CEA recently commissioned a study, released today, on the likely impact a Low Carbon Fuel Standard would have if it were to be adopted nationwide. The study, which was conducted by Charles River Associates, confirms many of CEA’s concerns about higher fuel prices and a likely shift away from some of the country’s most important sources of fuel, such as crude oil from Alberta, Canada.
However, by looking at the nationwide impact of this policy, which has already been adopted in California and is being seriously considered in many other states, the study provides a more complete picture of the economic devastation that could result.
“Adoption of a nationwide low carbon fuel standard will result in a price shock that will dramatically increase the cost of transportation for consumers and have long term effects on the economy by increasing transportation costs for all goods,” the report finds. It forecasts a rise of 30% to 80% in the cost of transportation fuels within five years after the time the low carbon fuel standard is implemented. Largely as a result of those dramatically higher costs, at least 2.3 million jobs and as many as 4.5 million jobs would be lost by 2025, the study finds. Importantly, that projection represents a net loss in jobs, and factors in any jobs that would be created as a result of the new policy.
The report contains many other important details, including how a nationwide low carbon fuel standard threatens to reduce wages and significantly increase household costs. But one of the most stunning conclusions is the damage it would inflict on the nation’s already struggling refining industry.
The study stresses that refiners are “affected doubly by the low carbon fuel standard,” which reduces the share of petroleum-based fuels used in the production of motor fuels and also reduces total motor fuel use. As a result, were a low carbon fuel standard to be adopted nationwide, refinery operations would fall between 27% and 40% by 2035 and up to 55 refineries would close.
One of the major problems with this policy is the lack of a sufficient supply of alternative fuels to offset the use of petroleum-based fuels to power the transportation industry. Ethanol is of limited use in this regard. It runs into a “blend wall” problem since fuel used in vehicles can only contain 10% ethanol. Electric vehicles face major infrastructure requirements for large-scale penetration.
“It is fair to say that by the year 2025, it is impossible to bring to market sufficient quantities of new fuels with sufficiently low-emission factors to meet the low carbon fuel standard without reducing the total amount of transportation fuel consumed,” the study finds.