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New Study: Overlooked Low-Carbon Fuel Standard Benefits Put Money in Californians' Pockets

Simon Mui

Posted April 1, 2014 in Moving Beyond Oil, Solving Global Warming

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Despite the foot-dragging and dire predictions from California’s oil lobby, the state’s groundbreaking Low Carbon Fuel Standard (LCFS) is reducing carbon pollution and will save consumers $837 million per year by 2020 as a result of increased diversification and competition of fuel suppliers, according to a study published this week.

The authors, economists Jasmin Ansar and Roger Sparks with Mills College, report in the study commissioned by NRDC that the LCFS --a major component of California’s clean energy and climate law AB32 --will result in more fuel suppliers entering the market who will offer a wider diversity of cleaner energy supplies. In turn, the increased competition and diversification will reduce market power in the petroleum-dominated industry, they say.

These spillover benefits from the LCFS are projected to reduce fuel prices by about 4 cents per gallon and result in a 23 17% less fuel price variations (or fluctuations) by 2020, according to the study. [CORRECTION: 4/29/14. See endnote]

This is very good news coming in advance of Wednesday’s second annual Clean, Low-Carbon Fuels Summit in Sacramento, California, where fuel providers, government leaders, and other stakeholders will come together to show how the LCFS is already driving investments and innovation across a wide array of clean, low carbon fuels.

A cleaner environment and more money in consumers’ pockets

The benefits identified by the study – previously unquantified – are in addition to the many other societal benefits from the LCFS: reduced damages from greenhouse gas emissions, petroleum dependency, and smog and soot-forming pollutants that harm public health.

In other words, the law is working. In fact, the average Californian will pay 20 percent less in fuel bills by 2020 with AB32 versus a scenario without these critical transportation climate policies,  according to modeling by NRDC.*

That’s because AB32 is bringing us vehicles that drive farther on a tank of gas, is bringing communities more mobility choices like walkable streets and transit, and increasing fuels competition through more supplies of clean, alternative fuels such as biofuels from agricultural waste and electricity. Greater market competition and reduced fuel price fluctuations – identified by the study – will lead to even greater consumer savings and benefits.

    Figure: Fuel savings from AB32 Transportation Policies* 

AB32 Fuel Savings_PNG.png

National implications

            The results of the study have dramatic implications for other jurisdictions looking to California as a model for clean fuel standards – including Oregon, Washington, and the European Union  – because the analysis shows:

  • Standards like California’s LCFS can increase the number of fuel suppliers and diversity of energy supplies for fuel markets.
  • This increased competition and diversification will reduce the market power in the petroleum-based fuels industry.
  • These effects help lower the price of transportation fuels and result in less fuel price fluctuations (or variations), such as those caused by volatility in crude oil markets.

Overachieving

Ansar and Sparks also find that the LCFS is making the transportation fuels market more environmentally responsible by establishing strict pollution limits on gasoline and diesel.

The standard, outlined here, requires that carbon pollution from transportation fuels must be reduced by 10 percent by 2020 through the use of lower-carbon fuels such as advanced biofuels, electricity, biogas, and even innovative technologies that reduce emissions from petroleum.

In the first three years of the program, Ansar and Sparks note, low-carbon fuels replaced more than 2.8 billion gallons of petroleum-based fuels and achieved over 5.4 million tons of carbon pollution reductions, based on information from the California Air Resources Board and UC Davis. Industry has exceeded the standard substantially, about 60 percent on average.

Clearly, the LCFS is reducing our need for oil and is helping to get us off the gasoline price rollercoaster. It’s no surprise why the oil industry has ratcheted up its lobbying machine to exempt the oil industry from carbon pollution limits and jeopardize the future path of California’s landmark AB32 program aimed at reducing total carbon emissions to 1990 levels by 2020. 

In actuality, there are hundreds of small, medium and large sized companies throughout the nation that already are producing cleaner alternative fuels and are more than ready to compete in the marketplace. The new LCFS study provides even more reasons why we should continue moving forward with AB32 and the state’s Low Carbon Fuel Standard.

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* For further details on the estimates used for the Figure, see Technical Notes.pdf.

** CORRECTION: 4/29/14. The study inadvertently referenced the results for Scenario 3 instead of Scenario 2 for the reduction in fuel price variation. This mis-referencing has now been corrected in the study and is reflected in this update to the blog. Thanks to a sharp reader for catching it!

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Switchboard is the staff blog of the Natural Resources Defense Council, the nation’s most effective environmental group. For more about our work, including in-depth policy documents, action alerts and ways you can contribute, visit NRDC.org.

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