Getting slicked by big oil.

Or should we say getting tarred by big oil?

This tarry goop (aka heavy crude oil) packs a polar ice cap melting wallop, with carbon pollution from extracting and upgrading that can cause 3 to 5 times as much carbon pollution as conventional crude oil.  On a full lifecycle basis, gasoline produced from these heavier and dirtier crude oils could emit on average 20 percent greater emissions.

This week, the California Air Resources Board (CARB) released the latest version of the proposed cap-and-trade regulation that includes a provision for the next two years that could open the door to refineries using much heavier and dirtier crude oils. 

Image source: http://geoestratos.com.mx/englishgeo/geoenglish1/index.php?option=com_content&view=article&id=106&Itemid=99

The new proposal focuses on the process instead of the final product (i.e., gasoline, diesel), thereby potentially favoring larger refiners using more carbon-intense, heavier crudes compared to regular crude oils. This latest proposal is a major departure from earlier versions, known as “single output barrel” that NRDC supported because they were appropriately focused on the carbon intensity of refined fuels – the final product that consumers purchase at the pump. 

The new proposal could also reward refiners of the dirtiest, most carbon intensive crude with the same level of public assistance as their competitors using cleaner grades of crude oil.  If carbon prices stay close to the floor (starting at $10/tonne) refiners could save more money by switching to cheaper, dirtier crudes, than compliance with the new cap-and-trade regulation will cost them, resulting in more emissions. To the serious detriment of California. 

In fact, if half the fuels in California were to shift to dirtier crude, not only would carbon emissions from the refining sector dramatically increase, other pollutants would rise leading to increased health impacts that could top 45 additional premature deaths and over 700 more asthma events per year from additional air pollution at a health cost of over $300 million. The additional air pollution would also contribute to other illnesses and lost productivity.

CARB has set a two year limit to this program, at which time it is slated to improve, but we fully expect Big Oil to continue to use all its political power to keep pushing the deadline back, removing barriers to shift towards heavy crudes.  Even if CARB overcomes Big Oil and maintains the scheduled program improvement, the latest proposal for the refining sector in the cap-and-trade program has other challenges. It relies on too many free allocations of carbon credits, so that facilities using carbon intense fuels and processing won’t feel a great pinch. The benchmarks behind the program are based on proprietary industry data, assembled by a long-time industry consulting groups named Solomon; this lack of public transparency thwarts accountability.  Finally, the design of the program obscures the use of very dirty, heavy crude oils that require more carbon-intensive processing like “coking”.  This mutes incentives to improve performance, and likely furthers the carbon-intensive status quo. 

While this is a very disappointing outcome for the refining sector in the cap-and-trade program, there are several other avenues to reduce carbon and co-pollutant emissions from this sector.  A special provision related to the Low Carbon Fuel Standard, the High Carbon Intensive Crude Oil provision, could play a pivotal role in preventing backsliding on crude quality and total sector carbon emissions.  CARB is also planning to require large industrial sources including refineries to implement certain cost-effective measures identified by industrial audits taking place later this year.  It is imperative that CARB maintains a strong commitment to these two measures to ensure progress in the refining sector.  Without them, California’s future could be soaked in heavy crude.