California's low-carbon fuel standard has oil companies
anxious
In car-crazy California, a new fuel standard ordered by state officials
to curb greenhouse gases could dramatically change how vehicles run.
It also could have a huge effect on cost.
The petroleum industry and some economists say the new standard adopted by
the state Air Resources Board on Thursday will cost motorists billions,
because blending gasoline will become considerably more complicated.
But state officials and environmentalists say the "low-carbon fuel standard"
will actually save Californians money by reducing oil consumption and
ushering in a competitive new era of biofuels and electric vehicles.
The stakes are enormous. The price of fuel can have a significant impact
on the state's economic health. When gas hit $4.50 last summer, it severely
hurt tourism and caused delivery companies to impose fuel surcharges.
Gasoline now sells for a relatively affordable $2.35 a gallon on average,
but the state's already strict fuel formulas create a delicate balance
between supply and demand. Even minor supply glitches have caused big price
spikes because only a small number of refiners make gas to California's
specifications.
Business advocates say significant price increases during a recession could
be disastrous. They are casting a wary eye at the fuel standard.
"Reformulating the fuel supply – we shouldn't undergo that without a certain
amount of trepidation," said Dorothy Rothrock, senior vice president with
the California Manufacturers & Technology Association.
Every time California has instituted stricter clean-air standards for motor
fuel, "they all have had a cost associated with it," said Cathy Reheis-Boyd,
chief operating officer at the Western States Petroleum Association. "I know
there's going to be a cost associated with this."
A big problem, she said, is that the air board's standards will limit the
use of corn-based ethanol in gasoline – leaving refiners with a major
hurdle.
Yet the Air Resources Board, in approving the low carbon standard Thursday,
dismissed forecasts of higher costs. The board's staff contends that when
the standard is fully operational, in 2020, Californians will save about $11
billion a year.
"It's the reduction in the use of petroleum," said board spokesman Dimitri
Stanich.
The first-in-the-nation carbon standard is a key element in California's
goal of reducing overall volume of greenhouse gases 25 percent by 2020, as
required by a 2006 state law. The air board's standard dictates that the
"carbon intensity" of fuels be reduced starting in 2011, ramping up to a 10
percent cut by 2020.
The board believes the standard will encourage the development of hydrogen,
electricity and biofuels to power vehicles. But there's a ton of controversy
about how the standard treats what is currently the leading biofuel, ethanol
made from corn.
Corn ethanol is now a staple of the transportation scene. It makes up 6
percent of the gas sold in California, and that's going to grow to 10
percent next year.
But the air board decided that corn ethanol is not so great for limiting
greenhouse gases. The argument goes like this: Eager to cash in on ethanol
demand, farmers around the world plow up grasslands and chop down trees to
make way for corn, a process that releases more carbon dioxide into the
atmosphere.
The air board's ruling infuriated the corn ethanol industry, which is in
severe financial distress already. Companies like Sacramento's Pacific
Ethanol Inc. are on the verge of bankruptcy.
It also angered the petroleum refiners, who argued that they have few viable
options for meeting the 10 percent carbon reduction if they don't get much
credit for using corn ethanol. The alternatives, for the most part, consist
of fuel technologies that are still expensive or are in the early stages of
commercialization.
"We have no way to know how we're supposed to comply with this," Reheis-Boyd
said.
She said the only real solution is to blend in ethanol made from sugar cane
– which gets a better "carbon score" from the air board. But that means
importing it from Brazil and paying costly U.S. import tariffs, she said.
All told, her association believes fuel costs in California could rise $3
billion a year.
Air board officials and environmentalists said the refiners are crying wolf.
The standard will phase in slowly in the early years. Refiners and
entrepreneurs will have plenty of time – and economic incentive – to make
inexpensive biofuels, hydrogen-based fuels, even ethanol from such
"cellulosic" materials as switchgrass.
"The program starts off on a rather gentle slope," said Roland Hwang,
vehicle policy director at the Natural Resources Defense Council in San
Francisco. There are even ways of making ethanol out of corn that can reduce
its "total carbon score," he said.
But Severin Borenstein, director of the Energy Institute at the University
of California, Berkeley, said there's no certainty that these emerging
technologies will be ready to meet the demand.
The air board "is betting that with the phase-in, those (alternative) fuels
are going to get a lot cheaper," Borenstein said. "They might, but there
certainly is not any guarantee at all."
The impact on the economy wouldn't be "devastating," but the new standard is
an inefficient way of attacking greenhouse gases, he said.
Call The Bee's Dale Kasler at (916) 321-1066. Read his blog on the
economy, Home Front, at
www.sacbee.com. |