Stakeholders: Fuel standard proposal may be untenable

Fuel standard proposal may be untenable, stakeholders warn
Some state lawmakers want to replicate a low-carbon fuel standard program initiated in California and Oregon to move Washingtonians away from using fossil fuels. However, at a January 9 public hearing of the House Environment Committee, industry members and consultants warned that the full compliance cost of those state programs and price impacts to consumers have yet to be realized and may be prohibitive. Photo: Hank's Truck Forum

Washington state carbon emission reduction is the driving force behind an assortment of proposed legislation this session, with Governor Jay Inslee setting the mood for the discussion in his State of the State speech Tuesday as he pushed his carbon pricing plan.

Even as the Governor declared: “I believe Washingtonians will be together on this issue,” testimony at a public hearing that same day proved otherwise.

HB 2338, sponsored by Rep. Joe Fitzgibbon (D-36), seeks to reduce 2017 fuel greenhouse gas emissions by 10 percent by 2028 through what is known as a “low carbon fuel standard” (LCFS) program, and was discussed at a public hearing of the House Environment Committee on January 9.

The bill encourages the production, importation and use of low-carbon fuels such as ethanol to replace high-carbon fossil fuels, and although proponents expect the economic impacts to be low, industry members and trucking business owners testifying at the hearing warned that the bill’s provisions will be difficult to implement and could increase gas prices for both commuters and truckers who already pay the second-highest gas tax in the nation.

While Fitzgibbons told colleagues: “I think this is an exciting opportunity…we know there’s a path forward,” David Hackett, president of Stillwater Associates, a transportation and energy consulting company in California, cautioned that the proposal was a “heavy lift” with numerous challenges.

Inspired by similar programs in California and Oregon, the bill would delegate rulemaking authority to the state Department of Ecology to create a Clean Fuels Program to achieve the carbon reduction goal.

Yet the bill stipulates certain provisions must be included. Producers or importers of transportation fuels that emit carbon levels higher than a 2017 baseline adopted by Ecology would have to register and participate in the program.

The rule would have to be imposed by 2020. In 2026, the Joint Legislative Audit and Review Committee would analyze the results of the first five years of the program.

The proposed law would exempt certain fuels, including:

  • transportation fuel exported from the state;
  • transportation fuel that is used for the propulsion of aircraft, railroad locomotives or vessels; and
  • transportation fuels used in volumes below the thresholds of Ecology’s program.

A 2006 state fuel standard already requires that at least two percent of diesel fuel annually sold in Washington must be biodiesel or renewable diesel fuel. Also, a two percent minimum of the total gasoline sold must be ethanol.

Fitzgibbon highlighted the California LCFS, first started in 2010. According to the California Air Resources Board (CARB), the program has only added a nickel to the cost of a gallon of fuel.

However, the bill may have difficulty getting through the legislature. In 2014, Washington’s Climate Legislative and Executive Workgroup examined possible ways for the state to meet greenhouse emission standards set by the legislature in 2008. LCFS was not among the five recommendations made in its report.

Also, the full impacts of California’s program have yet to be felt, stakeholders say. CARB estimates that the impact on gas prices could increase to 12 cents in two years.

Hacket told the panel that if Washington mimics California’s LCFS program, a 10-percent reduction would be a tall order, and that other challenges may come when the low-carbon fuels like ethanol need to replace traditional fossil fuels.

California’s LCFS program has what are known as compliance obligations or deficits, which impact the entities involved in the production or importation of high-carbon fuels, and on the flip side, the program also gives credits for the production or import of low-carbon fuel.

Simply put, there may not be enough of these fuels to go around. A 2013 University of California Davis study conducted for CARB found “significant uncertainty as to how compliance maybe achieved. There is reasonable concern regarding the potential for high and volatile costs of the program in coming years.”

The report concludes that “compliance costs may increase rapidly in the future if there are large differences in marginal costs between traditional fossil fuels and alternative, low carbon intensity fuels.”

Hackett warned panel members that “your rule will be tied to California’s needs. Washington consumers will have to pay California prices” in order to attract the same limited fuel supply.

The view was shared by Greg Hannon, lobbyist for the Western States Petroleum Association, who said “significant policy questions need to be evaluated,” including biennial state costs to implement the program and the actual availability of low-carbon fuel.

Higher gas prices in a state with the second-highest combined tax rate in the country could also harm the trucking industry, says Frank Riordan, owner of Becker Trucking Inc. and president of the Washington Trucking Association. He told the committee that with vehicles consuming “six miles per gallon, we’re going to bear the brunt of any new fuel cost.”

“In an industry with a good operating year of a four percent margin, any cost needs to be looked at,” he said, adding that it would create a “competitive disadvantage” compared to truckers coming from outside the state.

1 COMMENT

  1. Regarding the 2% biodiesel/renewable diesel and 2% ethanol requirements cited in the article, neither of these provisions are being implemented because of problems with the enabling legislation, which failed to properly identify obligated parties and didn’t provide the departments of Agriculture or Licensing with any enforcement authority. Therefore, better to consider these “goals” because they’re not actual requirements and they’re not being implemented.

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