Low Carbon Fuel Standard Could Result in Price Shock

June 29, 2010

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A nationwide low carbon fuel standard would significantly increase the costs of transportation and fuel, according to a study conducted by Charles River Associates. The study found that a standard would result in a price shock, including an increase of about 30 to 80 percent in the cost of transportation fuels within five years of the standard being implemented.
This would be caused by the large increase in production of low carbon fuels required to achieve the emissions reductions.

The study was commissioned by the Consumer Energy Alliance, a non-profit, nonpartisan organization that supports the use of energy resources to help ensure improved domestic and global energy security and stable prices for consumers. Its membership is made up of consumer groups, businesses, agriculture, industry, end users, and energy providers and suppliers.

"Low carbon fuels are like cream in a cup of coffee," the study said. "If enough cream is not on the table to achieve the desired mix, then the only alternative is to reduce the amount of coffee in the cup. To reduce transportation fuel consumption sufficiently for the LCFS to be met requires very large increases in fuel prices, so that consumers will limit their driving and demand new vehicles that are much more costly and provide much higher fuel economy. Price increases for fuels used in commercial transportation will also be driven up, in order to reduce fuel use in trucking sufficiently to achieve the required reductions in emissions from fuels used in heavy-duty gasoline and diesel engines."

Under the analysis, the nationwide low carbon fuel standard would begin in the year 2015 and achieve a 10 percent reduction in the carbon intensity of transportation fuels relative to the base year by 2025.

If implemented, the costs of transportation fuels to consumers would rise by 90 to 170 percent relative to the baseline by 2025, the study said.

According to the study, these higher costs will likely reduce total consumption, employment, investment and economic output.

With higher fuel prices, drivers will cut their driving by 9 to 14 percent by 2025. Trucking ton-miles will be reduced by 9 to 13 percent over the time period.

In addition, refinery throughputs will decrease by 4 to 5.8 million barrels per day by 2025, causing the closing of 43 to 55 refineries over that time. This would also cost about 21,000 to 33,000 direct refinery jobs by 2025, the study found.

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