Low Carbon Fuel Standard Will Devastate Washington State’s Economy

Guest post re-posted with author's permission

In 2011, American drivers paid an all-time record high average price of $2.53 per gallon for gasoline. In 2012, we have seen average high records broken with a disturbing regularity – including a new record high for Labor Day last month. Economists across the country have discussed at length the impact that high transportation costs have on the economy in terms of reduced household purchasing power and increased prices for goods delivered by truck (i.e., everything that anyone buys at any store), which makes recent efforts by the University of California-Davis and the Obama Administration to develop a Low Carbon Fuel Standard program which will double gasoline and diesel prices particularly disturbing. 

The National LCFS Initiative, which is headed by UC-Davis and the Department of Energy’s Oak Ridge National Lab, is dedicated to developing a cap and trade program for transportation fuels called a Low Carbon Fuel Standard that restrict use of traditional fuels like gasoline and diesel in the hopes of spurring development of “low carbon fuels” such as cellulosic ethanol, and increased use of electric and natural gas vehicles – a policy that is fundamentally ineffective and will be devastating to local economies. 

The model for a Low Carbon Fuel Standard – which would require a 10% reduction in the carbon intensity of the transportation fuel pool through fuel switching over 10 years – was first implemented in California, is currently being implemented in Oregon and has been supported by Washington Governor Christine Gregoire, who issued an Executive Order instructing the Washington Department of Ecology to assess whether Washington should adopt an LCFS in May 2009.

Proponents of low carbon fuel standards have claimed that an LCFS is a great way to lower the carbon content of fuel and reduce the amount of carbon dioxide emissions. However, several recent studies have shown that such a program will create unnecessary economic burdens for businesses and consumers in Washington while failing to actually lower GHG emissions.  

The reality is alternative fuels like cellulosic ethanol are not available commercially – let alone in the affordable quantities required by an LCFS. Further, alternative fueled vehicles are dramatically more expensive than traditional cars and trucks and are not projected to reach anywhere near the market penetration necessary for an LCFS program to achieve its carbon reduction goals. Forcing fuel providers to ration their traditional fuels to supply these scarce fuel alternatives will drastically increase the cost of gasoline, diesel and home heating oil for consumers—not to mention placing Washington’s refining industry at risk. 

According to the Washington Research Council, the state’s oil refining industry provided 30,000 direct and indirect jobs and 1.7 billion dollars in personal income while providing the state and local government $60.6 million in sales and use taxes and $87.8 million in business and occupation taxes. If an LCFS is allowed to take hold, the future of this valuable state industry is bleak.  

A simple lesson in supply and demand demonstrates the damaging effect this policy will have on Washington consumers. Taking traditional fuels out of the retail market will translate directly into increasingly expensive fuel prices for Washington families of all income levels. In fact, studies have shown that instituting an LCFS program will more than double gasoline prices and drive down individual household annual purchasing power by between $1,400 and $2,400 by 2025. Not a welcoming sign for consumers in a state with an unemployment rate of 8.5, now well above the national average.

From a macroeconomic perspective, the UC Davis proposal looks even worse. According to a 2010 study by Charles River Associates a national LCFS would cause the US Gross Domestic Product to decline by two to three percent by 2025—a total loss of between $410 and $750 billion for our economy.

As if that wasn’t enough, the LCFS program in California was recently ruled unconstitutional for violating the Commerce Clause. 

Given all of these negative economic and environmental outcomes, can the Evergreen state truly risk adopting such a damaging policy – particularly with Washingtonians already facing record high fuel prices and a sagging economy?  

To learn more about how a low carbon fuel standard would hurt Washington you can visit http://www.secureourfuels.org/.

Michael Whatley

Executive Vice President of Consumer Energy Alliance

  

Consumer Energy Alliance (CEA) is a nonprofit, nonpartisan organization, comprised of more than 180 affiliate members, including energy consumers and producers, and tens of thousands of consumer advocates, that supports the thoughtful utilization of energy resources to help ensure improved domestic and global energy security, stable prices for consumers and balanced energy policy for America.