Articles
CA LCFS Q4 2025: A Tighter Market, But One That Largely Moved As Expected

CA LCFS Q4 2025: A Tighter Market, But One That Largely Moved As Expected

Overview

California’s Low Carbon Fuel Standard (CA LCFS ) closed Q4 2025 with another deficit quarter. According to CARB’s updated quarterly data summary, regulated parties generated 7.78 million metric tons (MMT) of credits in Q4 2025 against 9.64 MMT of deficits, leaving the quarter at a net deficit of 1.86 MMT. Cumulatively through Q4 2025, the program has generated 227.05 MMT of credits and 187.36 MMT of deficits, leaving a remaining credit bank of 39.69 MMT.

Key takeaways from Q4 2025

Q4 Deficits totaled at 9.64 MMT, falling by ~4% from Q3 2025 and increased by 64.51% on a YoY (Q4 2024 had deficits of 5.86 MMT) basis. Recent report by U.S. EIA notes motor gasoline consumption fell from 2024 to 2025 even as VMT rose due to improving fuel efficiency, which likely explains the YoY decline in California’s gasoline pool as well. Despite this, deficits increased sharply due to the July 1 CI tightening.
Volumes fell across most fuels, with the main exceptions being AFJ, renewable naphtha, and propane based on the quarter data. AFJ improved meaningfully with credits rising from 134,235 to 174,363 MT, volumes increased from 28.68 million to 33.32 million gallons, and average CI improving from 44.66 to 40.30 gCO2e/MJ.
RD remained important, but its economics softened. RD credits fell to 2.51 MMT, down 36.7% YoY, while volume dropped 21.3% to 530.18 million gallons. Even so, its share in the pool increased to 62% in Q4 2025 from 58% in Q3 2025 mainly due to seasonality, which shows it still anchors the LCFS fuel mix even as performance changes quarter to quarter.
RNG mix continued to evolve. Dairy RNG share slipped from about 88% to 86%, landfill RNG rose from 10.95% to 13.23%, and fossil gas use declined.
Electricity continued to gain traction. Volumes reached 99.11 million gge in Q4 2025, up about 15% YoY and 1.4% QoQ, supported by roughly 20% YoY growth in residential EV charging. That is an important signal that the electrification side of the program continues to deepen alongside the liquid fuel market.

cCarbon’s forecasting accuracy & Outlook

cCarbon’s forecast held up well directionally. The base case bank estimate of 40.39 MMT versus the actual 39.69 MMT translates to 98.24% accuracy, showing that the model captured the broader direction of the market even though some fuel pathways shifted more than expected.
The forecast still performed well from the total credit and deficits standpoint, with 93.22% accuracy for credits and 98.55% for deficits, but the miss on credits reinforces the idea that supply was slightly softer than expected.
Under CARB’s framework, 2026 data will be considered for evaluating any Automatic Acceleration Mechanism (AAM) trigger starting May 2027. Given the credit bank is already declining and deficits continue to outpace credits, the bank to deficit ratio is likely to compress, making an AAM trigger less probable unless there is a sustained rebuild in the bank alongside stronger credit generation.
CARB’s proposed update reduces grid CI from 70.05 to 65.07 gCO2e/MJ for 2026. A lower CI directly improves credit generation potential for electricity pathways going forward especially since electricity from Grid CI avg. increased ~17% YoY which also resulted in 9% increase in credit generation YoY.
RD dynamics remain a key uncertainty as feedstock constraints and rising CI from crop-based inputs may limit credit generation, especially with regulatory constraints like the 20% cap on crop-based feedstocks influencing pathway economics.
Q4 indicates a gradually tightening market. Prices may stay reactive in the near term, but continued credit deficits and bank drawdown should support prices as compliance pressure builds. That said, renewable diesel flows will be a key swing factor. As noted in our recent articles, strengthening U.S. netbacks and higher RD prices, supported by global market dynamics, could incentivize more supply back into domestic markets like California. If this materializes, it may temporarily ease credit tightness and soften price upside, but any relief is likely limited given ongoing policy tightening and structural supply constraints. For more details, please watch out for our nowcasting on these credit markets.

Conclusion

Q4 2025 indicates that the LCFS market is tightening, with deficits continuing to exceed credits and the bank steadily declining. This tightening is not just policy driven but also reflects broader market shifts, including reduced renewable diesel availability in California as U.S. supply is increasingly redirected to exports and other states with stronger incentives. At the same time, rising global fuel prices and stronger netbacks are expected to pull volumes away, while electricity continues to anchor credit growth. The market is therefore transitioning from volume driven to CI and supply constrained dynamics, where fuel quality, trade flows, and policy signals together will shape pricing and balance going forward.