Assessing the Impact of Clean Fuel Standards on Propane — in Hawaii & Beyond

In July 15, Hawaii Gov. Josh Green signed SB 2999 (Act 258) into law. The act is Hawaii’s own version of Clean Fuel Standards for transportation systems, which have already been enacted in four other states. 

“By establishing a performance-based system that rewards cleaner fuels with credits and assigns deficits to more carbon-intensive fuels, SB 2999 encourages innovation without mandating any single technology,” stated a press release from the governor’s office. “It gives way to public engagement, regular reporting and stakeholder input to ensure accountability throughout the development of the program.”

But how exactly will this work? And, more importantly for the propane industry, what does the recent pattern of state governments adopting Clean Fuel Standards spell for propane’s future?

A Broad Outline of Hawaii’s Clean Fuel Standards

Like the Clean Fuel Standards adopted by California, Oregon, Washington and New Mexico, Hawaii’s carbon-reducing standard will make use of market credits to reward sales of transportation fuels and energy sources that fall below certain progressive life-cycle carbon-intensity (CI) thresholds and punish sales of fuels that exceed those thresholds. Specific details of this process are still to be laid out by Hawaii’s Department of Transportation, which is set to complete the regulations by Jan. 1, 2028. The final Clean Fuel Standards will take effect Jan. 1, 2029, with a staggered carbon reduction plan to take place over the following 25-plus years, reaching a 50% lower carbon intensity target score by 2045.

Under Hawaii’s Clean Fuel Standards, fuel distributors that sell high-carbon products to end users in transportation sectors will incur a deficit. Since this plan targets only the sale of fuels used for transportation (such as gasoline and diesel), the vast majority of the propane market — including residential and commercial heating, farming, etc. — will not be directly impacted. Additionally, while exact annual qualifications for credits are yet to be established, it is possible that in the short term, propane autogas, which has a carbon intensity score lower than both gasoline and diesel, might qualify for credits, at least in the initial stages of the program. 

With that said, there are key considerations to keep top of mind as statewide Clean Fuel Standards programs become more prevalent — elements that could require significant change in the propane industry’s offerings.

3 Clean Fuel Standards Focus Areas Propane Suppliers & Distributors Need to Know About

1.  A Focus on Carbon Life Cycle

As previously mentioned, Hawaii follows the footsteps of four other states that have enacted similar standards, inspired by the model set out roughly 15 years ago by the California Air Resources Board. Thanks in large part to California’s Low Carbon Fuel Standard, the main conversation taking place among states looking to reduce CI is a discussion of a fuel’s life-cycle carbon emissions. This measurement takes into account not only the emissions generated at the pipe as the fuel is burned, but also considers the processes that take place to refine and process the fuel. 

This shift in focus that has taken place over the past 20 years or so is actually why renewable propane — and other renewable fuels — have gained some traction among renewable energy researchers. While renewable propane is chemically identical to conventional propane, what differs is how the fuel is produced and processed. 

Approximately 90% of hydrocarbon gas liquids (including conventional propane) are byproducts in natural gas processing plants and petroleum refineries. This heavily contributes to propane’s CI score of 80-81 gCO2e/MJ (grams of carbon dioxide equivalent per megajoule). 

Renewable propane, on the other hand, is produced from entirely different sources, including used cooking oil, animal fats and other waste lipids. This results in a significantly reduced CI score, ranging from 65 gCO2e/MJ to as low as 18 gCO2e/MJ (the wide range reflecting the different sources being used). 

The pattern that has become precedent for states enacting Clean Fuel Standards is relatively simple: The sale of products with lower CI scores over their life cycle results in being rewarded by government credits. For the propane industry, while fuels such as propane autogas might benefit from temporary credits over the short term, there seems to be a clear impetus to sell renewable propane in the long run. 

2. Diversifying Propane’s Allied Sectors

Viewing propane from a production lens, it is first and foremost a byproduct. What this means in practical terms is that propane is deeply intertwined with the broader gas processing sector. As previously noted, propane is produced as a byproduct in natural gas processing plants and petroleum refineries; increased natural gas production and petroleum refining leads to increased propane inventory. Conversely, what negatively impacts natural gas production and petroleum refining owners and producers raises the possibility of negatively impacting propane production. 

