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.
National Journal
Amy Harder
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Amy Harder
Oct. 16, 2013, 5:56 p.m.

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.”

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