California Repealed Its Electric Vehicle Mandate. Its Fuel Market Absorbs the Consequence.

California runs two separate systems that pull in the same direction. A zero-emission vehicle mandate sets a minimum share of new vehicles sold that must be electric or fuel-cell. The Low Carbon Fuel Standard (LCFS) works on fuel instead of vehicles: it sets a declining annual limit on the average carbon intensity of transport fuel sold in the state.

Under the LCFS, petrol and diesel sit above that limit and generate deficits — an obligation their suppliers must cover. Cleaner energy sits below it and generates credits, which are traded and used to settle those deficits. Electricity used to charge vehicles is one of the largest credit sources in the programme. Unused credits accumulate in a bank the market can draw on in later years.

The vehicle mandate has been repealed. The LCFS has not. This memorandum sets out what the first does to the second.

• Advanced Clean Cars II required 35% of new light-duty vehicles sold in California to be zero-emission from model year 2026, rising to 68% in 2030 and 100% in 2035. Congress revoked the federal waiver the rule depended on, on 12 June 2025.
• The heavy-duty rule fell first and by a different route. CARB withdrew its own Advanced Clean Fleets waiver request on 13 January 2025 and stopped enforcing the fleet requirements that depended on it.
• We model both worlds. With the mandate gone, the cumulative credit shortfall to 2045 runs 747 Mt against 131 Mt with it in force, and the credit bank empties in 2031 rather than 2035 — four years earlier. Our price forecast for both cases sits in the Climate Decode California LCFS model.
• CARB built the LCFS an automatic acceleration mechanism for when the market runs long. In the repealed case, it never fires, in any year of the forecast.
• California has not re-filed for a waiver. It is rebuilding through instruments that never needed federal permission, and the LCFS is the largest of them.

CARB adopted ACC II in August 2022. It set a year-by-year floor on the zero-emission share of new light-duty vehicle sales: 35% from model year 2026, 68% by 2030 and 100% by 2035. Battery electric, fuel cell and plug-in hybrid vehicles all counted towards the floor, with plug-in hybrids capped at a fifth of the requirement.

The rule could not operate without federal permission. The Clean Air Act bars states from setting their own vehicle emission standards, and California alone may apply to the US Environmental Protection Agency under section 209(b) for a waiver of that bar. Once California holds a waiver, other states may adopt its standards in place of the federal ones — which is why a single California rule moves a large share of the national vehicle market. EPA granted the ACC II waiver in December 2024.

The heavy-duty rule went first, and California ended it itself. CARB had submitted its Advanced Clean Fleets waiver request in November 2023, seeking to require medium- and heavy-duty fleets to convert to zero-emission trucks. On 13 January 2025 CARB withdrew the request and announced it would not enforce the parts of the rule that needed a waiver, including the high-priority and drayage fleet requirements. The provisions covering state and local government fleets need no waiver and remain in force. CARB has since moved to repeal the rule formally.

The light-duty rule went second, and Congress ended it. Using the Congressional Review Act — a procedure that lets Congress overturn a federal agency action by simple majority — the House passed disapproval resolutions in late April and early May 2025, the Senate followed on 22 May, and the President signed them on 12 June 2025. Three waivers fell together: ACC II, Advanced Clean Trucks and the Omnibus low-NOx rule.

Both the Government Accountability Office and the Senate Parliamentarian advised that Clean Air Act waivers are not rules within the meaning of the Congressional Review Act, and so lie outside the disapproval power Congress used. California and ten other states sued in the Northern District of California, arguing the action breached the Act, the separation of powers and the Tenth Amendment. They filed an amended complaint in October 2025 and the court has yet to rule. Governor Newsom signed Executive Order N-27-25 on the day the resolutions were signed.

The dispute has since broadened. On 12 June 2026 EPA sent four further California waivers to Congress for review, reclassifying waivers dating back to 2009 as rules. California filed a second suit in the District of Columbia on 22 June 2026 challenging that reclassification. Any of these cases could restore some or all of the mandates, which is why we model the mandate-in-force case as a live scenario rather than discarding it.

The LCFS regulates the carbon intensity of the fuel pool, not the vehicles that burn it. Petrol and diesel generate deficits against the annual benchmark; low-carbon alternatives generate credits, and electricity used for vehicle charging is one of the largest credit streams in the programme.

A zero-emission vehicle mandate therefore acts on both sides of the LCFS balance at once. It shrinks the petrol pool that generates deficits, and it grows the charging volume that generates credits. Remove the mandate and both movements reverse together — more petrol demand, less charging supply. That is why the effect on the credit balance is larger than either channel would produce on its own.

CARB’s rulemaking scenario, built in 2024, put 2025 California petrol at 11,273 million gallons. The figure CARB has since published for what was actually supplied is 11,807 million gallons, 4.5% higher. On fossil diesel, the gap is wider: 624 million gallons projected against 1,018 million actually supplied, so the projection sat 39% below the outturn, because renewable diesel displaced far less of the pool than the scenario assumed.

