Credits and deficits are the tokens that make a clean-fuels program work. A fuel cleaner than the yearly target earns credits, a dirtier fuel runs up deficits, and the companies responsible under the program have to hold enough credits to cover their deficits.
Clean-fuel programs set a yearly target for carbon intensity, the score for how much greenhouse gas a fuel causes across its life. Every fuel is measured against that target. A fuel that comes in below it is cleaner than required and generates credits. A fuel that comes in above it is dirtier than required and generates deficits.
At the end of a period, each regulated company adds up its credits and deficits. It must hold at least as many credits as deficits, or it is out of compliance. A company short on credits can buy them from a company that has extra, which is what creates a market and a price.
That tradable price is the whole point. By letting credits be bought and sold, the program puts a dollar value on selling cleaner fuel and a cost on selling dirtier fuel, without forcing any single company to change overnight. The cleaner sellers get paid by the dirtier ones.
For a fuel marketer, credits can be a meaningful slice of the economics of a clean fuel. The value of the credits a low-carbon fuel earns may decide whether it pencils out against ordinary fuel, so tracking credits, deficits, and their going price is part of selling fuel in a clean-fuels state.
In useA marketer selling high-carbon diesel piles up deficits over the year, then buys credits from a company selling low-carbon renewable diesel so its books balance under the program.
See also Carbon intensity, Low Carbon Fuel Standard (LCFS), Environmental attribute