Updates with deficit context, administrative detail.
Recovering renewable diesel and renewable natural gas use in the second quarter helped add to a towering supply of California Low Carbon Fuel Standard (LCFS) credits, according to state data published today.
New credits exceeded new deficits by 3.2mn metric tonnes during the period to increase supplies available for future compliance to a record 43.4mn t. The swollen credit inventory — now nearly double the number of all new deficits generated in 2024 — has reduced incentives for lower-carbon road fuel alternatives and compounded a difficult margin environment for production of the fuels in the US.
LCFS programs require yearly reductions of road fuel carbon intensity. Higher-carbon fuels that exceed the annual limit incur deficits that suppliers must offset with credits generated from the distribution to the market of approved, lower-carbon alternatives.
Renewable diesel once again led credit generation during the second quarter with 36pc of all new credits. The roughly 161,000 b/d of consumption for the quarter was little changed from a year earlier. Compressed natural gas attributed to methane harvested from dairies made up 21pc of all new credits for the quarter, while residential electric vehicle charging made up about 14pc of new credits. Biodiesel consumption fell by 11pc from the second quarter of 2024, with increased petroleum diesel use more than replacing it. Conventional diesel made up more than 25pc of the liquid diesel pool in the second quarter for the first time in three quarters.
Total deficit generation was higher by 14pc from the previous quarter and by 7pc from the same quarter of 2024 on the higher diesel use and flat gasoline consumption. It was the largest quarterly deficit generation in program history. California's Air Resources Board also reduced first quarter 2025 credit generation by more than 385,000 t of credits in an administrative adjustment. Board staff did not immediately respond to questions about the nature of the adjustment.
Tallow, corn oil and soybean oil use in renewable diesel delivered to the state all increased from the previous quarter, though only tallow made up a larger share of fuels than in the same quarter of 2024. The average carbon intensity of renewable diesel for the quarter was about 42g of CO2 equivalent/MJ, about 2.8pc lower than the same quarter of 2024.
Downshifting diesel
Shifting state and federal incentives this year slashed margins for the single-largest source of new LCFS credits. President Donald Trump's administration prioritized domestic feedstocks, rather than lower carbon intensity, but has not yet implemented changes to tax incentives and blending mandates underpinning the switch. Renewable diesel demand nationwide sank and producers have cut runs or planned to return to petroleum output this year.
"That change is more than a subtle one, and it's going to put a number of assets in a pickle," PBF Energy chief executive Matt Lucey said this week.
California's consumption of renewable diesel in the first quarter was 2.7pc higher than the first quarter of 2024, but tougher targets meant that credit generation shrank by 2.4pc over the same period. Producers pared back output as the fuel lost its competitiveness with conventional diesel. Both Washington and Oregon consumption plunged to start the year. In Oregon, where renewable diesel made up most new program credits in 2023 and 2024, the slashed credit generation helped spark a more than doubling of the spot credit price that began in early June.
That environment persisted through the third quarter as new, tougher California targets took effect. An unexpected review of program amendments forced the rare mid-year change in the carbon limits that help determine the number of credits or deficits a fuel may generate each quarter. California will publish data for the third quarter on 31 January.
