Calif.’s low-carbon fuel standard sparks war of words, economic analyses

Source: Debra Kahn, E&E reporter • Posted: Tuesday, June 18, 2013

California’s low-carbon fuel standard could bring economic ruin or jump-start the transformation of the state’s transportation fleet — it all depends on whom you ask.

The rule, which requires fuel producers to lower the average carbon content of their products 10 percent by 2020, has inspired a flurry of economic analysis from its backers and detractors.

A new study of the regulation’s economic effects is adding fuel to the debate over the first-in-the-nation rule. The study, sponsored by alternative fuel manufacturers and users, refutes an oil-industry-backed analysis that predicts thousands of jobs lost as oil refineries close in response to lowered demand for petroleum-based fuels.

Last week’s study was done by consulting firm ICF and paid for by a group of alternative fuel producers and backers, including the California Electric Transportation Coalition, the California Natural Gas Vehicle Coalition, the National Biodiesel Board, the Advanced Biofuels Association, Environmental Entrepreneurs and sustainable investor group Ceres.

The study confirms what supporters of the LCFS have been saying since the rule went into effect in 2011: that the targets can be met with increases in the share of vehicles powered by biofuels, natural gas, electricity and hydrogen. It finds that natural gas and diesel substitutes, in particular, will be crucial in helping producers comply.

“The outcomes are sort of intuitive, but without actual analytics, we can sort of be having this conversation that’s more subjective,” said Eileen Tutt, executive director of CalETC, which paid for the bulk of the $147,000 study. “Intuitively, I think we all know that being totally dependent on one fuel is bad for us from an economic perspective, but we believe it’s important to show that analytically.”

A peer review of the oil-backed report came out last month, finding that its assumptions of consumer behavior and refiners’ responses were overly pessimistic.

“[T]he economy has more than ample capacity to absorb even the most pessimistic projections of indirectly displaced workers,” the review said. “… [I]t is neither reasonable nor responsible to suggest that the overwhelming majority of these workers will be unemployed for a significant time.”

How do voters assess dueling studies?

The Western States Petroleum Association, which includes BP PLC, ConocoPhillips Co., Exxon Mobil Corp. and Royal Dutch Shell PLC as members, said it stood by the analysis.

“Maybe other studies exist where people have more optimistic forecasts about what the future holds for alternative fuels and technologies,” said WSPA spokesman Tupper Hull. The group’s study, he said, “looked at what exists and what is most likely to exist in the very near term.” He would not say how much WSPA paid the Boston Consulting Group for its work on the study.

A Democratic political strategist questioned the effectiveness of economic analyses in the minds of voters. “Voters are very skeptical of these kinds of studies, especially when they contradict each other,” said Darry Sragow, a political science professor at the University of Southern California. “They generally assume that a study reflects the views of whoever paid for it.”

The source of the study does matter, however, he said. “In general, a study paid for by a well-known and well-regarded nonprofit organization associated with health issues or consumer rights or environmental protection will be viewed more credibly than one paid for by, say, a profit-making energy company. These distinctions do matter, but, overall, voters take this information with a shaker full of salt.”

Hull said WSPA’s study was more aimed at policymakers than the general public. “If the public is concerned about the policy and shares our view that refiners are very likely to not have the tools they need to comply with this, and they want to communicate that to their elected representatives, we certainly don’t discourage that,” he said. “But these are very technical issues, not issues that penetrate into the sort of broader public awareness, so unfortunately when they do, it’s very likely to be at a point when some of the adverse impacts are irreversible.”

One of the authors of the peer review, Dallas Burtraw, a senior fellow with think tank Resources for the Future, said he thought a peer review could help clarify the issues when they “become technical or the cacophony is loud.”

“To some degree, the review helps the agencies understand the contributions of each study, and to some degree, it helps the media and the public put the rhetoric in context,” he said.

Tutt said she plans to commission a peer review of her study from the same group that reviewed WSPA’s, the University of California, Davis, Policy Institute for Energy, Environment and the Economy.

“It sounds like dueling analytics on one hand, but on the other, if the analytics are peer-reviewed and there’s a discussion around them, I think you’ll have a much more intelligent discussion about whether the LCFS is the right policy or not.” A second phase of the study, which will calculate the policy’s macroeconomic effects, is due out next month, she said.