Assembly Select Committee on the Transportation Costs and Impact of the Low Carbon Fuel Standard

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The Select Committee on the Transportation costs and impact of the low carbon fuel standard is called to order. They're still louder than me. Well, good afternoon, everyone. Welcome to this Select Committee into this hearing room. We're going to have great discussion today and I look forward to it.

The hearing room is open for attendance of this hearing and it can be watched via livestream on the Assembly's website.

We seek to protect the rights of all who participate in the legislative process so that we can have effective deliberation and decisions on the critical issues facing California in order to facilitate the goal of hearing as much from the public within the limits of our time.

We will not permit conduct that disrupts, disturbs or otherwise impedes the orderly conduct of legislative proceedings. We will not accept disruptive behavior or behavior that incites or threatens violence. We encourage the public to provide written testimony by visiting the Committee's website.

Please note that any written testimony submitted to the Committee is considered public comment and may be read into the record or reprinted. Now, after all the presentations are completed and Members have wrapped up their questions, there will be an opportunity for those in the hearing room to provide public testimony. With that, we will begin our hearing.

The Low carbon fuel standard, more commonly referred to as LCFSF. LCFS is designed to encourage the use of low carbon transportation fuels in California to reduce emissions and achieve air quality standards.

At a time when California's climate policies and tools are being attacked by the Federal Government, we need to retain a suite of tools to protect the health of Californians and continue to make progress toward our climate goals. People have questioned if LCFS contributes to gas prices in California and if so, by how much.

The question I would like to pose today is if people are paying more at the pump for a gallon of gasoline, are the benefits worth the cost?

One example I use regularly as we talk about affordability in the State of California this year it has been a prime topic is the fact that most of us who drink coffee can make coffee at home for pennies on the dollars. However, the majority of coffee drinkers go to Starbucks. They go to Pete's.

They go to that local coffee shop. Why? Because they find value in going to that local coffee Shop now they're going to pay a lot more than what they do is if they do it at home.

But they see some level of benefit, whether it's that opportunity to go hang out with folks, engage, just be in the public and get out of your PJs. Or is it to see that barista maybe hoping for a date? Or is it to you like the foam on top with the heart or some some preference.

But there's something about getting your caffeine from a place that is way more expensive that you find value. And it is about time we have a real conversation in the State of California about what things cost and, and do they live up to the value?

Do they provide a benefit if they do proceed but how do we maximize that benefit if they don't? Or how do we eliminate if it doesn't provide a benefit at all?

I think when we talk about today about the cost of lcfs, really it's about the cost of the added value to Californians and is there any and how do we maximize if possible? You'll hear from speakers today.

The LCFS provides a myriad of benefits to Californians, including funding for zero emission vehicles and public transit projects, a reduction in greenhouse gas emissions and reducing local pollutants such as diesel particulate matter. I look forward to these discussions today and having a real conversation about this complex yet beneficial program.

With that, I'd like to turn it over to my co Chair, Assemblymember Alvarez, for his opening remarks.

Thank you Madam Chair, and good afternoon to everybody. It's great that our day has finally come on this conversation. Certainly want to thank the speaker for convening this.

It was very, very clear from the beginning that Speaker Rivas wanted to make sure we focused on affordability at all levels of that we have some control under and certainly in the transportation space and in the energy space. That has been a concern for Californians and rightfully so. We are focused on that and discussing that.

It's really, I think call it a moment of reckoning where we need to determine very much in line with the comments of our co chair, Ms. Wilson, that we need to really decide this moment of reckoning is a decision on energy policies and what the costs are and how we compare that to the benefits because it's pretty clear, I think Californians want to make sure that we move to a cleaner environment that addresses the impacts of climate change and we all want to get there.

And I think the conversation is about how do we get their best in a way that doesn't overly burden Californians and their cost of living. That's been a key consideration in these discussions. So that is our central focus in the Assembly.

The directive is very, very clear from our speaker, which is how do we ensure that the cost of living remains affordable for Californians? That is how we opened this year's session with the speaker on day one, and that has been the focus and that is the focus of this conversation.

I want to thank all of you who have had an opportunity to already share some of that over the last couple of months since this Committee has been formed and announced. I really want to thank our co chair for being a tremendous value and asset in this conversation. I certainly have learned a lot through this conversation.

There is a lot to learn. That is my hope that with today's hearing that that's what happens, that Californians and others learn about how this program works, what it does and perhaps what it does not do.

And then together, by being informed, by having the facts and by having questions answered, we can make a better decision by the end of today, I hope, and in the coming days, certainly as a result of this hearing, as to where we're going, because I think where we want to go is a cleaner California, but always with the mindset that it has to be done in a way that takes our consumers and our citizens into account in terms of what that cost is.

So again, just want to thank you all for, for those who are going to be speaking certainly have questions for you. That's probably not a surprise. But thank you all for being here. And again, thank you, Madam Chair.

Thank you, Mr. Chair. Now I'll give the opportunity for Members of the Select Committee to provide their opening remarks. Assemblymember Lackey.

Yeah, certainly. Let me just begin by saying LCFS is actually an expletive in my district and it's hated. It's absolutely hated. And the chair has actually explained the reason why is because we talk about the importance of having this, but we don't really mention a specific benefit.

And it's a very serious expenditure, especially when you have a district like mine where the average income is about $50,000 a year and they travel in excess of 100 miles a day. And they don't do it because they're sightseeing, they're working, they're providing benefits, they have to travel to buy groceries.

They have to travel for basically every function in their life. And a study recently indicated that transportation costs are the biggest part of a family budget outside of the rent or the mortgage. It's a very big deal. Everybody And I'm learning that LCFS has a big function, but I'm in the inside, right? I'm not like everybody else.

I'm actually part of the Legislature. We need to communicate with our public the real benefit that's coming. And don't just tell me the, the environment wins. That doesn't work. You need to sell specifically how the environment wins and you'll be more convincing and maybe you'll have more buy in.

But I look forward to this, this discussion so that I could be the messenger and help be a force multiplier and telling people the importance of LCFs because they really have no choice but to pay it. So I look forward to this discussion.

Assemblymember Sharp-Collins.

I will keep mine brief. I just want to thank you guys so much for allowing me to be a part of this particular Committee as the Assistant Majority Leader for Policy and Research. This is a big topic of conversation for us as well that we are continuously bringing into our Democratic caucus to address the affordability conversation.

So I echo the sentiments of my colleagues here. This is the time for us to continue to learn. I've learned a lot in the last 48 hours. Okay.

But also, but just over the past, you know, the past year and even prior to that, I've learned so much, and I'm looking forward to us finding some, some common ground so that way we can move forward to make, to get some answers, you know, to be able to solve some of the issues that we're currently having for the, the entire State of California when it comes into transportation costs and so forth.

So thank you so much for convening. I'm looking forward to hearing the conversations. And I have some questions and hopefully they'll get, they'll get answered.

Sounds great. Thank you so much. So now we will begin with our first panel. This is the panel that the theme is LCFS 101 and the impact or 101. I don't know why I said it that way, 101 and the impacts of LCFS on fuel prices.

This panel includes Leanne Randolph, Chair of the California Air Resources Board, Matt Botel, Chief Industrial Strategies Division of the California Air Resources Board, and Siva Gunda, Vice Chair of the California Energy Commission. We will hear from three of our panelists and then I will open up for questions from Members of the Committee following the panel. Thank you.

All right, thank you. Chair Wilson and Chair Alvarez. Appreciate the opportunity to be here. My name is Leanne Randolph. I'm Chair of the California Air Resources Board.

And I really appreciate the opportunity to talk to you about the role of the low carbon fuel standard in meeting public health, climate and air quality goals and the benefits of the program. I have with me Matt Botill.

He is the chief of carbs, Industrial Strategies Division who oversees the low carbon fuel standard and he is here to dive into the program in more detail. It is an incredibly complex program and so I know you'll appreciate the opportunity to get some of those details.

First, I want to begin by laying out the landscape that we are living in as we do this work.

As Chair Wilson mentioned, our clean air efforts are under siege by a Hostile Administration that is actively working to sabotage the state's policies for public health and environmental protection and and to attack the state's right to protect its own citizens.

I am sure you're already aware of the attacks on our ability to regulate vehicle emissions that protect residents and we are litigating those issues right now. But even worse, or just as worse, the federal Administration is trying to sow doubt and trust in science and data.

The current effort to unwind the endangerment finding for greenhouse gas emissions are supported by a new study with fossil fuel aligned experts who are supporting, who are, who are cherry picking text and ignoring solid and repeatedly verified data to undermine faith in America's scientific research and the conclusions that that those scientists have reached.

Their decisions put the health of millions of Californians at risk and this disruption has created an environment of investment uncertainty that puts our economy at risk.

So it is more vital than ever for us to maintain and continue our state efforts to foster investment and innovation policies like the low carbon fuel standard we're here to talk about and other complementary policies like the renewable portfolio standard and cap and trade together provide long term policy certainty and direction so that the private and public sector can work together and invest in a cleaner future that creates that innovation and those new business opportunities.

All while protecting public health. So you know the 20 year history behind California's environmental progress around climate change. Starting in 2006 with AB32. More recently the Legislature's climate goal of carbon neutrality by 2045 and our most recent scoping plan calling for significant reductions in fossil fuel use which have attendant health benefits.

The emissions and fuel use reductions in the Scoping plan primarily come from zero emission cars, trucks and and clean fuels. But LCFS is a key piece of that as well.

It has been in effect for over a decade and plays an even more critical role in making fuel less polluting by encouraging investment in the production of cleaner fuel alternatives. As the Federal Government sustains its attack on our emission standards.

The transportation sector remains the single largest source of California's manmade greenhouse gas emissions, accounting for over 50% if you include upstream activity. Transportation is also the dominant source of smog forming pollutants which trigger asthma attacks and heart problems.

60% of those emissions come from heavy duty vehicles like trucks, buses, trains, ships and planes and heavily impact people who live on those corridors.

The USEPA sets health benefits based ambient air quality standards and despite ongoing challenges, California has seen major improvements in our air quality due to the collective efforts of state and local government, businesses and the public.

Smog farming emissions have dropped nearly 70% since the 1970s due to California's vehicle rules, which have directly resulted in major technological technological advancements that reduce vehicle emissions.

Still, more than 18 million Californians live in areas that exceed federal ozone standards and over 5,000 premature deaths occur annually as a result of exposure to air pollution which is mostly produced by mobile sources.

So without programs like LCFS which help us reduce air and climate pollution, we would be looking at much more difficult and costly interventions that may not achieve the innovation and cost effectiveness that this program fosters.

Failing to meet our climate and air quality targets means further health and climate damage for Californians and frankly also means potential federal sanctions that could result in the loss of transportation funds.

It is worth noting that in the past few weeks, public input from forums sponsored by state agencies around how do we continue progress despite federal attacks on our vehicle emission standards?

In those public forums, speakers repeatedly noted the value of the low carbon fuel standard in maintaining momentum in zero emission vehicles in the face of that federal hostility.

Also recognizing that we continue to need liquid fuels and we continue particularly in the heavy duty sector, it's critical that as the federal attacks are slowing down implementation of zero emission trucks, we want to make sure that we have a continued reliable source of renewable diesel to provide those benefits.

Before I hand it over to Division Chief Bow Till, I just want to take a few moments to talk about the price concerns.

And I really appreciate the framing, both by Chair Wilson and Chair Alvarez and by you as well, Member Lackey, that we do need to really think carefully about the benefits and talk about the benefits and the importance of those benefits. Too much of the conversation focuses on gas prices alone.

And we know that the main input for gas prices is the cost of unrefined petroleum. That's the biggest chunk. And the fact is that gas prices are 7 cents lower than they were a year ago. Despite nearly 3% inflation. The LCFS amendments came into effect on July 1st and dire predictions of gas price hikes did not occur.

And we recognize, as I noted earlier, that we need to continue a stable and fair fuels market as we make this transition to cleaner and cleaner vehicles and all the way to zero.

LCFS is bringing billions of private investments annually to support low carbon fuels like renewable diesel and sustainable aviation fuel and zero emission technologies to meet customer demand in California. Investments that create jobs, spur technology development and help companies gain a competitive edge in California.

Low carbon fuel standards funds zero emission infrastructure funds zero emission vehicles, and funds the fuels that we need to continue to progress to see those health and climate benefits. So with that, I will turn over the rest of CARB's presentation to Mr. Botel.

Thank you, Chair Randolph. Good afternoon, Chair Wilson and Chair Alvarez. As Chair Randolph mentioned, my name is Matt Botill. I'm the Division Chief of the Industrial Strategies Division at the California Air Resources Board responsible for administering and overseeing the low carbon fuel standards. Thank you for allowing me to be here today.

I am going to dive into a little bit more detail on some of the mechanics of the program and add some more specifics to the points that the Chair I'm going to jump through. There we go. I'm going to jump through these first two slides relatively quickly. The Chair covered much of this in her opening statements.

As you well know, we have a mandate here in California to reduce greenhouse gas emissions and achieve carbon neutrality, and we need to cut greenhouse gas emissions to get to those statutory objectives. As Chair Randolph mentioned, we also have significant emissions from the transportation sector as the single largest source of greenhouse gas emissions in California.

And, and so the program that I'm going to talk about today, the low carbon fuel Standard, is a key program in helping to reduce greenhouse gas emissions from the transportation sector and accelerate the deployment of less polluting fuels and vehicles. All right, so the LCFS is not a new regulation.

