January looms, fuel fight heats up

California’s first-in-the-nation law curbing greenhouse gases may soon have a direct impact on a motorist’s most sensitive part — the wallet.

Absent changes, gasoline and diesel fuel beginning in January will be covered under a state auction program that requires petroleum companies to obtain carbon emission credits in order to continue to operate as they gradually choke off their greenhouse gases. The minimum cost of those credits, or allowances, is unknown, but experts believe they may be in the range of $12-to-$13 each, with each credit covering a ton of carbon emissions. Millions of credits may be sold and that cost is likely to be passed on at the pump. During a recent sale, emission allowances were selling at $11.34.

“With a couple straightforward adjustments, California’s course for addressing climate change with a market mechanism would be a model for other states and countries.” — Severin Borenstein

Currently, fuel is about $4 per gallon and California burns about 14 billion gallons annually. Estimates of the magnitude of a potential hike vary widely, but most range from 15 to 20 cents per gallon, which would raise perhaps $2.1 billion to $2.8 billion annually. Efforts are under way in the Capitol, led by the petroleum industry, to exempt transportation fuels from the auctions until 2018. The refiners’ output in California can be seen here.

Environmentalists believe the inclusion of transportation fuels in the cap-and-trade auctions is a critical piece of the effort to limit carbon emissions and represents a compromise with the industry.

“They (the refineries) have been getting allowances for free,” said Bill Magavern of the Coalition for Clean Air. “The state auctioned off some of the allowances and decided to give away the refinery allowances, but they also decided to bring in the fuels in 2015. There have been a mix of decisions and the oil companies have done pretty well. But now big oil is trying a power play to avoid emission allowances on the fuels that the companies sell.”

A coalition of business-friendly Democrats in the Assembly has signed on to the effort to delay the program, and Republicans have long opposed the auctions as bad for business. To take effect, Gov. Brown, who is up for reelection, would have to sign the bill, AB 69 by Assemblyman Henry Perea, D-Fresno, after it is approved by both houses. Brown has not taken a position on the bill. The action is not Perea’s first foray into high-stakes environmental politics — he also has taken a lead role in negotiating the multibillion-dollar November water bond. Lawmakers have until midnight Aug. 31 to decide the fate of the bill.

But another group of Democratic lawmakers in both houses — including the Senate leadership — urged Brown to “stay the course” and reject efforts to delay the auctions, citing the critical need for environmental protection and California’s status as a leader in cutting greenhouse gases.

“An about-face now would also inject doubt into new efforts to reduce climate pollution beyond our borders,” the lawmakers wrote to Brown on June 27. “To ignore the transportation sector, the largest source of pollution in California, and force other sectors to bear a disproportionate share of responsibility for meeting the State’s targets would be unfair, unwise and risky.”

The Assembly Democrats told Air Resources Board Chair Mary Nichols on June 16 that an “increase of about 15 cents per gallon is likely and a much larger jump is possible. Even a small increase in fuel prices hurts low-income Californians,” and said a spike in fuel costs would hinder the state’s uneven economic recovery.

This week, the Energy Institute at Haas released a study that suggested some changes in the cap-and-trade system that included providing more information to the public “on emissions and emission allowance holdings” before the auctions and expanding the use of permits.

“With a couple straightforward adjustments, California’s course for addressing climate change with a market mechanism would be a model for other states and countries,” said the institute’s Severin Borenstein.

The Assembly Democrats told Air Resources Board Chair Mary Nichols on June 16 that an “increase of about 15 cents per gallon is likely and a much larger jump is possible. Even a small increase in fuel prices hurts low-income Californians,” and said a spike in fuel costs would hinder the state’s uneven economic recovery.

“The fact of the matter is on Jan. 1, things will change pretty dramatically,” said Tupper Hull, a spokesman for the Western States Petroleum Association. “The reality is that consumers are not ready for this program, they don’t know it’s coming and they are going to be angry.”

California has more than 23.2 million registered cars and 857,000 motorcycles, plus more than 5.4 million trucks, big and small. There are assorted trailers, coaches and miscellaneous vehicles, plus another half-million vehicles exempt from registration, 1.37 million vehicles based in other states that pay fees to California and 145,000 “miscellaneous vehicles.” Total registrations: 32.9 million, according to the DMV.

“There is a very high potential for price spikes and volatility. It’s not clear when and how people will engage with this market.  We don’t know how many allowances CARB (California Air Resources Board) will make available,” Hull added. “But the whole point of this is to increase the cost of petroleum-based fuels, so not passing on the costs seems inconsistent. Without any change, this program is happening, absent any action by them (regulators) or anybody else. As it is written, there will be no free allowances for fuels.”

Nobody really knows what the exact impact will be until the auction is held early next year. Some details of the upcoming auction – the per-credit reserve cost and the number of credits to go on the market – will be released in December by the Air Resources Board. The auctions, crafted by state regulators, are intended to help meet the demands of California’s 2006 law, AB 32, to cut climate-changing carbon emissions to 1990 levels by 2020. The idea is to allow companies to purchase allowances – permission slips — to operate while they gradually ratchet down on emissions.

What is known is that few policies from Sacramento draw more attention from the public than those dealing with vehicles.

California has more than 23.2 million registered cars and 857,000 motorcycles, plus more than 5.4 million trucks, big and small. There are assorted trailers, coaches and miscellaneous vehicles, plus another half-million vehicles exempt from registration, 1.37 million vehicles based in other states that pay fees to California and 145,000 “miscellaneous vehicles.” Total registrations: 32.9 million, according to the DMV.

That’s a lot of vehicles using a lot of fuel.

“Increasing gas prices is a real concern. But there is nothing in AB 32 mandating that gas prices go up,” an environmental and labor coalition wrote on June 24 to 16 Assembly members. The coalition included the California Federation of Teachers, the Blue Green Alliance, the SEIU State Council and the UFCW Western States Council.

“Indeed, oil companies need not even purchase allowances – they can reduce their GHG (greenhouse gas) emissions instead (the real goal of AB 32,” the group said. “Frustratingly, oil companies seem to want to shift responsibility for cleaning up pollution from transportation fuels onto anyone else – utilities, utility ratepayers, small businesses, everyday Californians ….”