What impact do Low Carbon Fuel Standards have on fuel prices?

February 17, 2020 |

There are horse whisperers and there are fuel price whisperers. The latter, they beguile us with their charts and tables and reports and white papers and studies, generally aimed at making fuel prices seem awfully complex, when they’re actually not too tough to figure.

These days some fuel price whisperers I know have taken aim at Low Carbon Fuel Standards, not because they fear them, but because frightening people is easy and it pays well. The whisper is that the compliance costs for Low Carbon Fuel Standards drive up costs for refiners, which are passed on to the public via higher wholesale gasoline and diesel prices and cause Pain at the Pump for consumers.

Do low carbon fuel standards actually increase the prices that refiners charge for gasoline and diesel? There are two ways to find out — we can look from the top down, and from the bottom up. Let’s look both ways, and tease out the real story with the hard data.

View from the Top

The Low Carbon Fuel Standard as a climate-fighting ordinance was born in California, so we’re going to look to see if California gasoline and diesel prices have risen — compared to US prices — during the LCFS era. Gasoline and diesel prices rise and fall according to supply and demand — that’s why we need to look at the comparative prices. If California prices are rising, compared to US prices, the LCFS could be the cause. 

Today, we’ll look at “wholesale refiner product prices”. That’s the right place to go, because we eliminate the retail margin by looking at wholesale prices. Also we eliminate taxes which are added into the retail price of gasoline. That’s important in California, because the state gasoline tax is different (and higher) than the rest of the US.  Our data source is the US Energy Information Administration, which is the unsung hero of transport-related prices, supply and demand. You can access the underlying data here.

We’ll look at three data sets.

First, we’ll compare US gasoline and diesel prices to California, in December 2010. That’s right before the California Low Carbon Fuel Standard took effect. That will give us our baseline, because we need to null out any price impacts that come from California anti-smog policy, which requires a reformulated gasoline not produced or sold elsewhere in the U.S., and result in higher prices (and less smog) for California drivers.

Second, we’ll compare US gasoline and diesel prices to California, in January 2014. This is well after the introduction of the LCFS and before the California cap-and-trade system, known as an emissions trading scheme (or, ETS), was applied to road transport. That’ll be the clearest look we’ll get at LCFS impact.

Third, we’ll look at 2020, for diesel and gasoline prices. This will give us some idea of how much impact that California cap-and-trade is having, and also will help us understand in a general sense how the California market differs from the rest of the US, when all of California’s policies work together to create one price.

Our question, what is the actual impact at the rack where fuels are sold, prior to being introduced into the retail system where local and state taxes, and normal supply and demand effects cloud the picture. We want a clear, straight-up comparison, and this is how we get one.

The hard data

The Baseline, December 2010. In December 2010, gasoline sold in the United States for $2.383 and in California for $2.46, per gallon. In California, gasoline was eight cents per gallon or 3.2% more expensive. Diesel sold for $2.486 in the US and $2.487 in California, almost exactly the same price, a differential of 0.04 percent.

January 2014. This is after LCFS, and before the California Cap-and-Trade applied to road transport. In January 2014, gasoline sold in the United States for $2.604 and in California for $2.682, per gallon. In California, gasoline was eight cents or 3.0% more expensive. Diesel sold for $2.981 in the US and $2.947 in California, a price cut of 1.11 percent.

2020, today. In January 2020, gasoline sold in the United States for $2.336 and in California for $2.416, per gallon. In California, gasoline was five cents or 2.1% more expensive. Diesel sold for $2.810 in the US and $2.870 in California, a differential of 0.29 percent.

What conclusions can we draw from the hard data?

When we look at the impact of an LCFS on gas prices, we look at gas prices, and prices are prices, they are not the words of paid-for economists, lobbyists, axe-grinders, pettifoggers, fear-mongers, obfuscators, shills, surrogates or liars with their pants on fire. Hard data is the truth, we long for it, we sojourn after it, because the truth will set us free.

We can say this, based on the hard data of ten years of history of actual prices:

There is no difference between fuel prices for gasoline or diesel, that can be assigned from price data to the impact of a Low Carbon Fuel Standard.