In fact, it was first adopted by CARB in 2009 as an early action measure under AB32. And CARB has amended the program multiple times since it was first adopted, each time looking to improve and strengthen the program from its very inception. The LCFS is designed to achieve cost effective GHG reductions from the transportation sector.

The LCFS doesn't mandate a specific fuel or outcome. Rather, it sets a performance target in the form of carbon intensity reductions. And then CARB oversees a flexible market where participating entities have many compliance options and can find the most affordable way to advance clean, lower carbon intensity fuels.

In this way, the LCFS is structured to create an economically efficient least cost pathway for diversifying the state's transportation fuels with lower CI fuels rather than pursuing more direct and potentially more costly measures. The program works in this way.

We CARB through regulations set an annual declining carbon intensity target for transportation fuels used in California represented by the black and blue lines here on this slide. The lower carbon intensive a fuel is, the more credits a fuel producer can generate per unit of fuel.

These credits can then be sold in the marketplace or used by the fuel producer for their own compliance. Put simply, the program design rewards fuel producers who produce larger volumes of low carbon fuels. High carbon fuels such as fossil gasoline and fossil diesel have carbon intensities that are higher than the annual CI target.

These high carbon fuels generate what we call deficits and deficit generating companies must retire credits to comply with the annual target. As the carbon intensity targets get lower each year, credit generating fuels generate fewer credits by volume. Some fuels, depending on their carbon intensity score may eventually flip from being a credit generator to a deficit generator.

So in this way, the LCFS structure creates a clear and long term incentive to deploy only the lowest carbon fuels to California and to continually innovate to reduce the carbon intensity of the existing fuel pool. The program has outperformed previous carbon intensity targets and is shown by the blue line because of rapid growth in low carbon fuels.

The green line on this chart shows the actual performance of the program where the overall carbon intensity of California's transportation fuel pool has has been well below the regulatory targets for the past few years. The green line here represents a significant accomplishment.

It means that private companies were able to supply large volumes of low carbon fuels to California in a cost effective way far exceeding our required carbon intensity reductions. As I mentioned earlier, each fuel has a carbon intensity based on its life cycle assessment.

This slide has an illustration of the life cycle assessment of fossil diesel which has a carbon intensity of around 100. You can see that our life cycle takes into account upstream extraction and transport of the crude oil emissions from refining the crude into diesel, transport of the finished product and use in vehicles.

This full chain is referred to as the fuel pathway. In comparison, this slide shows a hypothetical carbon intensity calculation for renewable diesel produced from used cooking oil. The renewable diesel in this example has a much lower CI value.

Because the fuel is produced from crop derived waste oils rather than petroleum, its overall life cycle carbon intensity is much lower than its fossil fuel counterpart and renewable diesel can be used as a direct replacement for fossil diesel.

So There are over 1000 individual fuel pathways in the low carbon fuel standard and CARB follows a robust process for calculating carbon intensities for each one before certifying these fuel pathways for credits for CARB.

To certify each pathway, the applicant must first submit their operational data for each step of the lifecycle, including feedstock production, transport, energy used to render or refine the feedstock, fuel transport, and finally use in a vehicle.

Carbon intensity values are then calculated using CARB approved lifecycle analysis tools, and third party reviewers review the data and conduct annual audits and or site visits to ensure the accuracy of the operational data. CARB staff also review the pathway for accuracy and completeness. The most complex pathways are also posted for public comment prior to being certified.

The regulation requires corrections or adjustments to carbon intensity values if errors are identified in any of these checkpoints. And in addition to pathway processing, our staff also oversee the verifiers and conduct enforcement activities as needed.

Oh, sorry, go back one more. Fuel transactions from each quarter are reported to CARB and after the quarterly reporting deadline, CARB generates credits and deficits for reported fuel volumes based on their carbon intensity. For fuel suppliers with a compliance obligation, they must retire the quantity of credits matching their deficits by April 30th of each year.

There are a number of fuels and activities that are exempt from compliance obligations in the regulation as well, which are shown on the slide. And to reinforce what I mentioned earlier, the regulation provides flexibility for companies to comply.

A company may generate their own credits to meet their deficit obligation and they may also procure credits in the market to meet their obligation. Slide 10 shows the many ways in which fuel suppliers and others can generate credits under the regulation.

The most common credit generation pathways come from low carbon fuels like renewable diesel, ethanol, renewable natural gas, electricity, low carbon hydrogen and alternative jet fuel. The regulation also includes provisions for the petroleum industry to generate credits and reduce their compliance obligations through investing in technologies that reduce crude extraction and refining emissions.

More recently, we've also updated the regulation to provide credits instead of fueling infrastructure so providers can provide credit receive credits based on station capacity in advance of any dispensed fuel. That opportunity helps zero emission vehicle station developers secure financing and build fast charging and hydrogen fueling stations in advance of vehicle deployment.

This slide shows how the secondary LCFS credit market has responded to CARBS regulation. The blue bar represents increasing volume of LCFS credit transactions over time consumer consistent with the growth of credits being generated in the program. The dashed line shows the changes in LCFS credit prices over time.

More recently, LCFS credits have been trading under $60 per credit.

The credit prices have come down from higher prices earlier this decade, which shows that the program structure is working to bring increasing volumes of low carbon fuels from various producers and that this production competition is helping to drive more affordable alternative fuels and cost effective greenhouse gas reductions.

So I think this goes to some of the comments made by both chairs on the benefits of the program. I'm going to spend some time here on this slide.

It sums up some of the key outcomes from the regulation and how it's been one of our most effective policy tools to speed up the transition away from fossil fuels without relying on any public sector money. The program has generated 3 to 4 billion dollars annually in private sector investment in cleaner transportation fuels and options.

That private sector investment ultimately keeps money in California's pockets through increasing consumer choices which drive transportation fuel competition, growing new industries and attracting investments that support jobs and strengthen communities.

Reducing dependence on petroleum in the oil industry, protecting consumers from its associated supply and cost volatility, making electric vehicles more affordable, expanding access to electric vehicle charging and hydrogen refueling infrastructure, and reducing health care costs associated with air pollution from fossil fuels.

Underneath these stats on the slides are stories of how the LCFS has spurred investment in clean energy. Here in California, we've seen refineries transition from fossil fuel production to renewable fuel production. We've seen utilities use LCFS revenue to invest in EV infrastructure and supporting communities with rebates for zero emission vehicles.

Dairies are using the program incentives that they receive through this policy to capture methane and to even produce hydrogen and electricity that they then supply to transit agencies for ARM farm operations. EV charging companies are utilizing the LCFS to build more fast charters.

Transit agencies use LCFS revenue to support ongoing operations of zero emission buses and electrified rail and trucking companies receive upwards of $1,000 a month in LCFS revenue per battery electric truck to help close the gap between diesel and battery electric truck vehicle costs. In 2006, when AB 32 became law, the state used almost exclusively fossil fuels.

Since that time, and thanks in large part to the LCFS, California has increased alternative fuel volumes from 5% of the total fuel pool to 27% in 2024. One criticism we hear about the program is that it is shifting benefits out of California. In reality, the regulation brings significant volumes of low carbon fuels directly to California consumers.

And while it's true that some of these fuels are produced in facilities located outside of California, this is no different than how the fossil fuel industry extracts and transports crude and finished fuel from out of state to California.

Or how fossil natural gas is supplied from outside of California into the state, or how electricity is transmitted across state borders to meet California demand, the simple fact is that the low carbon fuel market is no different than any other energy market.

If we look closely at ZEV infrastructure, you can see on the slide that LCFS has provided critical support for Zero Emission Vehicle infrastructure here in California. As of August 2025, there have been a total of 79 hydrogen stations and 969 fast EV charger sites approved to receive additional LCFS credits. This number is growing every day.

Each of these sites that you see on this slide have multiple chargers or hydrogen dispensing nozzles. So the reality is that the actual EV chargers number in the thousands. Given this track record of success and California's statutory mandate to achieve carbon neutrality by 2045, CARB staff initiated regulatory updates following the 2022 scoping plan approval.

If you look at the graph on the right side you'll see the green dotted line which shows the 20% reduction in carbon intensity by 2030 which was required by the previous regulation. It also shows that that level of carbon intensity reduction remains at 20% until the future- into the future under the past regulatory requirements.

The black line shows the new carbon intensity reduction levels that are part of the updated regulation.

These new targets, as well as other updates we made to the regulation, will help spur further investment and help scale the technology deployment needed from hydrogen production to clean energy infrastructure to zero emission vehicle sales that we need to help achieve the state's carbon neutrality objectives.

The expected investments will also result in important air quality benefits to reduce pollution and help us in meeting our federal air quality standards. These regulatory updates were multiple years in the making and as part of the rulemaking process, staff shared information publicly and transparently.

At each of these workshops, meetings and board hearings, staff publicly posted materials and open comment dockets to solicit feedback on those materials and the meetings. We received substantial comments and they're all available on our website.

During the rulemaking process, we also posted tremendous amount of supplemental information for the sake of transparency and so our stakeholders could check our work.

This slide shows a snapshot of the supplemental modeling webpage that we have on our website, with each link linking to an Excel workbook that contains detailed modeling inputs and outputs for the technical modeling we did and the underlying assumptions. What you see on this slide is the results of the multiple years of that transparent technical work.

This slide shows CARB staff's analysis on how transportation fuel mix may change under successful implementation of our LCFS and our complementary ZEV policies.

We know the future won't match these outcomes exactly, but what we anticipate is that we will continue to see a major transition to electricity and hydrogen use in the transportation sector with a smaller but persistent role for liquid fuels used in combustion engines.

What you may also notice is that the bar chart on the right is smaller than the one on the left. Simply put, zero emission vehicles are more energy efficient than combustion vehicles. So if we're successful in deploying more zero emission vehicles by 2045, we will also ultimately require less overall energy,

Even with a growing economy and population. These two things, a shift to alternative fuels and zero emission vehicles represent a significant opportunity for clean technology investment. Based on a rulemaking analysis, CARB staff estimated that the LCFS updates could result in over 100 billion in cumulative private investment opportunities by 2045.

We aren't alone in seeing the opportunities that these clean fuels markets create. For a number of years now, the Federal Government has provided support for alternative fuels via the Renewable Fuel Standard. Fuel producers bring clean fuels to California leverage incentives from this complementary federal policy as well as other tax credits and incentives.

Other countries and states have also adopted or considering LCFS programs of their own. There are currently four other states that established or are developing low carbon fuel markets following CARBs example, and eight more states that have proposed legislation to create such markets.

This speaks to both the success of the low carbon fuel standard and the importance of creating long stable, long term policies that create a clear and replicable path for transitioning away from fossil fuels and towards alternatives.

So the Chair talked a little bit about this in her remarks, but I'd like to take a moment to walk through the cost concerns that have been raised regarding the LCFS. Commissioner Gunda will also speak to this as well.

But I want to emphasize that the LCFS credit prices are not a major driver of retail fuel prices in California. As you can see from this chart, LCFS credit prices and the retail price of gasoline in California do not track together in any meaningful way.

We know that climate action will come with some costs and statutory mandates direct CARB to develop cost effective programs. The LCFS does this. Instead of direct regulations on fuel providers, the LCFS provides complementary- compliance flexibility that companies can adapt to their own needs and keep compliance costs low. So I'm going to pause for a second.

I appreciated Chair Wilson, your analogy on coffee. I'm a coffee drinker. In fact, I feel like it is necessary for my life. I have to have it every day. But I'm also somebody that is very focused on cost effectiveness.

So I always go for the homemade drip coffee, the cheapest coffee that gets me the most caffeine for the buck that I can possibly get. I view the LCFS similar. It's a policy that is getting us the most cost effective access to that caffeine as possible. It's the drip coffee in your kitchen.

You can certainly have more expensive policy options that have more frills associated with them, but they're not going to get you that direct injection of caffeine for as low cost as possible.

In reality, so I'm going to skip to the next slide. Retail fuel pricing that consumers pay at the pump are affected by many different variables. State agencies have examined data on retail gasoline between 2019 and 2023 and the cost of crude oil distribution and marketing costs.

And the market behavior of petroleum refineries influences over 80% of the retail gasoline price paid by consumers. It's also worth noting that the environmental fees and taxes paid by consumers yield direct benefits to California in the form of improved air quality, safer roads, highways, as well as innovation under the LCFS and investment in CleanTech.

While higher carbon intensity fuel producing entities can shift the cost of compliance with the LCFS to consumers, they do not have to. Fuel producers have different strategies for complying. Some might produce cleaner, lower carbon intensive fuels, themselves potentially benefiting from the incentives. Others may buy credits at current market prices or via forward contracts.

These dynamics and choices from entities participating in the program make it exceedingly difficult to predict with any confidence whether high carbon intensive fuel producing entities will pass those costs on to consumers or absorb them, making it challenging to accurately determine the exact impact on retail gasoline prices paid by consumers. Almost done.

As for the amendments, the updated regulation went into effect in July 2025. Despite claims of significant and dramatic gas price spikes from the amendments, reported data shows the impact of the amendments is approximately 7 cents per gallon. And when comparing the full retail price paid at the pump over time, retail gas prices, as the Chair mentioned, were actually lower in July 2025, from the same time last yea.

