September 5, 2012
September 5, 2012
Mandating “low carbon” or “clean” fuels raise serious questions and wide opposition.
By John Ledger
Associated Oregon Industries
Oregon Largest Business Advocate
The Oregon Environmental Quality Commission (EQC) may adopt California’s restrictions on gasoline and diesel as early as this December. In California, the new restrictions have raised the specter of increased prices, job losses and voided warranties, and the rules are now in federal appeals court after a judge found them unconstitutional. Oregon would be alone with California in adopting such regulations. To see the proposed rule, go here.
In Oregon, the proposal is strongly opposed by labor, business, agriculture, trucking, fuel providers, construction companies, service station owners and motorists, because it would likely increase gasoline and diesel costs, lead to job losses, and slow economic activity.
AOI opposes the adoption of the measure, has met with the Environmental Quality Commissioners (EQC) regarding the rule, will offer formal comments, and will work on the issue in the legislative arena.
The regulations would dramatically force increased use of ethanol, limit where the ethanol and fossil fuels can come from, limit how they are produced, and employ a cap & trade-like mechanism. Although agency documents state there will be no increase in fuel prices, the rule incorporates a complex procedure (taking one to two years) to have the restrictions suspended if the price at the pump increases by more than 5% (20 cents per gallon at today’s prices) due to the rule.
The object is to reduce greenhouse gases by continuously lowering the “carbon intensity” of fuels used in Oregon. Each year, beginning in 2014 and ending in 2025, the allowable average carbon intensity for gasoline and diesel would be ratcheted down.
Carbon intensity is a measure of all greenhouse gas impacts caused by the combustion, production, refining, transportation, even land use implications attributable to each gallon of fuel. For example, a gallon of Oregon gasoline containing ethanol produced in Washington State will have lower carbon intensity than had the ethanol been produced in Iowa because of the energy (and therefore greenhouse gas implications) of irrigation and transportation. The same principle would apply to the gasoline itself. In practice, it is exceeding complicated since fossil fuels come from all over the world and are produced, refined, mixed, piped, shipped, and trucked by numerous means. According to the proposed rule, regular gasoline in Oregon has a carbon intensity index of about 92. Cellulosic ethanol made from wheat straw has an intensity index of about 21, so the more cellulosic ethanol you blend into the gasoline the lower the index for the blended fuel.
The increasingly stringent requirements are expected to force a series of changes in fuel make up and sourcing, some very problematic. Currently, Oregon has reduced its carbon intensity by blending 10% ethanol, primarily from Midwest corn. Under this new program, Midwest corn based ethanol will not suffice to meet the very early carbon reduction mandates, leaving Brazilian sugar cane ethanol, which has a lower carbon intensity, as one of the few commercially blending replacements available. After Brazilian ethanol is no longer sufficient to meet the criteria, cellulosic ethanol appears to be the next step with even lower carbon intensity. Unfortunately, commercial cellulosic ethanol production appears to be years away according to the federal government. Ultimately, in order to meet the ever decreasing carbon intensity cap, the rules call for carbon reduction credits to be purchased at a yet to be defined cost as an offset. The cost of the credits would, of course, be passed on at the pump.
The rules provide for the use of other fuels such as natural gas and electricity. Although conversion to these fuels would definitely help reduce greenhouse gases, the wholesale conversion to NG or electric vehicles appears to be slow.
Many questions arise simply from a logistical standpoint. Because of the system of pipelines and other factors, Oregon gets very little fuel from California – the only other state implementing this program. Exactly how the various sources of Oregon fuels would special blend the changing fuel mixes and purchase carbon credits is unclear. And although there would be a very limited number of vehicles exempt from the new fuel requirement (farm and logging vehicles), their ability to get the “old” fuel may be limited as retailers would face the cost of installing a new tank to accommodate the extra fuel for these vehicles.
The program assumes there will be numerous Oregon facilities producing cellulosic ethanol, creating new jobs and offsetting any negative economic impacts. This is questionable. Unfortunately, cellulosic ethanol is still in the research stage and is virtually unavailable on the market. Even if cellulosic ethanol becomes economically viable it is likely to be predominantly produced in the southern and central-eastern states which have more feedstock. Experience with the E-10 ethanol and B-5 biodiesel mandates has shown that the vast majority of the corn-based biofuels used in Oregon come from the Midwest; cellulosic ethanol may primarily be a boost to another state’s economy at Oregon’s expense.
AOI will provide comments on the rule. The Commission will then take action on the proposed rules and implementation framework at their meeting in December 2012.
Stay up to date with the latest political news and commentary from Oregon Business Report through daily email updates:
Prefer another subscription option? Subscribe to our RSS Feed, become a fan on Facebook, or follow us on Twitter.