The cost of Oregon's low-carbon fuel mandate more than doubled in 2019

By TODD MYERS  | 
Jan 9, 2020
BLOG

In 2019, the cost of Oregon’s low-carbon fuel mandate more than doubled, jumping from 1 cent per gallon to about 2.4 cents per gallon. Additionally, Oregon’s fuel mandate is less than 5 percent as effective at cutting CO2 as common alternatives used by Seattle City Light and others.

During today’s media briefing about the upcoming legislative session, Governor Inslee mentioned that in Oregon, the low-carbon fuel mandate (also known as an LCFS) added only 1 cent per gallon to the price of gas. This is an old estimate from 2018. This number comes from the State of Oregon, which calculates the cost based on all transactions of credits in the low-carbon fuel program over the previous year.

There are a few things to note about the Governor’s claim.

First, the cost of the LCFS increased nearly 70% in 2019, increasing from a weighted average of $81.48 per metric ton of CO2 to $138.06. So, the number cited by the Governor is a year old and low.

Second, in 2018 the Oregon LCFS required only a 1 percent reduction in CO2-per-gallon. This is only 10 percent of the way to the ultimate requirement of a 10 percent reduction in CO2-per-gallon. In 2019, it jumped to a 1.5 reduction in CO2-per-gallon, a 50 percent increase in one year. This also contributed to an increase in costs.

Using Oregon’s formula for calculating the cost, I estimate the cost for 2019 to be about 2.4 cents per gallon. The cost per gallon more than doubled in one year at a time when the LCFS moved only 5 percent more toward the ultimate goal. In 2020, the requirement will increase at twice that rate, and prices are likely to continue their climb.

Additionally, the total increase per gallon of gas when the LCFS is fully implemented in 2025 – assuming the cost is the same as it was in December 2019 – will be $16.5 cents per gallon. This is conservative, because the cost has increased dramatically, and in neighboring California, the cost was 25 percent higher than Oregon in December.

The goal of the LCFS is to cut transportation-related CO2 emissions. In addition to being expensive for consumers, it is also an extremely expensive way to cut CO2. Oregon’s price of $155 per metric ton of CO2 is more than 22 times what Seattle City Light pays to offset CO2 emissions by investing in CO2-reducing projects. California’s LCFS is even more expensive at $195 per metric ton of CO2, making it nearly 28 times as expensive.

Put another way, the Oregon LCFS wastes more than 95 percent of the cost of the program to reduce CO2 compared to alternatives.

Whether you are considering the cost to consumers or its effectiveness at reducing CO2, the LCFS is simply bad policy.