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California Contentions: The Low Carbon Fuel Standard

A look at California's Low Carbon Fuel Standard and what it means to you

March 2013, TruckingInfo.com - Feature

by Evan Lockridge, Senior Contributing Editor - Also by this author

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California's Low Carbon Fuel Standard and cap-and-trade could increase the price of diesel by $2.22 per gallon.
California's Low Carbon Fuel Standard and cap-and-trade could increase the price of diesel by $2.22 per gallon.

If you've been hoping there is an end in sight to California's tidal waves of increasing trucking regulations, unfortunately, the tsunami has yet to strike, unless it crashes in a legal challenge.

The state's Low Carbon Fuel Standard isn't about what's in or not in diesel and other fuels. Instead, it addresses the life cycle of petroleum — the entire carbon life cycle from the oil and fuel's production all the way to the end user, in order to reduce carbon dioxide emissions, also known as greenhouse gases, which some believe contribute to global warming.

Several years ago, California lawmakers passed, and then-Gov. Arnold Schwarzenegger signed into law AB 32, the California Global Warming Solutions Act of 2006.

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The act, along with an executive order Schwarzenegger issued in 2007, aims to reduce emissions in the state so the level of pollutants is no greater than the level in 1990. The moves also allow for the state's cap-and-trade program that was adopted by the California Air Resources Board.

Trucking interests say all this will hit operations in the wallet any time truckers buy fuel in the Golden State, and that it will harm the state's economy, even before this is fully implemented in 2020.

A hit to the wallet

A study last year, conducted for the California Trucking Association by the legislative and regulatory consulting firm Stonebridge Associates, determined the LCFS and cap-and-trade could increase the price of diesel by $2.22 per gallon, resulting in a pump price of $6.69 per gallon and an average difference between California's diesel price and neighboring states of $2.33 per gallon.

Between 2015 and 2020, the study finds, these higher diesel costs in California will lead to a loss of more than 600,000 jobs in the containerized import sector, a $68.5 billion loss in the domestic product from the state, nearly $22 billion in lost income and more than $5 billion in lost state and local taxes.

CTA said this will “put California's transportation sector at a significant competitive disadvantage.”

“State regulators need to step down from their ivory tower and understand the impact of these unfair policies on California truckers,” said Scott Blevins, CTA's 2012 president and president of Mountain Valley Express, when the report was released last year. “CARB's blind pursuit of policies that will drive many California-based trucking companies out of the state or out of business should be of great concern to all Californians.”

The report goes on to say diesel price increases of this magnitude will cast an even wider net, affecting food, clothing and other essential goods transported by trucks.

CTA is not alone in beating the drum against LCFS and cap-and-trade. The California Construction Trucking Association and its recently created interstate conference, the Western Trucking Alliance, which helped pay for the study, is also highly critical.

Joe Rajkovacz, the groups’ director of governmental affairs, explains that the state occupies a unique place in the nation's environmental regulatory efforts, thanks in part to two well-known Californians.

President Richard Nixon signed into law the federal 1970 Clear Air Act. Before that, then-Gov. Ronald Reagan created California's EPA (which houses CARB) in the 1960s.

“Congress recognized California's rather unique status as an air regulator who had more expertise than this newly created agency, the U.S. EPA, and they are the only state in the nation that can establish its own unique standards under the Clean Air Act,” Rajkovacz says.

A history of fuel regulations

The LCFS is not the first time CARB's efforts have affected diesel fuel and its price.

“What a lot of folks forget is that CARB mandated what is essentially ultra-low sulfur diesel half a decade before the feds,” Rajkovacz explains, “And it was under the guise of what was called low aromatic fuel. When California jumped the gun on the feds there was a significant increase in the price of fuel in the California marketplace, primarily because the refiners had to significantly change the process of refining just for a limited marketplace.”

He notes that at that time, many interstate truckers (including Rajkovacz, a former truck driver) simply didn't buy California diesel. “We would load up at any of the bordering states. Depending on your fuel mileage, you could cruise out 1,500 miles, and you wouldn't have to expose yourself to the California fuel.”

This, Rajkovacz says, creates a vicious cycle and will lead to higher fuel costs. “As you become so restrictive in the marketplace, you actually cause the dislocation of businesses and even further reduction in demand for a product. The refiners have to produce this boutique blend even as you have less demand for it.

Prices are going to go up because they [the refiners] have to get cost recovery of what they are producing, and that gets spread out over a smaller base.”

A similar situation could happen with the Low Carbon Fuel Standard, he says.

Meanwhile, CARB says LCFS doesn't favor one fuel over the other, because these regulations create incentives for using what it calls “clean fuels,” such as natural gas, electricity, hydrogen and the next generation of low-carbon biofuels it says will ultimately save consumers and producers of these fuels $ 11 billion by 2020.

California's efforts have come under fire in the courts on several fronts. The most notable is farming, oil and transportation industry groups that were successful in challenging LCFS.

They contend it violates the Commerce Clause of the U.S. Constitution because it discriminates against out-of-state and foreign crude while giving an economic advantage to in-state crude oil. That decision is now under appeal before the U.S. Court of Appeals for the 9th Circuit, based in San Francisco, where many expect the lower court decision to be overturned.

If that happens, that likely leaves the U.S. Supreme Court as the final place to challenge the LCFS.

With the court only agreeing to hear a fraction of the cases it receives petitions on, the chances for the nine justices to possibly overturn the decision seem slim.

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