New regs will cut air pollution, but gas price effect?

Late Friday, Nov. 9, after a nearly 12-hour meeting, the California Air Resources Board approved changes to the Low Carbon Fuel Standard. While the vote was 12-2, this was a controversial decision, especially in the wake of Gov. Gavin Newsom’s call of a Special Legislative Session to address increasing gasoline prices in the State.

The intent of the changes is to speed up the reduction of air pollution and greenhouse gas emissions by creating incentives for the development of zero-emissions in California. The LCFS supports California’s zero-emission vehicle regulations and accelerates private investment to produce cleaner fuels like electricity, hydrogen, and biofuels that are needed to displace fossil fuels and reduce transportation sector emissions, according to their press release.

While there is general approval and consensus on the goal, more than a year since the initial draft proposal was released to the public, opposition has formed over two major issues. Many Californians are concerned that these new rules will cause a significant increase in gasoline prices. Secondly, environmental groups argue that a portion of the rules accept the increase of certain air pollution (biological) created during the production of biofuels.

The new rules simply increase the target reduction in carbon emissions from transportation fuels. Before Nov. 9, the goal was a 20% reduction by 2030. Friday’s decision increases that to a 30% reduction and then 90% by 2045.

According to the Board’s press release, the “LCFS is designed to provide the most cost-effective path to support clean fuels and infrastructure.”

Fuel Prices

In September 2023, the CARB staff released a preliminary report about the proposed changes. They estimated that the new rule would increase fuel prices. “. . . [the proposed amendments] are projected to potentially increase the price of gasoline by an average of $0.37 per gallon, potentially increase the price of diesel by an average of $0.47 per gallon, and fossil jet fuel $0.35 per gallon,” the report stated. And further increases were projected through 2046.

However, this year, the fuel price increases were not part of the final report. In October, the CARB issued a separate report that stated there is no relationship between LCFS credit prices and fuel prices for gasoline.

The report conceded that there was a 10 cent per gallon pass through to fuel prices. However, the differences between branded and non-branded gasoline indicate that the LCFS relationship to prices is weak, this report argued.

“All climate action will have impacts to the cost of pollution sources, but the exact cost is unknown due to a variety of factors. For retail gas prices, there is nothing to prohibit fuel producers from passing on any costs for any regulation and what is ultimately passed on to consumers is determined by each company,” they concluded.

But in a separate an independent analysis, Dr. Danny Cullenward, senior fellow at the Kleinman Center for Energy Policy, at the University of Pennsylvania, concluded, “If LCFS credit prices reach their maximum allowed levels, as has occurred in the past, then retail gasoline price impacts could be $0.65 per gallon in the near term, $0.85 per gallon by 2030, and nearly $1.50 per gallon by 2035.”

In a separate report to Liana Randolph, CARB chair, California’s Legislative Analyst, said that lower income families generally spend a greater proportion of their income on gasoline than higher income families. So any increase in gasoline prices would have a greater effect on the lower income strata of residents.

Nevertheless, the Board expressed concern over the affordability of clean fuels. The proposal directs its staff to monitor retail gas prices every six months. An annual report should be submitted to the Board beginning November 2025. The assessment of any possible price effects and possible mitigative actions should be done in collaboration with the California Energy Commission, the Board added.

However, Board member Dean Florez, a former member of the Assembly and former State Sen., voted against the proposal.

“A former CARB branch director has warned that, while program-related costs to consumers are currently modest, they could rise sharply as stricter targets are enforced,” Florez said in a column he wrote for CalMatters on Nov. 7 before the vote. “We cannot assert that fuel standard credit prices do not directly impact gasoline costs because this position overlooks how costs ultimately reach consumers at the pump.”

In their report urging the board to approve the proposal, regardless of the potential impact on gasoline prices, CARB Executive Officer Steven Cliff said that the CARB is primarily a public health agency.

“. . . there’s massive greenhouse gas emission reduction benefits associated with this, and air pollution benefits associated with it, job increases, investment, secure and clean energy and so on. . . . Most notably, there’s about $5 billion in health cost savings associated with this proposal. First and foremost, we’re a public health agency, so our focus is on protecting public health while considering the economic impacts,” Cliff stressed.

Environmentalist objections

Many environmental groups were also opposed to the CARB approval of these changes to regulations.

Their objection focused on the incentives for increased biofuel production. While it reduces carbon emissions, it creates its own brand of pollution. Specifically, the incentives for more biofuels may reduce forested areas or other crop growing acreage if converted to biofuel production.

“California holds itself out as a clean hydrogen hub, but in reality, policies like the LCFS are favoring dirty over clean,” said Lauren Gallagher of Communities for a Better Environment in an Earthjustice press release. “This greenwashed hydrogen comes at a great cost to California: it adds more toxic pollution to California’s overburdened refinery communities, and it keeps California hooked on fossil fuels. There is no way around the fact that CARB is taking us backwards on hydrogen.”

For example, the new regulations create incentives for more methane-based fuels, which largely come from capturing cow methane, also greenhouse gas, on dairy farms. Earthjustice wanted more monitoring of air pollution emissions associated with reliance on the production of fuel from livestock and dairy manure. Incentives for increasing herd sizes were particularly a concern of this group.

Eventually, these credits will be phased out according to the CARB press release.

Florez, the Senate environmental justice appointee on the CARB, considered this an important issue and rejected the staff’s solution.

“Another critical flaw is CARB’s crediting system for emissions reductions from dairy and livestock operations, which lacks sufficient oversight. By allowing such credits without stringent accountability measures, the air board risks enabling practices that actually increase pollution, undermining the very climate goals the fuel standard aims to achieve.

“The continued reliance on biofuels, many of which are produced out of state, further detracts from California’s efforts, limiting local environmental and economic benefits,” Florez wrote in his CalMatters opinion piece. “If the air board genuinely supported California’s climate and equity objectives, fuel standard revenue would help fund in-state electric vehicle infrastructure and other public benefits — rather than subsidies that often benefit out-of-state operations.

“The environmental justice committee raised concerns about “avoided methane crediting,” which the air board plans to phase out by the 2040s. Subsidizing low-impact projects risks prolonging fossil fuel reliance and weakening LCFS goals, delaying clean air solutions for low-income, pollution-burdened communities,” he added.

“CARB’s amendments to the Low Carbon Fuel Standard acknowledge fundamental flaws with biofuels but fail to fix the problem and even backslide in key arenas. These proposed changes show that CARB is not seriously tackling reforms to this incredibly dated program to make it actually work for California,” said Nina Robertson, attorney on Earthjustice’s Right to Zero campaign. “. . . It’s too bad Newsom and CARB have so far failed to capitalize on this opportunity and safeguard California’s path to clean air and an electric future by fixing the LCFS. The clock is ticking.”