February 24, 2021
Understand the Low Carbon Fuel Standard (LCFS) program, and find out how your fleet can get paid by running an EV operation.
Cash in on Your Electric Fleets: Demystifying Low Carbon Fuel Standard
Getting on board with clean fuel programs makes more than PR talking points. Fleets that take part in these can substantially reduce their costs when switching to zero emission vehicles. Understandably, navigating the maze of procedures and administrative reporting is not simple.
We’ve identified California’s Low Carbon Fuel Standard (LCFS) as a particularly compelling subsidy that many fleets can take advantage of. In a nutshell, this program allows fleets to earn credits, and get paid for running their electric vehicle operations. This introductory guide will:
- Demystify the LCFS program and requirements
- Walk through its impact for fleet operators
- Go over how to get started
What is the Low Carbon Fuel Standard?
LCFS originated from California’s climate change bill AB32 in 2009, which was aimed at reducing greenhouse gas emissions in the state. In subsequent years, the California Air Resources Board (CARB) made additional amendments to the LCFS program that closed loopholes and addressed procedural gaps. Today, the program extends through 2030.
The overarching goal is to shift fuel consumption to low-carbon and renewable sources. What’s key here is that the "winning basket" of fuel types used is determined by market dynamics rather than regulatory thresholds. This is done by assigning carbon intensity scores to each fuel type.
The policy measures “Carbon intensity” (CI) based on the amount of carbon generated across the entire life-cycle of the fuel. This includes the production, transportation, and usage of the fuel. The CARB releases yearly thresholds, and any CI scores above the threshold will generate deficits, while those below generate credits. Fuel producing organizations and other entities participating in the LCFS all receive a CI score that determines if they are a credit or deficit generator.
Credits can be sold to deficit generators on the open marketplace
Credits are equivalent to one metric ton of GHG emissions reduced. What results is a marketplace that allows participants to buy or sell credits so that they can reach net neutral. The CARB publishes the estimated value of credits based on recent transactions, and as of the writing of this article one credit is sitting at $196 USD. https://ww3.arb.ca.gov/fuels/lcfs/credit/lrtweeklycreditreports.htm
The impact can be described as two-fold: it allows organizations to get paid for behavior that upholds emission goals, while financially penalizing companies that continue to produce high-carbon fuels. Those organizations either pay for the additional emissions by buying credits or develop greener alternatives.
Three-part system of LCFS reporting
In the simplest terms, the LCFS operates on three segments:
- LRT-CBTS (LCFS Reporting Tool - Credit Banking and Transfer System): A tracking and reporting system
- Air Resources Board: A centralized government body that audits data submitted
- Marketplace: An offline credit trade and exchange marketplace.
Organizations make quarterly reports and one annual report submitted to the LRT-CBTS. Based on those reported transactions, the organization earns credits or generates deficits. These are automatically calculated by the system and the ARB has ability to audit and verify the reported data.
However, the ARB is not involved in facilitating the buying and selling of credits. Transactions happening on the marketplace are left to the involved parties to work out individual terms. The ARB only requires the results of credit trades reported in quarterly updates.
Opportunity for Fleet Operators with deployed EV’s
We’ve seen more fleet operators realizing the revenue opportunity with programs like LCFS. It’s a reliable way to subsidize costs of purchasing electric fleets and charging infrastructure. As originally intended, the LCFS shifts the market to low-carbon intensity options, and this rewards those who are users of cleaner fuels as well.
As far as the LCFS goes, fleet operators owning EVs and EVSEs are categorized as credit generators. Each fleet will need to register as an owner of Fueling Supply Equipment and report quarterly energy use to the LRT-CBTS.
It’s a tasking process for fleet managers, particularly those who aren’t focused on navigating administrative policy. Oftentimes, fleet operators hire third party aggregators to report their transactions and handle the process for them. Once Credits are generated for the fleet, the aggregators or brokers can also negotiate trades to purchasing organizations.
Here’s a guide on starting your LCFS application
Getting involved with LCFS takes multiple steps, broken into the following segments: Account Application, Transaction Reporting, and Credit Trading.