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CA LCFS Q1 2026: Tighter Benchmarks Accelerate Credit Bank Drawdown

CA LCFS Q1 2026: Tighter Benchmarks Accelerate Credit Bank Drawdown

Overview

California’s Low Carbon Fuel Standard opened 2026 with its largest quarterly shortfall of the current tightening cycle. According to CARB’s Q1 2026 quarterly data summary, regulated parties generated 6.93 million metric tons (MMT) of credits against 9.77 MMT of deficits, leaving a net deficit of 2.83 MMT. This is the widest quarterly gap since the program began tightening in mid-2025. Cumulatively through Q1 2026, the program has generated about 233.98 MMT of credits and 197.13 MMT of deficits, drawing the bank down to 36.86 MMT, its third straight quarterly decline.

Key takeaways from Q1 2026

Deficits rose to 9.77 MMT, up 1.3% from Q4 2025 and 72.1% YoY as compared to Q1 2025. Q1 2026 was the first full quarter under the stricter 2026 CI benchmark, raising the deficit created per gallon, so even with slightly lower gasoline demand, CARBOB deficits still climbed to 8.54 MMT. In short, the stricter standard, not higher fuel use, is the main reason deficits are growing.
Credit generation fell to 6.93 MMT, down 10.9% from Q4 2025 and 15.1% YOY. This quarter almost every fuel produced fewer credits: renewable diesel fell 20.7%, ethanol 17.6%, biodiesel 31.2%, alternative jet fuel 17.2% and dairy RNG 13.2% versus Q4 2025. Only a few small pathways, such as DC fast-charging infrastructure, added credits. The decline was broad rather than seasonal, pointing to a genuinely tighter supply of new credits.
Renewable diesel (RD) was still the single largest source of credits, but it earned less this quarter. RD credits fell 20.7% QoQ to 1.99 MMT while RD volume fell 14.0% QoQ to 455.70 million gallons. Credits dropped faster than volume because RD’s average CI rose to 46.94 gCO2e/MJ, up from 45.46 in Q4 2025 and 42.18 YoY, and a higher CI means fewer credits per gallon. The reason is a change in feedstocks: soybean oil is now the top RD feedstock at about 37% of RD volume in Q1 2026 as compared to 16% in Q1 2025, while used cooking oil share fell from nearly 30% in Q1 2025 to around 8% in Q1 2026. Because crop-based oils like soy carry a higher CI than waste oils, the shift lowers the credits earned on each gallon and makes the 20% cap on crop-based feedstocks more binding.
Dairy RNG remained the main source of renewable natural gas but earned fewer credits. Bio-CNG credits fell 13.2% QoQ to 1.73 MMT because its average CI increased to -174 gCO2e/MJ from -199 gCO2e/MJ in Q4 2025. Dairy and swine manure still made up about 87% of renewable gas volume.
Electricity credits fell 11.5% QoQ to 2.20 MMT. Residential EV charging kept growing, with volume up about 15% YoY and credits roughly flat. The decline came mainly from off-road categories, especially a sharp drop in reported eForklift volumes (credits fell from 309,045 MT in Q4 2025 to 15,906 MT in Q1 2026). As reported by CARB, the credits may be revised subject to change as regulated entities may correct their quarterly data.

cCarbon’s forecasting accuracy & Outlook

cCarbon’s Q1 2026 nowcast was again close to the actual results. We projected a bank of 37.59 MMT against the actual 36.86 MMT, an accuracy of ~98.0%.
cCarbon projected credits of 7.20 MMT (~96.1% accuracy) and deficits of 9.31 MMT (~95.3% accuracy). As a result, the actual net deficit of 2.83 MMT was wider than we expected.
Also, cCarbon’ s renewable diesel volume forecast was accurate: we projected 446.10 million gallons against an actual 455.70 million gallons, about 97.9% accuracy. Credits came in lower mainly because RD’s CI rose more than assumed (our method holds CI flat at the prior quarter), and deficits came in higher because the 2026 CI benchmark tightened the gasoline pool more than expected.
Q1 2026 is the first quarter of data that feeds CARB’s Automatic Acceleration Mechanism (AAM) review, which can be triggered no earlier than May 2027, with tighter benchmarks taking effect from 2028. The AAM is meant to respond to a bank that is too large. With the bank falling for a third straight quarter and net deficits widening, those trigger conditions are moving further away, so a near-term AAM trigger looks unlikely unless credit generation rebuilds strongly.
Renewable diesel is still the main swing factor, and feedstocks are now the key issue. As RD shifts from waste oils toward crop oils like soy and canola, its CI rises and it earns fewer credits per gallon. RD credit generation will only stabilize if lower-CI waste feedstocks return to California in larger volumes.

Conclusion

Q1 2026 was a clear tightening quarter for the LCFS. Credits of 6.93 MMT fell short of deficits of 9.77 MMT, producing a net deficit of 2.83 MMT and a third straight quarterly decline that lowered the bank to 36.86 MMT. Deficits rose 72.1% from a year earlier under the stricter 2026 CI benchmark, while credit generation fell across all major biofuel categories. Renewable diesel’s average CI rose to 46.94 gCO2e/MJ as soybean oil replaced waste feedstocks, reducing credits per gallon, and electricity credits dipped 11.4%, mainly on off-road reporting lags rather than weaker demand. Together these figures show a market increasingly shaped by carbon intensity and feedstock choices, with the bank likely to keep declining while credit generation stays below deficits.