Over the course of almost two decades of implementing climate and environmental policy, we have seen time and again dramatic claims of retail gas price impacts by opponents of these policies or stakeholders who are ultimately unhappy about specific or regulatory requirements or policy choices.

Our Board is committed to mitigating adverse consumer impacts if they should occur from our policies. But it's important that any assessments rely on data and facts instead of rhetoric. And so we've been directed by the Board to continue to work with our partners at the Energy Commission to bring data and facts into the LCFS conversation.

I wanted to end my slide presentation on a more positive note. So one last slide on transportation costs. Overall, we expect the amount of money Californians spend on transportation fuels will actually decline over time.

As we shift to alternative fuels and more efficient zero emission vehicles, the amount of money the average driver spends on a per mile basis could be cut in half.

And as the LCFS and California continue to lead in the space, we'll see a fuel market with a greater number of clean fuel producers, allowing for greater competition and lower fuel rates when compared to the smaller and more concentrated number of petroleum fuel producers we have today.

We expect this competition will also help put downward pressure on overall fuel prices and will foster an environment of ongoing innovation in clean fuel production that brings affordability, climate and air quality benefits to Californians. With that, I'm going to hand it off to Vice Chair Gunda of the Energy Commission for his remarks. I appreciate the time today and look forward to the questions.

Thank you, Matt Good afternoon, Chair Wilson, Chair Alvarez and the Members of the Committee. Thank you for the opportunity to be here. I have just three slides to go through real quickly.

So the CEC has different paths to collect information on the cost of LCFS as a part of the gallon of gasoline sold thanks to the Legislature SB 1322. Alan Bill kind of gives us the data called the 1322 data, which is posted in aggregate on our website.

Similarly, we also have a second path which is an industry subscription called the OPIS. We subscribe to the data and we gather that information as well. Since we started collecting the 1322 information from the refineries directly from the industry and kind of compared that the OPIS data they both track really well.

So the information we have from both parties seems to be consistent. The information that we collect is confidential, but we do post aggregated information on our website and is available and happy to respond to any further questions that you might have on the data stream itself.

Going to the next slide, just wanted to make sure there were two questions that CEC got over the last couple of years in terms of the contribution of climate programs, tax and fees to a gallon of gasoline in California.

And we've repeatedly said that information, which is it is a fact and I don't think we should ever refute that, that there is a cost that is added to the environmental programs at the price of gallon in California.

But I think the question as Chair Wilson you mentioned is what are the benefits and how do we compare the pros and cons and the benefits of that? So wanted to just give you a little bit of a high level breakdown of the components that you see here.

As Chair Randolph mentioned, one of the biggest components of price to price of gallon at the pump is the crude oil cost. So what we have in there is the percent breakdown of each of those components.

And as you see there, as you go from a gallon of petroleum that's coming into a refinery, so there's a crude oil acquisition cost goes through the refinery and you have the cost added in terms of Refinery margin that accounts for their profits, but also operational costs and then starts going down the lane all the way to the pump.

So one of the takeaways from this is at a, at a very high level, the crude oil has the biggest component and the component from the programs, while they exist, they're relatively smaller to the overall price of the gallon.

Going to the next slide, the other question that we got, you know, especially the Energy Commission over the last couple of years, is do the environmental programs contribute to the price spikes that we are trying to tackle in California? And the answer is very clear with the data we have.

While they are persistent and they exist, they do not contribute to the overall price volatility. Again, looking at the slide here, stacking all the different components over time, what you see there is the crude oil prices do vary a lot.

To just give you a measure of that, if the crude oil moves about 10 cents, sorry, 10 dollars a barrel internationally, because it's all internationally indexed, you're moving about 25 cents a gallon. And that gets transitioned very quickly into the price of the gallon.

Second, one of the things we established over the last couple of years, and again thanks to the Legislature on these discussions, as we have the supply vary in California of refined fuel, that does impact the refinery and the industry margins overall.

And those are the two components that really do move in terms of the volatility of the gallon of gasoline. But as you look at the rest of it, whether the state taxes, federal excise tax, state excise tax, and then you have the environmental programs, they do stay pretty solid without moving much.

So those are all the slides I have. Happy to answer more questions as we come up. And thank you for having CEC here.

Thank you. So this concludes the presentations of the first panel. And so now I'm opening it up for Members for questions. Co Chair.

Thank you, Madam Chair. Thank you all for the presentation. I have a few questions. I'm going to try to do it based on the slideshow to try to get everybody an opportunity to understand what I'm asking. Sometimes I don't communicate the questions as clearly.

So if we could go to slide number five from CARB's presentation, I would appreciate that. So this-

Let's see if we can get it on the screen to help Members and the Members of the public so we can go back to five.

That would be great. And as we go to that slide, I'd ask the question.

So you have this graph with the black line, which was the compliance curve, the, the anticipated, if you will, carbon intensity in the green line, which is the actual carbon intensity reduction that we have seen out in the real world, there is a delta there, a gap that's quite significant, which please correct me here if my what I'm understanding and taking from this, the adoption has been more aggressive than anticipated, and that could be for a variety of factors.

I certainly would be interested in hearing from you why that has occurred. And given that this is circled around the issue of cost, how do you, how could someone, or what can someone take away from that more rapid adoption translate into actual cost, potentially?

Even though I know you ended this series of presentations in this panel identifying what the cost really is, and it's quite clear that it's not contributing much, but there is a cost. So I'm just curious, either the cost of that and then has that been measured against potential economic benefits?

Because most of this is all innovation that's happening in a lot of spaces. And you list that all the examples of those, some of the examples of that innovation with new types of fuels. Has anybody done an assessment on what economic benefits, perhaps through innovation, job creation, any of those things?

What has that brought to the table so that we can better understand the economic impacts?

Yeah, happy to take a shot here. So in looking at the chart on slide 5, when you see that green line dipping well below the compliance curve, what that means is in real terms, alternative fuel providers are providing significant volumes of clean fuels to California.

They're generating more credits than they actually than the counterparts on the deficit side need to comply with the carbon intensity reductions in the regulation. So ultimately, that has resulted in what we call kind of a credit bank. Entities are holding on to credits for potential future compliance.

This is a kind of a normal feature, this banking feature of a program such as this because it allows for the compliance entities in the future to be able to use those banked credits, which means they don't have to go out into the market and buy another credit or produce more clean fuel.

They've already got it saved up. And so they can spread those compliance costs over many years because they've been able to bank these credits and save them for future compliance obligations. So that's what's going on there. They're continuing to produce and deliver fuels on the expectation and anticipation that this program will continue.

They'll have some compliance in the future that they'll need to meet, and they're saving up those credits for a rainy day, essentially.

So in terms of kind of questions on what the program has provided, I did have some statistics on what was it slide 12 that goes into the historical benefits of the program and those are the benefits that have come from all of those fuels and credits that are on that green line.

So as those were kind of being delivered in. And then your question about the future.

I wrote that question before I got to that slide. So thank you. The follow up would be out of the examples that you provide on this page of these types of fuels that are being generated as a result of the credit, do any of them have any outweighed in terms of the percentage of credits being applied?

Is there more renewable diesel or more ethanol or more like which one is performing at which levels? Because I know you give you the example of the diesel versus renewable diesel and the impacts of that from an environmental standpoint. Appreciate that, that distinction there.

But are there any of these that are outperforming the others in any significant way?

So I'm going to kind of avoid saying outperforming because they're all different in their own unique special ways.

So each fuel. Maybe I should. Maybe I should. Are any of these sectors providing more carbon intensity reduction than others?

Yeah. Yes, because each of the fuels are essentially evaluated and scored based on their carbon intensity. And those carbon intensities are very different across these different fuels. We have some fuels that have much lower carbon intensities relative to others.

So to give you a kind of a sense of this, you know, renewable diesel typically falls anywhere between 20 grams per mega joule to 55-60 depending on what it's produced from how far it has to come delivered to come to California.

We have electricity credits, we have low CI hydrogen credits, and we also have credits from renewable natural gas that come from captured methane at dairies and other methane generating sources. And those can actually go into the negative. So each one of these fuels gets its own carbon intensity score.

And then the total amount of credit revenue that they generate is based off of their score and the volumes of fuels. So you could have a really, really low carbon technology. It's, it's, you know, not producing any emissions at all. But it could be very expensive and very hard to produce volumes of fuels.

And so you might not generate that much money from it because the volumes are just not there.

So maybe as a follow up, just of interest for me is you obviously take a point in time assessment of where we're at with the intensity. Better understanding which one of these new fuels are the most contribute the most to that would be just helpful to understand it.

You made it sound like it's diesel, but I'm not sure.

By volume. Sure. Sure. Yeah, I should answer that. By volume, the largest amount of renewable low carbon fuel that comes to California is ethanol, renewable diesel and biodiesel. So those are the biggest ones that are coming to California.

And what we do expect over time is that electricity will start to surpass both of the, or all three of those as more consumers opt into zero emission vehicles and start charging with electricity. So that will become a much bigger portion of the program into the future years.

I have a follow up to that based on chart 15. But before that, in your previous answer you talked about the, the way the system works with the banking. Does that have any impact on the, in the market in terms of the credit amount and where we're at today?

Because there's so much that has been banked given what we projected, where we project it to be. Is that a driving factor at all?

Well, again, we don't, you know, we don't control the secondary market and we also don't as the regulators speculate on credit prices. But certainly if someone that generates credits decides to withhold those credits from the market and not sell them into the market, that's going to have an impact on the overall secondary price of those credits.

Do you guys, any of you have any opinion on that and any thoughts, that work?

Well, I mean I will say that as a, as administrator of the program, the ability to bank credits is an important aspect of having a cost effective program and it's also important for investment certainty. If I'm deciding to build a renewable fuels facility, I'm going to generate a lot of credits.

I need to be able to make decisions that work best for my business on when I'm going to sell those credits or how I'm going to hold onto or use them. To the extent that you start limiting the ability to bank credits, it has these distortionary effects on the overall cost effectiveness of the program.

Thank you. If we go to Slide 15, please, this is the chart on the updates that occurred to the program which were certainly center of lots of attention. Can you explain how much of the new, the proposed amendments which I assume were adopted in that July decision. That's correct?

They went into effect in July. They were adopted last fall.

Okay. So and that's reflective in this black line here?

The new carbon intensity benchmarks, yes, are represented by the black line.

And how much of that was driven by sort of what we've seen going Back to slide 5 in, where what's actually happening versus other state policies. You made that decision based on some data out there. How much? Because it's a significant shift in terms of where we thought we would go.

How much of it has to do with our 2045 goals versus just the historical performance?

Yeah. The scoping plan identified that in order to continue to stay on track for our 2030 target and to meet the carbon neutrality target for 2045, that we would need to see additional reductions from this program. And so that informed the analysis on the trajectory.

Okay, only just a couple more questions. The I wrote some notes, so let me see if I can figure out exactly what I'm trying to ask you here. How does CARB ensure that LCFS credits are additional, meaning that LCFS credits go to emission reduction activities.

Oh, so how much of this is so that people fully understand, new investments in innovation and new technology versus sustaining potentially programs that already existed prior?

Yeah. So at its core, the LCFS helps to attract private investment into clean fuel production, into zero emission vehicles and infrastructure. These are things that we have articulated and been consistent in saying are necessary for us to hit our climate targets. More zero emission vehicle deployment, more greenhouse gas reductions from the transportation fuel pool.

We have a mix of policies that the state has adopted to help get us to those objectives. So in that sense, the LCFS has never included an additionality test because it's meant to help push us in concert with these other policies that we have in California towards those end goals.

This is kind of no different than how we don't apply additionality tests on renewable electricity, for instance. So there's the ability of this program to help facilitate those other program goals is important.

If we did include an additionality test, many of the activities that are supported through the low carbon fuel standard in terms of zero emission fuels and vehicles and low carbon fuels would possibly not be eligible.

And can I just add on to that, the zero emission vehicles is a great example because when we did the cost analysis, for instance, for Advanced Clean Cars II, that analysis rely, it's a direct regulation on manufacturers of the vehicles. And that analysis showed that LCFS would help achieve that goal.

It is a direct regulation and LCFS is helping to accelerate the deployment and achieve that goal in a faster manner.

I skipped over one slide 19. You spoke, especially Chair Randolph, about the federal action, which there has been some significant federal action and you've identified, I think, as sort of ways to leverage these types of investments. Maybe not rely, but certainly it's beneficial. The federal renewable fuel standards and the federal tax incentives.

Does that even still exist today as a result of federal action that's been taken?

Yeah, sure. The federal renewable fuel standard is still very much alive and there is an active market associated with production of fuels and the sale of renewable fuels through the RFS program. And they receive what are called RINs to help support their fuel production.

There has been a changing landscape on additional tax credits associated with fuel production, moving into programs that were originally authorized by Congress under the Biden Administration. There are still to my awareness, a little bit of ongoing uncertainty in how those programs will roll out. And that has fed its way into the biofuels market.

I know you have a number of producers, you know, in the later panels. It's a good question for them.

Okay, we'll definitely ask that. And then one thing to make clear on page 20 because I think, you know, if you don't sit through this presentation and listen that I want to sort of juxtapose with page 25, the red line is not the cost of the LCFS per gallon of gas. This sort of again could be misread.

That basically $2 January or don't know what month J of 2024 was due to LCFS out of the cost, the 4.50 that it costs for price gallon. Just clarifying that's not the case.

