Abstract
This research examines the economic implications of different designs for a national low
carbon fuel standard (NLCFS) for the road transportation sector. A NLCFS based on the average Carbon
Intensity (CI) of all fuels sold in the gasoline and diesel markets will generate an incentive for fuel
suppliers to reduce the measured CI of their petroleum fuels. The economic impacts of a NLCFS are
fundamentally determined by: the availability of low carbon fuels; the compliance path; the reference
level CI of the fuel baseline; and the degree of flexibility in the credit system. To quantitatively examine
the implications of a NLCFS, we created the Transportation Regulation and Credit Trading (TRACT)
Model. With TRACT, we model a NLCFS credit trading system among profit maximizing fuel suppliers
for light- and heavy-duty vehicle fuel use for the United States from 2012 - 2030. Given the wide range
of cost and availability of biofuels, we find that credit trading across gasoline and diesel fuel markets
combined with credit banking can significantly reduce compliance costs and stabilize credit prices. We
make policy recommendations on how to combine a NLCFS with other existing regulations for
transportation fuels.
