Fuels producers take aim at Calif.'s low-carbon standard

Energy companies are mounting new opposition to California's plans to lower the carbon content of fuel sold in-state.

A group of oil companies and other fuel providers, including BP PLC, Chevron Technology Ventures, Exxon Mobil Corp. and Pacific Gas and Electric Corp., held a closed-door meeting yesterday in Burbank, Calif., where they discussed the state's low-carbon fuel standard, which aims to lower fuels' average carbon content by 10 percent by 2020.

The meeting was put on by the group Fueling California, whose membership includes Chevron as well as United Airlines, Wal-Mart, UPS and other large fuel consumers. A petroleum industry representative said the discussion focused on the challenges companies face in complying with the low-carbon fuel standard, which envisions increasing supplies of biofuels, hydrogen fuel, natural gas and electric vehicles to replace gasoline and diesel.

"I think the consensus was pretty clear, at least among people here, that there are not sufficient biofuels ... to meet the enormous volumes required to comply with the low-carbon fuel standard in the time frame required by the regulation," said Tupper Hull, spokesman for the Western States Petroleum Association, which includes BP, ConocoPhillips Co., Exxon Mobil and Royal Dutch Shell PLC as members. "We believe we're going to see a significant amount of unintended consequences from this regulation well before 2020."

The LCFS, as it is known, requires transportation fuel producers and importers to gradually lower the average carbon content of their sales through 2020. It began in 2011 with a mandated 0.25 percent decrease in carbon and will ramp up at an increasing rate through 2020.


Regulator not invited

Regulators were not invited to the meeting, although at least one lawmaker, state Rep. Susan Bonilla (D), did attend, addressing the crowd, sources said.

"We have been invited in the past, and we were not this time," said California Air Resources Board spokesman Dave Clegern. "I know that we did inquire and came away with the impression that that was not something we were welcome at."

According to one meeting participant, the session was dominated by fuel producers; aside from Chevron, the board members of Fueling California were absent. Other attendees included biofuels producers like Pacific Ethanol and Biodico, as well as natural gas companies and utilities, the attendee said.

"The intent was certainly a 'Roll up your sleeves; this is a technical, nitty-gritty discussion,'" said the attendee, speaking under condition of anonymity. "That was the pitch, and that was certainly discussed, but then there were other parts of the conversation that sounded more like beating the drum of 'Low-carbon fuel standard is not feasible.'"

While the LCFS is under legal challenge from oil and ethanol companies, participants did not focus on that avenue, according to the attendee. Plaintiffs in that case had argued that the regulation violates the U.S. Constitution's Commerce Clause by penalizing out-of-state fuels for the distance they must be transported to California. A decision, in the 9th U.S. Circuit Court of Appeals, could come at any time (E&ENews PM, Oct. 16, 2012).

Consumer and green groups gird for battle

Hull also singled out California's cap-and-trade system, which currently covers emissions from electricity and large industrial facilities but will expand in 2015 to cover transportation fuels and natural gas. "It's likely to impose an enormous cost on fuel manufacturers," he said. That program, as well, is being challenged in court, by the California Chamber of Commerce (Greenwire, Nov. 14, 2012).

Other fuel policies in play currently include the state Air Resources Board's Clean Fuels Outlet regulation, which requires oil companies to install hydrogen fueling stations as automakers ramp up their production of fuel-cell vehicles. A bill moving in both houses of the state Legislature would suspend the requirement until 2024, instead authorizing $20 million of state funding per year until there are at least 100 publicly available hydrogen stations.

A report summarizing the meeting will be released within a month, Fueling California spokeswoman Cristina Dayton said.

A coalition of environmental and consumer groups is responding to the moves with its own campaign, "Stop Fooling California." The coalition said yesterday that oil companies can well afford the regulations.

"Oil is the most profitable industry in the world, period," said Martha Arguello, executive director of the Los Angeles chapter of Physicians for Social Responsibility. "For decades, Big Oil has been filling its pockets with massive profits while protecting its monopoly on dirty energy that harms Californians' health, especially low-income communities of color."

The looming political backlash here may have national impacts because California's evolving system could be a template for the Obama administration's new effort to set up national rules to limit greenhouse gas emissions.

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