LCFS: “Bad news all around”

LCFS: “Bad news all around”
As SSHB 1110 advances, petroleum industry leaders warn the low carbon fuel standard is impractical and won’t achieve its environmental goals. Photo'

A proposal to create a low carbon fuel standard program (LCFS) in Washington state has cleared the House Appropriations Committee and could soon land on the House floor for a vote. Supporters view it as one part of an overall clean energy plan to reduce the state’s greenhouse gas emissions, which in 2014 composed roughly 1.4 percent of the national total.

However, industry association leaders warn that the proposal would add to consumer costs and, like Initiative 1631 rejected by voters last year, lacks pragmatism when addressing economic impacts.

“The program design is flawed; it always has been,” Western States Petroleum Association President (WSPA) Catherine Reheis-Boyd said. WSPA is a non-profit trade association that represents companies in Arizona, California, Nevada, Oregon and Washington. In addition to California, Oregon has also implemented a LCFS program.

Under SSHB 1110, sponsored by House Environment & Energy Chair Joe Fitzgibbon (D-34), the state Department of Ecology would set up an LCFS program with the goal to lower greenhouse gases by 10 percent below 2017 levels by 2028, and 20 percent below 2017 levels by 2035. Within the program is a credit system which generates deficits for entities that provide fuel above the allowable limit, while clean fuel producers generate credits.

However, Reheis-Boyd told Lens that California’s program, which is only partially implemented, offers an accurate glimpse of what Washington state can expect if the legislature adopts similar policy. Created in 2009, California’s LCFS was frozen by the state Court of Appeals in 2013 and directed by the California Air Resources Board (CARB) to make changes. A revised program was adopted in 2015 that included a new compliance schedule. However, two years later the Fresno County Superior Court froze the diesel standard. Last year, a second revised program was set up with lower fuel standards. As of 2017, the credit program has generated deficits.

“We froze the LCFS because it wasn’t working,” Reheis-Boyd said. “We’re already at a point where there’s real concerns.”

There’s also the price of the program. A 2018 report by California’s nonpartisan Legislative Analyst’s Office (LAO) noted that “most or all of the costs of purchasing credits and allowances are likely passed on to fuel consumers in the form of higher retail prices.” So far, it’s added $.13 per gallon, and LAO estimates it could add a total of $.46 by 2030 (page 30).

The LAO report also concluded that the LCFS program was 10 times costlier than the state’s cap-and-trade program.

“Why would you do that – choose the path that has that kind of a cost burden associated with it?” said Reheis-Boyd. “It’s a design program that you cannot comply with. You force people into the credit market, so other things get done.”

A frequent rebuttal to concerns over increased fuel costs note that prices often fluctuate greater and faster than a LCFS program would. According to the U.S. Energy Information Administration, conventional retail gas prices in Washington increased from $2 per gallon to $2.72 in just one year (February 2016-17). It is now around $3 per gallon.

However, Reheis-Boyd says this is why the baseline cost of goods, including fuel, should be kept as low as possible in the event crude oil costs jump, “for communities that don’t have that luxury to take that kind of fluctuation. We don’t know what OPEC’s going to do.”

Aside from the practical issues, Harvard’s Kennedy School Professor Robert Stavins argues that the program also fails to achieve its primary goal: reducing overall carbon emissions. Stavins directs the Harvard Environmental Economics program and has done consulting for WSPA.

In 2016, he wrote that “in the presence of the cap-and-trade regime, the (California) LCFS has the perverse effect of relocating carbon dioxide (CO2) emissions to other sectors but not reducing net emissions, while driving up statewide abatement costs, and suppressing allowance prices in the cap-and-trade market, thereby reducing incentives for technological change. Bad news all around.”

The LAO report also concluded that “intensity standards provide relatively little incentive to reduce emissions by reducing consumption of GHG-intensive goods,” and in fact “there may be some adverse environmental effects…associated with expanding the amount of land used to produce biofuels” (page 33).

Reheis-Boyd says they’re not opposed to some form of carbon pricing, but proposals such as I-1631 aren’t crafted in a way that balances protecting the environment with the business climate. “We really tried to be transparent about the impacts of what they had proposed. You could have designed it in such a better way that might have possibly gotten our support.”

As Reheis-Boyd sees it, the solid defeat of I-1631 last year sent a clear message: “People in Washington still care about being leaders in climate, but also care about a pragmatic approach. They are in that sweet balance spot where they want both; and they can have both.”

SSHB 1110 has been referred to the Rules Committee for review.


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