A new bill in the Vermont Legislature would establish a “Clean Fuels Program” intended to reduce greenhouse gas emissions from transportation fuels.

To achieve this, Senate Bill 171 mandates the adoption of a Low Carbon Fuel Standard (LCFS). The LCFS requires a ten percent reduction in greenhouse gas emissions from gasoline, diesel, and other motor vehicle fuels by 2030.

The proposal specifically directs the state to examine existing LCFS mandates in Washington and Oregon to determine appropriate schedules and targets for reducing fuel-related emissions.

The proposal exempts fuel for vehicles used solely on farms, to transport logs, or primarily for construction. It also exempts watercraft and railroad locomotives.

However, an LCFS impacts will impact the viability of delivering non-compliant fuel into the state so these vehicles will not necessarily be unaffected by the mandate.

LCFS Elsewhere. Currently, only California, Oregon and Washington have LCFS mandates in place. New Mexico is in the process of implementing its program. Lawmakers in a handful of other states, including New York, are considering mandatory programs.

In states with existing LCFS programs, the mandate ratchets up over time and requires greater reductions in emissions associated with transportation fuels.

Like the Clean Heat Tax, California Cars Mandate, and other schemes, LCFS includes a credit system. As the emissions reduction target becomes harder to meet, conventional fuel makers can purchase credits from low-emission fuel producers as an offset.

Low-emission fuel producers can include ethanol, biodiesel, hydrogen, and electricity for EVs.

If cost-effective technology does not advance to allow liquid or gas fuels to meet the LCFS standard, electricity gradually becomes the only fuel capable of meeting the emissions reduction target.

Electric utilities, electric vehicle charging operators, and large corporations with electric vehicle fleets are some of the biggest beneficiaries of LCFS credits. They sell their credits to conventional fuel producers. Utilities and charging operators than use the proceeds to provide more rebates for EVs and EV charging stations.

Does LCFS Raise Prices? While estimates vary, LCFS is effectively a hidden gas tax. The amount of the tax depends on the added cost of producing compliant fuels and the LCFS credit market.

California: In 2009, California required a 10% reduction in the carbon intensity of fuels by 2020. A nonpartisan analysis published in 2021 found CA’s LCFS increased the price of gas and diesel by 22 cents per gallon while only achieving a 7.5% decrease in carbon intensity.

California has ratcheted up its LCFS mandate over time, including raising the target to a 30% reduction by 2030 and 90% by 2045.

Analysis from the University of Pennsylvania’s Kleinman Center for Energy Policy found the enhanced mandate produced an initial increase of 15 to 20 cents per gallon and could increase the cost of gas by up to 85 cents per gallon in 2030 and $1.50 per gallon by 2035.

That report also cast doubt on the extent and cost-effectiveness of LCFS-induced emission reductions.

Washington: In 2021, Washington state adopted an LCFS mandate that requires a 10% fuel emission reduction by 2031 and 20% by 2038.

Independent analysis by Stillwater Associates found the WA LCFS mandate will increase the cost of gas and diesel by 29 cents per gallon by 2031 and 58 cents per gallon by 2038.

As Stillwater notes, as additional states implement LCFS mandates, it adds demand for relatively limited supply of compliant fuel.

New Mexico: The Land of Enchantment’s to-be-implemented LCFS requires a 20% reduction in fuel emissions by 2030 and a 30% reduction by 2040. Independent analysis by Always on Energy Research found this “will increase the cost of gas and diesel by increase gasoline and diesel prices by 30 cents and 34.7 cents per gallon, respectively, by 2030.”

The report also found New Mexico’s LCFS mandate will add 45 cents per gallon of gas and 52 cents per gallon of diesel by 2040.

What does this mean for Vermont? The LCFS proposed in S.171 will almost certainly result in a significant tax on diesel and gas.

The analysis from California, Washington and New Mexico suggests a VT LCFS would increase the cost of gas and diesel by more than 20 cents per gallon by 2030.

Several factors could contribute to even greater impact:

– While Canada has an LCFS, no other state in the region has imposed such a requirement. The supply and availability of compliant fuel is unclear. Electricity is an available compliant fuel, but the ability of the electric grid to absorb significant increases in electricity demand is questionable.

– S.171 imposes strict limitations on using biofuels as an additive or compliant fuel, which could further exacerbate the cost.

– S.171 sets 2030 as the deadline to meet the 10% reduction but does not require final program rules to be adopted until January 2029. No other state has implemented an LCFS on such an aggressive timeline.

While the bill gives regulators the ability to change the deadline and emissions target, there is no certainty that it will happen. Moreover, the Vermont Global Warming Solution Act’s Right to Sue adds uncertainty about whether a court would allow regulators to modify the mandate to mitigate its impact.

Much like the other emissions reductions programs proposed by state legislators in recent years, the LCFS is complicated, expensive, and ill-suited to Vermont.