Have You Left Money Lying Around? A Look at California’s Clean Fuel Market

LONG BEACH, Calif. — There’s an old story told by economists: A senior and junior economist are walking down the street, when the junior economist says, “There’s a $20 bill on the ground!” Without looking down, the senior economist retorts, “Impossible. Someone would have picked it up already.”

As hard as it is to believe, there can be easy money lying around. And, if you use clean transport technology in California, you could be leaving easy money lying around right now. It’s money you could be getting just for the truck, bus, van, or forklift you already use every day.

How California Created a Market Incentive For Clean Fuels

To learn whether you are leaving money lying around, and how to pick it up, first a quick lesson on California’s clean transport economics. Why is money lying around? Fuel and electricity use generate greenhouse gas emissions, which the State of California aims to cut 80 percent by 2050 (compared to 1990 levels). Clean and renewable fuel, electricity and hydrogen fuel cells, offer emissions cuts in commercial transportation that help California meet its goals.

To accelerate adoption of these technologies, the state created an entire market system called the Low Carbon Fuel Standard, or LCFS. An LCFS credit is tradeable on the LCFS market. Its purpose is to convert quantifiable emissions reductions into money that is equivalent to 1 ton of emissions per credit. A bigger cut in emissions earns more credits—and therefore more money—on the LCFS market.

The program began in 2011, and sends a strong price signal to clean technology providers who can make more aggressive investments, based on the ability to earn credits. According to the state, renewable fuels replaced more than 2 billion gallons of petroleum and natural gas through the LCFS in 2018. Given its success, the program was extended to 2030 and the emissions reduction target was doubled starting this year.

How Much Revenue Can be Generated?

What kind of money are we talking about? Fuel and electricity providers, as well as some fuel and mobile equipment users, can generate income from the LCFS market by using advanced, clean fuels and electricity.

By our estimates, at last month’s average credit price of $188 per credit, on average each year:

A fully electric vehicle:

— Forklift can generate $2,400 annually (for a model 2011 or newer 5,000 lb. forklift operating 2,000 hours per year).
— Yard truck can generate $7,380 annually (assuming 1,500 hours of operation per year).

A biogas vehicle:

— A class 8 tractor, refuse truck or transit bus can generate as much as $90,000 per year (assuming 10,000 diesel gallons equivalent of annual fuel consumption and that the renewable natural gas is produced from dairy waste in California).

However, most of that value is returned to the biogas producer, to help offset the higher cost of delivering the ultra-low carbon renewable fuel.

A hydrogen vehicle:

— Forklift can produce around $1,300 per year (for a model 2011 or newer 5,000 lb. forklift operating 2,000 hours per year).
— Transit Bus may generate an average of $7,000 per year (operating 40,000 miles/year).

Get Paid to Refuel and Recharge Instead of Paying For Fuel

These examples help show how LCFS credits can accelerate a return on investment, contribute to a lower total cost of ownership, and in some cases, provide free fuel plus a little additional cash in the fleet’s pocket. Fueling with cleaner technologies in California can be less expensive than using diesel fuel, so adding an additional revenue stream from these vehicles sweetens the deal even more. And participation isn’t limited to EVs, biogas, and hydrogen. You can also participle if you own your own CNG, LNG, propane, or hydrogen station.

The total market is currently valued at approximately $2.1 billion per year. While credit values fluctuate daily, based on market supply and demand, renewable biogas and electricity regularly capture the biggest returns.

Have You Left Money Lying Around?

The final lesson may be the most important for your business: Are you leaving money lying around? The changes to the LCFS that went into effect January 1, 2019, make it easier to generate credits for using electric vehicles (EVs) and hydrogen. Aviation fuel was also added to the program.

Today, clean vehicle and equipment owners can make or save money from the LCFS in the following ways:

  • By selling credits directly into the market as the owner of electric or hydrogen forklifts.
  • By selling credits directly into the market from using hydrogen, electricity, natural gas from fossil sources when you own the fueling/charging infrastructure.
  • By asking to see that the credits are reflected in the price of renewable natural gas, renewable diesel, or biodiesel that is delivered to you by a fuel provider.

GNA Can Handle the Hard Work For You

If you’re interested in learning the finer points and nuances of the LCFS program, contact GNA. GNA has been helping clients meet their sustainability goals, while generating revenue from the LCFS program since the program’s inception.

GNA provides a turn-key service to pick up all of the money that is available, and can easily walk you through the steps that are needed to begin cashing in on this lucrative program. If you are already running low carbon fuels in your fleet, and not collecting any revenue from doing it, you are missing out.