And again because it's really on page 25 where we can identify what that cost is thanks to the work of the CEC and the authority that they have, which I think, you know, we're coming to that reckoning that I talked about of where we are, you know, over 350 is just on the distribution, refining and the crude oil costs just cost to do business.

There are some costs associated with some of the, you know, low carbon fuel standards. As noted there. Obviously state and local governments have decided to tax themselves to there's a component of that. But I think it's. That's an important slide just to understand sort of where we're at.

And just to finalize, I guess the question would be how does the price of the low carbon fuel standard per gallon get impacted by all the other decisions of the price per gallon, whether it's crude oil, refining. Like how does that, how do we see that changing? According to some graphs you have in here, it's pretty steady.

Regardless of what happens with crude oil and everything else, LCFS stays pretty steady. Is that accurate or and maybe Vice Chair Gunda, you may be able to better give us an understanding of the dynamic that happens with the low carbon fuel standard component of price per gallon.

Yeah. Thank you, Chair. Yeah, I think they are pretty separated in terms of the market. So on one side you're looking at the life cycle of the crude oil moving down.

And what happens with the LCFs and others, they are assessed at the rack or the wholesale market and where the trading is happening to comply with the LCFS. So there are two separate markets, largely.

Okay, thank you. Appreciate it. Thank you, Madam Chair.

Thank you, Assemblymember Lackey.

Yeah, thank you. Since it's rare that we have the chance to have CARB leadership before us, I just have a couple questions. First of all, in your opinion, could we effectively fold features of LCFS program into the cap and trade program that would give us greater efficiency? Is that a possibility?

No. The programs are really, they have different participants. LCFS is only about transportation fuels, whereas cap and trade is the entire industrial sector. So it covers many things other than just fuels, and they are structured very differently. So the short answer is no.

Okay. And my second question also doesn't relate directly to LCFS, but in your opinion, should refineries be classified into the high trade exposed category for the purposes of cap and trade? With the recent closures, it would seem that they are in fact high trade exposed.

So when cap and trade was reauthorized in AB 398, the Legislature laid out the leakage risk for industry and basically set everybody at a high leakage risk. So everyone has a high factor. So refineries continue to get their allowances based on that leakage risk that is set in AB 398.

That's helpful because Cap and Trade is coming before us here very soon. So thank you.

Assemblymember Sharp-Collins.

Thank you. I'm just going back to some of the information that Assemblymember Alvarez was touching on, and I just want to make sure that I haven't missed it. So I think, Matt? Okay.

As you were talking about or answering the question whether or not we are providing more CR reduction than others, and then you responded, yes, within some cases. So I'm just wondering, within the CI conversation, why are we utilizing a carbon intensity score in a market mechanism rather than the direct regulations?

Just making sure I didn't miss anything adding to that conversation.

Yes, almost goes back to my coffee analogy.

And the, the fact that the LCFS program is structured to be providing cost effective greenhouse gas reductions in the transportation space and the way it's designed helps to do that by pushing for the lowest carbon fuels, the largest volumes, and for those fuels to continue to iterate and reduce their carbon intensity over time.

We have some fuel producers that have participated in the program for a number of years and they keep reapplying because they find new ways to, to drop the carbon intensity of their existing fuel production. And they wouldn't be doing that if it wasn't for the way in which the program is structured to reward that type of behavior.

And so that helps California because it means that they're investing. It means that they're reducing their emissions and they're finding ways to be economically viable and doing it without needing any public subsidies.

Thank you, thank you for, for clarifying that. And then I'm still going to, I think it was slide 12 the same thing when you were talking about making the EVs more, more affordable. And so I just continue to go into the conversation of having the affordability part of it because you said more affordable for commercial use.

So I'm just trying to.

Is there anything that we can kind of highlight that really shows the affordability side of it as we continue to look at the, the urban communities, the low end, the low income communities and you know, and some of the other sectors just to really see where they at now and just how much affordable is going to be.

At least try to try to project out to make sure that we are really having a real deep dive into affordable conversations as it will impact a number of my constituents as well and some of the businesses that are there.

And as right now, when it comes down to being able to purchase the vehicles or getting them, a lot of people are secondhand or whichever because they can't really afford to buy new and et cetera. So I'm going into the equity side of it and the access side of the conversation.

I just didn't hear much of the equity and access side of the conversation.

Yeah, thank you, Dr. Sharp-Collins. I will start by sort of identifying how LCFS supports zero emission transportation generally. So there's a few different ways it supports supports what we call capacity credits which Matt mentioned, which make allow for zero emission infrastructure to be deployed, which is absolutely critical for adoption.

You know, a lot of people do not have single family homes and a garage to park and charge their car in. So ensuring that those fast charging opportunities are available.

And the capacity credits originally started with just light duty and many companies, including Tesla, took advantage of LCFS credits to get that network out there for people to use. And now that network's open to more models of vehicles.

In addition, the new amendments expanded those capacity credits for heavy duty, which again is really critical because those stations are expensive to build, require a lot of power and making sure. That those are deployed for the transition in the heavy duty sector, which really benefits communities.

In addition, the program has historically funded vehicle rebates through the utility programs for the utilities that are providing electricity, they are providing fuel, and so they earn credits for providing that fuel. And those credits are used historically for light duty vehicle credits. In the amendments we oriented those credits towards heavy duty vehicles.

Again because that sector needs a lot of work to continue to grow. It is doing well, it is ahead of what we projected it would be, but it still needs a lot of work. And so the credits help deploy those vehicles as well. And I think that's it. Anything you wanted to add?

Not just maybe one smaller point, is that as the chair mentioned, the utilities do, you know, reinvest the proceeds of the EV charging that happens on their networks. A portion of that pursuant to the regulation and decisions by the PUC are directly directed for equity projects specifically.

Thank you. Just a few follow up questions. One is related to the conversation with my co chair Alvarez about the banking credits and people saving credits. What does impact of people saving credits have on demand and what impact does it have on the chart of the price? I think it was slide 11.

Yeah. So again, to the point that if our entities are sitting and not selling credits into the market, they're banking these credits for future compliance that will obviously kind of have an effect on the pricing at which the secondary market is clearing any credit transactions at.

So just like any other market, this is one where it's, you know, they're typically kind of agreements between buyers and sellers on the volume of credits they're looking to purchase or sell, the price they're going to purchase or sell at. The data that's on the slide that's in my slide deck comes from kind of three sources.

We ask that the credit transactions are reported to CARB because we keep track of who owns what credit and we ask what price they agree to these transactions at through these private transactions. And then there's also secondary data market providers that track these transactions outside of the public sector.

As far as kind of what the net effect of banking credits has on the kind of overall price, again I just have to say that just the regulator, I can't speculate on market prices on this. So I'm sure others will be happy to give you their opinion.

And just it was bringing up because you made the comment about banking credits and I wonder what role we've seen the drop over time and you have it visually stated here and as a regulator I know that's not your purpose, but I just wondered what other market factors have in the drop.

Some speculate it's because we're talking about it. Some speculate because there's a gluttony of product, a gluttony of this type of product. And so that is having an impact on prices. And so I just wondered if you had opinions and if it was at all related to the comment about the banking feature.

Yeah. No, no. What I can say is that because of the reporting requirements in our regulation, we have vastly more information that we publish about the deployment of low carbon fuels than we have historically. And thanks to the CEC, we're now getting lots of good information too about costs on petroleum refining.

But the LCFS data we have for years now posted that information on our website on a quarterly basis. We publish how much fuel is brought into California, how many credits they generate. We have carbon intensity data on our website. We post updates on credit price transactions. So all of this is very transparent.

And if you're participating in the market, you're a fuel supplier or a credit buyer, you can see what's happening in this market. You can make decisions and that certainly influences the ultimate price at which you're willing to sell or buy a credit at.

Sounds great. And then you noted that and I wrote it down and I wanted to make sure I understood who you were talking about. You said help companies gain a competitive advantage or competitive edge. Which companies? Who is that in reference to what companies are receiving a competitive advantage or edge through this?

Checking my notes.

We can come back to it, I have other questions, but you could, if you can find that one, that'd be great.

And then sure, I think this was. This was maybe the comment I made on my, my remarks at the last slide, if that sounds right.

And what I was referring to was not any specific company, but really the dynamics that are happening now in the transportation fuel market more broadly, whereby we have hundreds of companies providing alternative fuels, we have different fueling options for consumers between, you know, battery electric vehicles or hydrogen fuel cell vehicles or filling up with gasoline or on the diesel side, you can buy renewable diesel, biodiesel.

You can, you know, buy a battery electric truck or a hydrogen fuel cell electric vehicle. That is creating a lot of diversity in both the technology for, for vehicles and in how you fuel those vehicles. And, and that diversity is increasing overall competition for that consumer dollar on how you get from point A to point B.

So the point I was making was just how we are pushing into a more diversified fuel supply system that has a lot of baked in competition.

Thank you. And then the last question is for Vice Chair Gunda. In your slides, you noted the breakout of the low carbon fuel standard. And as we understand it, this includes the most recent this month. And so this includes the amendment in place now.

And so it typically people always ask, when people ask me about low carbon fuel standard, they are like, is it- they feel like it's constantly changing with every month? And that wouldn't be an accurate statement, would it, that it's a constant changing number? It's really based on the policy and then shifts, or is it a constant changing number?

Yeah, I think the. So both of them are true. And I just want to make sure I clarify. So on any given day, the LCFS price, as noted by OPIS and others, could change a fraction of a cent. It could go up and down, but it's very stable overall.

So if you look at last year, the average price was about 9 cents. And since the new amendments went in, we had about 14 cents today. And it's pretty stable.

And so if we got back to where I think on that one charge that we're about $200 is trading, would that have an impact on consumers, what they're paying at the pump?

So, yes, it's just kind of at 30,000 foot level to just kind of make sure that I track what Director Bortel was offering. I think there's two parts to the overall process.

So as the market is deciding I'm in a deficit and I want to buy, they're looking at the credits and the credit price, and they're trying to buy as much as they can.

And I think from a market perspective, the different players are making sure they take positions on these credits in a way that best provides them competitive advantage. So they're going to buy them in that sense.

So the credit price doesn't necessarily translate to the price of the gallon immediately because it depends on how they're reporting, how they bank it into the compliance mechanism.

That's good. Thank you.

Can I add to that Director Botil mentioned earlier as well? You know, credit buying credits is one option in compliance. Right. And so companies are also making their own investments. They're also developing their own programs. And so that, you know, also sort of is in the mix.

So it's very hard to sort of track exactly that, that straight line.

Right, thank you. And follow up to this, then when we look in 2025 on the last slide, you can see where the volatility. Well, you can see on the whole thing where the volatility is, it's the industry cost and profits in crude oil.

But in comparison to previous years, you see a little bit of volatility in the 2025 portion of the bottom three, the burgundy, blue, and green. In comparison to previous years, what would you attribute that to?

Yeah, I would definitely kind of pass it to CARB, but I think the, the compliance date, which went into July, I think there was some lack of clarity in the industry starting in June 1st, so January 1st. I'll just pass it to the chair to explain.

Yeah, so LCFS is a little unusual in that the compliance is based on quarterly. Right. So you're, you're, you're earning your, your incurring deficits and purchasing credits on a quarterly basis. And so that quarterly piece has a, you know, it's a time component.

When we adopt, when we submitted, adopted in fall, submitted the package to OAL, I think there was a lot of assumption that it would get approved and it would go into effect on January 1, which would be the first quarter in which it was adopted. However, because the OAL process was delayed, that created some uncertainty.

Are we going to consider the first quarter to be the first compliance? Are we going to consider the second quarter to be the first compliance? And it wasn't really until July after the end of June when OAL approved it.

And we made a public announcement that we considered the effective date July 1st, and so that the quarter subsequent, that would be the first quarter of a compliance obligation.

So our speculation, and we can really kind of only speculate, is that the companies were sort of seeing, you know, they were uncertain about when it was going to start. They wanted to kind of plan out their compliance. And so that's why they engaged in some compliance activity earlier in the year before it actually went into effect.

Anything to add?

I just wanted to add on this one, just if you see the 2025 chart, you can see that impact go up, but it gets stabilized back down once that clarification was made, and then it starts actually going up again with the actual compliance date.

I don't have any, but I want to check on.

Just if I may. And you know, there's only, it's only a data point or set of points, but I can't help but notice, and when it was pointed out by Chair Wilson on slide 11, this inverse relationship that, that is, at least on the data points, is showing on the price per credit versus the, the volume of credits.

And so, I don't know if it's something to note, and maybe you all may or may not have an opinion, but as the next group of speakers come up, I'm certainly just interested in, again, it's only a set of data going back only a couple of years, but it's quite obvious sort of the inverse relationship there, graphically speaking, anyway.

So, if you have any thoughts, great. If not for the next panel. Thank you, Madam Chair.

All right, well, thank you to this panel. Really appreciate your time and your expertise lending to this subject matter. Thank you.

Thank you so much. Thank you. I'm gonna have some coffee.

Okay, sounds good. All right. With that, we're gonna be moving to our second panel. This is our—the theme of this panel is our program design, out-of-state credit generation, and broader economic impact impacts.

And so, with that, we are inviting up Colin Murphy, the Co-Director of Energy Futures Research Program at UC Davis Institute of Transportation Studies, Aaron Smith, Professor of Agriculture and Resources Economics at UC Berkeley, and then Andy Navarret, a researcher at the International Council on Clean Transportation.

