California’s CARBon Conjecture – Pacific Research Institute

California’s CARBon Conjecture

SAN FRANCISCO — The California Air Resources Board (CARB) last week passed the world’s first low carbon mandate for transportation fuels. Instead of treating all fuels equally, these regulations continue the state’s reliance on dubious science to pick winners and losers in the rapidly evolving and extremely complex market for clean technologies. As a result, all Californians could soon face higher prices and fewer choices at the pump.

The new regulations use a “carbon intensity” score to rate a fuel’s environmental impact. All other fuels (petroleum, hydrogen, electricity) are transparently scored on direct emissions during their production, transportation, and use, but CARB arbitrarily singles out biofuels for special treatment. Only these fuels incur a penalty for “indirect” effects far beyond producers’ control, such as deforestation thousands of miles from California. Scientists question the methodology behind this approach.

In March, 111 leading Ph.D. researchers sent a letter to CARB boss Mary Nichols warning that “the science is far too limited and uncertain for regulatory enforcement.” CARB’s own peer reviewers concluded that such analysis is “in its infancy,” rife with “significant uncertainties,” and “not yet sufficiently developed to be scientifically confirmed.” Putting ideology ahead of science, Nichols scoffed when “the people who oppose it say, ‘we just don’t know enough and shouldn’t do anything,’” because “we don’t think that’s acceptable.”

Nichols finds it acceptable to manipulate markets based on shoddy science to prevent free and unfettered competition between fuel technologies. By giving most technologies a free pass on their “indirect” effects, she takes away freedom from consumers to decide which fuels ultimately succeed. The CARB mandates, for example, ignore the strain that plug-in hybrid vehicles exert on the electricity grid, triggering an increase in fossil fuel combustion.

This bias against biofuels could defeat the very purpose of a low carbon fuel standard. Only two years ago, Governor Schwarzenegger embraced biofuels, calling them the “perfect example of how a healthy environment and a healthy economy can go hand in hand.” Last week, South San Francisco-based Solazyme announced that its “Soladiesel” fuel produced from algae could cut greenhouse gas emissions by 85 to 93 percent compared with standard petroleum based ultra-low sulfur diesel.

Ironically, CARB touts the promise of future biofuel innovation to justify its “indirect” penalty, praising the state’s $120-million investment in advanced fuel technologies over the next seven years. These next-generation biofuels cannot evolve and thrive if regulators preemptively put their predecessors out of business. Sacramento-based Pacific Ethanol recently laid off one-third of its work force and shuttered its plants in Stockton and Madera. For this reason, companies pioneering advanced biofuel technologies reject the state’s plan, even though their new fuels will incur virtually no “indirect” penalty.

Earlier this month, 12 leading startups cautioned Mary Nichols that “the negative signal sent to potential investors by the enforcement of selective and questionable penalties against biofuels may be insurmountable.” Such firms last year attracted more than $680 million in venture capital investment nationwide, more than any other clean technology except solar. Creating regulatory uncertainty and picking winners could quash this momentum and prevent revolutionary new fuels from ever reaching the market.

While state analysts suggest the new low carbon standard will save Californians $11 billion by 2020, this projection in part assumes optimal growth of the very biofuels industry CARB is attempting to bankrupt. In reality, poorly executed “indirect” penalties will only decrease choices and raise prices as regulators exercise their power to shape markets arbitrarily with little basis in science. Given the strong influence of special interests in Sacramento, such decisions may benefit neither consumers nor the environment.

The decisions that CARB makes in implementing the low carbon fuel standard will influence how Californians travel for decades. These decisions must rely on sound science, not the guesses and whims of regulators. The board should thoroughly reevaluate its unfair penalties for biofuels, and avoid giving any clean technologies the inside track.

Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.

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