In one of its most controversial decisions, California’s air board voted tonight to revamp a key climate change program, which could increase gas prices in a state already facing some of the nation’s steepest costs at the pump.

Alejandro Lazo

CalMatters

The California Air Resources Board approved major changes to its Low Carbon Fuel Standard, a program aimed at encouraging use of cleaner transportation fuels with financial incentives as the state moves toward phasing out gasoline and diesel.

The board’s 12-2 vote last week followed about seven hours of comments from more than 100 people and four hours of discussion by board members at its meeting, held in Riverside.

State Assemblymember Tom Lackey, a Republican from Palmdale, told the board during public comments that the possible impact on gas prices will harm working class Californians.

“We’re the hard working men and women here in the state of California. We build homes, we fix roads, and we serve you when you dine out,” Lackey said. “To do this, we must drive hours each day to work to put food on the table for our families. This measure before you will cause us financial pain.”

At the heart of the controversy is the question: How do you wean Californians off gasoline and diesel — which is critical for cleaning the state’s dirty air and reducing its role in the climate crisis — without substantially raising the cost to consumers?

Many air board members referred to an urgency to push for cleaner fuels in California because of the outcome of the Tuesday election, which gave Donald Trump, who has denied the existence of climate change and targeted California environmental programs, the presidency and Republicans control of the U.S. Senate.

The new rule’s potential effects on California fuel prices are largely unknown. The air board said today that oil companies typically already pass 8 to 10 cents per gallon of costs on to consumers because of the state’s fuel standard.

The board also passed a resolution tonight requiring an annual review of the rule’s impact on gas prices. If the changes “ultimately accelerate cost burdens on California consumers,” the board said in the resolution that it will consider amending them.

Eric Guerra, a Sacramento city council member who was appointed to the air board by Gov. Gavin Newsom, said the air board must prioritize public health but that support of working families is equally important, so he called for frequent monitoring of the possible impact on gas prices.

Concerns about gas prices have fueled the debate surrounding the board’s proposal since its release last December. But much of the agency’s revamp of its fuel rules focuses on intricate disputes among environmentalists, oil companies, dairy farms that use manure to produce fuels, biofuel companies and other low-carbon fuel providers.

Environmentalists and consumer advocates opposed the new rules, warning the changes will boost alternative fuels — such as biofuels made from cow manure or soy beans — that may have limited environmental upsides, and will allow oil companies to stay in business because they can buy credits or switch to producing those fuels.

“It is not based on science, and it will undermine environmental justice and the rapid transition to zero emissions that we need more than ever today,” Nina Robertson, a senior attorney with Earth Justice told the board. “It represents a grab bag of giveaways to polluting special interests that have turned what once was a program for climate progress into a piggy bank for their false climate solutions.”

Electric car advocates and a variety of biofuel company representatives supported the new rules, saying they will provide billions of dollars in funds and incentives to move California toward eliminating carbon that warms the planet.

Tonight’s vote was the culmination of a debate over changes in a fuel standard that has roiled the air board for longer than a year, becoming a political flashpoint in recent weeks.

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The program, which has existed since 2011, is a $2-billion credit trading system that requires fuels sold in California to become progressively cleaner, while giving companies financial incentives to produce less-polluting fuels, such as biofuels made from soybeans or cow manure.

The amendments approved today will require gasoline, diesel and other fuels in California to meet stricter standards for greenhouse gases while changing how credits are awarded for specific lower-carbon fuels.

The program “represents a grab bag of giveaways to polluting special interests that have turned what once was a program for climate progress into a piggy bank for their false climate solutions.”

Nina Robertson, senior attorney with Earth Justice

Air board Chair Liane Randolph told CalMatters in an interview last month that the low-carbon fuels program is “one of California’s most significant and most effective climate programs.”

At the meeting today, Randolph suggested the new rules are critical, given how California’s climate and air pollution programs could come under strain from the new Trump administration.

“We know that in order to be successful in addressing climate change, we must continue to reduce our fossil fuel consumption and invest in low-carbon energy,” said Randolph, who was appointed to the board by Newsom. “Let’s be realistic, the tools in our (climate) toolbox may become much more limited going forward.”

But the debate resulted in two rare public defections among the 14 voting members of the Air Resources Board, who often unanimously approve major rules for cleaning up air pollution and cutting greenhouse gases.

Air board members Dean Florez, a former state senator from the Central Valley, and Diane Takvorian, an environmental justice advocate, voted no.

“Obviously, I’m a no, mostly about the environmental issues that were brought up, but also this whole discussion about gas,” Florez said.

