California’s Clean Fuel Policies Clear Roadblocks to Electric Vehicles

September 6, 2018 | 2:59 pm
Jeremy Martin
Senior Scientist and Director of Fuels Policy

The fight against climate change will be won or lost depending on how successful we are at decarbonizing the transportation sector.  Transportation is the largest source of carbon dioxide emissions responsible for climate change in the United States, and in California, and while emissions from electricity generation have been falling, emissions from transportation have been rising.  Getting these emissions in check requires steady higher efficiency conventional vehicles, a rapid transition to electric vehicles, and cleaner fuels that reduce the carbon emissions of the fuels used by all our vehicles.

California’s low carbon fuel standard (LCFS) is a critically important policy to make cleaner fuels available to all drivers. But the LCFS is doing more than just offering incentives to fuel producers to blend low carbon biofuels into gasoline and diesel. The policy is also accelerating the availability of electricity as a transportation fuel.  With the California Air Resource Board (CARB) considering a package of amendments in September to strengthen and extend the LCFS, the policy’s ability to support the transition to electric vehicles is finally coming into focus.

More EVs mean more progress cleaning up fuels

The central element of this year’s amendments to the LCFS is a new, ambitious target for the program that will double the required reduction in carbon intensity from 10 percent by 2020 to 20 percent by 2030. This ambitious target is only feasible because electricity is becoming a more common clean fuel in California as more drivers opt to buy electric vehicles.  The chart below comes from a study we recently commissioned that shows the large share of emissions reductions from different types of electric vehicles.  The yellow wedge illustrates the growing importance of passenger vehicles fueled with electricity—battery and plug-in hybrid electric vehicles—while the hashed yellow shows medium and heavy-duty electric vehicles, like transit buses and delivery vehicles, and the brown shows hydrogen fuel cells.

This chart shows which fuels accounted for emissions reduction in the “Steady Progress” scenario of a study UCS, NextGen and Ceres, commissioned (see full report or 2 page summary for more details)

EVs and LCFS: a mutually beneficial relationship

While more EVs make higher LCFS targets achievable, the LCFS in turn is accelerating the transition to EVs.  Under the LCFS, fuels cleaner than the standard generate credits and more polluting fuels generate deficits.  Major fuel suppliers such as oil refineries comply with the standard by accumulating enough credits from clean fuels to cover the deficits generated by the gasoline and diesel they sell.  They can generate credits by blending low carbon sources of ethanol into gasoline, or biodiesel into diesel fuel, or they can buy credits generated by other transportation fuel producers.  Electricity is one of the cleaner fuels, and since EVs are a lot less polluting than gasoline and diesel, EVs can generate a lot of these credits, which translates into a lot of money.

In 2016 the LCFS generated $92 million that supported transportation electrification in a variety of ways, from funding consumer EV rebates to making electric buses more cost-competitive.  The total value of LCFS EV credits will grow as more EVs hit the road.  As we describe in our recent fact sheet, the cumulative total is expected to add up to $4 billion dollars of support for electrification between 2017 and 2030.

However, electricity is a different kind of fuel than ethanol or biodiesel.  You can’t blend electricity into gasoline or diesel, and when you charge an EV at home, the bill doesn’t itemize the electricity used to charge your EV versus powering your refrigerator.  Therefore, CARB has developed different rules to handle the credit generation from EVs that are specific to the different circumstances of different types of electric vehicles.  For example, transit agencies using electric buses generate LCFS credits, which is helping transit agencies lead the way on medium- and heavy-duty electrification. LCFS credits make electric transit buses cost-effective. Transit agencies earn about $9,000 per year for each electric bus in their fleets. But while a transit agency can register with CARB to generate credits, it’s not practical for every individual EV owner to do so on their own, so credits for residential charging are managed by CARB and the utilities.  CARB is considering amendments that make important changes in how these residential charging credits are handled.

