California Might Change Climate Program That is Helping Increase Gas Prices

As Californians have been debating about repealing the Gas Tax, many have overlooked another state program that has been quietly increasing fuel prices. The Low Carbon Fuel Standard (LCFS) was signed in 2007 and is designed to fight climate change by forcing oil companies to lower the “carbon intensity” of the fuels they sell in California. The program has had little effect on gasoline prices for years, adding an estimated 3 or 4 cents per gallon, but the program’s effect on gasoline prices has been growing over the last year. The recent rise is due to an increase in prices for a type of credit that can be traded and that is the main part of the program. The Oil Price Information Service currently estimates the LCFS tax on gasoline to be 8.5 cents per gallon. Leigh Noda, a senior associate with the Stillwater Associates fuels consulting firm and a former Arco executive, states,

The amount (of costs related to climate) in gasoline is not trivial. If consumers are going to get hit with this, they should know about it.

According to the San Francisco Chronicle, the Gas Tax that was signed into law by Gov. Jerry Brown last April to fund road repairs adds 12 cents per gallon, while California’s cap-and-trade system for limiting greenhouse gas emissions adds another 12 cents. In February, the California Air Resources Board issued proposed changes that would delay some of the LCFS program’s targets, giving fuel providers more time to reach them and alleviating some of the pressure off gas prices. The proposed changes would mean that instead of fuel providers needing to cut the carbon intensity of their fuels 10 percent by 2020, the companies would need to reach that level in 2022. The LCFS program works by setting targets for reducing a fuel’s carbon intensity, which is a measure of the greenhouse gas emissions associated with producing and using it. The price of credits purchased from clean-fuel producers started climbing last year, which helped lead to some of the increase in gasoline prices recently. We will have to wait and see if the California Air Resources Board decides to make the changes to the LCFS program.

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