Factors Influencing Gasoline Prices Comparing Low Carbon Fuel Standards with Traditional Factors

Abstract

In 2024, the Minnesota Legislature considered legislation aimed at enacting a Clean Transportation Standard for the state (Minnesota Legislature, 2024). Clean transportation standards—more commonly referred to as low carbon fuel standards (LCFS)—are programs designed to reduce greenhouse gas (GHG) emissions from the transportation sector by reducing the use of higher-carbon fuels (i.e., conventional fossil fuels) and incentivizing producers to develop lower carbon alternatives such as electricity, hydrogen, and biofuels (Jordan, et al., 2021).

While the bill did not pass during the 2024 session, the legislature may consider it again in an upcoming session. And there is some concern that, if the state’s clean transportation standard were passed into law, it could impact the price of transportation fuels, including gasoline.

The primary goal of this study is to review existing literature on the factors influencing gasoline prices, with a special focus on the impacts of LCFS programs specifically. Our analysis begins with an overview of existing LCFS programs and a comparison of how different states and jurisdictions have implemented such standards. Then, we identify how broad market effects and state-level factors (including LCFS programs) influence fluctuations in the price of transportation fuel. In addition, we identify any additional costs and/or benefits to businesses and consumers from LCFS policies like the one being considered in Minnesota.