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Understanding Third-Party Designation Risks in the LCFS Program

February 14, 2022

With February upon us, annual California Air Resources Board (CARB) Low Carbon Fuel Standard (LCFS) reporting for 2021 is around the corner. As such, becoming familiar with regulation and reporting elements can help avoid potential pitfalls. This is particularly true for companies looking to generate LCFS credits for their fleet electrification efforts and facing choices on how best to participate in the LCFS program.

The current California LCFS regulation states that for electricity supplied for EV charging, the owner of the fuel supply equipment (FSE) is eligible to generate LCFS credits. Credit generation allows for the creation of revenue by enabling the generator to sell the credits to registered LCFS buyers. Complying with the regulation requirements and managing trades can be complicated and burdensome, leading some fleets to contractually designate credit generation to third parties. Upon such designation, the designated entity carries all LCFS responsibilities as the fuel reporting entity (FRE) and as the credit generator. Enticing as that may be for some FSE-owning fleets, it does not come without risk.

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