Once again, we'll hear from all of our panelists and then open it up for questions from members.

Great. Thank you, Chair Wilson, Chair Alvarez. My name is Colin Murphy. I'm, as you said, the Co-Director of the Energy Futures Research Program at the UC Davis Institute of Transportation Studies, where I lead a lot of our research into alternative fuels technology and policy.

So, really, for pretty much the last decade, the better part of my job has been working with programs like the LCFS and equivalence that you see in other states. It is a complex program. I think you're pretty clear, at this point, there's a lot of wrinkles, a lot of rabbit holes to fall down.

There's certainly no way all of them can be covered right now. So, I wanted to extend an invitation to all of you, your colleagues and your staff. We are happy to dive down any of these rabbit holes and spend time explaining the details to you offline in time where we have more time to do so.

So, please feel free to take me up. Contact information is there and myself, my colleagues, ITS are happy to help where we can.

Thank you.

So, little bit of a lag on the clicker. So, I think when we're talking about the LCFS and its impacts in both economic and environmental terms, it's helpful to step back and think of what the role of the LCFS is and why we have it.

And it's meant to reduce emissions from transportation fuels and support this broad transition. And people in the previous panel sort of talked about how it contributes to this generalized progress towards clean transportation, and I think they're absolutely right about this.

But because the scope is so broad, because it's meant to go and look at multiple modes of transportation on road, off road, there was some interest in types of aviation, there are harbor craft whose fuels are affected, that adds a lot of complexity. It also deals with a lot of different fuel types.

And so, that sort of really expands the scope of the regulation. And it could be challenging because the idea of the program is to give all these fuels the opportunity to engage and to contribute what they can towards California's attempts to reduce emissions out of our transportation sector.

And so, I think one of the real key elements of the LCFS that has enabled it to be successful, and the consensus among, you know, most environmental researchers is that it has been a successful program to date is the fact that it makes the incentive any fuel receives proportional to the amount of emissions benefit it provides.

So, fuels that are very clean, that are a lot cleaner than the target, or a lot cleaner than petroleum, receive a relatively large amount of incentive per unit of fuel delivered. Fuels that are smaller, you know, cleaner than the target, but perhaps not quite so clean, receive a smaller incentive.

And this really helps helps guide investment toward the fuels that provide the greatest benefit and sort of give us the biggest bang for the buck there.

In order to be effective at that, you have to have a program that is very scientifically and empirically based that requires a commitment to accurate life cycle assessment, looking at all these fuels, understanding the impacts of procuring raw materials, converting them to a fuel, bringing that fuel to market.

And people often ask, well, couldn't we do the LCFS but sort of, you know, help this fuel a little more, this fuel a little less.

It's, you know, conceptually possible to do that, but you start breaking down this strong relationship between the amount of emissions benefit and the amount of incentive and that, you know, sort of compromises the function of the market and takes away some of its ability to self correct when you have, you know, either an excess or a shortage of deficits.

I think it's also to really consider this sort of moment in political history when we think about the LCFS, as you and the previous panel noted, many of our authorities to adopt our own rules and transportation are under attack from the Federal Government in a way that I think is very unwise, unscientific, probably illegal, though I'm not a lawyer.

The LCFS persists because it is based on SB 32 authority, on state level authority, and it is going to be required, at least in this sort of interim period while we are trying to understand the degree to which these attacks will succeed and what California will do to replace some of these lost authorities. The LCS is going to have to carry a somewhat larger burden in keeping up the momentum in decarbonizing our transportation system.

So, I know, as you, yourself, have said, affordability is a key issue here and something that we're very concerned about. So, as was mentioned by some of the speakers in the previous panel, the LCFS adopts a market-based mechanism.

This allows obligated parties to decide how they want to comply with the regulations, what sort of portfolio of technologies and fuels they want in order to meet the goals, as well as the presence of the credit market in which creditors are traded like stocks or other financial instruments, gives the opportunity to, again, procure low-cost compliance.

And, and so market-based mechanisms like this have a very strong basis in both sort of the conceptual literature, as well as looking at examples of existing programs that use these mechanisms as being an effective way to control the costs of compliance with environmental policies like the LCFS.

The flip side of that coin is because you have this market mechanism, it is more difficult to project compliance costs far into the future because you don't know what portfolio of fuels and technologies will be used to comply, and you don't know what price the LCFS credits are going to trade at there.

Again, it's an open market subject to a wide variety of impulses on that. So, you know, again, it is conceptually possible to design a program that would give you better predictability in the future, but you would lose the efficiency benefit.

You could better predict the price, but we predict that the price would be higher to achieve the same level of benefit if you radically scaled back and went to a more sort of direct regulatory approach, as opposed to the market-based approach.

Ultimately, when, you know, we try to answer the question of what is the impact of the LCFS on, you know, retail gasoline prices, the impacts are determined by the characteristics of the fuel, sort of the carbon intensity and the energy density. Those are essentially physical constants, especially where gasoline is concerned.

So, they don't vary much, but the program target varies, and especially now with the auto acceleration mechanism, it becomes a bit more uncertain to predict what the target will be as you get farther into the future. And then, obviously, the credit price, and that varies quite a bit.

So, whenever you start talking about price impacts that are more than a couple quarters ahead, you have to start making assumptions about that portfolio fuels and technologies and about what's going to happen in the credit market.

And so, at some point, you get to a spot where your future projections are more about the assumptions you make than the underlying sort of criteria of, of the program.

As a number of speakers in the first panel pointed out, the impacts of the LCFS have historically been relatively low on retail gas prices—smaller than things like normal seasonal fluctuations in gas prices, smaller than the typical fluctuations you see when there's a geopolitical instability that affects oil supply or when there are unplanned refinery outages. So, they're not zero, but they tend to be low.

And where we have done cost benefit analyses on these and has been in multiple ways, both the regulatory levels, our programs, as well as in the academic literature, the benefits typically outweigh the costs pretty significantly. The other thing to realize is the LCFS, the revenue, stays entirely within the fuel production system.

So, when a deficit-holding entity like a petroleum producer buys a credit, they buy it from the clean fuel producer. It is direct transfer via, you know, a contract for sale or something similar to that. You don't have money leaving the transportation system. There's no flow of revenue out to fund other priorities, so you're not sort of taking fuel money and using it for other non-transportation things.

It is simply reallocating costs within the transportation fuel pool. So, dirty fuels become more expensive, clean fuels become cheaper, and that helps establish consumer preferences.

Also, as more people adopt things like electric vehicles or switch to using clean fuels, the number of people who are using petroleum declines, so the number of people exposed to the price increases that the LCFS puts on higher carbon fuels decreases over time.

So, you have to consider that in the context when we're talking about gas price increases, is that, you know, it affects an ever-decreasing share of the California population.

When we estimate gas price impacts, and we've heard a few of them out here, you know, when we use the prevailing methodology, and this includes the ones that have originated from me and several of my, you know, impacts have sort of made their rounds through, through media and stories or in conversations with stakeholders, those estimates are likely to be overestimates of the actual costs to the obligated parties, and this is as was mentioned in the previous session, parties have a lot of options for how they choose to comply with the regulation.

The assumption that we make when we make these estimates is we're going to look at how many deficits per gallon of retail gasoline are generated based on the target and the fuel characteristics and then how many credits do you have to buy at the prevailing market price and sort of plug those numbers in.

That's where you get your cents per gallon estimate. Well, companies can self-generate credits through project-based crediting pathways. They can engage in long term offtake agreements where they agree to buy for many years at a lower price.

They can, and often do, take ownership stakes in credit-generating companies, whether those are Biofuel companies or EV charging companies, and produce their own credits that they don't need to buy, that the prices never actually might not get reported in the same way because there's no transaction. They're producing their own credits within the same corporate entity.

From an economic, sort of conceptual economic standpoint, there's no reason to do this unless you would find lower compliance costs that way. So, this is why all those estimates are, I would view them as high-bound estimates. That sort of maximum theoretical price increase. The actual is somewhat lower than that. We don't know how much lower without access to proprietary company information though.

I know there have been several questions about in-state versus out-of-state benefits. You know, I think the most important thing to realize here is the LCFS is primarily a greenhouse gas reduction policy and greenhouse gases are global pollutants.

So, the benefits to California from reducing a ton of GHGs is essentially independent of where that reduction happens to occur.

For many of the co-benefits we care most about, especially the air quality co-benefits, those primarily occur where the fuel is consumed and that is overwhelmingly within California because the LCFS only grants credits to fuels that are sold into the California market.

We have myself and my colleagues at UC Davis have done a number of studies looking at air quality impacts of programs like the LCFS, both in California and Oregon.

We find that, in addition to sort of general statewide improvements in air quality, you also see a reduction in the disparities of air pollutant exposure and these disparities on both racial and income-based lines.

So, this is to say we know that lower income people and nonwhite people are typically exposed to air pollution at higher rates because of sort of historical choices made in the energy system, programs like the LCFS and the sort of portfolio of policies that it contributes to reduce those disparities they have a net equity enhancing or EJ-enhancing effect.

They do not reduce it to zero, to be clear, but they do reduce the disparities as we see them. So, questions are often asked, well, couldn't we do something like the LCFS but limit credit generation to only entities within the State of California?

As was discussed in the background materials that came out before this hearing, I think that would likely run afoul of the commerce clause and open the program to a legal challenge. It would also disrupt the cost minimization efforts that, or the cost minimization potential, you have by being able to find low-cost compliance options out there.

It's difficult to precisely estimate the sort of in-state versus out-of-state breakdown. I will say that in the past, CARB did publish a spreadsheet that looked at generation of credits by in state entities. This was, I believe, pre-Pandemic time, so it's been a while. This was then going above and beyond transparency requirements.

The fact that I haven't seen this in the last several years does not mean they're sort of asleep at the switch. Having something like this again, I think would be useful and shed some light on this issue. But there are legitimate concerns about proprietary data that have to be respected here.

Several of the questions that came in talked about indirect land use change, which is its own deep complex kettle of fish that, you know, an entire hearing would not be enough to really get to the, to the bottom too.

The short, short version is indirect land exchange emissions from biofuels result when you have an increased demand for agricultural commodities, things like soybean oil or corn or anything that goes into making a biofuel, that demand induces someone somewhere to clear more land to bring more production online to meet this unmet demand.

And so, it's not necessarily that these specific commodities that are going into our biofuels are a problem, but it's because we are using these commodities for making biofuels, somewhere there is a mouth not being fed. There is, you know, a loss of the corn or loss of soybean oil or something like that that has to be replaced.

And the activity needed to replace that production has emissions consequences that you need to be aware of as you evaluate the carbon intensity of fuels. So, you cannot measure eye luck directly. You could give me all the technology they have in Star Trek and an unlimited budget, I could not build you an Eye Lux sensor.

It is impossible at a conceptual level. It can only be assessed through modeling. And models have to consider the entire global agricultural commodity system, which is to say they are very, very complex. There's no way to build models like this without adopting a number of assumptions.

There's often no one and only one right way to make these assumptions as you go into this. So, you end up having, you know, very thick, complex models that can provide a lot of guidance when done well, but they don't—the idea of having one model tell you precisely to a decimal point what the right ILUC impact is, that is simply not possible.

The other thing is when you think about the global agricultural commodity system, it is affected by geopolitical tensions, economic changes, climate change, technology changes, demographic changes. ILUC impacts naturally change over time.

They are not going to be static. There's sort of no way they could be static. So, as a result, the ILUC impact factors that were adopted by CARB in 2016. They represent a full faith effort to do as best as possible with the tools we had at the time.

They are out of date, and they do not reflect the current situation for a number of reasons. I think it's more likely that they are an underestimate of ILUC impact than an overestimate, but we can't rule out the possibility of could be the other way without doing a lot of work.

Improving upon this is not a simple thing. There has been a relative low-level of investment in ILUC modeling and research over the last 10 years, so our toolkit is not as robust as we'd like.

I will say my colleagues and I at UC Davis recently secured some funding to do a multi-year project to at least dig into one part of this. It is not going to solve the problem, even our wildest fantasies, but it is going to help.

I think more research and more investment here needs to happen because the potential impact of ILUC can be very severe. If you get it wrong—I don't think we're doing that bad in California yet, but it is, the concern is quite legitimate.

And then, one last thing that I wanted to bring up is that the rulemaking that was completed in November, where the rule was adopted and that came into effect last month, it was, from the start, meant to be very narrow in scope because at the time in 2022 when the process, the pre-rulemaking process spun up, we were focused on stabilizing the credit market and ensuring adequate incentives for low-carbon investments.

And so, many critical areas of the program were, basically said, we're going to declare those out of scope for this rulemaking in order to focus our attention on the urgent issue, taking the approach of first put out the fire, which you know, I think is generally a good idea.

But that meant that there's a number of areas in the LCFS where there are now, you know, assumptions that date back to the program's original implementation back in 2009, 2010, that makes them 15 years or more older. Things like the energy economy ratios governing how many credits EVs earn, relative to conventional vehicles, additionality standards Chair Randolph discussed.

There is no consistent additionality standard in the LCFS. Additionality standards that are appropriate at one point may not be appropriate forever because a lot of what they're asking is what would have happened otherwise? And the answer to that question changes over time. ILUC Risk Mitigation, as I mentioned, that changes over time.

Assumptions on fossil fuel displacement and rebound effects. So, these things are not causing a crisis right now, but they do have the potential to cause a crisis if they are not addressed at some point in the future.

