The California Air Resources Board (CARB) released fourth-quarter 2025 data for the Low Carbon Fuel Standard (LCFS) on April 30, 2026. The data show the program’s recent stringency increase doing what it was designed to do: shrinking the credit bank. Yet LCFS credit prices, which would typically respond to a tightening market, have stayed soft. The disconnect between mechanism and market is worth a closer look.
A Quick Primer for New Readers
The LCFS is California’s market-based program for reducing the carbon intensity (CI) of transportation fuels. Producers and importers of higher-CI fuels such as gasoline and diesel generate deficits; producers of lower-CI fuels such as renewable diesel, renewable natural gas, and electricity used for transportation generate credits. Deficit generators must retire enough credits each compliance period to cover their deficits, which creates the demand side of the credit market. Credit prices are set by buyer-seller transactions in the secondary market, not by CARB, and the price level signals how scarce credits are relative to demand. When the market tightens, prices generally rise; when it loosens, they generally fall.
For a more thorough introduction to how the program works, see Stillwater’s LCFS 101.
Why the 4Q2025 Data Are Worth Watching
CARB’s 2024 amendments stepped up the LCFS CI-reduction benchmark to 22.75% effective July 1, 2025 – a stringency increase of 10.25 percentage points (a whopping 82% increase) from the 2024 benchmark. Many market participants expected the stringency increase to push credit prices upward as deficits would sharply increase. The deficit part of that expectation has materialized. In the second half of 2025, deficits grew 67.7% from the same period in 2024 and total credits fell by 19.7% as the tighter benchmark also compressed per-unit credit generation for low-CI fuels. The result was two consecutive quarterly net deficits, the program’s first such streak since the first half of 2020. The second expectation (the rapid upward pressure on prices) has not yet materialized. And without an increase in credit price, credit generators are not winners… at least in the short term.
The gap between a tighter market and credit prices matters for every participant in the LCFS ecosystem. Regulated parties are planning compliance strategy under a new benchmark schedule. Credit generators are making investment and operating decisions that depend on credit revenue. Policymakers and observers are gauging whether the amendment package is on track to deliver the carbon reductions it was designed to achieve. And analysts watching carbon markets more broadly are looking for what the disconnect signals about market structure under tighter standards.
What’s Coming
Stillwater is analyzing the dynamics behind the disconnect for an upcoming Monthly LCFS Newsletter piece. The forthcoming analysis will look at how supply and demand are interacting under the new benchmark, what observable indicators suggest about near-term market direction, and what market participants should be watching as 2026 data begin to arrive. Subscribe to Stillwater’s LCFS Newsletter to get this in-depth, expert analysis the moment we publish it.
And for Stillwater’s credit price outlook, check out the Carbon Market Outlooks Dashboard.
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