Association: Western States Petroleum Association

West Coast petroleum producers and refiners, especially those in California, face a number of daunting challenges as states begin to adopt and implement far-reaching climate change policies.

California's Republican governor, Arnold Schwarzenegger, has been a leading advocate of early action on climate change. State agencies are moving forward to draft and implement the regulations that will be necessary to carry out the governor's and the legislature's objectives. Other western states, notably Washington and Oregon, have been moving in the same direction as California.

As targeted California industries, refiners and producers must comply with the state's primary greenhouse gas reduction law, AB 32, that was enacted in 2006. That law requires total greenhouse gas emissions in California be reduced to 1990 levels by the year 2020.

Based on the best information currently available, this means major emitters of CO2 must find ways to cut their greenhouse gas emissions by 25 to 30 percent in the next 10 years. Independent studies indicate the cost of achieving the goals of AB 32 will be huge and that job losses are likely to be significant.

As major consumers of natural gas, California's 13 refineries that make the state's gasoline, diesel and jet fuel will be heavily impacted by AB 32. Oil producers will also feel the law's effects.

Oil fields in the San Joaquin Valley, among the nation's largest, have been producing petroleum for more than 100 years, thanks in part to investments in steam injection enhanced recovery. But those important investments have carbon footprints that will be impacted by AB 32.
A key provision of AB 32 is a requirement that market-based mechanisms like a cap-and-trade system be included in the compliance options available to the industry sectors targeted for early enforcement of climate change policies.

The Western States Petroleum Association has supported performance-based regulations over more rigidly proscribed command-and-control regulations. And we believe broad market mechanisms offer the most cost efficient and effective way to address what is widely viewed as a global problem.

What we don't yet know are the details of how a cap-and-trade program will be designed. Still unknown are how much of the current level of emissions will be subject to market mechanisms, and whether or not current industries and employers will be allowed to operate without extraordinary added costs.

We also do not know whether those industries and employers will be required to purchase emission allocations through an auction of emission allowances.

Another daunting challenge for refiners is the state's completely novel Low Carbon Fuel Standard (LCFS). A short time after the legislature adopted AB 32, Gov. Schwarzenegger issued an executive order that directs the Air Resources Board to develop a regulation that will require all producers, blenders and sellers of gasoline and diesel fuel to reduce the carbon intensity of those fuels 10 percent by 2020.
There is even less clarity about how this new LCFS regulation can be met, and what the real cost will be to businesses, consumers, and the state's and nation's economy.

Increased blending of various biofuels can achieve some reduction in carbon intensity, although life cycle analyses of some kinds of corn-based ethanol suggest they have carbon intensities greater even than gasoline. But blending alone, based on current modeling, won't achieve sufficient reductions to allow compliance with the Low Carbon Fuel Standard.

What the LCFS mandates in practice is that refiners make significant investments to convert the transportation system to electric vehicles, hydrogen-powered vehicles, or vehicles that use other non-petroleum-based fuels.

Whether or not there will be vehicles able to utilize these new energy sources; whether the infrastructure to produce, transport, and deliver these fuels can and will be built in California; whether these energy sources can be provided in sufficient quantities to meet the demand at prices consumers can afford; and, whether energy consumers are willing and able to go along with the changes all remain questions that need to be answered.

One of California's main objectives with these climate change policies is to reduce petroleum consumption. Our industry is understandably cautious about investing in needed improvements to the region's petroleum infrastructure given the state's focus on petroleum demand reduction.

Without additional refinery, pipeline and waterfront crude oil import capacity, the West Coast will become more heavily dependent on foreign crude oil, and imported gasoline, diesel fuel and jet fuel. That's not good news for our members nor does it bode well for businesses and consumers.

As the petroleum industry's voice in California, Arizona, Nevada, Oregon, Washington and Hawaii, the Western States Petroleum Association has been at the center of the policy discussions and debate over these and other energy issues. We put a very high premium on providing accurate and relevant information and on maintaining a unified voice for the industry as we confront these challenges, and will continue to do so.

We can't predict from where or how the energy needs of the 21st Century will be met in the Western United States. But, we can predict with confidence that our members and our association will play an integral role in providing consumers and businesses with adequate, reliable and affordable energy supplies.

To learn more about the WSPA please visit:
www.wspa.org