SACRAMENTO, CA--June 19, 2012: California's multiple climate change regulations will have serious unintended consequences for the state's transportation fuel markets, including significant job losses, disruptions to fuel supplies, and higher costs for businesses and consumers, according to an unprecedented independent study conducted by the Boston Consulting Group (BCG) and released today.
“Our hope is this report will be an important tool to begin a serious conversation in California about how we can achieve the desired greenhouse gas emissions reductions while minimizing impacts on California fuel producers, consumers, employers and the economy”
BCG employed its proprietary modeling expertise and experience as a leading energy consultancy to analyze the cumulative impacts on refiners and fuel markets from several California Air Resources Board (CARB) regulations that are at or nearing the implementation phase, including the Low Carbon Fuel Standard (LCFS) and the current design of the state's cap and trade program.
In a letter to California Governor Jerry Brown, Catherine Reheis-Boyd, President of the Western States Petroleum Association which commissioned the study, said, "WSPA and its members are convinced the fuels policies now in place and those proposed to be implemented for the purpose of achieving greenhouse gas (GHG) reduction have set California on a course that cannot be sustained but can be corrected. The current fuels policies will have significant unintended consequences on California's refiners, and consequently their employees, consumers and the state. California can and should continue to play a leadership role on climate change polices but we need to begin now to chart a new course for securing our emission reduction goals without unnecessary fuel market disruptions."
Brad VanTassel, Senior Partner and Managing Director of BCG's Houston office and the lead researcher for the study, said "California's current climate change policies pose some really impossible challenges for refiners in California that have the potential to disrupt fuel markets and fuel supplies in very serious ways. In addition to forcing the closure of a significant number of California's petroleum refineries, those disruptions are likely to manifest themselves economy-wide in terms of lost jobs, higher costs for fuel, food and other necessities, and loss of tax revenues to state and local governments."
For example, BCG found the LCFS as currently written to be infeasible. The rule could result in significant fuel supply shortages if sufficient quantities of alternative fuels necessary to comply with the standard are unavailable, leaving refiners little choice but to curtail production as their only practical means of complying with the standard.
The LCFS, cap and trade provisions and other regulations could combine to force the closure of up to half of the state's 14 fuel refineries, leaving as many as 51,000 Californians out of work, BCG concluded.
The study identifies several impacts the regulations will have on the cost of making and supplying fuel to California consumers that could add as much as $2.50 to the cost of a gallon of gasoline as soon as 2015 if the regulations are not changed.
"When the cost of fuel goes up, you are likely to see an increase in the overall cost of living," said VanTassel. "Not only will transportation-dependent industries such as trucking, railroads, buses and airline face substantially increased costs of doing business in California, but public services like hospitals and schools in California will also see their costs go up."
As refiners seek ways to remain profitable and productive under the AB 32 related regulations, refiners that are able to remain in operation will likely sell their products to markets outside of California. The regulations also will force crude oil supplies now produced in California to be shipped to markets overseas while other crudes with lower carbon intensity profiles will be shipped to California. These and other unintended impacts could result in greenhouse gas emissions that will partially offset emission reductions in California.
"Surely this so-called shuffling of crude oil and refined products can't be an intended outcome of these regulations," VanTassel said.
"Our hope is this report will be an important tool to begin a serious conversation in California about how we can achieve the desired greenhouse gas emissions reductions while minimizing impacts on California fuel producers, consumers, employers and the economy," said WSPA President Reheis-Boyd.
"This is the first comprehensive analysis of the cumulative effect of CARB's climate change policies. Our hope is that in sharing this research with policymakers and the business, labor, environmental and consumer sectors we can begin a process to reduce greenhouse gas emissions in realistic and practical ways without hampering California's economic recovery. We are already reaching out to these important groups to start that conversation now," she said.
The BCG study, "Understanding the Impact of AB 32," was unveiled today at the Low Carbon Fuel Standard Symposium sponsored by Fueling California. A copy of the full report is available at CA Fuel Facts.
