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Low Carbon Fuel Standards

Low carbon fuel standards are an emerging policy concept being considered by state and federal lawmakers as a possible way to reduce greenhouse gas emissions. LCFS may sound like a good idea but its consequences are potentially serious.

What is LCFS?

A low carbon fuel standard would require sellers of motor fuels (producers, refiners, importers and blenders) to reduce lifecycle greenhouse gas emissions of transportation fuels sold in the United States by 10 percent or more over time. The idea behind LCFS is to reduce greenhouse gas emissions while encouraging the development and use of renewable and alternative fuels.

To date, California, Massachusetts and Oregon have adopted low carbon fuel standards. None of these states have fully implemented the standards, though California is expected to begin enforcement in 2011. Several other states are actively considering the policy, including Minnesota, Wisconsin and Michigan. The federal government also has considered LCFS as part of comprehensive climate change legislation. A number of regional climate change initiatives are evaluating LCFS as a policy recommendation for their member states as well. These include the Midwest Governors Association, the Western Climate Change Initiative and the Regional Greenhouse Gas Initiative. The Big Three automakers have also begun advocating for LCFS as discussed in this Washington Examiner story.

LCFS and Sources of Crude Oil

LCFS would cripple refiners that rely on heavy crude feedstocks to provide the transportation fuels that keep America moving. It would be particularly devastating for refiners that use heavy Canadian crude oil because the policy seeks to discourage or even prevent the U.S. from benefiting from this essential, reliable resource. At the same time, LCFS would create a perverse incentive to use oil from less stable regions such as the Middle East.

Many Midwestern states, including Minnesota, get the vast majority of their crude oil from Canada, which has the second-largest proven oil reserves in the world at 15 percent, following Saudi Arabia. Currently, more energy is required to recover Canadian crude oil than is used in recovering light, sweet crude oil typically found in the Middle East. Consequently, Canadian crude generates more greenhouse gas emissions during the production process resulting in higher life-cycle emissions. If Canadian crude could not be processed in the U.S. because of LCFS, it likely would be transported to countries with lower standards such as China and India – resulting in a net increase in overall greenhouse gas emissions. In addition, the inefficiency of transporting Canadian crude halfway across the globe would add to the carbon footprint.

Other Consequences

According to a recent study by the consulting firm, Charles River Associates, the imposition of a nationwide Low-Carbon Fuel Standard (LCFS) would boost average U.S. gasoline and diesel prices by as much as 80 percent within five years of the start of the program and up to 170 percent within 10 years.

The study also projected that a nationwide LCFS program starting in 2015 would:

  • Cause an estimated net loss of 2.3 million to 4.5 million American jobs by 2025 from baseline levels. As many as 1.5 million of these jobs would be in the manufacturing sector, while as many as 3 million would be in the service sector. These job cuts reflect the cumulative impact businesses would face from reduced consumer demand and higher costs for goods and services caused by an LCFS.
  • Drive down household annual purchasing power by between $1,400 and $2,400 by 2025.
  • Cause the U.S. Gross Domestic Product to decline by approximately 2 to 3 percent, or $410 billion to $750 billion, by 2025.

Charles River Associates, a Boston-based global research firm that specializes in economic modeling and analysis, conducted the study for Consumer Energy Alliance (CEA).

Other consequences of a nationwide LCFS include destabilized supplies and fuel shortages due to increased use of crude oil imported from less stable regions in the Middle East, and decreased use of readily available crude oil from Canada by U.S. refiners.

Our position on LCFS

Koch companies believe in the efficient use of all resources and are committed to maintaining a clean and healthy environment. However, we believe LCFS is a flawed and unproven concept that would have serious economic consequences for the U.S., and even result in a net increase of greenhouse gas emissions. Read more about Koch companies' point of view here.

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