Why is an LCFS more effective than a Zero Emission Vehicle?

A zero-emission vehicle reduces tailpipe emissions to zero, which is a marvelous thing but has nothing at all to do with decarbonizing transport.

A ZEV is like a rifle, you still need the bullets, and the bullets are the energy source, and ZEVs use high-emission electricity just as easily as low-emission electricity.

You can demonstrate this at home. Burn some charcoal, in the most dirty way you possibly can, feed the gas to your homemade, small-scale steam turbine, produce some very dirty and costly electrons and feed them to your Zero Emission Vehicle. Presto! No tailpipe emission, but your ZEV didn’t produce a zero-emission sky or a zero-emission society, which is the actual goal.

ZEVs can use very low-carbon electrons, too, but what they really do, their amazing magic, is to transfer the emissions from energy production so far upstream in the production cycle that most people forget that they are emitting anything. Since you’re not staring at tailpipe exhaust, you think the emissions are gone. That’s like dumping your household garbage at the landfill and believing that you don’t produce any waste because the garbage truck doesn’t stop at your house any more.

A short route to the East by traveling West

It may have escaped your attention, owing to the Oscars, primary elections, and the diverting prospect of Major League Baseball spring training later this month, that we’re in a pickle in the South China Sea. The United States and China are at it, that is to say us and those guys we thought at one time would help us hold the Rooskies in check, and now don’t even help us hold the North Koreans in check.


There’s not much to like about what’s going on in North Korea, and for that reason US Pacific Command has been patrolling the waters of the Eastern Pacific with even more attentiveness than usual. Given all that background, it might not surprise you to learn that we are running well over our typical demand for naval marine diesel in the North East Pacific.

What it might surprise you to learn is that the extra fuel that the US Navy needed to keep the fleet at station had to be sourced from Greece for some time. Asia had run out.

You get fuel from Greece to Korea via a surface route, down through the Suez, and out past the mouth of the Persian Gulf, and you swing through the narrow straits around Singapore and you run the slots of the South China Sea. Which is to say, near or through just about every naval hotspot here on Planet Earth in the early years of the 21st century.

In normal circumstances, obtaining fuel from Greece to keep a destroyer keeping station in the Northeast Pacific is a hassle, and an expense, but these are tactical concerns. The Navy, however, thinks in terms of delays, costs, force multipliers, threats and casualties. Which is to say, abnormal circumstances.

Like Columbus, they dream of a route to the East by traveling West, which in this day and age represents a supply of affordable, zero-sulphur fuels from US West Coast ports, and that means renewable marine diesel, because sulphur is expensive to scrub out of crude petroleum, and marine is a funky boutique fuel to make at any time. Renewable marine diesel doesn’t have any sulphur in it, to start with.

Not long ago, the US Navy purchased more than 50 million gallons of zero-sulphur renewable marine diesel for $1.90 a gallon, and if you’ve tried to find $1.90 gasoline lately at your local fuel pump, you’ll know the Navy is onto something from a cost point of view. That the raw materials were collected above ground by recyclers instead of below ground by frackers might delight those interested in keeping oil in the ground.

That it was manufactured by Americans at a refinery in the Los Angeles metro area, instead of overseas by someone else, might delight those interested in “making America great again.” That those fuels have close to zero net emissions and that the refinery in question was switched over from petroleum to renewables in its entirety might delight those interested in containing global warming.

That those fuels could be safely and affordable provided without traversing any of those naval hot-spots: that’s what delighted those manning the conning towers back at the Pentagon.

So now, we have a short route from the West.


Not long-ago former CIA Director Jim Woolsey took the stage at ABLC, to talk up the theme of resilience.

The UK’s Daily Mail pointed attention this week towards North Korean EMP threats.

Grid security has him worried these days — our increasing reliance upon it, and its vulnerability to electro-magnetic pulse. As Woolsey explains it — and he’s been seen shuttling back and forth from Korea in recent years — I recall that he said that it takes just a couple of Hiroshima-sized, not-very-sophisticated nuclear devices mounted in weather balloons and detonated some miles above the earth’s surface to create an EMP that could fry just about anything with solid-state electronics in the United States.