These could be the things where in five years, this is the crisis that we're trying to go and sort of put a band aid on in the next major rulemaking.

And so, I've been saying since 2022, since the decision to limit the scope, that under any circumstances, there's going to need to be another rulemaking to start digging into these and to prevent the future crisis.

You can prevent these future crises with relatively small changes to the program, sort of gradually bending the curve and avoid the need for precipitous action later. I know that nobody is exactly raring to go on another LCFS rulemaking right now.

I think, you know, one possible option would be, if you want to say the things that were just decided in last year's rulemaking are out of scope because we don't want to re litigate the whole thing again, that might be a way to get around this, but there are some issues where we need to start looking at this and configuring the program as we move from the early phase of the climate transition into the middle phase.

We think of technology kind of as the S curve deployment. Well, in a lot of ways, certainly transportation, California is at that first turn going into the rapid change phase. And so, assumptions that were perfectly valid 15 years ago deserve to at the very least be looked at again, and I think that's something that we should be doing as soon as practical. With that, I will hand off to, I think, Aaron, you're next.

Thanks, Colin.

I'd like to thank the Committee for the opportunity to be here and to speak with you all, and my name is Aaron Smith. I'm a Professor of Agricultural and Resource Economics at UC Berkeley. My research focuses on many areas in agriculture and energy and the environment. But in particular, I focused a lot on biofuels and fuel policies.

So, I think there's going to be some slides appear up there any moment. There it is. So, I want to speak about three things. Affordability, and it is true that any program like the LCFS is going to increase gas prices. The question is how much? So, I will talk about that. I want to talk about additionality.

So, to what extent do we think about the LCFS paying for things that would have happened anyway? And I want to talk about land use change and in particular, we need a lot more work in this area. I think California is and sees itself as a leader in policy design in this area.

You see in multiple states now with low carbon fuel standards and proposed low carbon fuel standards, people copy what is done here, and so, getting this right is very important. The way I think about the LCFS is a little bit like this seesaw that I have here.

So, what we're doing is we're balancing high carbon fuels against low carbon fuels. And what the LCFS requires is that for each gallon of gasoline and diesel that we are using, we're using a certain amount of clean fuels to keep the thing in balance.

And one thing that CARB does by setting the Carbon Intensity Standard is moves that balance point back and forth.

And so, what you can see is maybe if the colored squares on the right are denoting clean fuels, if we have a fuel that's really, really clean, but we don't have very much of it, but it's way out there at the very end of the seesaw, then that's going to help to keep things in balance a lot.

Fuels that are not quite as clean, but we use a lot of, are going to be closer to the balance point, but still will keep things in balance. Over time, what happens as CARB tightens the carbon intensity standard is that balance point moves to the right.

Right, so if you took that little triangle and moved it to the right, the thing would tip, so you'd have to move more stuff over to the other side. And that's essentially how the program works. Low carbon fuels are more expensive than the gasoline and diesel, the fossil fuels on the left-hand side.

If they weren't, we wouldn't need a program. And so, what the program does is by trading of these credits, essentially, it's oil companies, those that are producing the fuels on the left-hand side, are buying credits to incentivize those on the right-hand side to make it economically worthwhile for them to provide those fuels.

The credit price is going to be determined in that market for what is the lowest cost, as we heard from several other presenters, the lowest cost type of alternative fuel that we can bring into the system.

And so, those credit prices are going to change over time for that reason, depending on what is the sort of next lowest cost fuel that we can bring in, into the system.

One thing I do want to point out here is just in general, with these kinds of policies, policymakers have a choice of whether they to try to control the quantity of clean fuel you're getting or the cost of getting that fuel. And so, in the LCFS, what we're choosing is we're choosing where to put that balance point.

What's going to be our balance between how much of the high carbon dirty fuels and how much of the low carbon clean fuels. Once we've set that's our target, then the price of reaching that will be whatever it is. Right?

And conversely, if you said, well, I want to set a price, I'm willing to pay 20 cents a gallon to try to get cleaner fuels, then you lose control of how much emissions reduction you're going to get because you've chosen the price you want to pay and you'll get whatever you get for that price.

So, in terms of the low carbon fuel standard, we don't have control over what is the price impact of what we're going to get.

So, I've got some numbers up here on this slide, but I think the two things we want to say, to keep in mind, is that the effect of the low carbon fuel standard on gasoline prices is uncertain by design because we're choosing to control the carbon intensity of the fuel when choosing not to set a specific tax that stays fixed and control the price effect.

What I've got in this table there, you can see the three rows. One is if the LCFS credit price is low, which is $30 per ton, one in the middle at $60 per ton, which is about where we are right now.

And then, on the bottom, I have $250 a ton, which is sort of about what the maximum carbon price would be. And how much will this policy raise gasoline prices?

A very simple formula that will tell you that based on how far away each of those things is from the middle point on that little seesaw that I showed, and our research has shown that fuel companies tend to pass those costs through to consumers.

So, right now, we're at a point under the new regulation in 2025, where I think I've got 15 cents up there, maybe it's slightly below that, the credit price is a little bit below 60, as being the amount that we're adding to gasoline prices through the low carbon fuel standard.

As we change the standard and move that balance point to the right, then that those price impacts could go up. If the LCFS credit price goes up, if it becomes really expensive to find that next unit of renewable fuel that we want.

On the other hand, if that doesn't happen and we stay where we are, then the gas price effects are going to be relatively small. We had questions earlier about the low carbon fuel credit prices, which I've got a plot of there on the right hand side.

My version of what happened there is as we were getting to sort of 2019 or so, when price spiked up to 2019, that really was a time where we didn't have easily available additional sources of low carbon fuel to bring into the system. And so, prices went up very high to incentivize additional things to come in.

Two things in particular I think happened at that point. We got a lot more renewable natural gas, particularly from anaerobic digesters on dairy farms. We got a lot more renewable diesel. And it takes time to build those facilities.

But once those production facilities for producing renewable diesel and biogas came online, then we had all this fuel available, and it came into the system. And so, we didn't need those high prices to incentivize new investment into those things. And so, we ended up with credit prices dropping down to about where they are now. Additionality.

So, one way to think about this is we have a lot of policies that directed at fuel markets, directed at environment, at the environment, and many of them are very, very complicated and hard to understand. I've highlighted in this picture three.

One is the federal renewable fuel standard, which sets requirements for the volume of biofuels that we're going to use in the country. We also have California Cap and Trade, which regulates carbon emissions across many sectors in the state. And the LCFS kind of sits in the middle here.

We're requiring a lot of biofuels through the low carbon fuel standard. That's our overlap with the federal renewable fuel standard, where, because we're regulating transportation fuels and fossil fuels, we're also overlapping a lot with the cap-and-trade program.

One way to think about what are we getting for our money, those cents per gallon numbers I had on the previous slide, what are we actually getting for that is to say, well, how big is that little area down the bottom? That's the additional stuff that we wouldn't get anyway from those, those other, those other programs.

And so, one way we can look at this is what I've shown here in this picture is this is the greenhouse gas emissions reductions under the program. And I'm sorry for those who can't quite read, I can't quite read myself what the colors represent, but I will tell you because I remember.

So, all that I'm doing there is, I'm just saying let's compare the fuels that we're using and how many credits that those are generating, relative to, relative to fossil gasoline and diesel. So, in blue, what we have is we have biomass-based diesel. So, the largest check credit generator has been biomass-based diesel.

The light blue is generation from crops. So, that's particularly from things like soybean oil or canola oil or corn oil. The darker blue is generation of biomass-based diesel from tallow or other waste products. So, you use cooking oil, so you get more credits when you produce biomass-based diesel from those things.

Especially given the Federal Government's latest renewable fuel standard requirement, which requires a lot of biomass based diesel to come into the system. I would argue that California isn't causing any additional biomass based diesel to be produced and used in the country.

What it might be doing is moving the biomass-based diesel out to the right a little more in that sea salt, in other words, making it cleaner by using more waste products and maybe less soybean oil. So, we could say maybe all that light blue is probably not additional at all.

We'd get it anyway in the country, somewhere in the country, and all the LCFS is doing is paying to bring it from wherever it's produced, perhaps in one of the gulf states into California, but not really any environmental gain.

That dark blue, we're probably getting some of that just by virtue of the fact that the federal program doesn't regulate the carbon intensity or the cleanness of the fuel. It just says is it biomass-based diesel or is it not?

Ethanol, under the federal renewable fuel standard, pretty much every gallon of gasoline in the United States is 10% ethanol and 90% fossil gasoline. And that's true here and it's true outside the state. So again, the LCFS are not really adding anything there, I would argue either. And that's the brown, down the bottom, is ethanol.

You could make an argument again that the LCFS has incentivized ethanol plants to clean themselves up a little bit and to reduce their carbon intensity.

So, there's a little bit of that area in the bottom that might remain if we said let's only look at what is the LCFS actually adding. Biogas, I would say I think, I don't think it's debatable that the build out that we've had in biogas production, I think it would not have happened without the LCFS because the LCFS gives big support to those producers.

The last one is electricity, which I think, I think there's a lot of room for debate, and I think the way that CARB has dealt with electricity credits has improved over time. The main margin for incentivizing changes in fuel use from liquid fuels to electricity, I think is in incentivizing purchase of new vehicles.

And so, credits have flowed more in that direction and less towards just people reducing their electricity bills over time, which I think is good.

But I think a focus on how much, how much is that credit generation actually causing people to buy EVs, rather than just giving money to people who bought an EV anyway, is an open question to figure out the answer to.

So, based on all of that discussion that I went through, all that stuff that's there in white are things that I might argue we probably would have gotten anyway in terms of total carbon emissions in the United States, and the LCFS, what it's adding potentially is we wouldn't have gotten biogas, I don't think, without the—that we perhaps would not have gotten, although I think that's also debatable.

We perhaps would not have gotten the waste fuels used in renewable diesel that we've gotten. We probably—I think the LCFS is more additional for electricity than maybe my picture shows, so this is more illustrative than to be taken literally.

But I think there's a lot of components of the LCFS that are not additional beyond what other policies do. Land use change is the last thing. So, growing crops for biofuels causes cropland expansion and a lot of the way that happens is exactly as Colin said, it's indirect.

And so, we've sort of went through this debate a decade ago with ethanol when corn ethanol expanded hugely, mostly driven by the federal program. What we're seeing now is a similar thing as we expand renewable diesel production from animal fats and vegetable oils, in particular from vegetable oils.

And so, if you're going to bring more in the United States, probably soybean oil, into biofuel production around the world for cooking purposes. Soybean oil, canola oil, sunflower oil, palm oil, they're all pretty much substitutable. Their prices move together, they're pretty much the same. Those products are pretty much substitutable.

And so, what you're going to do is incentivize increase in production of those products. And that's particularly worrisome if you're thinking about climate impacts because the places where you might expand soybean production would be in Brazil by deforesting. The places where you would increase palm oil production are in Indonesia, which is the picture that I've shown there.

It's a particular plot of land two years apart. It was forest in 2014, it's palm oil production in 2024, so if you incentivize increase renewable diesel production by expanding the amount of vegetable oils that we're using, that raises the price of vegetable oils, that causes deforestation in Indonesia. And you lose a lot of carbon, right?

There's a lot of carbon in the biomass, there's a lot of carbon in the peat. And so, you lose a lot of carbon when you are—when you deforest in those tropical environments.

So, accounting for this, if we're trying to use this program as a way to get climate benefits, we really need to be correctly accounting for whether we're actually getting climate gains or whether we're not. So, very quickly, this is my second last slide and then I have a conclusion.

So, the way that we typically in the LCFS account for land use change is with this ILUC Indirect Land Use Change Adjustment. We basically just move the crop-based biofuels to the left on that seesaw. We say you don't get to be quite as far out there, you have to be in more, so you've got to use more of it to get things to be in balance.

The way that we determine that through—traditionally though—in both federal and state programs is by very complicated mathematical models. And so, in these models, what they simulate is agricultural production and trade of all of these different crops and all of these different things.

Typically, I would say those models require a lot of assumptions, they're very opaque. And so, I think we should view with a lot of skepticism the numbers that come out. One approach to that is, as Colin suggested, is to say, well, let's be risk averse and maybe bump the number up because we don't really know.

I think the other thing that we are at now in a position to do, we've had biofuels extensively used for 20 years now, so we can look and say, well, what has actually happened? I was involved in a study where we showed significant loss of carbon from expansion of crops in the United States for corn ethanol.

I'm involved and we're currently doing similar kinds of thing looking at deforestation in Indonesia, so I think that the point there is that we can actually now measure these things. We need to do that so that we can ground truth the numbers that we're using.

Because if ultimately we're not really getting big climate benefits or any climate benefits from these particular biofuels, then we shouldn't really be incentivizing them. So, in conclusion, we do need better land use change assessment. I think it's integral to this program doing what it, it claims to do. One thing I've not talked about very much is electricity.

Electricity in the LCFS I think could and is somewhat additional in the sense of incentivizing expansion of electric vehicles. That plot that's up there on the right-hand side is the price of electric vehicles in the United States versus in China. I think we're in a world where some number of decays into the future.

We will have very low-cost electric vehicles available to us around the world, including here. And so, one question is how do we get from here to there in the least disruptive and lowest cost way? And I think I will stop there. Thank you.

Thank you.

