CARB’s Low Carbon Fuel Standard – A Self-Imposed Fuel Embargo on California

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Galvan contends that the regulation, originally proposed by Governor Schwarzenegger, may have been well-intended as a means of reducing the use of conventional fossil fuels, replacing them largely with various types of biofuels and lower-carbon gasoline and diesel. The regulation's goal was to reduce greenhouse gas emissions from transportation fuels, decrease dependence on imported oil and help improve the state’s economy. However, Galvan is of the opinion that the LCFS rule may not meet its goals, but may actually obstruct them.

Galvan reports that the California Energy Commission (CEC) last month reviewed the assumptions underlying CARB’s current implementation path for the LCFS, and reported some troubling findings.

• First and foremost was cost. Under CARB’s high petroleum price scenario, CEC concluded the LCFS could cost fuel providers billions of dollars between now and 2020, the target date for the required reduction of carbon in transportation fuels. CEC also expressed concerns about the cost, availability and feasibility of biodiesel, noting that if other states were to adopt similar policies there would be increased competition for supplies and an increase in the market-clearing price of biofuels. Translation: we’ll be forced to fight over insufficient supplies and pay a premium in order to get them at all.

• CEC questioned CARB’s belief that California could use half of the US supply of cellulosic fuels in the future. The Wall Street Journal observed just this week that although Congress, under the federal fuels policy, had mandated the purchase of 250 million gallons of cellulosic ethanol, actual production was only 6.6 million gallons, despite massive subsidies and tax credits. How can California be expected to meet its carbon reduction goals if the fuel upon which CARB is relying is simply unavailable? And if we can’t get it in the US, do we really want to be placed in the position of having to buy it – if it’s available at all – from overseas?

The LCFS would penalize the use of certain types of California crude oil, which CARB staff strongly promotes. Surely no one envisioned at the outset that in implementing the LCFS, the Air Board would pursue policies that would limit the use of crudes currently permitted under the agency’s strictest-in-the-nation emissions rules. If in-state providers must pay more for the privilege of using supplies which up until now were acceptable, it stands to reason they will use less of it and instead import CARB-compliant supplies from elsewhere.

Which brings us back to the issue of energy security. There are those who imply that the only threat to adequate energy supplies is reliance on imported crude oil. But they conveniently neglect to consider that California’s regulatory structure has increasingly been the cause of declining in-state production and rising imports. As for replacing fossil fuels with alternatives, the reality is they are neither sufficiently available nor competitively priced to make up the supply gap that will surely result from an unachievable arbitrary market quota. It’s instructive to note that our experience with other alternative energy mandates has proven that even with enormous subsidies we are still importing the bulk of our solar panels and wind turbines from other countries. Under the LCFS we’re likely to be importing significant quantities of biofuels as well.

Galvan concludes, "We strongly support the goal of diversifying California’s fuel supplies and reducing our dependence on imports of any kind. But the LCFS, if implemented as currently planned, will not get us there. Instead, as the Wall Street Journal opined with respect to the national biofuel mandate: we’ll have 'subsidized a product that didn’t exist, mandated its purchase though it still didn’t exist, ...punish[ed] oil companies for not buying the product that doesn’t exist, and [doubled] down on the subsidies in the hope that someday it might exist.'

"Between the Energy Commission’s analysis and the documented example of Congress’ failed cellulosic biofuels experiment, CARB has an urgent imperative to review and adjust the LCFS before they create a self-imposed oil embargo that places not only our economy but our energy security at further risk.  The American GI Forum encourages CARB to do precisely that."