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The New Energy Paradigm

Fuel Fight: California Tries to Kick the Oil Habit

Gas prices below $4.00 per gallon are displayed at a gas station on July 12, 2012 in San Francisco, California.(Justin Sullivan/Getty Images)

photo of Amy Harder
October 16, 2013

LOS ANGELES—Here in the land of perpetually jammed freeways, filling up downtown sets you back $5.09 a gallon. While the national average price for a gallon of gasoline is $3.36, you’d be hard pressed to find anything cheaper than $4 in L.A.

Californians are used to paying some of the highest energy prices in the country, especially in this sprawling city. Not coincidentally, they’re also living in the state most committed to combatting climate change, slashing fossil-fuel consumption, and ramping up renewable energy.

These two realities are clashing more than ever as the state rolls out a suite of regulations aimed at shifting its transportation sector to fuels that emit less carbon than oil at the very same time the country finds itself awash in new oil resources. That’s like handing someone a plate of cookies the moment they begin a new diet.

 

“I think there needs to be a radical change in our lifestyle. We need oil production because we’re driving cars,” said Irma Muñoz, president of the environmental group Mujeres de la Tierra, and a resident of the L.A. suburb of Baldwin Hills, which sits atop one of the largest urban oil fields in the country, Inglewood.

“We need to get smarter,” Muñoz added. “We need to get electric cars. We as consumers need to stop being so dependent on oil.”

That’s what California is trying to do with its low-carbon fuel standard, the first ever in the country, which went into effect in 2011. Without specifying a particular fuel, the LCFS requires the transportation sector to reduce its carbon intensity 10 percent by 2020.

But it’s a daunting task to wean motorists off oil. In 2012, 97 percent of the nation’s transportation sector was fueled by oil, diesel, and other petroleum-based fuels, according to federal Energy Information Administration data. The other 3 percent includes everything else: biofuels, electricity, hydrogen, and natural gas. EIA predicts oil’s share will only drop to 92.4 percent by 2040, not taking into account potential progress in reducing oil consumption.

The oil industry is doing all it can to maintain this monopoly, especially considering the steady decline in oil consumption in the United States brought on in part by stricter fuel-economy standards for cars and policies like the national renewable-fuel standard, which requires an increasing amount of biofuels to be blended with gasoline supplies each year.

Oil and refining companies operating in California, led by Chevron, Occidental, Valero, and Tesoro, are lobbying the Legislature and state agencies to either significantly cut back the LCFS or repeal it altogether.

When asked about lower-carbon fuel sources, including advanced biofuels and natural gas derived from landfills, executives at Valero and Chevron sounded a pessimistic tone and said the upfront economic costs are too high to develop these resources.

“Valero is not in the disposal business. We’re not in the hydrogen-fueling business,” said Scott Folwarkow, director of government affairs in California for the Texas-based Valero. “Companies do things differently based upon their business plans, and we’re largely a petroleum-refining company where we provide gasoline, jet, and diesel to the market. That’s what we do.”

Both Valero and Chevron warn that these lower-carbon fuel policies will prompt them to export their refined petroleum products even more than they are now.

“Unequivocally yes, it will likely get to be more of an incentive than it currently is,” said Dave Reeves, president of global supply and trading at Chevron, when asked whether the LCFS would prompt his company to export more of its products.

Leaders in these lower-carbon fuel industries and independent experts question whether these arguments are much more than hollow threats.

“They believe they can game the system,” said Amy Myers Jaffe, executive director of energy and sustainability at the University of California (Davis). “There is a benefit in both the [renewable-fuel standard] game and in California to just not comply because you have incumbent infrastructure.”

As for the insistence by Valero and other companies that they’re just not in the business of producing other fuels, Jaffe says that mind-set should change.

“Companies say, ‘It’s not our business to make these risky investments in alternative fuels.’ And what I say to that as a commentator is, ‘You know what, if it’s the law, it is your business,’ ” Jaffe said.

Other companies are proving lower-carbon fuels are possible. Clean Energy Fuels, a company backed by energy magnate T. Boone Pickens that focuses on natural gas for transportation, provides 65 percent of the natural-gas fueling for the trash-truck industry. In 2008, just 1 percent of trucks in the trash industry operated on natural gas.

Harrison Clay, vice president of renewable fuels at Clean Energy, estimates that 60 percent of new trash trucks sold in the United States will run on natural gas by year’s end, with the rest on diesel.

“We spend a lot of time listening to the oil industry say the LCFS is impossible,” Clay said. “They’re not looking at the evidence that we have these capabilities out there to provide a very inexpensive fuel.”

The trucking industry more broadly is worried about the trickle-down costs associated with the LCFS.

Bob Massman, vice president of The Dependable Companies, a distribution and trucking company in L.A., said the standard puts California businesses at a disadvantage.

“In California, all we’re saying is regulations are great. You want clean air? Why not do it for everybody,” said Massman, who is also president of the California Trucking Association. When asked if he thought the entire country should adopt a policy like the LCFS, he replied: “Well, I think it would be an even playing field if everybody did.”

That’s exactly what the oil industry is afraid of. Just as California has done before on other ambitious energy policies, the Golden State could prompt the rest of the country to follow in its footsteps on the LCFS. A legal challenge pending at the Environmental Protection Agency is seeking that very outcome.

“You have this opportunity to get the bugs out by doing it in California first, so the rest of the country needs to support us,” said Jaffe, who up until last year lived in Texas and worked at Rice University. “If we’re successful, it’s something that could be done in other parts of the country. That’s why the industry is fighting it so hard here.”

This article appears in the October 17, 2013 edition of NJ Daily as Fuel Fight: California Tries To Kick Oil Habit.

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