Interestingly, this is yet another feature that renewable propane shares with conventional propane. The wide majority of renewable propane that is produced is a byproduct of renewable diesel and sustainable aviation fuel production. 

When comparing these two chains of production, it becomes increasingly clear that those with vested interests in the future of propane will face a choice that only becomes more prevalent as more and more states enact Clean Fuel Standards. How should propane suppliers balance dependence between conventional and renewable propane production chains?

While Clean Fuel Standards initiatives appear to have limited — if any — negative impacts on propane production in the short term, the picture seems more complicated in the long term. This is certainly the case for conventional propane autogas, which might be eligible for credits in the first few years of Hawaii’s Clean Fuel Standards program, but all things being equal is unlikely to fare well compared to renewable propane and other fuels with a low carbon intensity in later years.

Furthermore, while every Clean Fuel Standards initiative so far has focused specifically on the transportation sector, it is possible that the impact of these programs on the large companies that produce high-carbon fuels like gasoline and diesel will shift their investment strategy in cleaner energy more broadly. Major petroleum companies — like Marathon Petroleum and Phillips 66 — already have the infrastructure to produce both conventional propane and renewable propane. 

As a byproduct of renewable diesel, renewable propane might indirectly receive a boost in production if these and other key players seek to offset penalties on traditional gasoline and diesel sales by offering more renewable diesel to the Hawaiian market. 

World Energy, a U.S.-based renewable fuel company that offered some of the first commercially available sustainable aviation fuel, continues to expand their Paramount, California, renewable fuels refinery. Exploring partnerships with these types of companies can create an increased demand for renewable propane.

What may be necessary to proactively protect the interests of the propane industry is to get ahead of the curve on these kinds of changes, especially in these incentivized state markets. The propane industry has become accustomed to the status quo with its suppliers. It might be time to reassess those relationships, investigate the alternative streams of production that are often already offered by those same suppliers and keep an eye open for opportunities to truly invest in renewable propane — before the industry gets taken by surprise.

3. Don’t Ignore the Clean Energy Movement — Embrace It

Five states have enacted Clean Fuel Standards programs. New Mexico is the first state to break the trend of these initiatives being solely based along the West Coast. 

As it stands now, there are seven other states with Clean Fuel Standards legislation active in the 2026 session. In recent years, Colorado and Michigan lawmakers rallied around their own Clean Fuel Standards programs that have not gained enough traction to become law — yet. 

While federal energy policy seems to change every four years, these overall trends have been consistent: More and more states are attempting to reduce their carbon footprint. In the case of a Clean Fuel Standards, the target is the transportation sector. But in states like New York and California, attempts have been made to also ban gas in new residential builds — moves the National Propane Gas Association has challenged. 

As has been emphasized by propane lobbyists and research organizations, conventional propane has a role to play in our energy future. Policies that mandate a specific energy source (such as electrification mandates) are overly constrictive and subdue the diversity in an energy sector that meets customers where they are. 

Along those same lines, however, the propane industry needs to accommodate its shifting customer base, as well as the regulations that exist in these states, and cannot rely on a model that forecasts the lone superiority of conventional propane. Litigation is a key tool in the propane industry’s bag — energy exploration and innovation should be, as well. 

Renewable propane, like its chemical counterpart renewable diesel, has an important advantage in the clean energy conversation. Unlike electricity, renewable propane does not require end users to invest in new infrastructure to replace its fossil fuel counterpart. Conventional and renewable propane are chemical twins. Rather than fighting clean energy as such, the propane industry should be on the front lines advocating for the unique and advantageous ways that it can participate in this conversation.

Hawaii’s soon-to-be-implemented Clean Fuel Standards demonstrates a growing trend: States are attempting to limit their carbon footprint in earnest. The propane industry sits on a goldmine of resources with its rugged, crafty and adaptable fuel. Propane truly does things that no other fuel can. It’s time to bring propane’s profile to the clean energy conversation.

For further resources on Clean Fuel Standards and the intersection between propane and the clean energy movement, take a look at BPN’s Public Policy and Sustainability sections.