Politics blog

Consultant: clean fuels standard might raise gas prices just 6-8 cents – over 20 years

OlympianMarch 4, 2014 

This post has been updated.

Senate Republicans crafted a story line early in the legislative session that Gov. Jay Inslee was putting a transportation package at risk by quietly pursuing a clean-fuels standard. That standard, which the GOP urged the governor to renounce in the name of saving the transportation plan, would raise gas prices at the pump by potentially $1 per gallon – if not more, they claimed. 

One big problem, as we pointed out in a Jan. 17 follow-up story:  The cost claims were at best exaggerated and likely wrong. Moreover, the cost claims were not the findings of the governor’s climate task force – or its consultant. 

In fact, consultant Leidos now says costs are more likely to be between 6 cents and 8 cents a gallon over a two-decade period ending in 2035. Or under an alternative scenario outlined by other consultants, Leidos said new fuel costs could be lower than that over the long haul.

Two consultants with Leidos made their views clear in a Feb. 3 memo to the Climate Legislative and Executive Workgroup chaired by Inslee. In it, they clarified the impacts of a low-carbon fuels standard. They also say their earlier reports to CLEW were misrepresented in media reports and that costs would be closer to 4 to 6 cents per gallon through 2035 in one scenario and 6 to 8 cents in another.

Authored by Tim Kidman and Christina Waldron of Leidos, the memo said in part:

On 1/31/20014, Leidos was tasked with preparing a memo to clarify some details of its 2013 analysis of a potential Low Carbon Fuel Standard (LCFS), and report the value on a cost per gallon basis. Leidos has never calculated a cost per gallon value for a Washington LCFS to date.  Recent reports in the media misrepresent the cost by erroneously applying a methodology for a carbon tax rather than an LCFS to Leidos’ cost effectiveness values.  The result over-estimates the per gallon cost by approximately one order of magnitude. This is based on the fact that the LCFS reduces only 10% of the carbon in the fuel, not 100%. Per Washington’s request, Leidos calculated the net present value cost per gallon of fuel (gasoline and diesel) for an LCFS to be between $0.06 and $0.08 per gallon from 2016 through 2035. This value corresponds to the net present value cost of reductions of $103 and $131, respectively, as included in the Leidos reports to the Climate Legislative and Executive Workgroup (CLEW). The cost per gallon was calculated based on the following general equation: (NPV change in fuel expenditures from 2016 to 2035) / (Total gallons consumed from 2016 to 2035)        
The memo goes on to evaluate an alternative scenario similar to the TIAX consulting firm’s work done a few years ago for the Department of Ecology. In that scenario, low-carbon ethanol would immediately start replacing high-ethanol ethanol from corn rather than displacing gasoline or diesel, and Leidos pegged fuel-stock impacts at between 4 cents and 6 cents a gallon.

A rebuttal to the memo is here from Todd Myers of the free-market-oriented Washington Policy Center. Myers, who has favored an actual tax on carbon fuels, questions the Leidos assumptions and contends costs would be closer to a range between 9 and 11.5 cents per gallon for every 10 percent of oil-based fuels is replaced by biofuels.

A low-carbon standard, in a nutshell, would require that a greater percentage of lower-carbon fuels such as ethanol be substituted or mixed into the gas and diesel supplies over time with a 10 percent mix being the target. California has such a law in place, and environmentalists say fuel prices have not been appreciably affected; but the oil industry warns the policy will drive up prices and may disrupt fuel supplies.

Inslee spokesman David Postman shared the memo on Tuesday, saying it had been handled internally by CLEW staffers and consultants and had only recently come to his attention. 

“I don’t think anybody sat on it,” Postman said. “We tried really hard not to engage in this fight (over LCFS costs). It was manufactured controversy … It was a distraction from the transportation debate and the governor tried to make that clear … But it keeps coming up.”

In fact, Sen. Curtis King, the Republican co-chair of the Senate Transportation Committee, included a proviso in his latest gas-tax proposal released on Monday that restates the false claim of fuel-cost impacts and urges Inslee not to adopt a fuels standard by executive order.

Specifically, Senate Bill 6577 says in Section 403: 

The legislature finds that adopting a low-carbon fuel standard effectively equates to a one dollar per gallon increase in motor vehicle fuel taxes. The legislature further finds that any increase in state transportation revenues must be adopted through the legislative process in the form of duly enacted laws. The legislature further finds that adopting a low-carbon fuel standard by executive order or through the agency rule-making process would serve as an obvious circumvention of the legislative process. Therefore, it is the strong intent of the legislature that the governor not adopt a low-carbon fuel standard by executive order or through the agency rule-making process.      
Inslee hotly disputes the cost claims. Inslee told reporters last week in an interview that he is still looking at the low-carbon fuels option and that it is something that might emerge over the next year. Inslee said he believes he has executive authority to order such an action, but expects a thorough public review process and he has no timetable for taking action.

He also is apparently still interested in working with the Legislature, although he said “the Senate is still under the thrall of climate deniers,” which he said makes it hard to pass climate legislation.

I put in a query to Senate Republican Leader Mark Schoesler of Ritzville, who has been very public in equating a fuel standard with higher fuel prices. I’ll report his comments when I catch up to him.

Update: Schoesler got back to me and recommended looking at this press release, which Myers posted today.

Myers also said in an interview that if Inslee did go to a 10 percent biofuels mix, which is California's target, it would have a small effect on the emissions of greenhouse gases from the transportation sector, which he described as emitting nearly half of the state's emissions.

"This is the only ... transportation strategy that the governor offers for reducing emissions," Myers said.

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