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By Anne C. Mulkern | 02/26/2024 06:53 AM EST 6 Inches Water Pump Large Value
A proposed update to the state’s low-carbon fuel standard could increase gasoline prices by nearly 50 cents a gallon next year — and more after that.
A motorist refuels his vehicle last October at a gas station in Alhambra, California. Frederic J. Brown/AFP via Getty Images
California gasoline pump prices could jump by as much as 47 cents per gallon next year under a proposed overhaul of a state regulation on fuels.
The potential price hike would make California gasoline — already among the most expensive in the nation — even costlier, likely putting a greater burden on low-income motorists and testing residents’ appetites for more climate action.
State officials say the overhaul of the low-carbon fuel standard is necessary to help meet California’s ambitious climate goals, even as they disputed how much the rule rewrite would increase pump prices.
But in a sign the proposal could be revised, the agency in charge of the regulation postponed a possible vote on it that had been planned for March.
That was done to “build in more time” to process feedback on the rule rewrite, said Dave Clegern, spokesperson at the California Air Resources Board. No new date has been chosen.
One big concern of critics is that the move would hurt motorists who don’t have the money to easily buy an electric vehicle and avoid the potential gas price hike.
“This will hit the working class between the eyes,” said Jamie Court, president at Consumer Watchdog. “That is unacceptable in order to get, even in exchange for what are very noble climate goals.”
The potential price increase — documented in a CARB analysis — stems from a proposed update to California’s low-carbon fuel standard, an initiative the state implemented in 2011 to reduce climate pollution.
Its intent is to incentivize production of lower-carbon fuels, such as ethanol made from corn and renewable diesel made from fats and oils. Those are then blended with gasoline and diesel.
To enforce the standard, California created a complex system of sticks and carrots.
The rule sets a yearly limit on the carbon footprint of fuels. Fuel producers who stay below that limit earn credits they can sell. Fuel mixes that create too much climate pollution incur deficits. To get into compliance, they can buy credits earned by the other developers.
For years, the rule has increased gas prices — though not to the level it could if the CARB moves forward with its plans to update it. In recent months, the low-carbon fuel standard has added about 10 to 12 cents per gallon. It’s among the taxes and fees pushing up state pump prices. California gas averaged $4.64 per gallon Sunday.
The proposed update would require deeper cuts in fuels’ allowable greenhouse gas emissions.
That likely would force fuel producers who can’t meet the standard to buy more credits. If those producers pass along the added costs, it could increase fuel prices across the board — from diesel to jet fuel to regular gasoline, the analysis said.
Pump prices could rise as much as 47 cents per gallon next year and increase to 52 cents the following year, according to the agency analysis.
That’s if the agency moves forward with the proposal to raise the carbon cut requirement to a 30 percent reduction through the end of the decade. That’s up from the current mandate for a 20 percent reduction from 2010’s level.
Even larger gasoline price hikes could come later. Lowering the carbon intensity limit 90 percent by 2045 — as the regulation rewrite proposes — could add $1.83 per gallon to the price of gasoline by 2041, according to the agency report.
Other fuels would see similar price increases. Diesel prices could surge 59 cents more per gallon next year, and $2.40 per gallon by 2041. Jet fuel for intrastate flights would rise 44 cents next year and $1.94 per gallon by 2041.
Taken together, the proposal could trigger a major increase in fuel prices across the board because of a government regulation. And that hike could turn into a political liability for Democratic California Gov. Gavin Newsom, said Court of Consumer Watchdog.
“If the governor doesn’t stop this, or find a way to keep gas prices lower, it will stick to him,” he said.
The CARB says a rewrite of the low-carbon fuel standard would put the state in a better position to meet its climate targets.
Those include reducing greenhouse gas emissions at least 40 percent below 1990s level by 2040, and hitting carbon neutrality by 2045.
Clegern, the spokesperson with the CARB, said the price hikes might not be as bad as the agency’s own September 2023 analysis found. He described the figures in the report as “not so much inaccurate as incomplete and outdated.”
The analysis with the gas prices data, he said, “considers potential costs, nothing else.”
The figures represent the potential peak impact, Clegern added. Moreover, the agency can’t predict how much fuel producers will pass along added costs, he added, and many factors affect California pump prices including oil prices, refinery availability and time of year.
There isn’t a clear relationship “between fuel prices and LCFS credit prices,” he wrote in an email, “so claiming that any increase in stringency in LCFS will increase fuel prices isn’t supported by history/facts.”
To underscore that point, Clegern included a graph showing monthly low-carbon fuel standard credit price averages and California gasoline prices between 2013 and 2022. The prices do not move in tandem, it showed.
But Danny Cullenward, a climate economist and lawyer, said that’s a misleading comparison.
