Do you currently operate clean vehicles in California? Or, are you thinking of making a transition to lower emission technologies? If so, your fleet has the potential to generate enough money to pay for the cost of these advanced technologies, and increase your bottom line in the process. This is possible through the state’s Low Carbon Fuel Standard (LCFS), which is an incentive that pays providers of fuel or equipment owners to reduce emissions by using clean technology.
How LCFS works
Administered by the California Air Resources Board (CARB), the LCFS program encourages the use of low-emission fuel sources to reduce the carbon intensity of the state’s transportation fuels by 20% by 2030. This supports the state’s overall goal of reducing GHG emissions 80% by 2050. The program is a market-based compliance measure that creates economic value from low-carbon and renewable fuel technologies.
The LCFS program encourages the use of low-emission fuel sources to reduce the carbon intensity of the state’s transportation fuels by 20% by 2030.
Electricity, hydrogen, renewable diesel, propane, and renewable natural gas all count as alternative fuel options under the program. The LCFS works as a market system where users and producers of clean energy earn credits through their emission reductions. Those credits can then be sold to regulated entities that need those reductions to remain in compliance with CARB’s carbon intensity reduction requirements. Credits are earned per every metric ton of emissions avoided. While the monetary value of the credits fluctuate based on supply and demand of the credit market, in 2019 the value of a credit averaged $190.
Since the program’s initiation in 2011, renewable fuels have replaced more than three billion gallons of petroleum and fossil natural gas in the state—all while saving energy providers and fleets big money in fuel costs.
Since the program’s initiation in 2011, renewable fuels have replaced more than three billion gallons of petroleum and fossil natural gas in the state.
Who benefits the most from the LCFS
The more a fleet replaces its conventional fuels with eligible cleaner fuels, the more potential there is to generate money through the LCFS. Some large fleets, such as Orange County Transit Authority, report that the program paid for their fuel and generated a surplus of $3 million over a three-year period.
The financial return varies by equipment type, fuel type, operating conditions, and funding program specifications. Heavy-duty trucks are a promising opportunity as they consume large amounts of energy in short periods of time, and zero emission technologies—both battery and hydrogen options—are now entering this market. Even in a demonstration phase, this technology offers fleet owners revenue prospects today. Similarly, forklifts can offer a good return for fleets running two to three shifts daily, and electric models are already commercially available.
Electric transportation refrigeration units (eTRUs) are another prime opportunity to generate significant revenue over time, particularly in large volume fleets. For example, a standard eTRU plugged into the electric grid for 48 hours can generate approximately $60 of LCFS revenue; over a year of steady operation this could generate nearly $11,000 per eTRU.
Transitioning to clean vehicles and fuels will enable you to participate in the LCFS, but in order to maximize earning potential, fleets must understand how the program works.
How to get the most out of LCFS
The LCFS can be a big opportunity for fleets, but simply operating with clean technology equipment isn’t necessarily a guarantee to generate an ROI.
The LCFS can be a big opportunity for fleets, but simply operating with clean technology equipment isn’t necessarily a guarantee to generate a return on investment. As with any incentive program, how a fleet operates makes the difference between a headache and an opportunity.
Understanding ownership of the vehicles and fuels will help fleets figure out where they can expect to earn LCFS revenue since the rights to generate credits depend on the technology type and owner. In the case of renewable diesel, natural gas, and propane, it is generally the producer of the renewable fuel that keeps the rights to the credits. For electric vehicles, the owner of the electric charging infrastructure generally has the right to the credits.
Fleets will also need to pay attention to how they measure and report to CARB, as the level of detail that fleets report on can make or break the LCFS earning potential. For example, reports must clearly indicate that the fuel was only consumed by eligible equipment, and was not consumed for other uses, such as lighting on the same electrical circuit. Smart charging software or similar telematics can make reporting easier.
Following these best practices can maximize LCFS earnings, which for California fleets interested in transitioning to clean vehicles, can be a very attractive revenue generator to offset the higher costs of new technologies.
