Last week, researchers at the University of California, Davis (UC Davis), released their latest analysis of California’s Low Carbon Fuel Standard. The 2009 regulation requires oil companies and refineries to reduce the carbon intensity of transportation fuels — how much carbon dioxide they emit per unit of energy — by 10% by 2020. For 2013, this translates to a reduction of 1%, and the UC Davis researchers found that companies racked up enough gains last year to meet half of their obligations for the current year.

The study confirms what California has reported: a steady shift towards cleaner fuels since the regulations took hold in 2011. The idea is that providers can either document their own cuts in carbon intensity or buy credits from others who have gone beyond their requirements. Advanced biofuels — made from waste products or non-food plant material — still make up less than 1% of the state’s fuel, but they represent 10% of the credits that have gone towards meeting the standard.

Despite an ongoing legal challenge brought by industry against the regulations, things seem to be working as they should. Daniel Sperling, director of the UC Davis Institute of Transportation Studies and a member of the California Air Resources Board, which implements the standard, calls the progress “modestly positive”. That stands in stark contrast to the US federal renewable fuels standard, which is in a state of disarray. The difference between the two is illustrative.

The federal standard sets requirements on the volume of biofuels, including ethanol and biodiesel, that must be blended into the US fuel mix, ramping up from roughly 34 billion litres in 2008 to more than 136 billion litres by 2022. But those requirements do not take into account the realities facing the industry. First, cars and petrol stations are equipped for a fuel blend that is 10% ethanol, but not all vehicles and few petrol stations can handle more. As a result, the corn-ethanol industry, which supplies the bulk of US biofuels, has hit what is known as the ‘blend wall’: the 10% fuel blend means that just 49 billion litres of ethanol are required to saturate the US fuel market, which is below what the law requires from this year forward. This discrepancy is made worse by the fact that demand for fuel has fallen off owing to increased prices and the economic slump; consumption is expected to decline even further as new fuel-economy regulations take hold.

California has required fuel providers to focus on the carbon content of renewables.

The upshot is general confusion. The US Environmental Protection Agency has approved ethanol blends up to 15% for use in most vehicles, but few petrol stations are carrying them. Another way around the blend wall is to use E-85 fuel, which is 85% ethanol. It can be used by many flexible-fuel vehicles, but further expanding its use will take time. Meanwhile, the agency has been forced to waive the requirements for advanced biofuels. By law, the US fuel mix is required to contain more than 10 billion litres of advanced biofuels this year, but actual commercial production is barely getting off the ground.

California hit the same blend wall in 2010, but it has still made progress since then. By setting a performance standard, the state has required fuel providers to focus on the carbon content of renewable fuels, not on their volume. This applies regardless of the blend wall, and regardless of what happens to the demand for fuel. Rather than setting thresholds for the production of different kinds of biofuels, this approach drives innovation by recognizing and rewarding incremental progress. The California programme already covers natural gas and electricity, and it might one day be extended to reward advanced technologies such as carbon capture and sequestration within the refining sector.

The upshot is that fuel providers in California have been finding ways around the blend wall and chalking up small gains, largely by shifting to cleaner processes for producing biofuels. The average carbon intensity of petrol and diesel substitutes dropped by 5% and 6%, respectively, from early 2011 to the end of 2012. Now Sperling and other academics in the National Low Carbon Fuel Standard Project are attempting to put this approach on the national radar. The idea is not entirely new — US President Barack Obama included it in his original energy platform in 2008 — but it has yet to garner political traction in Washington DC. This is unfortunate. As politicians and regulators search for ways to adjust the renewable-fuels mandate in the months and years to come, they would be wise to look west. California might once again be leading the way to smarter environmental policy.