Powerful California State Agency Plans Gasoline Price Increases

The state of California is planning to hike the price of gasoline by at least a dollar a gallon.

But you won’t see more roads or public transportation or actually anything of value for the money. Instead, this is part of the direct cost of regulation that California motorists will shoulder from “climate change” rules passed during the past several years.

Officials with the California Air Resources Board (CARB), the powerful state agency charged with implementing AB 32 and other climate control measures, are proudly touting their intent to force higher gasoline prices, but they’re less committed to explaining the benefit to Californians from these price hikes.

Dan Sperling is an appointee to the CARB and a professor of engineering and environmental science at UC Davis. He is also the lead advocate on the Board for a “low carbon fuel standard,” which is jargon for transportation fuels that rely less on gasoline and more on biofuels, hydrogen or electricity.

CARB has adopted a regulation that requires gasoline refiners to reduce the carbon content of their fuels or pay a penalty if they are unable or unwilling to do so. The purpose of the regulation is to reduce the emission of carbon-based greenhouse gases, and therefore help mitigate the effects of worldwide climate change.

Prof. Sperling told a conference (sub. reqd.) of fuel users that the price of credits (for those companies that could not produce the required fuel) “will not go up more than about 30 cents a gallon maximum.” This comment was meant to stanch fears from some critics that fuel shortages would cause prices to rise to $6 or higher.

At the same conference, Prof. Sperling downplayed the larger concerns that the sheer lack of low carbon fuels will itself force up the price of all fuels – higher than the mere 30 cents that he defended. He added that revenue from this fee should be sent to companies to subsidize production of complying fuels.

But wait, there’s more.

Prof. Sperling and his CARB colleague, board chairwoman Mary Nichols, authored an article estimating that the new cap-and-trade auction of carbon emission credits will raise gasoline prices by another 70 cents a gallon. They conceded there will be no benefit from this price increase (“…not enough to motivate oil companies to switch to alternative fuels or to induce consumers to significantly reduce their oil consumption …”), but thought it salutary to “establish the principle.”

Undoubtedly a dollar-a-gallon price hike is only the beginning. After all, when it was passed and signed by the Governor in 2006, AB 32 was aspirational – nobody had any idea of the economic, business and behavioral impacts. But now that the regulatory process is in full bloom, experts are taking a closer look at the effects on the economy.

For example, the Boston Consulting Group recently released a study, commissioned by the Western States Petroleum Association, finding that regulations flowing from AB 32 affecting transportation fuels (low carbon fuel standard, cap-and-trade) will result in the closure of several refineries in California, increase the price of gasoline by about $2.50 a gallon, and reduce the supply of fuels as early as 2015. They estimated regulatory-related job losses of 28,000 to 51,000, just in the refinery and related sectors.

The California Manufacturers and Technology Association also recently released a report finding that by 2020, California’s economic output will be more than five percent lower than had AB 32 not been implemented, and employment will be down by more than 200,000 jobs.

Lawmakers approved a bill last month in tandem with the state budget to begin spending billions in new, and possibly illegal, taxes derived from the cap-and-trade auction, including a subsidy for the General Fund deficit. The dollar-a-gallon gasoline price hike will be but one manifestation of this new money trough opened by the Legislature.

(Loren Kaye is the President of the California Foundation for Commerce and Education. Originally posted on Fox & Hounds.)