California shows how low-carbon fuel mandates drive gas prices up
The low-carbon fuel standard (LCFS) being considered by Washington state legislators (HB 1091) will increase prices. This fact is acknowledged by everyone who has studied the issue and the math is not difficult. The State of Oregon has the formula on their web page.
Still, advocates of the fuel mandates continue to imply it won’t increase costs at the pump. Two false claims about the LCFS and prices are worth mentioning.
In testimony before the House Transportation Committee, one supporter of the bill, referencing Oregon’s LCFS, claimed no “credible source suggests that it has changed fuel prices there by more than two cents.” In fact, the State of Oregon says that very thing.
On their web page outlining the “Annual Cost of the Clean Fuels Program,” Oregon staff report that in 2019, the LCFS increased prices by 2.57 cents per gallon of gas and 2.94 cents per gallon of diesel. Further, the program was only 15 percent of the way to the final mandated target in 2019, so this is merely the tip of the iceberg. When fully implemented, at the current price the LCFS will increase prices by 17 cents per gallon in Oregon.
The other argument is more of a sleight of hand attempt to hide the cost of the LCFS. Several advocates, citing the Energy Information Administration, claimed that the cost of gasoline in California is lower today than when the LCFS was implemented there on January 1, 2011. This is not accurate.
First, California’s gas prices are actually higher today than they were when the LCFS was introduced. According to the Energy Information Administration, the average price of gas on January 3, 2011 was $3.35 per gallon. Today it is $3.43. So, it is not lower.
Second, the gap between the average price of gasoline in the U.S. and California has increased dramatically since the LCFS was implemented. The Energy Information Administration notes that across the U.S., the average cost of a gallon of gas in the U.S. fell from $3.12 on January 3, 2011 to $2.59 on February 15, 2021.
What is particularly notable is on January 3, 2011, gas prices in California were 23.1 cents per gallon higher than the U.S. average. By February 15, 2021, that gap had increased to 84.6 cents per gallon.
The gap between U.S. gas prices and California’s increased 61.5 cents per gallon since the LCFS was implemented. As the comparison shows, the gap grows steadily over time.
It is also worth noting that the reason U.S. gas prices have declined (and California prices haven’t increased more) is due, in part, to a massive increase in production of oil in the United States. Energy Information Administration data show that between January 2011 and November 2020, U.S. oil production doubled. Production in 2020 was twice what it was in 2011 even after a year of the economic downturn due to the COVID restrictions.
That increase in supply drove prices down, hiding the true cost of the LCFS. It is ironic that increased oil production, a trend lamented by LCFS advocates, has provided them a talking point to distract from the actual cost of their policy.
Ultimately, there is no way to argue that an LCFS doesn’t increase prices. This argument was never about reality, however. The truth is that LCFS advocates know it costs more (and want gas to cost more to reduce demand), but they think the cost is worth paying to fight climate change. We’ve addressed this elsewhere, noting that an LCFS is also a very ineffective way to fight climate change, and there are ways to immediately cut more CO2 emissions for lower cost.
That, at least, is debatable. The fact that an LCFS increases gas prices, isn’t.