http://registerguard.com/rg/news/local/32814838-75/clean-fuel-bill-poses-complex-choices.html.csp
Clean fuel bill poses complex choices
Lawmakers will debate the far-reaching low-carbon fuels standard this week
By Saul Hubbard
March 1, 2015
SALEM — What is more important: Curbing greenhouse gases or keeping a
lid on gasoline prices?
That’s the key choice Oregon lawmakers face as they consider the
so-called low-carbon fuels standard, the most controversial and
far-reaching bill of the legislative session so far.
The measure, Senate Bill 324, aims to cut Oregon’s greenhouse gas
emissions by requiring fuel producers to ramp down the amount of carbon
in car and truck fuels over the next decade.
The House is expected to vote on SB 324 this week. Implementing the
low-carbon standard, known as Oregon’s “clean fuels” program, is a top
priority for Democrats, who built big majorities in both chambers in
last year’s election, and environmental groups. But even with a 35-25
majority in the House, Democrats may struggle to pass the bill because
some in their own party are expected to jump ship on it.
Supporters argue the program would combat climate change and provide
financial help for producers in Oregon and elsewhere of alternative,
cleaner fuels — including ethanol, biodiesels, natural gas, propane or
even electricity.
Republicans, backed by oil and trucking companies and many Oregon
businesses, have strongly resisted. They say it is unclear how the
program would work and how much it would cost them and, ultimately,
consumers. They fear it will drive up gas prices, creating a hidden tax
that would “hurt struggling Oregon families.”
GOP lawmakers have also warned that passing the SB 324 could jeopardize
GOP support for a gas tax increase this session to fund transportation
infrastructure work, which both parties say is needed.
The proposed “clean fuels” program is, undoubtedly, complex. And its
cost to consumers is uncertain.
The program would require the Oregon Department of Environmental Quality
to manage a market of so-called “clean fuel” credits — to be bought and
sold among public and private entities, with gasoline consumers
ultimately bearing the cost — but with few regulatory powers.
Additionally, SB 324 leaves key holes in the policy that DEQ — not the
Legislature — would fill through rulemaking. These include how the
program could be halted if it pushes up gas prices excessively or there
are shortages of gas or diesel.
But clean-fuels advocates says it’s crucial to press ahead.
Part of wider effort
Vehicle emissions contribute about one-third of Oregon’s total carbon
footprint, the state says. Ramping down those emissions is considered
key to national and state goals of slowing climate change.
State lawmakers approved the low-carbon fuel standard idea in 2009.
Since then, the DEQ has developed its plans. But for them to take
effect, the Legislature must vote to keep the program going.
It’s all part of a wider effort: The federal government requires a
certain volume of renewable fuels be produced nationally every year;
California and British Columbia have already adopted their own
low-carbon fuel standards. Environmental groups hope Oregon and
Washington will be next, to create a West Coast market for alternative
fuels.
Sen. Chris Edwards, a Eugene Democrat and key sponsor of the bill, says
the program will create jobs in alternative fuel projects statewide.
Edwards said there are plenty of known disadvantages to the current fuel
system.
“We’re spending millions and millions of dollars on oil to fuel our cars
that is going out-of-state. I know that we could do better on the carbon
intensity of our fuel ... We’ve got to break the stranglehold of the
(current) system,” he said.
Oregon’s program, modeled on California’s, would require fuel importers
to gradually cut the amount of carbon in their fuels by 10 percent
between 2016 and 2025. That would equate, roughly, to a 3 percent
reduction of Oregon’s total emissions.
The scoring system used by DEQ, which determines the “carbon intensity”
of all fuels, takes into account all emissions during the life-cycle of
a fuel: from its extraction until it is burned.
How clean are alternatives?
How could fuel importers comply? There are two main ways, says Cory-Ann
Wind, the DEQ employee overseeing the planning.
They could blend cleaner alternative fuels into their products. That
includes ethanol made from corn, sugar cane, lawn or tree clippings, and
biodiesels made from recycled cooking oil, soybean oil and animal fat.
But there are big limitations. State law already requires 10 percent
ethanol in gasoline sold in Oregon and at least 5 percent biodiesel in
diesel. Many vehicles on the road today — especially those made before
2008 — cannot run on ethanol or biodiesel content much higher than that.
So, fuel importers do not have the option to boost the volume of
alternative fuel in their product.
Instead, their main recourse would be to seek ethanols or biodiesels
with cleaner “carbon intensity” scores, Wind said.
The problem, opponents say, is that the two most widely available
alternative fuels in the nation — ethanol from corn and biodiesel from
soybeans — have only marginally better “carbon intensity” scores than
traditional gas and diesel, when factoring in the environmental
consequences of using arable land to grow those crops.
DEQ officials plan to fold those factors, known as “indirect land use
impacts,” into fuel scores in Oregon.
Even the cleanest alternative fuels available now for blending won’t be
enough to meet the full carbon reduction standards in the latter stages
of the 10-year implementation, said Frank Holmes, a lobbyist for the
Western States Petroleum Association.
“The program is infeasible by blending alone,” he said.
Clean fuel credit market
That’s why many expect fuel importers will mainly fall under the second
compliance mechanism: a state-managed clean-fuel credit market. Under
this, companies that import gas or diesel into the state would have to
buy credits to offset the amount of excess carbon in their fuels. One
credit would equal one metric ton of carbon dioxide.
These credits could be created in many ways.