LCFS credits can make electric cars more affordable via new point-of-purchase rebates

Most personal EVs are charged at home most of the time, and the electric utilities that deliver that electricity have worked with CARB to handle the EV credits generated by residential charging. Different utilities have taken different approaches to using the funds associated with the LCFS credits, with the largest share of the money funding a variety of EV rebates. This seems like a good idea because the price premium for an EV compared to internal combustion car is one of the most significant barriers to people deciding to buy an EV.  A rebate can help overcome the price premium.  However, to influence a purchase, the car buyer needs to know about the rebate at the time they make their decision. Utility-administered rebates have not always been well understood by EV buyers and sellers. To address this challenge, CARB has been working with utilities and car companies to develop a single statewide point-of-purchase rebate funded by LCFS credits that will be available at the dealer at the time of the sale. The process to develop this program is still underway, but if all goes according to plan, by the end of 2019 a new streamlined system should be in place. This is especially important now, since several of the large EV manufactures (Tesla, GM and Nissan) will see the federal EV tax credit phase out over the next few years unless Congress acts to lift the cap on the number of eligible vehicles.

Renewable energy maximizes the benefits of EVs

The emissions associated with driving an electric vehicle depend upon the source of the electricity.  California’s grid is cleaner than average and has been getting cleaner in the last few years, which is why an EV is so much cleaner than a gasoline powered car. But powering an EV with renewable power will reduce emissions further, as will smart-charging, which schedules an EV’s charging to take advantage of low cost and/or low-carbon electricity. In the 2018 Amendments, CARB is proposing changes that allow the use of renewable power from remote sources and establish rules recognizing the benefits of smart charging for EVs.  Together these changes allow more people to use low carbon source for charging and will deliver even greater climate benefits than EVs charged on average electricity.

LCFS will start supporting hydrogen and DC fast charging infrastructure

One of the most surprising changes in the 2018 LCFS amendments is a proposal to grant LCFS credits based on infrastructure capacity in addition to delivered fuel for hydrogen and DC fast charging. This is a significant change, responding to a recent executive order requiring that “all State entities work with the private sector and all appropriate levels of government to spur the construction and installation of 200 hydrogen fueling stations and 250,000 zero-emission vehicle chargers, including 10,000 direct current fast chargers, by 2025.”

Hydrogen fuel cell vehicles address some of the limitations of battery electric vehicles, particularly for larger long-range vehicles.  But the longer range and quicker refueling of hydrogen vehicles will be of little value without an adequate network of hydrogen stations. And as long as there are very few hydrogen vehicles on the road, hydrogen stations will have very few customers, making a difficult business case for companies that have the expertise to build and operate such stations. To address this challenge CARB is proposing a program to run from 2019 to 2025 that would allow hydrogen stations to claim LCFS credits based on a hydrogen station’s fueling capacity for their first 15 years of operation.  This should substantially improve the economics of building and operating a hydrogen fueling station and help meet the goal getting 200 hydrogen fueling stations up and running by 2025. The program is capped at 2.5% percent of overall LCFS demand for clean fuel credits, to ensure it does not substantially erode demand for other clean fuels and will be reviewed at the end of 2025.

Similar treatment is being extended to DC fast charging stations.  While most battery electric vehicles are charged at home, some people can’t do this, for example if they live in an apartment building or a house without a designated parking space where they can install a charger.  DC fast charging makes it possible to quickly recharge an EV, which will help people without home charging and help all EV drivers on longer trips, making EVs an attractive choice for even more people. Like hydrogen fueling stations, the utilization of DC fast charging infrastructure will be limited in early years because EVs are still a small share of cars on the road. Like the hydrogen provision, CARB is proposing a program that would allow DC fast charging equipment operators to claim LCFS credits based on infrastructure for the first five years of their operation. The program is capped at 2.5% of overall LCFS demand for clean fuel credits, and total infrastructure-based credits received by DC fast charging equipment would be limited to the installation cost of the station, less any grants received. This program should substantially improve the economics of building DC fast charging equipment and support the goal of having 10,000 DC fast chargers deployed by 2025.

The LCFS amendments modernize and improve the program

A lot has changed since the LCFS was first adopted in 2010. UCS has been actively involved in the rulemaking process throughout the program’s history and has worked with CARB and other stakeholders on the amendments. We are confident the proposed amendments will strengthen the program, building on what worked, addressing challenges that have arisen, and adding new provisions to meet new challenges. We urge CARB to finalize these amendments when it meets in September.  California needs not just cleaner vehicles, but also cleaner fuels. The LCFS achieves this goal.