James Bushnell, Gabriel Lade, Aaron Smith, Julie Witcover, and Wuzheqian Xiao “Forecasting Credit Supply Demand Balance for the Low-Carbon Fuel Standard Program” (August 2023) | WP-340 | Blog Post

Abstract:

We present projections for the expected supply of and demand for Low Carbon Fuel Standard (LCFS credits) through 2030, as well as through 2035, based on potential changes to program stringency. Our main approach is to apply time-series forecasting methods to project the expected demand for transportation fuels and combine that with the expected evolution of fuel prices and carbon intensities as well as the impact of other transportation policies on the fuel mix. Our results imply that the LCFS program can accommodate a relatively aggressive target of 43% reduction by 2035, but only if everything breaks right and many best-case outcomes arise toward the middle of the next decade. Compliance will depend, among other factors, upon the ability of suppliers to produce and distribute extremely high amounts of renewable diesel into California’s diesel pool. Our median forecast of our baseline scenario forecasts a small but significant cumulative credit deficit by 2035. Under such circumstances the role of cost-containment mechanisms will be crucial for determining LCFS prices, and likely the overall viability of the program.