Oregon’s Low Carbon Fuel Standard: Oregon climate change: Governor’s new plan leans on supersizing the Clean Fuels Program

Mar 15, by Ted Sickinger| The Oregonian/OregonLive

FILE – In this file photo, A Nissan Leaf charges at a electric vehicle charging station in Portland, Ore. (AP Photo/Rick Bowmer, File) APAP

One of the most definitive pieces of the executive order that Gov. Kate Brown signed Tuesday to reduce Oregon’s greenhouse gas emissions was her direction to extend and strengthen Oregon’s Clean Fuels Program.

It’s a program most Oregonians don’t even know exists. And it’s one that Republicans, and fossil fuels industry, have loved to hate.

When it was passed in 2009, and when it ultimately took effect in 2015, it was dogged by the same criticism as the cap and trade bill: It would lead to big price spikes at the pump; it was an inefficient and unlawful way to regulate greenhouse emissions; and it would leave Oregon at an economic disadvantage with neighboring states without similar programs.

As it turns out, the sky has not fallen. The Clean Fuels Program has been humming along in the background for four years now, helping tamp down Oregon’s greenhouse gas emissions at a nominal cost – pennies on the gallon so far.

That’s a promising result. And it’s one the governor hopes to build on, as emissions from gas and diesel account for about a third of Oregon’s total, and they’ve been stubbornly drifting upward since the end of the great recession, following trend lines in the economy.

At the same time, the expanding the program will leave Oregon far short of its emission reduction goals in the transportation sector, which will require a host of other actions to meet.

So what is this program, and what will its expansion mean?

The Clean Fuels Program, also known as the low carbon fuel standard, is designed to reduce the “lifecycle carbon intensity” of fuels, or the total emissions that come from the production, processing, transportation and consumption of each unit of fuel consumed in the state. In 2009, the Legislature set a target of reducing the carbon intensity of Oregon’s transportation fuel mix to 10% below 2015 levels by 2025.

The governor’s plan doubles that goal and more, seeking to reduce the carbon intensity of the state’s fuel mix 20% below 2015 levels by 2030 and 25% below that level by 2035. That’s accomplished by increasing the use of cleaner fuels – ethanol, biodiesel, renewable diesel, electricity, propane, compressed natural gas, renewable natural gas, eventually hydrogen – in the state’s overall fuel mix.

Here’s how the program makes that happen:

Every year, providers of transportation fuels must tell the Department of Environmental Quality the volume and the mix of fuels they’re bringing into the state. The fuels are measured against the standard. Any with a carbon score above the standard generates a deficit, and those below generate a credit. The agency determines the overall lifecycle emissions from each importer’s fuel mix, and requires them to buy credits to cover each ton of carbon emissions above the standard.

The carbon intensity of diesel and gasoline is above the state emissions threshold, so the fuels generate compliance deficits that importers need to cover by purchasing credits, or offsetting them with imports of cleaner fuels. Utilities that supply electricity for electric vehicles, or manufacturers of ethanol and biodiesel, meanwhile, generate credits that they can turn around and sell, using the proceeds to pay for charging stations or lower the cost of the alternative fuels they’re producing.

Essentialy, the state is punishing distributors selling dirty oil and rewarding companies that sell the cleanest. But it also incentivizes oil companies to invest in more efficient, lower-emission equipment, and where possible, blend more low-carbon fuels into their overall mix.

The state standard took effect in 2016, and is gradually ratcheting down to the existing goal of reducing the carbon intensity of Oregon’s fuel mix by 10% below 2015 levels by 2025. In 2019, the standard was 2.5% below 2015 levels, so fuel importers have to accelerate their efforts to reach the 10% reduction in the next six years.

Over the last four years, fuels importers have been required to buy about 3 million credits to cover their compliance obligations, while producers and importers of low carbon fuels have generated some 3.6 million credits. (entities can bank those excess credits for future sale or compliance obligations.)

Looking at those numbers, backers conclude the program has achieved more reductions than required to date. It has eliminated 3.6 million tons of carbon pollution, the equivalent of taking 778,000 cars off the road for a year.