This matters for reading any comparison against CARB’s published work. Model year 2026 is ACC II’s first compliance year, so the mandate was never a distant assumption in CARB’s baseline — it drives the petrol pool from the first projected year. CARB’s pool falls 3.2% in 2026 and accelerates to 14.1% a year by 2045. In our model, it falls about 1.8% a year. The divergence starts immediately and compounds.

We ran CARB’s own published trajectory through our California LCFS model, holding every other assumption at our own values. The difference between the two columns below is therefore attributable to the mandate and nothing else.

Source: Climate Decode California LCFS model, August 2026. Mandate-in-force case built on CARB’s 15-Day Proposed scenario trajectory. Price forecasts for both cases are held in the model and available to clients on request.

The mechanism is two forces pushing the same way. More petrol stays in the pool, raising credit demand by 338 Mt over 2026–45. Fewer vehicles charge, cutting credit supply by 135 Mt. The combined swing of 473 Mt lands on a bank that then drains four years early, removing the buffer that had been holding the market loose through the late 2020s.

The two cases separate sharply between 2028 and 2035, then converge — by the mid-2040s both markets are short enough that the same marginal abatement cost sets the outcome in each. The repeal changes how hard the squeeze bites in the early 2030s; it does not change where the programme arrives in the 2040s.

A 616 Mt swing in the shortfall, and a bank that empties four years early. Get the modelled price paths and what they do to your LCFS position.

The 2024 amendments gave the LCFS an Automatic Acceleration Mechanism. When the market runs long — too many credits, too few deficits — it steps the annual benchmark down automatically, without CARB having to open a new rulemaking. It is the programme’s built-in correction for oversupply.

With the mandate in force, it works as designed. Credits accumulate, the bank reaches 34.6 Mt by 2029 instead of draining to 10.8 Mt, the trigger conditions are met, and the benchmark tightens from 2029 onward. In the repealed case, it never fires in any year of the forecast. The market is short from the outset, so the condition that would tighten it is never satisfied.

CARB has not re-filed for a waiver, and the way it describes its own work explains why. Executive Order N-27-25 directs the board to develop new regulations “consistent with State and federal law”, and CARB’s Drive Forward pages refer throughout to the “potential development” of new rules rather than to a proposed standard. Anything requiring a section 209(b) waiver is exposed to the same disapproval that removed the last one, so the rebuild is running through measures that never needed federal permission.

Those measures are real but weaker than a sales mandate. State purchasing rules now prioritise manufacturers aligned with California’s emission targets. Incentives, charging infrastructure and local partnerships continue, with recommendations delivered in the August 2025 Report to the Governor. Voluntary manufacturer commitments run under Drive Forward Leaders. The Advanced Clean Fleets provisions covering state and local government fleets never needed a waiver and are still enforced. A Drive Forward light-duty workshop was held on 22 June 2026, and no successor vehicle standard has been proposed.

Several policy trackers refer to an “Advanced Clean Cars III” carrying the original 35%, 68% and 100% trajectory. CARB’s own published material does not use that name or those figures, and describes only a new phase of work. We treat the successor rule as unspecified until CARB proposes one.

• The litigation. A ruling in either the California or the District of Columbia case could restore the waivers, at which point the mandate-in-force case becomes the base case rather than the comparison.
• The LCFS benchmark schedule. Tightening it needs no federal waiver and is the most direct substitute available to CARB. It would compound the effect of the repeal on the credit market rather than relieve it.
• The heavy-duty channel. Advanced Clean Fleets is not in these numbers. CARB assumed far more diesel displacement than has occurred, so the full repeal effect is larger than the figures above.
• Voluntary electrification. Nothing in the repeal prevents fleets or households from buying electric vehicles. The mandate set a floor on the pace; how much of that pace survives without it is the single largest uncertainty in the forecast.

The mandate-in-force case applies the year-on-year rates of change from CARB’s 15-Day Proposed scenario to our own observed 2025 anchors, rather than importing CARB’s absolute levels. That choice matters. CARB’s 2025 starting values are a 2024 forecast and are already 4.5% and 39% below what was actually supplied, so importing them would hand the scenario a wrong base year and confuse a forecasting miss with the effect of the repeal.

The mandate acts through vehicle charging volume alone. The petrol pool is derived as a residual of light-duty energy service, so total service is held equal across both cases and the substitution is counted once.

Climate Decode · Advisory

Holding LCFS credits, or building a project that generates them?

Credit balance modelling, benchmark scenarios and cross-border netbacks across the California LCFS, the CFR and BC LCFS — we work it end-to-end.

Sources & Notes

Volume and timing figures from the Climate Decode California LCFS model, August 2026; credit price forecasts are held in the model and are not published in this memorandum. Regulatory chronology from CARB, EPA, Congress.gov and the California Attorney General. Fuel supply outturn from CARB’s published quarterly LCFS data. This memorandum is analysis, not legal or investment advice.