Governor's Climate Report Estimates Low-Carbon Fuel Standard Would Add $1.17 Per Gallon

January 16, 2014

According to The Seattle Times, Governor Inslee is upset at a Republican claim that a Low-Carbon Fuel Standard (LCFS) would increase the price of a gallon of gas by $1. Recently, some have expressed concern that the Governor will impose an LCFS using an executive order.

In a letter to legislators, the Governor said "I don’t understand your contention that ‘my proposal’ will cost anything, let alone in excess of a dollar per gallon." He argues that without a specific proposal, it is impossible to estimate the cost of an LCFS.

That claim, however, ignores the report the Governor and other members of the Climate Legislative and Executive Workgroup (CLEW) received just three months ago as part of that process.

That report was required by law to provide an estimate of the cost to reduce one ton of CO2 emissions for a number of policies. It estimated an LCFS would cost between $103-$131 to avoid one ton of CO2 emissions. According to the EPA, that would equal up to $1.17 per gallon (one gallon of gasoline emits 0.9% of a metric ton of CO2, or 1/112th of a metric ton).

Ironically, those are the same numbers Governor Inslee and the Democrats indicated they used to choose their policies, including an LCFS. Last month, they wrote "Based on the information reviewed by the Workgroup, we believe these policies are the most cost effective tools we have available to meet our state emission limits."

It is important to note that other estimates of the cost of an LCFS are even higher. For example, the National Bureau of Economic Research indicated the cost may be much higher, in the range of $307 to $2,272 per ton. This would amount to an additional $3 to $22 per gallon.

In his letter, the Governor also objected to calling the LCFS a "tax." According to The Seattle Times, he wrote:

I have never proposed, nor discussed proposing, a “carbon fuel tax.” I have discussed a low carbon fuel standard as a mechanism to develop cleaner fuels for our state. There is no element of a clean fuels standard that could in any way be called a tax.

This is simply a semantic debate. Currently, biofuels enjoy a $1 per gallon subsidy from the federal government. Rather than paying $1 more at the pump, taxpayers pay higher taxes elsewhere and the money is routed to biofuel companies. Whether it is a direct or indirect tax, ultimately taxpayers will pay more to meet an LCFS.

If the Governor believes the numbers in the CLEW report are incorrect, he can make that argument. It doesn't seem unreasonable, however, to cite the CLEW estimates when the Governor himself vouched for them as the basis for his policy suggestions.

Comments

I think you're incorrect

I can't tell if you're confused or being misleading on purpose. The cost you calculated is the cost per gallon *reduced* not the cost per gallon *sold.*

Your number assumes a 100% reduction in emissions, or a complete switch to non-emitting fuels. That's not what the standard proposes. It proposes a 10% reduction, over a ten year period.

A 10% reduction in emissions could mean, for instance, mixing 10% additional biofuels in with 90% of the current fuel mixture.

10% of the emissions of a gallon of gas would be reduced, which would be 8.92x10^-4 metric tons per gallon, the cost of which would be approximately 10.4 cents per gallon, according to the estimates provided by the report, which can be found here:
http://www.governor.wa.gov/issues/economy/climateWorkgroup/documents/Lei...

Cost vs. Effectiveness

You are right that an LCFS can be scaled to cut costs and reduce the total cost per gallon. Indeed, the Governor implies that in his letter when he says that he has not offered a plan yet so no price can be attached.

The problem, however, is the more you scale down, the less effective the strategy. To meet the 2020 targets, Washington needs to reduce emissions by an additional 9.5 MMT CO2e. An LCFS at 10% mixing would only reduce emissions by 1 MMT CO2e. Transportation is the largest portion of total emissions and the LCFS is the largest policy to reduce transportation emissions. If the 10% mix is the policy, it falls far short of the goal as well. This, by the way, was our critique of the Republican policies -- they were cost effective but had low impact. The Governor can follow that same approach, but the same tradeoff applies.

This is the problem with choosing a high-cost policy. An LCFS is an expensive way to reduce carbon emissions, so to contain costs you have to keep it at a level that is essentially ineffective.

The Governor can argue that he'd add cap-and-trade to an LCFS, but as we've noted before, that makes no sense. With cap-and-trade, an LCFS adds no carbon reductions (as the report notes), it just limits how those reductions can be made.

Ultimately, if the LCFS policy stays at a 10% mix, the Governor is left with a policy that falls far short of the goal or a policy that, combined with cap-and-trade, is redundant and makes no sense.

I am glad, however, that people are checking my math and paying close attention to these issues. I'm not above making a mistake and appreciate the doublecheck. It certainly made me go back and look at the total picture of the policy.

Thanks for the reply. Your

Thanks for the reply. Your point is valid that it may not reduce enough and that sits not a particularly cost effective program, on a dollars per ton basis. That being said the policy as written would cause an increase of approximately 10 cents per gallon. I think it's important to be clear on that fact so that you can focus on those other (I think more important) aspects of the policy: it does too little and it costs too much per ton reduced. I'm sure that 130 bucks per ton won't turn as many heads as a dollar a gallon, but ultimately that is the metric of interest.