Low Carbon Fuel Standards Will Drive Gas Prices Higher

Nicolas Loris /

The national average of gasoline is $3.78 per gallon, with some drivers experiencing a price of more than $4 per gallon. The price at the pump, up nearly 40 cents from a year ago, has faded out of the political limelight but remains a top concern for American families on tight budgets. One policy proposal that will only drive prices higher is the implementation of a low carbon fuel standard.

A low carbon fuel standard (LCFS) aims to reduce greenhouse gas emissions by reducing the carbon intensity of fossil fuels. In effect, an LCFS would discourage the use of gasoline, diesel, and home heating oil to promote the use of biofuels, natural gas, propane, and electricity.

For instance, California’s adoption of an LCFS requires a 10 percent reduction in carbon intensity—below 2010 levels of emissions—by 2020. Oregon and Washington developed an LCFS over the past few years, and 11 northeastern states have discussed adopting a standard led by the Northeast States for Coordinated Air Use Management (NESCAUM).

Low carbon fuel standards contain a number of problems. First and foremost, they will drive up gas prices and hit particularly hard the families in the northeast who are dependent on home heating oil. Higher transportation fuel costs mean higher sticker prices for all goods and services, so American consumers are hit once again. The result is reduced consumer demand and a slower economy.

We already have policies in place to promote alternative fuels, such as the federal renewable fuels standard, which is intended to produce 36 billion gallons of ethanol by 2022. The problems with the ethanol mandate demonstrate the inability of the government to determine what fuel types will be economically viable.

Cellulosic ethanol, made primarily from non-food sources such as wood chips, switchgrass, or corn stover, is not commercially viable. Yet the 2007 Energy Independence and Security Act (EISA) mandated that 250 million gallons come from cellulosic ethanol in 2011, increasing to 500 million gallons for this year. Thus far, zero gallons have been produced, because no companies have been able to produce commercially viable cellulosic ethanol. As a result, refiners had to pay more than $6 million in waiver credits or surcharges to comply with the Environmental Protection Agency’s (EPA) minimum volume requirements.

Undoubtedly, refiners pass these costs on to the consumers. In other words, the federal government’s failure to pick an affordable gasoline alternative is so epic that refiners would lose less money paying a $6 million fine than actually producing a product for which there is a guaranteed market.

Further, we have generous tax credit incentives for the production and consumption of other alternative fuel types, like electric vehicles. Yes, we have oil subsidies as well, but they are nowhere near the generosity that President Obama claims they are.

Low carbon fuel standards could also prevent access to Canadian oil sands, which is the second-largest known reserve of oil in the world and could increase the role Canada plays in supplying U.S. refineries with safe, secure oil. As a Charles River Associates study points out:

Although Canadian oil sands-derived crudes are no more carbon intensive than many conventional crudes processed in the U.S., the California LCFS and some other LCFS proposals attempt to account for the carbon emissions that are created during the processing of Canadian oil sands into synthetic crude oil or Diluted Bitumen without giving credit for local greenhouse gas emissions controls in Canada. This type of adjustment raises a complex set of issues including;[sic] emissions from extracting and transporting various types of internationally traded crudes, energy security, and the implications of NAFTA and WTO rules.

Complications of calculating carbon intensity are occurring with corn-based ethanol, which demonstrates the arbitrariness of these low carbon standards.

A low carbon fuel standard is an “all economic pain, no environmental gain” policy that will drive up prices at the pump and make no discernible difference on the earth’s temperature. The simple reality is that we need to remove the market distortions (subsidies, mandates, low carbon fuel standards) to allow the best technologies and most affordable, efficient sources of energy meet America’s fuel demands.