On June 27, CARB announced that California’s amended LCFS regulation would take effect on July 1, 2025, following approval by the Office of Administrative Law (OAL).
Recall that the CARB Board-approved LCFS amended regulation, which includes revised carbon intensity (CI) targets for 2025, from 13.75% to 22.75% below 2010 levels, was rejected in February by the Office of Administrative Law (OAL) on technical grounds. CARB resubmitted the revised package on May 16, which OAL approved, according to the press release sent out today by CARB.
On the LCFS main page, CARB clarified that the amendments will apply only to fuels supplied in Q3 and Q4, and that the 2025 CI benchmarks apply to fuel transactions occurring on or after July 1, 2025.
After months of speculation and heightened volatility, the market is expected to gain clearer direction as participants absorb the latest update.
Prices had declined from the USD 70s following the OAL disapproval in February 2025, unsettling traders who had positioned for tighter 2025 targets. Sentiment briefly stabilized in late March, with ICE December 2025 futures hovering around USD 65 per ton after CARB officials suggested Q1 implementation was still under consideration. However, optimism faded following the May 16 resubmittal, as language in the revised package indicated that Q1 coverage was unlikely, pushing prices below USD 50 per ton.
Although certainty on the effective date and implementation date of the final LCFS rules is positive for the market, news the increased stringency will apply starting with the second half of 2025 could contribute to bearish sentiment. ICE December 2025 futures have been struggling to maintain at the USD 50 level and could decline as traders who had positioned for full-year or Q2–Q4 coverage may unwind their positions, adding selling pressure. This will be reinforced by participants' anticipating two more consecutive credit bank builds. This would extend a trend of quarterly surpluses that began in Q2 2021 and has pushed the credit bank to 37.3 million credits by the end of the 2024 compliance year—more than enough to cover at least one and a half years of compliance obligations.
The year-end bank would be enough to cover more than one year of compliance and could remain elevated until the automatic CI target adjustment mechanism is triggered. That mechanism may not activate until 2029, especially with federal policies likely to slow clean fuel supply growth.
Amid the update, the LCFS program is facing increased public scrutiny and rising political risks over the compliance cost of the program and its impact on gasoline prices.
Fears from headlines that the LCFS could contribute to California gasoline prices rising above USD 8 per gallon, with some claiming that the amendments alone could increase prices by up to USD 0.65 per gallon, have led to significant proposed legislative action that could weaken the program’s effectiveness.
That said, with pricing around USD 50 per ton —the actual compliance cost passed through to drivers would remain below 20 cents per gallon under the amendments. Nonetheless, in light of the heightened scrutiny, Democratic senators have introduced a “gut and amend” bill (SB 237) that would cap LCFS credit prices at January 2025 levels, estimated at USD 70–75 per ton. This comes after Republican lawmakers introduced unsuccessful bills such as AB 12 and SB 2 earlier this year, aiming to repeal the 2024 amendments entirely, citing similar concerns over high compliance costs.
Adding to this, political risks at the federal level remain significant.
President Trump’s recent executive order targeting state climate programs has added another layer of uncertainty. Although Governor Newsom has rejected the legal basis of the order, it has raised fears of a potential pressure on states' programs like the LCFS and the Cap-and-Trade.
ClearBlue will continue to update clients as more details emerge on the implementation and political trajectory of the amended LCFS regulation.