Hi. Well, I'm Andy Navarrete, researcher at the International Council on Clean Transportation. I'd like to thank the Chairs Alvarez and Wilson for inviting me here. It's really great to be able to share our perspective on this program. Hopefully we'll get some slides up in a moment. Yes. So we can... Oh, I guess I can advance them here.

Okay, got it. So, yeah, just about us briefly. So we're a nonprofit research organization and our whole mission is to provide objective technical analysis to environmental regulators to help improve the environmental situation with transportation, both on greenhouse gases and public health.

So I'm going to be focusing on our comments today, or my comments today, on a lot of what we included in our comments on the ZEV Forward Initiative. And so just to provide a kind of an overview. So the LCFS is really a key enabler of this transition to zero emission vehicles.

So that's electric vehicles and hydrogen vehicles with no tailpipe emissions in the state. It's an important part of what we have to make this transition be both orderly and equitable. And the investments that we're making through the program have a lot of co-benefits.

So lowering fuel costs, lower health impacts, and the economic benefits we get from being a leader in this kind of cutting edge technology area. The thing that we've observed with the LCFS, and we've been, you know, researching this for quite some time now, is that the LCFS is also subsidizing fuels that have some uncertain benefits.

And so specifically manure biomethane, especially when produced in other states. It's unclear exactly what benefit that's providing to the California transportation system. And renewable diesel is also being mandated federally, as was mentioned, but that's being delivered into California to take advantage of the LCFS credits.

And so, you know, the overall message from our ZEV Forward comments is that there could be, you know, updates to the way the program works to prioritize the fuels used in zero emission vehicles that would kind of better align the program with our getting towards greenhouse gas reduction, air quality, and affordability targets, you know, most cost effectively.

I will just skip over this, but you know, we have committed to this 100% the future. There's executive orders behind that, there's Assembly bills behind that. Transportation is the largest source of pollution, both greenhouse gases and impacting the air quality.

So, you know, we've already decided that this is something we're going to do and having these zero emission vehicles deployed, obviously the major focus of the low carbon fuel standard is greenhouse gas reductions. But there's all these other co-benefits that we get too. So it's a lot cheaper to operate an EV.

We've found that over the first six years, you're saving between $6,000 and $11,000 in your vehicle costs for fuel and maintenance. These improvements to air quality, reducing premature deaths, and saving billions in health care costs. And there's also just huge economic benefits when you add these all together.

Recent UC Davis study estimated that if we hit the 100% zero emission target by 2035, that could save Californians 300 billion by 2050. So it really adds up over time. And so the LCFS is kind of a key pillar of California's strategy to get zero emission vehicles out there.

And so some of the ways that it's helping out with that is it's supporting public charging. So having chargers available at workplaces and just publicly available makes EVs a viable option for everyone who might not necessarily be able to charge at home. It helps with equity.

So as was mentioned, there's these credits that utilities get and 75% of those have to go to equity projects. In the past, those have been used for EV charger rebates for low income families, multifamily properties, and to reduce the cost of pre owned EVs to low income drivers.

And especially with what's happening at the federal level, you know, a lot of the support for ZEVs and other things that California is trying to do have either been threatened or taken away. And so that makes LCFS, you know, even more important right now to support our long term ambitions.

And just to provide a concrete example of the kinds of things that LCFS is doing to help move this forward. So something like charging for heavy duty trucks, you have this chicken and egg problem where a company is not going to go out and put a bunch of truck chargers out there if there's no trucks to use them and generate revenue.

But without the confidence that there's going to be chargers around, no company is going to want to have a zero emission truck that they might not be able to charge in different areas. And so what the LCFS does is it allows companies to make investments in anticipation of the rollout of these trucks, which are also supported.

And so you get everything working together in concert and you know, we get a smoother kind of more cost effective trajectory towards our zero emission goals. So a lot of great things happening on the zero emissions side. But we want to put this in the context of where the low carbon fuel standard support has been going. And so here we have on the left, it's broken down by the credits generated in 2024.

And on the right is the value of those credits if you apply the $62 average credit price from 2024. And you know, as has been mentioned, I wouldn't say that that's the exact amount of money that flowed in each of those categories because there's these more complex market mechanisms, but it's a ballpark kind of estimate of what the credits for each of those categories would have been valued at.

And so you can see that there's very significant support for alternative diesel. So that's renewable diesel and biodiesel and biomethane. But as you know, we'll see, I think the benefits for those are a bit less tangible. So on the renewable diesel side, renewable diesel production is supported by the federal renewable fuel standard, but it's mostly has been consumed in California due to the added LCFS incentives.

You know, the air quality benefits that we get from this are definitely negligible compared to a zero emission vehicle. And especially when you're using them in a newer diesel engine that already has emission control technology, it's not making a huge impact really.

And as has been stated also, when we're producing renewable diesel with virgin or unused vegetable oil, that can contribute to global deforestation, which offsets much of the greenhouse gas benefits that that we might be getting. Yeah, this is just illustrating that we're using all this renewable diesel in California, but it's largely produced in other states.

And so some of the suggestions that we made that could be carried out in our ZEV forward comments is that... Well, first off is there's ways to selectively... Sorry, so we can't selectively reduce the credits from other states due to the commerce clause.

But and there was some measures in the most recent update to, you know, try to tamp down on the renewable diesel coming from virgin vegetable oils. But our research basically shows that that's not likely to have a very significant impact, especially given the background of the really strong support for biofuels at the federal level right now.

And so in our ZEV forward comments we were saying, as others have mentioned, we could consider reevaluating these induced land use change emissions for crop based fuels and also consider only crediting the share of the greenhouse gas reductions that's beyond the minimums that are required in the renewable fuel standards.

So for the diesel fuel to count under the renewable fuel standard, it has to meet a 50% greenhouse gas reductions over diesel. So we could, you know, just only count what's above and beyond that would be a possible thing we could do. On the manure biomethane side.

So in the low carbon fuel standard, manure biomethane pathways generate, get credit for the avoided emissions that happen at the farms. And as a result, these fuels generate significantly more credits than other pathways because those those are counted into the carbon intensity calculation, even though those emissions are happening outside the transportation sector.

So that's unique to this pathway. And so what ends up happening is you get very valuable credits per unit of fuel. So on the right, we're looking at per unit of diesel gallon equivalent basically. And moving forward, what's also happened is that recent updates to the federal policy, including in the One Big Beautiful Bill, are actually going to increase the subsidy for these fuels at the federal level by quite a bit.

So they'll be benefiting from that as well. And it could be up to $10 rather per gallon equivalent for the manure biomethane pathways. And again, significant amounts of these pathways are coming from other states and there's a lot of further potential for expansion.

So this is just some research we did looking at large swine operations across the country that could install digesters and start generating credits in California. Again, there's some updates that could be done to kind of right size the situation. In the 2024 program changes, there were measures to make sure that the biomethane is actually flowing towards California in the pipeline at the very least.

But these don't go into effect until 2037 at the earliest. And so we think that it could be considered to implement that sooner. There is also a board resolution to regulate livestock methane emissions and that would allow you to phase out these avoided emissions credits because now it's a regulated source of emissions.

And we think CARB could consider moving forward with that. Finally, in our ZEV forward comments, we also propose sort of an alternative approach here which would be you could differentiate the zero emission vehicle fuels because those are actually contributing to our long term goal.

So kind of, you know, recognize that those are getting us to where we need to go more so than the broader pool of fuels. And so, for example, you could require that a certain share of the credit purchases have to be from fuels used in zero emission vehicles.

And then what that would do is in the undifferentiated credit market where all the fuels are participating, you know, the low credit prices wouldn't be a problem. That would just sort of be a natural result of the fact that these fuels are supported federally. They're able to be brought into California at a low cost, helping us meet our, you know, meet the fuel standard.

And it wouldn't really be a problem because we'd have secured the support we need to help meet the zero emission goals. And so modeling the impact of doing something like that is something we're working on and we welcome engagement on that. So just to conclude here, the LCFS is a super critical tool for getting us to our zero emission goals.

We do think that the current market is distorted by the federal biofuel studies subsidies rather and the avoided methane crediting. You know, under the current rules there's kind of no way to help more support for zero emission vehicles without increasing the renewable diesel and manure biogas pathways simultaneously.

And that would increase the program costs. There's several measures that we pointed to also in our comments and we think that these would better align the LCFS and generate more co-benefits with where we're trying to move as a state. So thank you so much and happy to take any questions.

Thank you. I'll now move it over to Members of the Committee to see if there's any questions. We appreciate you all being here and taking the time to provide your expertise. Now we'll move on to questions. Co Chair.

Thank you. Actually, I think I have more questions than I'll be able to ask just because unfortunately we didn't have this printed out and so it was hard to try to mentally remember where I saw it in the presentation and where my questions are aligned with. But let me try and ask at least a couple.

I think it was the first presentation where there was a graph around the... It was like a backwards looking analysis on the price per credit. And I don't know if that... There was no number, so it's kind of hard. I guess I'm trying to understand...

Are you talking about the one where it was a blue box and it had the credit price and then the price that would be at the pump on the retail prices?

I think that was it.

Yeah. If we can find that one. Yeah. Dr. Smith, do you remember which slide number that was to help our staff? 405. So to the second slide presentation and then the fourth or fifth slide.

Yeah, I was trying to understand and the comment was... I think there was some. It was a theoretical analysis more than a precise analysis I think is what the... Maybe you made that comment or I noted that anyway. Do you have a future looking analysis based on current policy and given that it's theoretical where that would potentially land?

And I kind of have a similar question to the second presentation, which was there was also sort of this backwards looking toward the last several years and where we are today and the graph, the bar graph that had the different corresponding to LCFS versus not LCFS. And I'm just curious on a going forward basis, both of you have studied this, like any analysis or observations you'd like to make about a going forward basis.

So I can make a couple of observations. I can also point to some analysis we did that's now a little old. I think it was 2019. So as we go forward in time, there's two things happening. Number one, because the standard is getting tighter, we need to find more and more clean fuels to meet the standard.

That means costs are going to go up. There's two forces. One force is pushing costs up because we're at already 75% of the diesel pool in the state is renewable diesel. Once that gets to 100, we can no longer keep moving diesel over the other side and increasing renewable diesel. We've got to find something else.

If technology stays the same, costs are going to go up and potentially they could go up a lot. The wildcard and the thing that's really hard to predict is what happens with technology. And not even technology, I guess just scope for expansion. I mean, I know in our study in 2019 when we projected this, we were projecting credit prices would jump up to the ceiling by 2030.

One thing we under predicted was the amount of biogas that would come into the system. And so with all of that coming in, that's able to be, that was during that time at least it was able to be developed at a price that was at below $200 a credit. And so I wouldn't trust anyone who gives you a definitive answer to that question.

But the two forces are that, as you tighten the standard over time, it's going to be pushing prices up. But as we get cheaper electric vehicles, for example, or other technological developments, that's going to be pushing prices down. So which effect dominates over time? It can be hard to predict that.

Let me agree with that and add to it by saying we did some analysis projecting sort of the aggregate supply and demand for credits in the LCFS market based on the amendments. We did this last year, so we didn't have a chance to do it with all the changes that the new federal administration are imposing on it. Based on the market at the time, it seems very unlikely we're going to see a significant increase in LCFS credit prices anytime soon. We have still... Well, you know, 75.

I think it's probably more in the 80 to 85% of the diesel pool is biomass based diesel now. That's still about three quarters of a billion gallons of diesel. So there's still some diesel market left to go and keep growing there. And by the time we kind of exhaust the ability of that to meet the increased targets, light duty electric vehicles are going to be providing a whole lot of credits and flooding the market likely to pushed credit prices down.

So with the caveat that we need to update the modeling to reflect the federal changes, I don't think those are going to radically change this. My sort of conclusion is it's unlikely to see particularly high credit prices. You know, I think it's more likely than not they'll stay below $100 for the future. But you know, obviously a lot of uncertainty around any projection like that.

And not so that folks feel this is a criticism, but more maybe observation in the determinations that are made in the analysis of when CARB is discussing or was discussing this or is in the past, has in the past. Those variables that you just described and described earlier, how is that discussed in those decisions that are made at CARB's level? And unfortunately I think Chair Randolph is gone now. So otherwise I would ask directly, but what have you heard in terms of discussion as it relates to those variables and how are they factored into?

Obviously, I can't speak on behalf of CARB and how they make their decisions. I do know that there's a lot of modeling involved. They have models, including the CATS model as well as others that are used to inform this. There's the old saying that all models are wrong, some models are useful. And that is absolutely true in this space.

I think there is often a bit of a misconception that if you have a model of something and it's based on good data and you plug the right data in, it'll give you a prediction of the future. That's really not true because every model is going to have assumptions required and every model is going to require making predictions and abstracting some things and smoothing over areas where we don't have enough data.

So in a lot of cases, what a model tells you is more about what assumptions are necessary to achieve a given outcome. So it can inform you, it can give you a lot of sort of almost wisdom and understanding of that. But it can't always say with a lot of precision quantitatively, here's exactly where you should set the target.

And so I think that's kind of the process that goes on is CARB looks at these models, uses them for guidance, recognizes that they're going to be limited. And simply taking the quantitative output at face value is usually not the appropriate response.