Takvorian criticized how large dairy farms, which often pollute low-income farm communities, will benefit from the state’s low-carbon fuel credits for their manure digesters for 30 years.

“Let’s be realistic, the tools in our (climate) toolbox may become much more limited going forward.”

Air Resources Board Chair Liane Randolph

Florez said he is concerned that oil companies support the program and “that should give the board a little bit of pause.” Their products are a main cause of climate change.

“I listened to the testimony today, and I’ve been watching most of the industry tweets, and they all seem very giddy about the current program … that kind of worries me, because they kind of get to play both sides in some sense,” he said.

Florez warned in a CalMatters opinion piece earlier this week that the program is flawed, that it could impose financial hardships on people, and that the air board was not transparent about the costs.

“Such increases would affect essential goods and services, as transportation costs ripple through the economy, impacting food prices, housing affordability and more. For Californians already stretched thin by escalating rents and inflation, these additional costs could become overwhelming, pushing many into deeper financial insecurity,” wrote Florez, who is the state Senate-appointed member of the air board. His current term ends next month.

Air board member Hector De La Torre said oil companies are dishonest when they blame rising gas prices on the climate program. He said it was “a false narrative period” and blamed oil companies for price fluctuations.

“We’re not wildly fluctuating … we project out for many years. We let them know what we’re going to do, we let them know how it’s going to play out,” said De La Torre, a former Assembly member who was appointed to the board by the state Assembly. “So let us be clear about why we have the wild fluctuations in California on gas prices. It is not us. It is not the Legislature.”

Florez, however, disagreed. “How we can, in all good conscience, say that it’s all these other factors and somehow we’re not a cause.”

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A Gas Price Fight

Energy experts and air board staff say the fuel standard raises the cost of producing high-polluting gasoline and diesel for the California market because oil companies must buy credits from lower-carbon fuel producers, or produce the fuels themselves.

Those costs can drive up prices at the pump when companies pass them on to customers, although it’s difficult to predict by how much. Some companies might produce cleaner fuels themselves, potentially profiting from the incentives, while others may buy credits on the market.

In an initial assessment released last year, the air board projected that the proposed new standard could potentially raise the per-gallon price of diesel by 59 cents and for gasoline, 47 cents, in 2025. Air board officials have since disavowed that estimate, writing last month that the analysis “should not be misconstrued as a prediction of the future credit price nor as a direct impact on prices at the pump.”

A separate report, released last month by the University of Pennsylvania’s Kleinman Center for Energy Policy, predicted that the program’s changes could increase the cost of gas by 85 cents a gallon through 2030.

The fight over the fuels standard has shown how the state’s ambitious agenda for addressing climate change can be the subject of ire if it threatens to make fossil fuels more expensive. Californians paid an average of $4.52 a gallon today, second only to Hawaiians.

The vote came three days after a presidential election marked by concerns over inflation. State Republicans, in particular, have slammed the program as misguided, saying it piles on costs at a time when affordability is a top concern.

“For Californians already stretched thin by escalating rents and inflation, these additional costs could become overwhelming, pushing many into deeper financial insecurity.”

Dean Florez, Air Board Member

An analysis by California’s nonpartisan legislative analyst found the average California household spent about $3,200 a year on gasoline in 2021 and 2022, but some families — typically those with below-average incomes — spent more, about $6,150 a year.

“If gas prices would have been (10 cents per gallon) higher during the period we reviewed, the typical household’s gasoline spending would have increased by about $60 per year” and $130 per year for the households most reliant on gasoline, the Legislative Analyst’s Office wrote.

Raising the cost of diesel could have sweeping effects on the economy, since it fuels trucks and trains that carry goods, from food to toys, that Californians rely on and buy.

Tim Taylor, chief legislative advocate for the National Federation of Independent Business, said the state’s small business owners are concerned about that ripple effect on the economy.

“We’re not opposed to the greenhouse gas emission goals of the state, but the choice today is not one of endorsing zero emissions…it’s one of subsidizing biofuels,” Taylor said.

Small businesses worry about “the potentially massive gasoline price hikes, and the adverse impacts those increases will have on their businesses, and the rippling effect it will have on all Californians without actually improving the air quality of the state,” he said.

The Western States Petroleum Association, an oil industry group, has supported the program, with many of its members producing some of the new fuels the program has spurred. However, they argued against many proposed changes because they might increase costs or disadvantage some companies. Chevron also warned against what the changes might do to costs in the state.

“At a time when fuel prices are under significant scrutiny and demand in California frequently outstrips supply, regulators should be careful about adding new measures that restrict supply,” Don Gilstrap, Chevron’s manager of fuels regulations wrote to the board last month.

