Low-carbon fuel standard could double gas prices in Northeast — report

Source: Jason Plautz, E&E reporter • Posted: Tuesday, March 27, 2012

A plan to shrink the carbon content of transportation fuel in 11 Northeast states could spark a doubling of gasoline prices and take a $306 billion bite out of the regional economy, according to a report released today by a group representing industry interests.

The Consumer Energy Alliance-sponsored report says the states won’t achieve the goal of a 10 percent carbon intensity reduction over a decade while also meeting the energy needs of the region.

The alliance said its findings should deter states from embarking on a low-carbon fuel standard (LCFS) being explored by the nonprofit Northeast States for Coordinated Air Use Management (NESCAUM).

“At a time when many Americans can barely afford to drive themselves to work, how can an ineffective, costly and duplicative standard like an LCFS be the right choice for any state? NESCAUM’s regional LCFS program is simply an unfeasible option for American consumers,” alliance Executive Vice President Michael Whatley said.

NESCAUM is promoting a low-carbon fuel standard based on a California model that would lower the environmental impact of transportation fuels. A proposed Northeast LCFS that would promote alternative fuel vehicles and use of clean fuels is expected to be released sometime this year.

In its study last year, NESCAUM weighed the impact of a plan that would reduce carbon intensity by 10 percent over 10 years and found a potential boost as high as $28.7 billion in gross regional product by 2022. The report also saw carbon emissions dropping by as much as 9 percent by 2022, with oil consumption slashed by as much as 8.7 billion gallons a year (Greenwire, Aug. 17, 2011).

But the industry alliance said today that base assumptions in the NESCAUM study were “not sufficiently thorough” and that a 10 percent carbon intensity reduction was unrealistic. With research firm Science Applications International Corp. studying five possible scenarios, the CEA found that the best average reduction was 4.9 percent over 10 years.

Projecting to 2035, the alliance study found a possible reduction in carbon intensity of 7.1 percent, including the impact of fuel economy standards and other clean-fuel rules.

The alliance based its projections on a program based on the California model and emphasized that it was not responding to any specific NESCAUM proposal. The California LCFS was ruled unconstitutional by a state district judge; the decision is being appealed.

According to the alliance study, the higher cost of some alternative fuels as well as a price penalty for higher-carbon fuels could cause gasoline prices to double. Diesel prices would rise by 18 percent, according to the report.

Overall, the report says, fuel expenditures would rise by $156 billion, more than 13 percent more than a baseline scenario with no LCFS.

That would mean an overall economic hit of more than $300 billion to the region as industries had to contend with the higher fuel prices. The report also says that the higher cost of alternative fuel vehicles would mean businesses and consumers would be paying more up front for their cars and trucks, adding to the economic impact of the standard.

The report also assumes $20.2 billion in incentives for electric and other clean-fuel vehicles from state governments, although the alliance concedes that some subsidies could be used to reduce the impact on businesses of the clean cars.

Still, Whatley said, the “societal cost” of the fuel standard identified in the report should raise “severe questions” about whether to proceed with the standard. He said he would encourage states to reconsider.

Several Northeast states are rumored to be exploring an exit from the program, including Maine and New Jersey. The New Hampshire Legislature has also proposed an exit from the regional program (Greenwire, Feb. 21).