First off, let’s address what LCFS credits are exactly, and how they can best work for EV producers and users –
What is the Low Carbon Fuel Standard (LCFS) program?
The Low Carbon Fuel Standard, (LCFS) program was established in 2009 by the California Air Resources Board (CARB) to aid the state’s efforts in achieving carbon reduction goals. The measures set out by the LCFS program aim at decreasing the carbon intensity of California’s transportation sector by 20% by 2030. The LCFS aims at decreasing the carbon intensity (CI) of transportation fuels by offering an array of low-carbon alternatives to advance the process of reducing petroleum dependency in California; therefore, securing improved air quality statewide. The program is market-based and creates economic value from low-carbon and renewable fuel technologies in its model. The system is regulated with tailored compliance measures to ensure credits are accurately recorded.
The main reason CARB introduced the LCFS program is to encourage the use and production of clean, lower-carbon transportation fuels in California. The goal of LCFS is to lessen the state’s reliance on petroleum-based fuels and sustainably reduce GHG emissions through its system.
How LCFS works for EV
Annual carbon intensity (CI) standards are enacted by CARB to facilitate the reduction of gasoline, diesel, and petroleum-based fuels and replace them with clean energy alternatives. The LCFS program allows producers of clean energy, including electric vehicles fleets, to earn credits through their emission reductions. In this market system, while users and producers of clean energy gain credits, emitters purchase those credits to counteract their carbon footprint.
Through the LCFS program, credits are earned based on the carbon displaced – for every metric ton of emissions surpassed, credits are gained. Credits can be sold by clean energy producers and users to emitters such as petroleum importers, producers, and refiners that require carbon reductions to remain in compliance with CARB. These regulated entities within the oil sector are required to participate in California’s LCFS Program.
How to Earn Revenue with California’s LCFS Program
Revenues can be utilized towards offsetting costs from EV purchases and maintenance such as charging infrastructure, maintenance fees, electricity costs, and administrative fees.
Under the EV Ready Program, charging ports that have already been installed can also qualify for credit generation in LCFS and can add a significant revenue stream through the renewable electricity system.
Revenue opportunity for EV fleets
Electric vehicle fleets can benefit immensely from the LCFS program – fleets utilizing renewable electricity for charging can significantly increase their revenue streams and offset production costs through the system. EV fleets can purchase and sell renewable energy credits (RECs)– for example, a Class 8 truck can potentially earn $38,335 annually, a 20% increase from its existing price.
This revenue opportunity is calculated based on 2021 LCFS program data:
| Class 8 | Class 6 | eTRU | Forklift | School bus |
| Class 8+ $187 per MT=$31,977earned annually | Class 6+ 20,000mi annually = 35 metric tons C02 reduced x$187 per MT = $6,545 | eTRU +40,150 kWH/annually = 33 metric tons C02 reduced x $187 per MT = $6,171 | Forklift + 2 hrs daily operation = 17 metric tons C02 reduced x $187 per MT = $3,179 | School bus + 10,800mi annually = 18 metric tons C02 reduced x $187 per MT = $3,366 |
The market price for LCFS credits
In the LCFS market, the price of credits varies based on supply and demand. The average LCFS credit price for 2022 year-to-date is about $115/MT, a lower amount than the previous year as CARB continues its efforts to fortify its CI targets and more entities register to participate. The market remains active, despite the declining cost of credit, with over 18.5 million credits transferred thus far in 2022. In July alone, over 3.5 million credits were transferred— this was the third-busiest month of the program and gives insight into just how much revenue can be obtained in the LCFS credit market.
According to SREC Trade, the Clean Fuels Market Update for August 2022 presents promising data for the market, “6.04 million credits and 5.15 million deficits were issued in Q1. The cumulative credit bank rose by 890k credits (9.4%) to a new program high of 10.35 million.”
Prices for LCFS credits fluctuate according to market demand and the credits themselves are based on energy provided per vehicle. The price per credit ranges from $150-$200 and the average price for 2021 was recorded at $199 per credit. This system can prove as a high revenue stream for sites utilizing charging stations and high-capacity facilities can qualify for a capacity credit from CARB.
Based on EVs charged per day, here is an example of the revenue that could be earned utilizing the LCFS system at a charging station:
| Electric vehicles charged per day: | Estimated LCFS revenue per year: |
| 1 | $ 1,500 |
| 5 | $7,700 |
| 8 | $12,300 |
| 10 | $15,400 |
How to register my EV Fleet?
1. EV fleets can register as an Opt-In Entity with CARB.
2. Maintain a list of all charging infrastructure and fuel supply equipment.
3. Report all electricity used for EV charging to CARB quarterly.
5. CARB verifies reports and issues credits.
6. Fleets can then sell credits to regulated emitters, turning credits into cash.
7. Fleets must complete an annual report documenting their use of LCFS credit revenue funds and submit the report to CARB.
CARB Regulations
CARB sets goals of decreasing high, petroleum-based fuels and replacing them with low CI fuels such as electric, natural, and biogas in the transportation sector. Credits in CARB’s LCFS market are generated based on the CI score of the amount of energy produced, specifically by electricity used for EVs.
CARB regulations allow the owner of the EV charging station to distribute credit ownership to any entity – the owner or the designated entity submits records to CARB based on the amount of energy delivered at each charging port. CARB then verifies the submitted records and distributes the LCFS credits. These credits can then be sold to other high-carbon companies to offset their carbon footprint to comply with regulations.
EVSE
In CARB’s efforts to advance the installment of EV charging infrastructure to support its program, credits can be earned by the installation of EVSE at an establishment, in addition to all charging activity. These measures significantly contribute to the ROI of the EV market and progress the adaptation of EV infrastructure in California’s roadways.
Steps to register EVSE:
- Register EVSE with CARB and set up an online account
- Submit quarterly reports
- Receive LCFS credits (online)
- Sell LCFS or transfer to other entities
Reporting to CARB
Reporting is essential to the LCFS program – dedicated meters must be installed for the electricity to be accurately reported and sufficiently generate credits in the system. Another option offered is that monitoring, and recording can be done separately from smart chargers for non-fleet operations – such as buildings or other equipment that record electricity usage.
The LCFS Reporting Tool, Credit Bank and Transfer System (LRT-CBTS), as well as the Alternative Fuel Portal, (AFP) must be utilized by regulated parties and reported on a quarterly schedule to obtain credits.
LCFS market liaisons
Generating and trading credits can be daunting, luckily there are private companies that can act as a liaison to assist with trading your credits on the open market to oil refiners and producers while leveraging the best price for you. In addition, these companies will track data of EV fleets, handle registration, manage reporting submissions, and conduct all state system interactions on your behalf – including the incentive payment process that takes place every 90-days in the LCFS system.
The Takeaway
CARB’s LCFS program provides promise for advancing the EV market by encouraging participants to install a system that supports EV infrastructure statewide through its credit-generating system. The revenue incentivizes electricity and clean-energy producers while high carbon emitters must pay into the system. EV fleets are front and center in LCFS and can exponentially benefit from credits and revenue earned in this market-based system.
