Proposed Fuel Standard Embraces Faulty Science, Economics

House Bill 5383, introduced last week by Rep. Lee Gonzales, D-Flint, would establish a “low-carbon fuel standard,” requiring oil refineries and fuel blenders to reduce greenhouse gases by 10 percent over the next decade. Gonzales announced his legislation during a phone conference with representatives from The Ecology Center and Environment Michigan. The advocacy groups released a report claiming that LCFS would help the state economy by promoting use of waste material from Michigan forests and farms. The problem, as already seen by exactly the same type of regulation in California and elsewhere, is that LCFS reduces energy security, increases consumer prices, and does nothing to reduce greenhouse gas emissions. It should also be noted that LCFS technologies are years away from being practical.

Gonzales wants to change basic science. Cooked up in a California political laboratory over the past decade and now being advanced in Washington and Lansing, LCFS are supposed to force refiners to produce fuels with a lower carbon intensity profile. Same price, same power, just with less carbon dioxide byproduct. Who can be against that?

The laws of science, for starters. It turns out that, short of engaging in outright alchemy, changing the molecular profile of refined fuel products isn’t done cheaply, efficiently or well.

An LCFS discriminates against heavier forms of crude such as the ones readily available and affordable — homegrown oil from California and Colorado; Mayan crude from Mexico; and oil sands from Canada. LCFS favors light, sweet crudes that happen to be controlled by some of the world’s least reliable and most unstable regimes, such as in the Middle East and Venezuela.

LCFS also relies heavily on cellulosic ethanol, and supporters hope to capitalize on Michigan’s vast agricultural and forest resources. There is only one cellulosic facility in Michigan, however, currently under construction in Chippewa County. This facility is expected to produce 40 million gallons of gasoline per year. By comparison, Michigan used about 6.5 billion gallons of gasoline in 2006. So even if Michigan expanded its cellulosic ethanol production 250 fold, it wouldn’t be enough.

Once the carbon scores are tallied, fuel producers are presented with a choice: Stop using heavier forms of crude, start using less efficient and more costly ethanol, or start buying up credits from the government for the right to remain in business. Sounds too much like the federal cap-and-trade proposal.

Sierra Research, led by Tom Austin, former executive director of the California Air Resources Board, estimated that California’s implementation of LCFS will increase consumer fuel costs approximately $3.7 billion per year in 2020. Nitrogen oxide (NOx) emissions will also increase by more than 5 tons per day, with no detectable change in climate. LCFS might save consumers money, but only if future gasoline prices are more than 70 percent higher than normal. Historical oil price trends, including various disruption periods, show that LCFS proponents can only save money if conventional fuel prices are inconceivably high and cost estimates for alternative fuels are unrealistically low. It further requires continuation of heavy government subsidies, such as assuming that the federal $1.01 per-gallon tax credit for cellulosic ethanol scheduled to expire at the end of 2012 and the federal $1.00 per-gallon tax credit for biodiesel scheduled to expire at the end of 2009, are extended indefinitely.

The LCFS proposal tries to overcome some of these issues by having each gallon of fuel separately tracked on a “life cycle” basis. In other words, a gallon of ethanol produced locally, in an efficient process and used in a vehicle that got good mileage, would be treated differently than a gallon of ethanol produced in, say, Iowa, with heavy fertilizer and pesticide use and shipped by truck. The variety of life cycle impacts creates an administrative nightmare of calculating and tracking the carbon content of each gallon.

In short, LCFS is not about making the fuels we rely on today better, cleaner or more energy efficient. Instead, it reduces vehicle performance, increases government intervention and favoritism, relies on unsustainable production levels of cellulosic ethanol and rolls the dice on commodity prices well into the future.

Tom Tanton is a senior fellow in energy studies at the Pacific Research Institute. The Mackinac Center for Public Policy is a research and educational institute headquartered in Midland, Mich. Permission to reprint in whole or in part is hereby granted, provided that the author and the Center are properly cited.

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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