The Truth About the Oft-Cited “LAO Report”

In 2018, the Legislative Analyst’s Office (LAO) of California produced a report (LAO Report) evaluating the state’s transportation climate policies. The LAO Report included a summary and evaluation of California’s Low Carbon Fuel Standard (LCFS), Zero Emission Vehicle (ZEV) sales mandate and other regulatory programs. Ultimately, the authors of that report suggested that the LCFS might be less cost-effective than a pricing mechanism, such as a carbon tax or cap-and-trade system. They also postulated that the LCFS might not have a strong impact on GHG mitigation.

Turns out they were wrong.

Earlier this month, expert researchers at Simon Fraser University reviewed the LAO report and identified several important limitations of its evaluation of the LCFS:

  • It omits important data and literature;
  • It overly relies on vague economic theory rather than data;
  • And it incorrectly relies on a comparison of credit prices as a proxy for cost-effectiveness.

This new analysis is important because opponents of Clean Fuel Standards have relied on the report to undermine support for standards in our state. From cherry-picking data to making broad generalizations, opponents of clean fuel use the LAO as the definitive authority on low carbon fuel standards.

We’re here to call them on it.

The report targets five key areas where LAO researchers used incomplete or inaccurate data; relied on faulty or since-disproven data; or drew conclusions that while understandably vague were unintentionally restrictive.

    Counterpoint #1: The LCFS reduces GHG emissions in the present and future. Several studies indicate that LCFS policies have been able to contribute to shorter-term GHG reduction targets in California. In the longer-term, modeling studies also indicate that a stronger LCFS can play an important, complementary role in a well-designed policy mix that achieves deep decarbonization goals for the transportation sector.

    Counterpoint #2: Policy mixes, which may include an LCFS, are needed for deep GHG mitigation. Most researchers and policy analysts acknowledge that policy mixes are used and necessary in the real-world. No region has demonstrated the political will to achieve GHG mitigation goals solely through a strong carbon price. A policy mix, notably one that includes regulatory measures like an LCFS, can address multiple market failures (externalities, R&D spillover effects, oligopoly power), as well as more general “lock-in” to incumbent energy systems.

    Counterpoint #3: The higher LCFS market credit price indicates that it is a strong and effective, rather than costly, policy. The LAO Report used a comparison of policy credit prices to incorrectly support its assertion that the LCFS is a more costly GHG reduction strategy than the cap-and-trade system. Rather, the higher credit price for the LCFS indicates that it is working. Research indicates that without LCFS policies, carbon prices would need to rise to between $100 and $200/tonne by 2030 for a developed country to be on track to achieve deep GHG reductions by 2050.

    Counterpoint #4: The LCFS is more politically acceptable than carbon pricing (cap-and-trade or tax). Numerous studies show that a strong regulation (including the LCFS) receives much more support by citizens in the US and Canada compared to a carbon tax, and more support than a cap-and-trade system. Around 60-80% of citizens support an LCFS (compared to 22-30% support for a similarly stringent carbon price. Thus, a policy mix that relies more on regulations like an LCFS (rather than carbon pricing) is more likely to receive public support.

    Counterpoint #5: The LCFS sends a transformative signal that results in more clean fuels for transportation. The LAO report acknowledges that it is important for a climate policy to “promote technological innovation” (p2), though the authors did not try to assess such impacts for the LCFS. Reviewing the broader evidence of the LCFS’s ability to send a transformative signal, we find that the LCFS has helped to:

    1. Reduce the average lifecycle carbon intensities of fuels in California up to 36% (from 2011 to 2019); and in British Columbia (2010 to 2018) by 45% for ethanol and 84% for biodiesel.
    2. Increase the quantity and variety of low-carbon fuels from six in 2011 to 10 in 2019 in California, including renewable diesel and renewable natural gas;
    3. Studies identify the LCFS as being “vital” to the development of new, low-carbon fuels, such as hydrogen, biomethane, electrification, and renewable diesel and jet fuel produced from a variety of feedstocks.

    In contrast, cap-and-trade does not provide a direct market signal to supply low-carbon transportation fuels, as that is not the purpose of the policy. Further, California’s emissions cap does not differentiate between high and low-carbon biofuels and so provides little to no transformative signal to reduce GHG emissions associated with biofuel production.

    In contrast to the LAO Report’s conclusions, the authors argue that the LCFS should be considered as an enduring part of any decarbonization plan. A well-designed LCFS has many positive attributes: it reduces GHG emissions, it can be cost-effective, it tends to be acceptable to citizens, and it sends a strong transformative signal to industry and other stakeholders to invest in, produce and otherwise transition to low-carbon fuels.

    We encourage everyone to LCFS-LAO_NaviusAxsen_Final Part 1: