California to Make ‘Substantive Modifications’ to Its Fuel Emissions Trading Program

March 01, 2025

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by Blanca Begert (Politico Pro Climatewire) The notice comes after the Office of Administrative Law rejected changes to the low-carbon fuel standard. -- The California Air Resources Board said Wednesday it would make substantive changes to its emissions trading program for transportation fuels after the Office of Administrative Law rejected its proposed program updates last week.

What happened: CARB on Wednesday said it would resubmit changes to its closely watched low-carbon fuel standard program, after posting the OAL’s detailed reasoning for rejecting amendments to the program that it approved in November.

The changes will be substantive enough to require a new public comment period, CARB said.

Why it matters: The program is one of the cornerstones of California's push to lower its emissions by 48 percent by 2030 compared with 1990 levels. It sets an average carbon content requirement for transportation fuels sold in the state and requires producers to either meet the threshold or buy credits from fuels producers that fall below the threshold to meet it.

CARB amended the program last year to increase its stringency and drive up credit prices for lower-carbon fuels that had fallen to record lows since a glut of renewable diesel started flooding the market in 2021. READ MORE

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CARB Receives Direction on Finalizing Low Carbon Fuel Standard Amendments (California Air Resources Board)
State of California Office of Administrative Law SUMMARY OF REGULATORY ACTION Decision of Disapproval (California Office of Administrative Law)
California’s controversial new fuel rules rejected by state legal office (CalMatters)

Excerpts/Examples from California Office of Administrative Law: Proposed subsection (d)(2) is unclear for two reasons.

First, proposed subsection (d)(2) is unclear because it can reasonably and logically be interpreted to have more than one meaning and it presents information is a format that is not readily understandable by persons “directly affected.” (Cal. Code Regs., tit. 1, sec. 16, subs. (a)(1) and (a)(5).) With respect to the first sentence, the use of “may” makes it unclear under what circumstances the Executive Officer will determine that no value in Table 6 is conservatively representative of a particular region, feedstock, or fuel combination, and thus, assign a more conservative land use change value. With respect to the third sentence, the use of “may” makes it unclear under what circumstances the Executive Officer will determine and assign a land use change value for feedstocks not listed in Table 6.

Second, proposed subsection (d)(2) is unclear because it uses terms which do not have meanings generally familiar to those “directly affected” by the regulation, and those terms are defined neither in the regulation nor in the governing statute. (Cal. Code Regs., tit. 1, sec. 16, sub. (a)(3).) With respect to the second and third sentences, the references to “satellite-based remote sensing data for land cover monitoring, crop yields, and emission factors” are vague, as is the reference to “carbon stock datasets” in the second sentence. Absent any clarification of these references, the language is too vague to provide regulated entities with sufficient guidance as to how the Board will utilize this standard.

A number of commenters raised concerns with this language.

For example, one comment stated: …[T]he provision raises substantial concerns about whether and how CARB would determine that a new, more conservative LUC factor is necessary…The new provision further exacerbates this issue by centralizing more decision-making power with the EO, without providing any clear mechanisms for public oversight or involvement. This approach is wholly insufficient and fails to meet the standards of transparency and public participation that are critical for sound environmental governance.

Additionally, another comment stated: CBE appreciates that this change acknowledges the diverse range of factors needed for a comprehensive analysis but is concerned with the lack of clarity regarding the Executive Officer’s calculations, as well as when and how this discretionary correction tool will be used.

In addition to addressing the clarity concerns in proposed subsection (d)(2), the Board must revise the responses to comments to reflect any changes made to the regulation text. READ MORE

Excerpt from CalMatters: In a surprising twist, California’s controversial new fuel standard — a key part of its effort to replace fossil fuels — has been rejected by the state agency that reviews the legality of state regulations.

The fuel standard enacted by the Air Resources Board last year was the subject of a rancorous debate, largely because it will potentially increase the price of gasoline and diesel fuels by an unknown amount.

