Producers in Alberta’s oil sands region rightly worry about one of the worst ideas in the rich stew of energy-policy poison now at high boil in the US.
The idea is the low-carbon fuel standard (LCFS). By itself, a carefully implemented LCFS might hold promise as a way to trim emissions of carbon dioxide. Together with the heavy, indirect taxation of fossil energy that probably will be enacted, however, it represents stifling overkill. And the recent US record makes careful implementation most unlikely.
The 1,428-page American Clean Energy and Security Act, which the House passed June 26 before anyone had any grasp of everything it contained, originally included an LCFS. That the passed bill does not is a hopeful sign. But the Senate has yet to act. And California implemented an LCFS in April and savors its status as national leader in the establishment of ruinous energy policy. A group of states in the US Northeast is working on a regional LCFS and hope to have a preliminary agreement in place by yearend.
Reason to worry
Oil sands producers, therefore, have reason to worry. In its LCFS regulation, California excludes oil-sands crude from the “basket” of fuels available in the state, which will benchmark declining “carbon intensity” targets. The Canadian Association of Petroleum Producers objects. “Singling out Canada’s oil sands was unnecessary and inappropriate,” it said in response to California’s move. “On a life-cycle basis, Canadian oil sands crude compares favorably with many other crude oils currently supplying California, including some domestic California crude oils.”
Alone, California’s disproportionate regulation won’t hurt Alberta’s oil sands industry. The state receives only about 27,000 b/d of oil from Canada, some of it originating in the oil sands. The concern north of the border is that California will set a pattern of discrimination against what has been called the “dirty oil” from Alberta’s rich deposits of bitumen. It’s a concern that began with an ambiguous section of the Energy Independence and Security Act of 2007 banning imports by federal agencies of fuels with above-average life-cycle emissions of CO2. Since then, demonization of “tar sands” has been a popular ploy of the environmental groups that back Democratic leaders in Congress and the White House.
Emissions associated with fuels from oil sands are, in fact, too easily exaggerated. Studies are showing that, from production to consumption, average CO2 emissions from a given quantity of fuel from oil sands exceed those of average conventional oils by 10-20% (see story, p. 20). That’s far less than what environmentalist propaganda suggests.
In California and elsewhere, LCFS regulation has other problems. Large among them is the assumption that regulators can measure life-cycle emissions with reasonable precision. They can’t. Inevitably, life-cycle assessment is more political than scientific. Prominent evidence of this is ethanol promoters’ campaign to exempt land-use changes in assessments of emissions associated with their favorite fuel additive.
Indeed, LCFS regulation largely assumes the displacement of hydrocarbon fuels by biofuels, which are presumed to have life-cycle emission advantages. But those advantages are proving to be illusory, especially in analyses that account for the indirect effects of expanding agriculture. Hence the ethanol lobby’s latest crusade.
Bad business
What’s more, biofuels have become bad business for everyone except grain farmers. Refiners are buying ethanol plants out of bankruptcy at fire-sale prices to secure supply with which to meet blending mandates. Yet in its announcement about implementation of the LCFS in April, California’s Air Resources Board bragged about the need for 25 new biofuel facilities and the associated creation of 3,000 jobs. Hello? Without subsidization likely not to be forthcoming from a bankrupt state government, who will build the things?
The formulaic approach of LCFS regulation creates the impression of serious governance. The government sets a target for cutting life-cycle emissions and lets the market bring forth essential technologies. Inevitably, however, the target is arbitrary. Inevitably, work toward it reflects politics rather than commerce. So, inevitably, LCFS proves to be yet another costly, underperforming environmental gesture that mainly encourages Canadian producers to sell oil in Asia.