That may be a bit of grade inflation, as it’s still unclear how much of the emission reductions were actually motivated by the program, or would have occurred anyway.

Cory-Ann Wind, the Clean Fuels Program manager, says she can’t attribute 100% of the reduction to the program. But she says the market has responded very well to credit prices in the program, and that the agency is seeing a lot more diversity in the types of fuels being used and growth in capacity, both of which bode well for the future.

Moreover, it has come at a price that is essentially invisible at the pump — so far.

The Department of Environmental Quality estimates that the program added less than a penny per gallon to the price of gasoline in 2018, and 1.13 cents per gallon to the price of diesel. The agency hasn’t disclosed a price for 2019, but some estimates put it well above 2 cents a gallon. And that number is likely to go up more as the state’s carbon intensity threshold comes down.

The agency estimated in 2015 that the program could increase gas prices between 4 cents and 19 cents a gallon by 2025. That was based on two studies funded by groups that support low-carbon standards.

By contrast, the Western States Petroleum Association, which lobbies against low-carbon standards, was estimating an increase between 33 cents and $1.06 a gallon.

Wind says DEQ doesn’t forecast prices. It looks at supply, and to date, it is seeing the market bring those fuels to market. It helps that California and British Columbia have their own fuel standards, which has contributed to the capacity on the West Coast.

“We’re seeing the investment in supplies that’s generating credits and keeps prices lower than some of the early forecasts had feared,” she said.

The governor’s plan would strengthen the emissions standard to 25% below 2015 levels by 2035. That would give Oregon the most aggressive standard in the country.

That’s still way off the state’s overall emission goals, which are a 45% reduction from 1990 levels by 2035 and 80% below that level by 2050. The dates on the two standards don’t match, and Oregon’s transportation emissions increased about 10% between 1990 and 2015, so the gap is even bigger than the percentage reductions imply.

Nevertheless, the low carbon fuel standard is just one leg of the stool. Electric vehicles still comprise a tiny percentage of those on the road or sold each year. But with a fuel cost equivalence of about $1 a gallon, lower maintenance costs, and purchase prices approaching parity with internal combustion cars, analysts expect those numbers to pick up – with or without the program.

The governor’s executive order tries to lay the groundwork. It directs the Department of Transportation and the Department of Administrative Services to create a statewide plan to accelerate the deployment of charging stations across the state and electrify the state’s vehicle fleet. The transportation department will also develop a tool to evaluate all future transportation spending through the lens of reducing greenhouse emissions.

The order also directs state utility regulators to adopt policies that encourage electric companies to invest in charging infrastructure. That could include allowing utilities to build charging station networks and factor the cost into rates.

Meanwhile, advocates say there are cleaner and cheaper alternatives to diesel being adopted for commercial vehicles, such as forklifts running on propane, buses and garbage trucks running on electricity and compressed natural gas.

The alternative fuels themselves are also getting cleaner, so every gallon used generates more credits against the clean fuel standard.

“So far, it’s been very achievable, and all the trends are going in the right direction,” said Jana Gastellum, deputy director of the Oregon Environmental Council. “Going forward, it’s doing more of what we have been doing, more and more electrification, of transit buses, of medium- and heavy-duty vehicles.”

Supersizing the program will require extensive rulemaking, including a public comment period that could reprise the debate over the cost and effectiveness of the program.

The petroleum association has opposed the program in the past, calling it an “inefficient and ineffective path towards emissions reductions.” It challenged the rules in court in 2015, but the Oregon Court of Appeals upheld them.

Kevin Slagle, an association spokesman, said it’s unclear if the impact of the Clean Fuels Program will be smaller than a cap and trade system. “It’s not an inexpensive program,” he said.

Gastellum said that’s pretty much par for the course. The oil companies have enjoyed monopoly power, she said, and they oppose anything that cuts into their market share.

“This is a very significant climate action that will move the needle,” she said of the governor’s proposal. “Clearly, it’s a successful program that has been working, and it’s great to build on it.”

— Ted Sickinger; tsickinger@oregonian.com; 503-221-8505; @tedsickinger

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