Regional credit trading: Economic and greenhouse gas impacts of a national low carbon fuel standard

The economic implications of various designs for a U. S. national low carbon fuel standard (NLCFS) for the road transportation sector are examined. An NLCFS based on the average carbon intensity (CI) of all fuels sold in the gasoline and diesel markets generates an incentive for fuel suppliers to reduce the measured CI of their petroleum fuels. Recent work examined the implications of different designs for an NLCFS in terms of compliance costs, credit price volatility, energy security, and possible savings from different credit trading systems for the on-road transportation sector. This paper builds on previous nationally aggregated modeling by taking into account regional differences in the supply, CI, and price of fuels. The impact of California's regional LCFS on compliance costs of an NLCFS is also examined. Significantly different costs are found for compliance by region. At the same time, flexibility mechanisms in terms of credit trading and banking can lower costs substantially.