California’s amended LCFS Regulation took effect on July 1, 2025 as the fuel price impact debate and judicial challenges continue.
On June 27, 2025, the California Office of Administrative Law (OAL) approved the amended Low Carbon Fuel Standard (LCFS) Regulation, submitted by the California Air Resources Board (CARB) to the OAL on May 16, 2025. Following OAL’s approval, CARB announced that the amendments would enter into force on July 1, 2025. This development follows OAL’s February 2025 decision to disapprove an earlier version of the amendments based on, in OAL’s view, clarity concerns, such as ambiguous language, undefined terms, and presentation issues that could confuse regulated parties. The OAL had also identified procedural issues, as well as issues with the documents CARB previously submitted.
Key Elements of the Amended LCFS Regulation
CARB adopted the LCFS Regulation in 2009 with the stated goal of reducing greenhouse gas emissions in California. The LCFS program is a market-based compliance measure that is designed to create economic value from low-carbon and renewable fuel technologies. The program’s original target was to reduce the carbon intensity (CI) of transportation fuel used in California by at least 10% from a 2010 baseline by 2020. According to CARB, the amended LCFS Regulation aims to accelerate the adoption of zero-emission infrastructure by prioritizing investment in clean fuel and transportation methods, with the goal of helping the state meet mandated air quality and climate targets.
The amendments increase both the pre- and post-2030 stringency of the CI benchmarks. Specifically, they increase the CI reduction targets from 20% to 30% by 2030, and aim for a 90% reduction by 2045, based on a 2010 baseline. To address the rapid advances in transportation fuel production and usage, the amendments incorporate a one-time 9% reduction of the CI benchmark from 2018 levels in 2025, resulting in a 22.75% CI reduction. In addition to the near-term reduction, the amendments introduce an Automatic Acceleration Mechanism (AAM) to accelerate CI reductions, triggered only under specific regulatory conditions. Starting May 15, 2027, and quarterly thereafter, CARB will announce whether the AAM has been triggered. CARB’s objective is to provide clear, long-term market signals that encourage investment in low-carbon fuel production and technologies to achieve significant emissions reductions in the transportation sector. Furthermore, the amendments establish a phased sustainability certification process for biomass and impose a cap on the issuance of credits for biomass-based diesel produced from soybean, canola, or sunflower oil, limiting it to 20% of the total credits per producer.[1]
Another key update to the LCFS program are changes that support hydrogen refueling infrastructure (HRI), particularly in the heavy-duty (HD) segment. These changes include raising the derating factor used to calculate HD-HRI credits. Additionally, the cap on credits from both Light and Medium-Duty (LMD) and HD-HRI has been removed. Furthermore, the amendments expand on the definition of hydrogen eligible for obtaining credits. Under the new standards, hydrogen produced with accompanying carbon capture and sequestration (CCS) technology will count toward the 80% renewable hydrogen requirement by 2030 and will be excluded from the existing phaseout of fossil hydrogen by 2035. The amendments also removed the option for Original Equipment Manufacturers (OEMs) to receive a portion of base credits for residential electric vehicle charging.[2]
Challenges to the LCFS Amendments
The LCFS amendments were initially published by CARB in November 2024. Shortly thereafter, several environmental groups and a biofuel trade association filed lawsuits against CARB under the California Environmental Quality Act (CEQA). The cases were recently consolidated, with one petitioner attempting to amend its original petition to raise new legal challenges against the CARB-adopted and OAL-approved amendments.[3] On July 25, 2025, a separate group of these original petitioners filed a new petition and complaint, alleging that CARB’s adoption of the LCFS amendments violates California’s Global Warming Solutions Act and Administrative Procedure Act.[4]
For more information on legal challenges brought by both environmental groups and a biofuel trade association regarding CARB’s previous version of the amendments, see our earlier blog post.
LCFS Program and Fuel Prices
LCFS market stakeholders, CARB, the oil industry, and most recently the California Legislature have stated divergent views on whether and how the implementation of the new LCFS amendments may impact gasoline and diesel prices. CARB originally projected a price impact, in terms of cents per gallon at the retail pump, in its rulemaking package, but then retreated from such projections by asserting there is no clear correlation between LCFS credit prices and retail fuel prices.
Given OAL’s initial disapproval of the amendments and the notable absence of a request from CARB for an early effective date for the amendments, there was lingering uncertainty in the LCFS market regarding precisely when the CI benchmarks would stepdown. The timing of the stepdown is important because it affects both LCFS credit and deficit generation for fuel transactions, which, in turn, impacts LCFS credit prices.
CARB staff recently informed the CARB Board that a 5-8 cents per gallon gasoline price increase (per CARB’s tracking) associated with the amendments has been included in retail fuel prices since January 1, 2025, due to third-party commodity pricing services assuming the amendments would take effect in Q1 2025.
Cap on LCFS Credit Prices Removed From Proposed Legislation
Proponents of Senate Bill (SB) 237 in the California Legislature sought to reform both the current LCFS Program and how California agencies conduct rulemakings that could impact transportation fuel prices. Originally, the bill would have capped LCFS credit prices at the average statewide credit price in effect on January 1, 2025 (roughly $75), but that provision was reportedly removed after pushback from LCFS market stakeholders.
The bill, as amended, would require CARB and the California Energy Commission (CEC) to conduct a regulatory impact analysis on any regulation that could move retail transportation fuel prices. Additionally, the bill would establish an optional “one-stop shop” for permitting at petroleum refineries that would be run by the CEC. It would require refineries to commit to providing transportation fuels at an affordable price to consumers for the duration of any permits issued under the CEC’s process. Furthermore, the bill would seek to suspend the use of California’s boutique gasoline specification and consider the implementation of a westwide gasoline standard. The bill is currently awaiting a hearing in the California State Assembly.
Latham & Watkins will continue to monitor developments in this area.
This post was prepared with the assistance of Sofia Cuevas Dorador.
[1] See 17 CCR §§ 95480-95503.
[2] See CARB, Addendum to the Final Statement of Reasons for Rulemaking, https://ww2.arb.ca.gov/sites/default/files/barcu/regact/2024/lcfs2024/lcfs_addendum.pdf.
[3] Stipulation and Proposed Order Regarding First Amended Petition and Complaint, Communities for a Better Environment v. California Air Resources Board et al., No. 24CECG05430 (Cal. Super. Ct. Fresno Cty. Sup. Ct. July 25, 2025).
[4] Petition and Complaint, Defensores Del Valley Central Para El Aire y Agua Limpio et al. v. California Air Resources Board et al., No. 25CECG03544 (Cal. Super. Ct. Fresno Cty. Sup. Ct. July 25, 2025).