Millions of Tons of Carbon Eliminated

Under the California Climate Crisis Act, the state must slash its greenhouse gases to reach net-zero greenhouse gases by 2045. Cars, trucks and other transportation are the number one source and the changes to the fuels standard are meant to prevent California from falling behind on its ambitious climate goals, which are already at risk.

The standard has helped the state clean up air pollution and cut climate-warming gases, according to the air board. Through 2022, the program has eliminated 140 million metric tons of carbon dioxide. The air board’s changes are expected to reduce carbon dioxide-equivalent gases by 558 million metric tons through 2046, according to its initial economic assessment.

Those predicted reductions are equal to what more than 120 million cars emit on average in a year, though experts have told CalMatters the board’s estimates could be overstatements because the carbon footprint from some renewable diesel might be more than reported.

The program has been particularly successful in shifting the fuel market for medium and heavy-duty trucks, and over the course of 13 years, the program has displaced 25 billion gallons of petroleum fuels, according to the board’s economic assessment.

“A dynamic that has simply not gotten the attention that it deserves is what it means, ethically and morally, that California is celebrating making fuel from food.”

Gary Hughes, Biofuelwatch

The previous standard’s target was reducing the climate impact of transportation fuels by 20% between 2010 and 2030. The changes impose tougher “carbon intensity” targets, tightening the greenhouse gas reductions by about 30% by 2030 and 90% by 2045.

Through the state’s fuel standard, California has become a proving ground for cleaner fuels. But so many companies are producing them now that the value of credits has nosedived, dropping to an average of $68.12 last week compared to a weekly high in February 2020 of $211.02. The credits have built up to the point where some companies can buy their way out of producing cleaner fuels. To avoid that, regulators tightened the standard so that companies have incentives to burn through their excess credits.

Laura Renger, chair of the California Electric Transportation Coalition, emphasized the low-carbon fuel program’s importance in advancing the state’s electric car market. “It will bring critical funding,” she said. Electrify America and several car manufacturers also voiced their support.

“We have estimated that between now and 2035, the utilities would get about $4.8 billion” from the program to invest in electrification of cars and zero-emission trucks and buses, much of it in low-income communities, air board deputy executive officer Rajinder Sahota.

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Biofuels: Are They Better?

The fuel standard has notably driven a surge in biofuel production, derived from plant and animal waste. In the Bay Area, two companies are shifting their refineries to biofuels: a joint venture between Marathon and Neste is repurposing the Marathon Martinez refinery, while Phillips 66 is converting its Rodeo refinery into a biofuels-focused facility.

Bobby Thomas, general manager of the Rodeo refinery, told the board today that the program has helped “embrace and promote the production of lower carbon fuels in California.”

However, some experts are skeptical about the benefits. The University of Pennsylvania report estimates that about 80% of the credits issued to date — worth more than $17.7 billion, have gone to biofuels. While the air board says biofuels reduce emissions compared to traditional fossil fuels, experts say the results are mixed.

Renewable diesel fuels, like ones made from soybeans, also have unintended environmental consequences, including deforestation and food system disruptions​. The board imposed limits on diesel produced from soybean oil, canola oil and sunflower oil, but some say the changes don’t go far enough.

“A dynamic that has simply not gotten the attention that it deserves is what it means, ethically and morally, that California is celebrating making fuel from food,” said Gary Hughes, Americas Program Coordinator for the group Biofuelwatch. “This is a trend that’s particularly disturbing with all the evidence about how these products are not a climate solution.”

The board directed the staff to convene a forum in a year to collect the latest science on the effects of biofuels and find ways to avoid any harm on resources and food supply that they may cause.

Another debate over new biofuels has sparked tension around their effects on California’s low-income, polluted communities of color. The flashpoint is the phaseout of climate credits for dairy farms’ cow poop.

California’s strategy has leaned heavily on dairy industry incentives, offering grants for digesters — systems that trap methane from manure — and valuable fuel standard credits for the resulting natural gas. With dairy and livestock responsible for nearly half of the state’s methane emissions, capturing these gases not only keeps them out of the atmosphere but also turns waste into renewable fuel.

The changes will phase out these dairy credits, starting in 30 years for existing projects and in 20 years for those built before 2030. Environmental groups wanted a faster discontinuation, arguing that the credits prop up industrial dairy farms that pollute low-income, rural communities in the Central Valley.

In response, the air board directed the staff to prepare a plan to regular methane emissions from dairy farms and other livestock.

About the Author

Alejandro Lazo writes about the impacts of climate change and air pollution and California’s policies to tackle them.

About CalMatters

CalMatters is a nonprofit, nonpartisan newsroom committed to explaining California policy and politics.