Makers of alternative fuels with a “carbon intensity” better than the
state’s standard would be allocated credits. They could sell them and
use the proceeds to fund their business or cover start-up costs. High
start-up costs are an oft-cited barrier to mass marketing of alternative
fuels. Alternative fuel producers wouldn’t have to be based in Oregon to
be eligible for credits.
But the proposed system is much broader than that.
It would let any public or private body that does something to cut the
state’s transportation-related carbon emissions be eligible to create
and sell credits, according to the DEQ’s rules, so long as they are
based in Oregon.
That includes, for example, a school district that buys a fleet of
hydrogen-powered buses, a utility that installs electric vehicle
chargers in its customers’ homes, or a landfill that converts the
methane it produces into ethanol — as a landfill in Deschutes County is
considering. Individual electric vehicle owners could pool together to
generate shared credits.
The clean transportation technology doesn’t have to be new to qualify
for credits. Anything that’s already in place and continuing in use —
electric vehicles for example — would be eligible to earn credits
starting in 2016, according to the DEQ’s rules. Third-party brokers
could set up credit sales between parties.
Limited regulation
How much these credit-creators could charge for their credits would vary
based on how badly gasoline suppliers needed them in order to market gas
in Oregon.
The California Electric Transportation Coalition estimates a single
all-electric vehicle could raise from $500 to $3,000 in clean-fuel
credits that its owner sold over a 10-year lifetime in California. The
range is so wide because one credit could fetch from $25 to $300.
A typical biofuel manufacturer could expect to be paid between 2 and 30
cents in credit sales for every gallon of fuel it produces, says E2
Entrepreneurs, a California biofuels advocacy group.
The state would monitor transactions but would have few regulatory
powers. DEQ plans to manage the program without adding any new
employees. The agency plans to dedicate the equivalent of 2½ full-time
employees to the program.
That has alarmed some GOP lawmakers. The DEQ “has not given us any
assurances that they can adequately regulate this market,” said GOP Rep.
Mark Johnson of Hood River.
“This is basically securities trading with no rule ... Brokers can come
in, stockpile credits when they’re cheap (in the early years of
implementation) and then sell them when they become more valuable” as
the state’s carbon standard stiffens, he said.
“There’s all kinds of things that could cause those credit prices to
spike,” he added.
Price hikes for gasoline
The price of credits is key, because gasoline suppliers will push along
those costs to consumers in the form of higher gas prices.
But no one is sure just how much SB 324 would raise gas prices.
The DEQ has estimated it would push up gas prices 4 to 19 cents a gallon
by the end of the 10-year implementation. But DEQ officials acknowledge
the figures are uncertain. Industry-funded studies predicted higher
increases.
Proponents of SB 324 point to California, however, noting that their
program has generated a surplus of clean-fuel credits since it began in
2011.
So, credit prices have stayed fairly low, and experts believe the
program has led to less than a penny a gallon increase in fuel prices so
far, said Jack Kitowski of the California Air Resources Board.
“If we’d listened to the worst naysayers we heard, we should have
expected price increases of several dollars a gallon,” Kitowski told a
committee in Salem. “We’re not seeing that. ”
Still, the California standard so far has been frozen — because of
lawsuits — at a level equivalent to a one percent cut in carbon
emissions. It is expected to ramp up to the full 10 percent reduction by
2020.
Unknown components
Program supporters say the DEQ will have the power under SB 324 to
freeze or slow the program if gas costs get too high or there’s a fuel
shortage.
That’s true. But lawmakers at this point don’t know any specifics,
including: how high and how fast prices would have to rise to trigger a
shutdown; how a shutdown or freeze would occur and for how long; or how
a fuel shortage would be defined.
None of those components are in the bill or the DEQ’s rules. If the law
passes, the DEQ will flesh out those issues through rulemaking later
this year.
Rep. John Davis, a Wilsonville Republican, told a committee of lawmakers
last week he’s concerned that SB 324 asks lawmakers to lift the
clean-fuels program’s current 2015 expiration date without seeing
“anything actually implemented.”
“What we’re saying is that we’re going to change the program
substantially, we’re going to remove any (expiration date) that existed,
we’re going to defer much of our authority to DEQ, and we’re going to
hope for the best,” he said.
Capping credit prices
When lawmakers approved the policy in 2009, they included a price
control model: DEQ would freeze the program if gas prices in Oregon were
4 percent above regional gas prices, based on a 12-month rolling average.
But that model wouldn’t work, DEQ’s Wind said, and it is no longer in
the bill. Gas prices are too volatile and the agency would be unable to
determine if increases were due to the low-carbon fuel standard, she said.
Wind said the DEQ could exert control with a cap on the price that oil
producers would have to pay for a clean-fuel credit.
For example, the state estimates that if it capped credits at $35 a
credit, the increase at the gas pump would go no higher than 10 cents a
gallon by the end of the 10-year implementation period. But a cap would
also distort the low-oversight supply-and-demand credit market that the
state is trying to create.
California is considering a $200-per-credit cap.
Adjusting the rules
Asked about the lack of specifics on those issues, Senate President
Peter Courtney, D-Salem, said it’s not unusual for the Legislature to
pass major bills and then go through executive-branch agency rulemaking.
“Hopefully when the (DEQ) rules are done, they will comply with
legislative intent,” he said. “If the rules aren’t right, we come back
(next) February ... We can (modify them) then. That doesn’t worry or
alarm me.”
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