Governor’s leadership needed to prevent future fuel snafus

Governor Brown demonstrated real leadership in addressing the recent fuel supply shortage by essentially suspending the California Air Resources Board’s (CARB) summer boutique gasoline mandate through the end of October.  This unprecedented action has the potential to keep California moving and help alleviate impact to businesses and consumers alike from an energy cost-driven economic meltdown.

If the Governor had not acted there would have been prolonged the pain at the pump.  CARB’s California-only gasoline formula mandate played a fundamental role in the recent shortage, and California’s fuel policies and regulations put California consumers in a continuing and precarious situation, subjecting them to conditions we are currently seeing.  And therein lies a lesson, and an opportunity.

The current shortage, while severe, we hope is only temporary.  But CARB is currently on a path that, according to numerous well-respected experts, could make fuel significantly more expensive and create an atmosphere for even more explosive market conditions for years to come.  By implementing several new regulations aimed at reducing greenhouse gas emissions as required by AB 32, the state’s global warming law, we could easily see disruptions as the norm, not the exception.

Up first is the cap-and-trade auction, scheduled to begin next month.  California’s independent Legislative Analyst’s Office has concluded that the auction could cost up to $3 billion in the first year alone, and could cause California businesses to downsize, shut down or relocate outside the state.  Importantly, the LAO has concluded that AB 32’s emissions reductions goals can be met without an auction.

Then there’s the Low Carbon Fuel Standard which lays the foundation for perilous feasibility, cost and supply conditions when all parts of the system do not perform precisely as expected.   This is unfortunately a likely scenario; the California Energy Commission and others have publicly expressed concern about the plausibility of CARB’s assumptions. 

A recent study by the Boston Consulting Group determined the LCFS alone could force the closure of up to half the state’s refineries, leading to supply disruptions and cost increases that, combined with the costs of other AB 32 programs such as cap and trade, could add $2.50 or more to the cost of producing a gallon of gasoline.  A California Trucking Association study projects essentially the same impacts on diesel costs, starting as early as 2015.

These and other programs will add billions of dollars to the cost of essential consumer goods, on top of high pump price.  They will also cost state and local governments billions in lost tax revenue.  And, because they will intentionally restrict supplies of conventional gasoline and diesel fuel, disruptions and spikes like the ones we saw over the past few days are likely to occur with far more frequency and severity.

Yet not only has CARB refused to take common-sense and necessary actions to prevent these consequences, the Board publicly insists on “putting a price on carbon” – translation: making energy so expensive people will be forced to use less of it.

When temporary supply disruptions put upward pressure on prices at the pump, politicians typically call for federal investigations – which have always concluded that such volatility is the result of market conditions, not manipulation by “greedy” oil companies. 

It seems more prudent to objectively examine the role of government-imposed, supply-restricting policies on consumers and tax revenues.  We all feel the pain when we see the direct results of bad policy.  It is time we examine the real causes of these situations, not waste time pointing fingers at those who are merely caught in the tidal actions of government programs.

This is where the Governor can extend his leadership.  He can call a “time out” on these new, potentially destructive fuel control programs – starting with CARB’s unnecessary and costly cap-and-trade auction –  and commission a completely independent, third-party review of these policies, their impact to government and consumers, and potential unintended consequences.  His leadership in requesting the fuel waiver is a good first step – but one that needs another step forward.

We are living through an example of the problems inherent in our fuel regulations.  Let’s learn from this situation and make darn sure we aren’t moving towards a more volatile and harmful future.

Ed’s Note: Jay McKeeman is Vice President of Government Relations & Communications of the California Independent Oil Marketers Association and California Service Station and Auto Repair Association, representing fuel wholesalers, retailers and distributors in this state.

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