And what Mr. Murphy said about the modeling related to the what the cost would be and I think that's sort of my biggest takeaway from and appreciate your participation here. Because obviously when we heard certain numbers in terms of what the cost to consumers were going to be for gas as a result of some models, I think we were all just, you know, it was a moment of like, well, like wait, wait a minute, what's happening here?

And pause given where the cost of living is for Californians. And I think certainly a takeaway I have from your presentation here is you use certain assumptions in determining what that could be. But also that's a very, you could argue conservative or liberal approach, depending on how you see that, as to determining what that cost could be because there are other factors that are unknown but we can expect can play a role. We just can't really quantify that on the front end is what I think I understood.

And I think that's extremely important and has been one of my sort of missions in my academic work is so much about the future we don't know. So we shouldn't make policy depending on the idea that we know exactly what's going to happen in the future because we don't. And so bringing in that uncertainty about what do we know, what don't we know I think is extremely important. And making policy based on what we know about what we don't know.

The only question I have to Mr. Navarrete on the presentation, I was trying to really follow along. It sounded like to me, and please correct me if I misunderstood what you were suggesting in your presentation. That perhaps there should be more specifics and maybe parameters or policy direction on LCFS, essentially creating less of a market driven sort of system. Is that what you were saying in your comments or at least trying to communicate to us?

No, I wouldn't quite put it that way. I think more so that to maximize the benefits it is important to consider these other forces that are happening at the federal level in particular and incorporate those in our assessment of how much credit fuels are generating in California rather than just act as if...

Because the thing is the idea with the standard is everybody's on an equal playing field and so that's how you derive which fuels end up in the system. But when there's all these outside forces that sort of tilts the playing field in certain directions and it makes the program less effective than it might otherwise be in getting us where we want to go in terms of the zero emission vehicles and our, you know, eliminating greenhouse gases in the state.

Yeah. If I could add one thing to that, because so much of the LCFS depends on modeling and because there's assumptions required, that gives some flexibility to sort of impart values and judgments into the program and configure it to, you know, emphasize certain areas or not.

I think one of the areas of tension where policymakers like yourselves have to find balance is you can have a program that's optimized to minimize the near term compliance costs and sort of minimize gas price impacts in the near term.

But the decisions you make to minimize next year's compliance with the LCFS and then decisions to minimize the following year and the following year and the following year, that doesn't necessarily give you the lowest cost, most efficient way to get to your long term goal, to get to carbon neutrality at the end. And so I think there's no way to perfectly point the program exactly one direction or the other.

But I do think there is some opportunities to say do we want to emphasize maximizing the efficiency of this transition to the long term goal or do we want to maximize and find the lowest cost near term compliance to get through these next few years and minimize near term gas costs?

And it's a spectrum, you can find a place in the middle. You don't have to go toward one end or the other. But that's ultimately a value decision, you know. And that's something where we can inform you. But elected officials, you're here to sort of represent the values of your constituents.

Thank you. Appreciate you all. Thank you.

Thank you. Assembly Member Lackey.

Yeah, I mean no disrespect, but I feel like I have a responsibility to sprinkle some realism with this ZEV forward presentation. Less than 25% of our population can afford ZEV vehicles. I quoted a recent study that has indicated the average income of ZEV owners is about 190,000 a year. The income in my district is about 50.

That's a very serious problem. ZEV vehicles also have range difficulties. When I tell you that the average constituent that I represent travels about, well, at least over 100 miles, sometimes each way. And so there's range difficulties. Battery efficiencies and the life of a battery and the cost of the battery, also the hazards of when they catch fire.

There are still some very serious circumstances that were not mentioned in the presentation that are real. And for us to rely completely on the ZEV implementation I think is misguided and I think it's not real. It's just not real. I think that these alternate fuels are real and especially the production of hydrogen.

And I think we're going to hear some presentations here in the near future that make me optimistic for these clean energy proposals need strong consideration. And over reliance on ZEVs, I think is misguided. So I'm sorry to share that, but I needed to.

If I could respond. So you're correct. Right now the vast majority of ZEVs are owned by people in the upper part of the income spectrum. The technologies behind ZEVs and behind EVs are advancing rapidly. Costs are coming down very rapidly, and we have projections which have so far been quite right, you know, relatively accurate, that predict they're going to be continuing to come down.

So you're absolutely correct that the early EVs, the first ones enter the market, which is most of the fleet today, those were expensive. And when you have a new technology, you know, you're trying to get it in to build the economies of scale and get to the point where it can become cheaper.

I would, I would just like to add to you that there's also a study that I just, I don't have it before me right now, that has indicated even in the future it's unlikely that the majority of my district will ever be able to afford ZEVs.

So we recently released some modeling on this. My colleagues Lewis Fulton and Marshall Miller, based on projections both internal to UC Davis and elsewhere. Most of the light duty vehicles, so passenger cars, for, you know, kind of the smaller end of the sedan range, by the early to mid-2030s, they're going to be cheaper to purchase, not just operate.

The operational costs are still, benefits are still there, but we cheaper to purchase. And as time goes by and batteries keep getting cheaper, the anticipation is more and more of the fleet, more and more classes of vehicles are going to be cheaper to purchase as an EV than they would as an internal combustion engine.

Yes, that is a projection about the future, but again, it's relying on models of EV cost improvement and capability improvement that so far have been proved out to be relatively correct. So while there is, you know, the concern over the historical disposition of who gets EVs is real. The technology is evolving and we have to be aware of how that evolution is going to affect the availability of EVs and the cost of EVs for people in the future.

Thank you. So some follow up questions. So one of the questions that come to mind prior to coming in here, especially when we talk about out of state credits and who benefits, is whether we're benefiting as Californians economically and environmentally.

And what I thought I heard you say, and I'm going to state it this, you've said it this way, but I'm going to add something onto it and tell me if this is an accurate statement that the air quality benefits occur where it is consumed, which means California gets a greater benefit, but the economic benefit is where the investments occur.

Is that an accurate statement?

For the most part, yes.

In a simplified way. Right.

I will say the value of slowing climate change is very real. It has a huge economic cost. Ask the residents of paradise or Altadena about that. And so.

So the indirect, the indirect economic benefit is about then the cost of climate change that we're experiencing. So we might not get the economic benefit in the plus, you know, side, but we would in the saving side. Is that what you're saying?

Yeah. So if you're, if we're focused on things like the jobs from producing and you know, producing, refining, transporting, distributing fuels, some of that necessarily happens in California because eventually has to come to California, the fuel, you know, fueling station, the fuel dispenser, the charging dispenser has to be there.

So there's really no way around some part of that economic activity happens in California. But you're right, if you're producing something like a, you know, a biomass based diesel outside of the state, probably most of the kind of employment benefits and the job creation and that associated economic activity would happen where the fuel is produced.

Okay. And then talking about cost, because there was a big conversation about costs are going to go up 65 cents. And I think you had a slide that said, you know, hey, under the new regulations, 62 cents. Right. Which is fairly close. And so I'm wondering then, because the dirty fuel is paying for the clean fuel. Right.

And you talked about the fact that we would overall seeing people become more efficient, you'd have less dirty fuel as people convert to EVs, you'd have less people, you know, using the dirty fuel. So that means their per cost then goes up. And is that where this guy. Right. Getting cost occurs as well?

That's, that's certainly one possible outcome. That is whether that happens is going to depend on, you know, the specifics of the credit price and the number of people in the relative target. But it is certainly possible.

I think that's why it's very important that the state focus on making sure that lower income people have access to EVs and have access to vehicles that can consume the fuels that receive incentive from the program.

If somebody makes a personal choice to stay in an internal combustion engine and they have the ability to do that, most people, if you're kind of middle or upper income, transportation is a relatively small part of, of the budget. That's a choice people can make and we're perfectly happy to let people make those choices.

I think where we want to focus is ensuring people who don't have a choice, who only have one method of transportation that they have the opportunity to get out of a gasoline powered vehicle before it happens or to try to make sure that we don't have that sort of Runway in the future.

The other thing I would say is I think that higher number, the 62 cent number you pulled was from the scenarios that Aaron put forward, if the credit price was at the $250 ceiling. Right.

Right, we dont see it well go back to that.

And to be specific, that that 62 cent number was what if today the credit price was $250 and the credit price is not $250, it's $60. Right.

And based on the demand or based on the supply wouldn't get there. It was, yeah, it got that high.

Because of the supply in 2030. You know, I think we should, you know, we should be prepared for a range of possibilities

And that's because we're, we have people are using more of that and less of the dirty.

There's the two forces we're going to have to use more and more clean stuff. And so that gets more expensive, that that force pushes prices up. But then we're going to have new clean fuels that are getting cheaper that are coming online and that's going to push prices down. So it's like which one wins?

And I think, I mean I do agree with Colin. I think that cost of electric vehicles is going to decline fast and faster than perhaps a lot of regular people think. And so I think we'll be having a different conversation 10 years from now. But I might be wrong. Right.

Having been to Vietnam and seen some of their vehicles, I mean just having now been to other places and see what they're doing with their electric vehicles. Yeah, I think United States is falling.

Behind I think at the moment.

Yeah. You noted, Colin, you noted when talking about ilec you said if you get it wrong it could be very Severe. And so could you talk a little bit more about what that is?

Yeah. So Europe in the 2000s, when they first started sort of engaging on alternative fuel policies, their fleet is largely more diesel heavy than the US fleet. So their subsidies tended to emphasize diesel. They didn't, when they first designed the first draft of these policies, didn't have enough consideration of things like indirect land use change.

So they got a lot of biodiesel and some renewable diesel, all of it made from lipids. Again, so fat oils, greases. A lot of it came from, from vegetable oil. They got a lot of palm oil derived biofuel.

And so when you, when you just look at kind of, you know, the fertilizer goes into growing palm and the energy needed to convert it into a fuel and bring it to market, which is ignoring the indirect, indirect land use change effect. Those fuels look like they're low carbon.

But because so much of the palm that was used to satisfy that demand came from Indonesia and other, and Malaysia and other parts of Southeast Asia, it largely came from areas where they deforested tropical rainforest that was in high peat soil, so soils that had a lot of carbon stored in them.

And when you disturb that soil, that carbon decomposes. The, the net effect, once you include the indirect nudge changes, those fuels were worse than, than petroleum. And you know, there was sort of a, an example of very bad environmental policy design, what not to do in this space.

Now, to be clear, I don't think the US Biofuel policies are anywhere near that bad right now. But it is a concern that we need to be aware of.

And if you have policies that sort of have a lot more agricultural commodities going into the fuel system, all the people, animals, et cetera, that were eating those commodities or substitutes for those commodities, they still have to be fed, Someone somewhere is going to find a way to feed them, right? There's now a market demand for that.

If they clear land, which is one of the ways that, that you can increase demand, then you get those indirect land use change options.

So to some extent, you know, you can impact the actual effect of land use change by trying to work with farmers around the world to use more efficient crops, use more efficient fertilizers, get more yield per acre so you don't have to clear more land, that can help.

Working with countries that have sensitive land, you know, Southeast Asia, Brazil, other Amazon countries, to try to give them more ability to prevent deforestation directly can also help. Those things are largely outside of our jurisdiction.

And that does make it complex for jurisdictions that want to adopt fuel policies to have to work, knowing that we need to prevent this sort of causal chain of events that is indirect and spans the globe when certain parts of the chain are just outside of our ability to influence.

And that's why I think you have to be careful. And I would argue, I think it's better on ILOC to err on the side of conservatism, to err on the side of overestimating ILOC impacts. Because if you do that and you use too little biofuels, there is a real cost there. Right?

You are missing an opportunity to reduce greenhouse gas emissions and climate change is a crisis. So I don't want to downplay that cost too much.

But I think the risks on the other side of over consuming biofuels and leading to something akin to what happened in the past, leading to the loss of natural ecosystems and the loss of soil carbon, especially given that it takes decades to centuries for carbon to accumulate by natural means.

I think that's why, you know, erring on the side of being a little conservative conservative erring on the side of overestimating eye lock is the safer choice and one we're less likely to regret in the future.

And if I just add, I would agree with everything Colin said, except one thing. I do think US policy and fact is in a place where we've had significant deforestation effects in the world and that in fact many of we may not have reduced carbon emissions very much, if at all from biofuels.

And that's at the federal level and. The state is attributing to that.

And is that more attributed to the feds and US policy versus California only policy?

And that gets to the additionality question, right? So how much of the ethanol, renewable diesel that we see and that we're consuming in this state and the country would have happened anyway even if California didn't have an lcfs. And so, and there's a backward looking question and there's a forward looking forward looking question.

And so, you know, ethanol, I'd say California has not contributed to the expansion of the amount of ethanol we're using for renewable diesel.

I think you can make a case that the renewable diesel industry sort of, they knew that the federal standard is written so that the feds will require some number of gallons that comports with available production capacity.

So I think you can tell a story where industry sort of used the California program as a way to build out this capacity. And then the Federal Government stepped in and said, okay, now we're going to mandate that that capacity gets included in our fuel.

Because the thing to understand with diesel is that renewable Diesel is about $2 a gallon more expensive than petroleum. So we're not going to use any of it unless we have policy support through mostly the federal program, but also the state program.

Yeah. And I think we're seeing real time effects of that in California. I, like my colleague, have a lot more questions than can be answered in this time, so I definitely will be following up to do those.

I'm looking at all my notes, but I do want to end with this question, and it's based kind of on the same section of when you talked about ILEC and the fact that we have all these things that need attention and we'll eventually need adjustments or we will get into a crisis.