California fuels rule sparks controversy

Source: Juliet Eilperin • Washington Post  • Posted: Tuesday, January 31, 2012

Just as it pioneered curbs on greenhouse gas emissions from cars and light trucks a decade ago, California is championing standards that could transform the fuel that goes into their tanks.

But its new rule, which requires lowering the amount of carbon in fuel sold in the state, has become embroiled in a fierce public battle and has been barred from being enforced. In light of tight state budgets, litigation over California’s program and a strong lobbying campaign against them, the question is whether the ambitious climate policy will get off the ground.

“To us, it’s the most credible and powerful mechanism we can put in place,” said Dan Sperling, a member of California’s Air Resources Board and director of the Institute of Transportation Studies at University of California-Davis. “It’s an incentive to invest in other things besides oil.”

Many oil industry officials in the United States and overseas say the standards are too complex, will drive up gas prices and cannot be met given the current supply of petroleum alternatives.

Charles T. Drevna, president of the American Fuel and Petrochemical Manufacturers, said the policy “sounds really good at the 30,000-foot level” but added, “When you get down to terra firma, it’s a giant energy tax and a fuel rationing scheme.”

The premise of California’s rule — as well as its European counterpart, the “E.U. Fuel Quality Directive” — is that goals for cutting greenhouse gases can only be met if the transportation sector begins to move away from fossil fuels.

The new standards assign carbon intensity values to roughly 250 types of crude (higher carbon) along with other fuels — including ethanol, electricity and hydrogen, all lower carbon— that power cars and trucks.

They call for reducing the overall carbon content of fuel sold in the state 10 percent by 2020. Refiners will either have to mix low-carbon fuels into what they sell over time in order to make the required cuts or buy credits to offset the amount by which the fuel they sell exceeds the standards.

The state projects that the standard would reduce greenhouse gas emissions by 23 million tons in 2020, according to Simon Mui, a scientist at the advocacy group Natural Resources Defense Council.

Lawmakers in at least 18 other states, as well as in Washington, started looking at adopting similar clean-air standards over the past few years as a way of cutting greenhouse gas emissions both regionally and nationwide. But now several have either dropped or suspended their plans. Pennsylvania and New Jersey have opted out of a program developed by Northeast States for Coordinated Air Use Management. Maine announced late last month it will withdraw, and New Hampshire’s legislature is considering legislation that would bar the state from spending money on the initiative. Low-carbon fuel standards in Washington state and Oregon are also on hold.

The Midwestern Governors Association abandoned its proposal after its membership flipped last year from seven Democrats and three Republicans to three Democrats and seven Republicans.

“There are a number of states still looking at it, but looking at it carefully to see how to change it to make it both legally and politically feasible,” said Vicki Arroyo, executive director of the Georgetown Climate Center.

Sperling and another UC-Davis researcher, Sonia Yeh, did an analysis that concluded that a national low-carbon fuel standard wouldtranslate into an extra 16 to 19 cents per gallon at the pump. The Consumer Energy Alliance, a broad coalition of oil and gas companies, as well as trucking, business and farm groups, commissioned its own study saying that a national standard would raise the cost of transportation fuels for consumers by between 90 and 170 percent.

Last month, a federal district judge ruled that California’s low-carbon fuel standard was unconstitutional, on the grounds that it discriminated against out-of-state ethanol producers by ascribing a higher carbon content to their fuels. The state has appealed the ruling, as well as the court injunction that bars it from enforcing the rule. Last Monday, U.S. District Judge Lawrence J. O’Neill granted California an expedited review of the case but denied its request to move ahead with the rule.

Mary Nichols, chairman of the California Air Resources Board, said in an interview that she is confident that amendments the board passed last month have addressed several of the concerns O’Neill highlighted in his Dec. 29 opinion.

“We changed this program to be completely neutral as to the type of fuel or the location of where it’s created or produced,” Nichols said. “The only focus is the amount of greenhouse gases used to find, develop, produce and get a specific fuel into a vehicle.”

While both the California and European Union programs establish a trading system for carbon allowances, many traditional fuel suppliers say they cannot meet the mandated reduction targets. The E.U., which is finalizing its rule, has called for a 6 percent carbon cut by the end of the decade.

Tupper Hull, a spokesman for the Western States Petroleum Association, said California’s standards would be “incredibly costly and disruptive to a stable and secure supply of transportation fuels.” His members, which include major oil companies as well as independent producers, did not initially oppose the rule but have “become increasingly concerned about whether the program they were designing was feasible.”

Both programs would make it more difficult for Canada to sell heavy crude extracted from its “oil sands” region, because extracting that oil produces 15 percent more greenhouse gases than regular crude

Canada has lobbied both Canadian and E.U. officials repeatedly over the past few years to minimize the extent to which its petroleum is penalized for being energy-intensive. Canada’s counsel general in California testified before the state’s Air Resources Board last month.

“Our main concern is fairness, and that Alberta crudes and our oil sands crudes are treated fairly,” said Bart Johnson, spokesman for Ted Morton, Alberta’s energy minister. He added that in light of California’s recent changes, “We certainly prefer the revised standards compared to what were originally put forward.”

In the meantime, however, interest groups are working hard to make sure the idea of a low-carbon fuel standard doesn’t catch on with other states and federal officials. CEA has launched a multimillion-dollar campaign aimed at persuading policymakers from the Midwest to Capitol Hill not to adopt similar programs. It has chilled some policymakers’ appetite for tackling the issue, according to several experts.

The group ran television and radio ads against Sen. Debbie Stabenow (D-Mich.) and half a dozen of her colleagues when she raised the idea in 2010 of introducing the fuel standard as part of a climate package, and has reached out to what its executive director, Michael Whatley, describes as “hundreds of state officials, state legislators and stakeholders nationwide.” He described it as “a top-tier priority” for his organization.