The rules were rejected by the state Office of Administrative Law, a state agency whose mandate is to ensure “regulations are clear, necessary, legally valid, and available to the public.” The law office informed the air board that the rule does not conform with a provision in state code that requires “clarity” in rulemaking “so that the meaning of regulations will be easily understood by those persons directly affected by them.”

The air board said it would review the order and then resubmit the rules, which would be required within 120 days. Any substantial changes, however, would require a delay, including a public comment period.

The low carbon fuels program, which offers financial incentives to companies to produce cleaner transportation fuels, aims to help transition the state away from fossil fuels that contribute to smog and other air pollution and greenhouse gases that warm the planet.

The program, which has existed since 2011, is a $2-billion credit trading system that requires fuels sold in California to become progressively cleaner, while giving companies financial incentives to produce less-polluting fuels, such as biofuels made from soybeans or cow manure.

In an initial assessment released in 2023, the air board projected that the new rules could potentially raise the price of diesel by 59 cents per gallon and gasoline by 47 cents. But air board officials later disavowed that estimate, saying that the analysis “should not be misconstrued as a prediction of the future credit price nor as a direct impact on prices at the pump.” READ MORE

Excerpt from California Air Resources Board: Regulation remains in effect as CARB staff works to address non-substantive revisions requested by Office of Administrative Law to clarify administrative and implementation process details and non-substantive text.

SACRAMENTO — Last night (February 25, 2025), the California Air Resources Board (CARB) received a document from the Office of Administrative Law (OAL) detailing requested non-substantive revisions to the text of the Low Carbon Fuel Standard (LCFS) regulation amendments. Staff have 120 days to make these changes and re-submit the regulation for OAL approval.

The document comes in response to OAL’s decision last week to disapprove the rulemaking package CARB adopted in November. The routine disapproval was made on technical grounds, not on the merits of the regulation. In its latest communication to CARB, OAL identified opportunities for CARB to clarify administrative and implementation process details in the regulatory amendment text.

The current regulation remains in effect as CARB staff work to address the feedback from OAL. CARB publicly posted an updated market notice today to inform the public of OAL’s decision.

Additional Background

The LCFS regulation reduces air pollution and greenhouse gas emissions by setting a declining carbon intensity target for transportation fuels used in California. The LCFS regulation is designed to provide the most cost-effective path to support clean fuels and infrastructure that reduce greenhouse gas emissions responsible for climate change.

The LCFS is an important part of the California’s climate portfolio which altogether has delivered a significant return on investment – lowering fuel costs through more efficient vehicles, generating tens of billions for climate investments, reducing utility bills through an annual credit and launching new job-creating industries as part of our clean energy economy.

On November 8, 2024, the California Air Resources Board approved amendments to the LCFS regulation to maintain momentum for global, national, and local private sector investment towards increasing cleaner fuel and transportation options for consumers, accelerating the deployment of zero-emission infrastructure and clean fuel production to support clean vehicle regulations, and keeping the state on track to meet statutorily mandated air quality and climate targets.

The latest analysis from third party commodities markets experts shows a $0.10 LCFS cost pass through per gallon of gasoline. That’s consistent with the self-reported data by the fuel producers which reflects an LCFS cost pass through of $0.08 to $0.10 per gallon of gasoline. The program is expected to generate billions to benefit Californians.

On January 3, 2025, CARB submitted the final regulatory package for the proposed amendments to the LCFS regulation to OAL for review in accordance with Government Code section 11349.1. On February 18, OAL issued a routine disapproval of amendments to the LCFS regulation on technical grounds, not on the merits of the regulation.

CARB has prior experience addressing OALs disapproval of regulations on technical grounds, most recently for the 2022 Commercial Harbor Craft regulation. As an example of what CARB expects to see from OAL within the next few days, linked here are OAL’s initial notice and its later detailed document explaining its reasons for disapproving the Commercial Harbor Craft regulation. With that regulation, CARB staff put out a proposed revision to the rule for a 15-day public comment period slightly more than one month after the disapproval, and CARB staff then resubmitted the rulemaking to OAL less than three months after the disapproval. OAL approved the resubmitted rulemaking for an effective date less than four months after the disapproval.”