MMT) of credits generated from 2011 to 2015. Fifty-one percent or 8.387 MMT of credits have been from ethanol. Corn ethanol contributed 6.271 MMT of credits to the total ethanol credit pool, while cane ethanol generated a total number of credits equal to 0.705 MMT during the five-year period.

Overall, the number of credits generated by ethanol biofuels increased from 1.022 MMT in 2011 to 2.131 MMT in 2015. This category of biofuels includes ethanol products with different levels of carbon intensity (CI) . Since 2011, ethanol fuels with CI values between 80 and 85 grams of carbon dioxide (CO2) equivalent per megajoule of energy (gCO2e per MJ) have contributed the most to the ethanol credit pool, representing about 28% of the total number of ethanol credits generated during the five-year period. Credits from lower CI ethanol fuels are increasing in the California market, indicating a shift in production technology by some ethanol producers. As Figure 1 indicates, credits generated by ethanol with CI between 75 and 80 gCO2e per MJ and ethanol with CI less than 70 gCO2e per MJ have gradually increased since 2011. In 2011 these two types of ethanol biofuels generated about 0.080 MMT each. In contrast, in 2015 ethanol with CI between 75 and 80 gCO2e per MJ generated 0.416 MMT credits, while ethanol with CI less than 70 gCO2e per MJ generated 0.487 MMT of CO2e in GHG reductions.

California Low Carbon Fuel STandard Credits by Fuel Type Figure 1. California Low Carbon Fuel Standard Credits by Fuel Type (MT of CO2e in Greenhouse Gas Reduction)

Biodiesel and Renewable Diesel Credits

Figure 1 also shows that the LCFS is increasing the range of low carbon and renewable alternatives that generate credits; for instance, in 2011 78% of total credits were from ethanol biofuels, whereas in 2015 only 39% of the total credits were from ethanol products, as non-ethanol biofuel sources are increasing their role in the LCFS compliance. Biodiesel (BD) and renewable diesel (RD) have gained substantial participation in the California market. In 2011 there were 0.084 MMT of credits generated by BD compared with 1.209 MMT credits in 2015. Likewise, RD contributed 0.017 MMT credits in 2011 in contrast to 1.038 MMT credits in 2015. The total number of credits generated by BD and RD from 2011 to 2015 was equal to 2.730 MMT and 2.763 MMT, respectively. Most of the BD and RD for the California market have lower estimated CI than corn ethanol and are based on feedstocks such as used cooking oil (UCO), tallow, and corn oil extracted from distillers grains with solubles (CO). Used cooking oil-based BD has generated 59% (1.609 MMT) of all BD credits during the five-year period, whereas corn oil-based BD generated 30% (0.829 MMT) of all BD credits during the same span. Ninety-one percent (2.517 MMT) of all credits generated by RD were from tallow-based RD (see Figure 2). 

2011-2015 California Low Carbon Fuel Standard Credits by Type

Figure 2.California Low Carbon Fuel Standard Credits by Type of Fuel and its Feedstock (MT of CO2e in Greenhouse Gas Reduction)

In terms of biofuel volume, in 2015 California consumed 37.944 million gallons of CO BD, 53.493 million gallons of UCO BD, and 113.727million gallons of tallow-based RD, for a total consumption of these three biofuels equal to 205.164 million gallons. Combined, these three biofuels generated a total of 1.983 MMT in credits in 2015. In contrast, 1.333 billion gallons of corn ethanol were consumed during 2015, yet there were fewer LCFS credits generated by corn ethanol (1.777 MMT) over the same period, as it is much harder for higher CI corn ethanol to produce credits in the California market.

The generation of credits for the LCFS program compliance from biomass-based diesel, including BD and RD, has benefitted by increased availability of these biofuels’ production and imports, which expanded after 2012 in response to factors such as increasing Renewable Fuel Standard (RFS) targets and the extension of the biodiesel tax credit. Nonetheless, because the RFS targets are established each year and because of the intermittent nature of this tax credit, both factors can also be a source of uncertainty in the industry.

Low Carbon Fuel Standard Credit Prices

In 2015, LCFS credit average prices ranged from $22 per credit (or $22 per MT CO2e in GHG reduction) during April and May to $96 per credit in December. The latest data indicates that LCFS credit prices have further increased in 2016. The average price in April ($119 per credit) rose 13% relative to the average price in January ($105 per credit) and 441% compared to a year ago ($22 per credit) (CARB, 2016). A factor that can increase the LCFS credit price is uncertainty about the availability of sufficient low carbon fuel credits to comply with the target, which becomes more stringent each year. To avoid price spikes, though, the 2015 re-adopted LCFS program includes a measure of cost containment. The LCFS includes a provision for holding a Credit Clearance Market (CCM), which gives additional compliance flexibility to regulated parties who do not meet their previous year-end commitment (CARB, a). The maximum LCFS credit price in the CCM for 2016 is $200 per credit. In order to keep pace with inflation and remain at a constant price, in real terms, the maximum price will be adjusted in all years following 2016 by using a Consumer Price Index deflator (CARB, a).

Potential Exists for Low CI Biofuel Producers

With the re-adoption of the LCFS policy on September 2015, a new model for estimating life cycle emissions of fuels was introduced. Under the new model, total CI for corn ethanol (ETHC004=Midwest; Dry Mill; Dry DGS, NG) is now 80.09 gCO2e per MJ, declining by 9.62 gCO2e per MJ from the previous estimate (89.71 gCO2e per MJ). The main driver of change for this type of corn ethanol CI estimate was that the new model now uses a lower indirect land use change (ILUC) value. Another factor contributing to the reduction of the CI of corn ethanol was a lower farming energy estimate. However, as the California LCFS program becomes more stringent every year, lower CI ethanol such as cellulosic ethanol, has a significant potential for LCFS credit generation, but the production of this biofuel remains low. Meanwhile, used cooking oil biodiesel, corn oil biodiesel, and tallow renewable diesel are making a substantial contribution in the California LCFS credit pool while displacing ethanol as the leading credit generator for the California LCFS.
The Pacific Coast Collaborative, which is an agreement between California, Oregon, and British Columbia, aims to align policies to lower GHG emissions and over time intends to build a West Coast market for low carbon fuels (CARB, b).  Biofuel producers willing to adopt improved technologies, find production efficiencies, and use feedstock that produces low CI biofuels will benefit the most, not only from the opportunities that the California LCFS market is presenting but also from opportunities that future LCFS programs on the West Coast might bring.


California Air Resources Board (CARB), a, Low Carbon Fuel Standard. Background, Meetings, Guidance Documents, Reporting Tool & Other Information, Regulation Materials, Current Regulation. (Accessed May 20, 2016).

———, b, Low Carbon Fuel Standard. Information About.., Background Information. (Accessed May 20, 2016).

———, 2016, Monthly LCFS Credit Transfer Activity Report for April 2016. May 10.

California Energy Commission, Low Carbon Fuel Standard. (Accessed May 20,2016)