This is not the cute kind of “we’ll be back in 30 seconds” EMP that you saw in Ocean’s Eleven, described as a pinch, but rather an absolute frying of the equipment we use to move food, water, and deliver energy. An American civilization without its iPhones, cars, lights, computers, ATMs, databases, refrigerated foods, pumped water, and so forth. The UK’s Daily Mail reported this week that the North Koreans have tested a 100-kiloton nuclear device and hinted at the potential of an EMP attack on the United States, more on that here.

At that point, Woolsey reasons, we might care just a little bit more about the location of some diesel, at least enough to run a few generators. Especially if we can, in a moment of conflict, sourced the fuels the short way from our own West Coast, instead of the long way around from Greece.

View from the Bottom

The US Navy’s Great Green Fleet

We’ve looked at the ‘top down’ data, now let’s look from the bottom up, let’s look at what happened to fuel prices when the US Navy embarked on its Great Green Fleet mission.

“It makes us more green, but that’s a side benefit,” former Navy Secretary Ray Mabus has told me on a number of occasions of his efforts to change the Navy’s fuel mix. “The Great Green Fleet represents innovations that make us better warfighters.”

As Mabus explained to The Digest:

“The USS Makin Island (LHD-8) (a Wasp-class amphibious assault ship) with its hybrid engines, was able to stay at sea 44 days more than previously, and returned with half its fuel. Those investments that were made in imported fuels can now be redeployed into operations, and readiness. That’s important for America.”

“The Navy has always led when it comes to energy, and always will. And always there are the naysayers. When the Navy moved from sail to coal, some people said “why would you trade something free for something you have to pay for?” And when we shifted from coal to oil, some people said “why would you give up all those reliable coaling stations and go for a relatively untested alternative?” And when we shifted from oil to nuclear, some people said “you’ll never get nuclear technology to work at such a small scale, and you’ll never be able to make it safe.” And the naysayers were always wrong.

“We announced in 2009 that we would demonstrate the Great Green Fleet in 2012 and sail in 2016. And when we demonstrated the new fuels in 2012, we bought small quantities of experimental fuels. And we paid $26 per gallon, and some people said “you’ll never make this affordable.”

“In 2016, sailing the Great Green Fleet we paid $2.05 per gallon for the largest renewable fuel contract ever made. Let me repeat that. $2.05 per gallon. That’s the story. 13 times less expensive than just four years before.”

By 2019, renewable diesel is cost competitive or even cost-better with fossil diesel. As I heard it from World Energy, and so we saw in the statistics of fuel price buys from the Navy.

The Fruits of Carbon Victory

Lately, renewable diesel can win any fuel auction it enters into. Today, the profits from sales of renewable diesel are being plowed into building more refining capacity. Despite the impact of fracking, there is more renewable diesel refining capacity being built in the United States today than fossil diesel.

And it is not just small renewable energy companies that are building that capacity. Quietly, Marathon is in the business, Valero is in the business, Darling is in the business. Offshore, there’s Neste, ENI and Total, to name a few. Renewable Energy Group and World Energy have that first-mover advantage and, now that they have sorted out their tax credit situations, expect these two emerging lions to roar.

The Bottom Line

We are paying more or less what we’ve always paid — only now, we get a performance attribute and we get the low-carbon attribute, all in one. Lucky us!

Prices are in check, as they should be in the Land of the Free, and part of the reason is that innovation is moving faster than the Low Carbon Fuel Standard required it to, and that means prices are stable, and consumers are not subsidizing renewable diesel. We all want to keep those prices down, so we want projects to be green-lit and more renewable fuels made. That’s good for jobs, good for national security and good for the earth.

If you see a project held up, it’s those fuel whisperers at work, keep a sharp lookout for them.

They’ll say a lot of things, but they won’t say this: they are betting against American innovation, and betting that “business as usual” is better for them, though it isn’t better for you.

Know-how is a transformative thing. Just think, the Erie Canal required a monumental government and private effort. It opened up the American West, and paid for itself a thousand times over.

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