It’s accurate that there are multiple factors that influence California gas prices, including the market power of refiners, he said. But state climate programs including the low-carbon fuel standard “have cost impacts, which we can calculate and report transparently.”
“I don’t think most people appreciate the extent to which the low-carbon fuel standard contributes to gasoline and diesel fuel costs,” Cullenward said.
Higher fuel costs could have another effect, too — pushing more California drivers into EVs. That aligns with other California efforts to boost EV use. State law now bans sales of new internal combustion engine vehicles after 2035.
“As Californians transition away from fossil fuels and into more energy efficient [zero-emission vehicles] and lower carbon fuel alternatives, CARB staff estimate that the fuel costs Californians pay to travel also will decrease, resulting in billions of dollars in savings on fuel costs each year,” the agency wrote in a December analysis of the proposed changes to the low-carbon fuel standard.
The transportation cost savings from the rule changes “will be more than $20 billion in 2045 alone,” Clegern said. In addition, he added, there will be $5 billion in savings from preventing health harms caused by air pollution.
Another reason to adjust the low-carbon fuel standard is to help sustain development of alternative fuel options, backers said. In addition to seeking lower carbon fuels, the regulation aims to spark development of other transportation options, including ZEVs. Refueling sites for electric and hydrogen-powered cars can earn credits under the rule.
The regulation drives a large market. More than 30 million program credits were sold or traded in 2022, the most recent year with full data available. Those transactions were worth nearly $4 billion, an agency analysis said.
Alternative fuels have flourished as part of it.
Renewable diesel earned 36 percent of program credits in 2022, the most recent year full data was available. Electricity projects won 24 percent, followed by biomethane at 16 percent and ethanol at 14 percent.
Credit prices have fallen significantly under the current regulation, in part because a surge in production of biofuels meant more projects are earning credits. That’s made those credits less valuable in the marketplace, which means less financial support for alternative fuel developers.
The credit price under the current rule peaked at $206 in early 2020 and has tumbled since. It was about $69 in January.
The CARB said that peak price would have equated to about an 18 cents additional charge that traditional fuel producers could have passed on to motorists.
That’s far lower than what California motorists could see under the proposed rule update because of the proposed additional cuts in carbon intensity, Cullenward said.
Court at Consumer Watchdog said many drivers aren’t aware that the low-carbon fuel standard factors into what they pay to fill up, because California prices are so volatile.
In addition, he said, the regulations are difficult to understand.
“It’s complex,” he said of the low-carbon fuel standard. “No one understands how it impacts the cost of gasoline until it goes into effect.”
Higher gasoline prices will hit economically disadvantaged communities harder, even if over the long term they see transportation cost savings, the CARB financial impact analysis said.
That’s due in part, it said, because “individuals living in these communities traditionally spend a larger share of their income on transportation fuels.”
Those same people, it said, also may have a tougher time accessing ZEVs quickly, and therefore “would rely on more expensive fossil fuels for longer.“
Amelia Keyes, legal fellow at Communities for a Better Environment, agreed, saying that those residents might live in apartments or other homes lacking ZEV charging options.
“Electric vehicles and zero-emission vehicles are not widely accessible in California’s low-income communities and communities of color … especially compared to high-income communities in the state,” she said in an interview.
Clegern with the CARB said that the agency with some of its proposed regulation changes has “increased focus on low-income and disadvantaged community programs.”
“The LCFS proposal includes a number of provisions to increase ZEV adoption and use in these communities so they can benefit” from clean car incentives, ZEV fueling infrastructure and air quality benefits, he said in an email.
For example, utilities currently get credits for the in-home charging of zero-emissions passenger vehicles. A portion of those credits goes toward rebates for clean car purchases. Utilities use the remainder of the money for projects that help disadvantaged communities access ZEVs.
For the proposed amendments to the low-carbon fuel standard rule, part of the credits utilities earn would go toward zero-emissions medium- and heavy-duty trucks. The staff proposal also significantly increases the amount of credit value utilities keep for projects helping disadvantaged communities, Clegern said.
Keyes was skeptical that it would offer enough help, with likely insufficient funding going toward those programs. Right now, the bulk of the credits issued under the regulation go toward biofuels, she said, and that’s unlikely to change with the proposed overhaul as currently written.
A California Energy Commission report from November said that more than 77 percent of the credits issued under the program went to biofuels in 2021. Those had a total value of $2.89 billion.
Geoff Cooper, president and CEO at the Renewable Fuels Association, a trade group for makers of ethanol, said growth is surging among electricity programs under the rule. In the first nine months of last year, he said, 39 percent of credits went to renewable diesel, 11 percent to ethanol, 7 percent to biodiesel and 24 percent to electricity. A variety of other options made up the balance.
“What this boils down to is, do you want a program that reduces carbon emissions from transportation?” he said in an interview. “Or do you want a program that mandates electric vehicles, and those are two very different things?”
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