Californians could face even higher gasoline and diesel costs when new low carbon fuel regulations gain traction Jan. 1, warn fuel experts at the Oil Price Information Service, which says studies show price hikes of as much as $1 per gallon for gasoline and $2 per gallon for diesel could be on the way

The California Low Carbon Fuel Standard aims to cut greenhouse-gas producing emissions from motor fuel by 10% between now and 2020. It was part of Assembly Bill 32 (AB 32), the Global Warming Solutions Act.

It aims to do this by setting an increasingly tighter cap on carbon emissions from motor fuels for sale in the state. Alternative fuels such ethanol or biodiesel are assigned Carbon Intensity (CI) scores based on the amount of carbon dioxide they pout out. Fuels that fall below CARBs cap generate credits and those who have a CI higher than the cap generate a deficit.

Critics say the low carbon fuel standard will have the unintended side effect of driving up pump prices as restrictions on crude oil feedstock tighten supply. High-carbon crudes like those coming from oil shale fields will result in a higher CI rating for the petroleum products they produce.

Others predict that the new standard will drive growth in the biofuels industry.

A recent report from Environmental Entrepreneurs (E2) notes that biofuel production capacity has increased from 437 million gallons last year to more than 685 million gallons. By 2015, the industry has the potential to produce 1.6 billion to 2.6 billion gallons -- and California's LCFS as well as the federal Renewable Fuel Standard create an incentive for investors and biofuel companies to continue to innovate and increase biofuel production, which in turn they say will drive down costs and carbon emissions.