New Mexico and Hawaii Adopt Low-Carbon Fuel Programs

Two states have adopted their own low-carbon fuel standard (LCFS) programs, signaling continued expansion of the regulatory landscape for transportation fuel providers. New Mexico's Clean Transportation Fuel Program (CTFP) took effect on April 1, 2026, and Hawaii's legislature passed a bill establishing a Clean Fuel Standard on May 6, 2026. Together, these actions bring the total number of states with operational or enacted clean fuel programs to five, joining California, Oregon and Washington. These programs allow for credit generation that "stacks" with the Federal Renewable Fuel Standard and tax credit offered under Section 45Z of the Internal Revenue Code, providing the financial support necessary to bring lower-carbon fuels to market.

New Mexico Clean Transportation Fuel Program

New Mexico's CTFP regulation took effect on April 1, 2026, establishing a low-carbon fuel standard modeled on programs in California, Oregon and Washington. The CTFP mandates a minimum 20 percent reduction in carbon intensity (CI) of transportation fuels below 2018 levels by 2030, and 30 percent below 2018 levels by 2040. The program applies broadly to any person that produces, imports or dispenses transportation fuel for use in New Mexico. As with other state LCFS programs, the CTFP allocates credits and deficits based on whether a regulated party's fuel falls above or below annually declining CI benchmarks and creates a marketplace in which fuel providers can meet the standard by generating or acquiring program credits.

For renewable natural gas (RNG) used as a transportation fuel, the program's treatment of avoided methane emissions is more restrictive than California's. The CTFP includes a 20-year facility age limitation, structured crediting periods with hard end dates and a regulatory additionality requirement that measures additionality against "common practice for the facility type and region" in addition to applicable legal requirements. These provisions are likely to significantly affect credit-generation strategies for RNG projects.

The state will begin accepting alternative fuel pathway applications and project credit applications on July 1, 2026, when the New Mexico Greenhouse Gases, Regulated Emissions, and Energy use in Technologies (GREET) model is expected to be released.

Hawaii Clean Fuel Standard

Both chambers of the Hawaii Legislature passed legislation on May 6, 2026, to create the Clean Fuel Standard. The Senate and House each passed the bill by margins exceeding the two-thirds thresholds required for a veto override. Gov. Josh Green has until July 15, 2026, to sign the bill into law and is currently expected to do so.

The bill directs the Hawaii Department of Transportation (HDOT) to adopt rules by January 1, 2028, with implementation for diesel and gasoline beginning January 1, 2029. The program must achieve CI reductions of at least 10 percent below 2019 levels by 2035 and at least 50 percent below 2019 levels by 2045. As with the other state programs, the Hawaii CFS uses a life cycle analysis approach based on Argonne National Lab's GREET model. Entities that sell, supply or dispense covered fuels for consumption in Hawaii will generate credits or deficits based on their fuel's CI relative to the annual standard.

The bill explicitly authorizes HDOT to model the program on California, Oregon and Washington precedents, including portability of CI pathways already approved in those states. The legislation also includes several cost containment features, including a maximum credit price cap of $200 (in 2026 dollars, adjusted for the Consumer Price Index), credit clearance market and requirement that HDOT take public action if per-gallon compliance costs exceed 15 cents for gasoline or diesel.

Implications for Fuel Producers, Importers and Traders

The additions of New Mexico and Hawaii to the growing patchwork of state-level clean fuel programs creates an increasingly complex compliance landscape for transportation fuel providers. Though the programs share a common goal of reducing the CI of transportation fuels, they differ in important ways, including CI reduction targets and timelines, credit price ceilings and cost containment mechanisms, covered fuel categories, the treatment of electricity and electric vehicle credits, and degree to which out-of-state pathways are recognized.

Parties with existing compliance obligations under California's LCFS, Washington's Clean Fuel Standard, Oregon's Clean Fuels Program or the federal Renewable Fuel Standard will want to assess how these new programs interact with and layer onto existing requirements. Key considerations include the generation and portability of CI pathways across jurisdictions and potential for credits earned under one program to facilitate compliance under another. The interplay between these programs, including credit market dynamics and potential for regulatory arbitrage, warrants careful analysis.

For Hawaii specifically, several key questions remain as the rulemaking process unfolds, including the specific annual CI reduction schedule between 2029 and 2045, how HDOT will define obligated parties and the treatment of imported fuels, which is a particularly significant issue given Hawaii's reliance on refined product imports. The rulemaking timeline is relatively compressed, with rules due by January 1, 2028, and compliance beginning January 1, 2029.

For additional information, please contact the authors.

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