California regulators are under pressure to come clean about gas prices

Los Angeles, CA- JUNE 1, 2022: Chris Huang, 30, of Los Angeles selects his grade of gas, where the price has reached close to $8 per gallon at the Chevron gas station located at Cesar Junction. E. Chavez Ave. and Alameda Street in downtown Los Angeles. (Mel Melcon/Los Angeles Times)

Chris Huang in Los Angeles looks at the price of gas before he fills up. (Mel Melcon/Los Angeles Times)

California regulators are poised to vote Friday on a measure aimed at accelerating the state’s transition away from fossil fuels by imposing stricter carbon-reduction requirements on gasoline and diesel.

California Air Resources Board officials months ago projected that the new standards would potentially mean large increases in gasoline prices. But now I claim that I can’t make any estimate on the price impact. That has sparked predictable anger from the oil industry and Republicans, but some Democrats and environmentalists are also demanding that regulators give straight answers.

State Sen. Melissa Hurtado (D-Sanger) asked the nonpartisan Legislative Analyst’s Office to review the policy and come up with its own estimate.

“Recent developments and estimates have raised significant concerns about the broader implications of these policies,” Hurtado said in an Oct. 29 letter to the analysts’ bureau. She wants “an independent review to ensure transparency and accountability in the regulatory process”.

On Friday, the air council will vote on stricter rules to reduce carbon emissions, which, according to the council’s own projections last year, could raise gasoline prices by as much as 47 cents a gallon in 2025, an average of 65 cents a gallon between 2031 and 2035, and as much as $1.80 a gallon by 2040, on top of costs inflationary.

State aviation board officials have since backed away from that estimate, saying they could not project costs, even within a range.

CARB Executive Director Steven Cliff said last month that any estimate, even a possible price range, was impossible. At an airline industry event last week, Cliff was asked if the new rules would raise gas prices. “I don’t expect them to,” he told reporters.

CARB’s stance on the pricing issue has now become an issue, with Republicans in both the state Capitol and the state GOP delegation in Washington calling for a delay in Friday’s vote until the cost issue is resolved.

There may be good reasons for rising fossil fuel costs, according to Severin Borenstein, an energy economist at UC Berkeley’s Haas School of Business. California’s climate policies could not only help address climate change, he said, but spur new innovative industries and new companies that lead to jobs and increased revenue for the state.

But these laudable goals are undermined by a lack of transparency on the part of state officials, he said.

“People who want to adopt these climate initiatives too often say it won’t cost anything and will actually save money, and people who oppose it greatly exaggerate the associated costs. It’s hard to have an honest conversation,” Borenstein said.

Some environmental groups are seeking better communication and clarity from CARB, though their concern is not so much the price of gasoline as what they see as a deal for the biofuels industry, which is favored by CARB’s carbon-reduction policy.

Adrian Martinez, a lawyer for the environmental group Earthjustice, said that while they are better than fossil fuels, biofuels still create pollution that contributes to climate change, leads to deforestation and shifts land from agriculture to fuel production.

“They have provided no clarity as to why they want to invest most of the billions in the program into fuels that will pollute our air when they have established a zero-emissions pole star,” Martinez said in a statement.

Cliff and CARB President Liane Randolph declined to comment on criticism of the agency’s transparency.

A CARB spokesman said the agency has been clear and transparent about the proposed new rules.

Republican lawmakers pushed CARB to delay its vote pending more clarity on the cost impact.

“If CARB wants the public, through their elected representatives, to support new environmental initiatives, CARB should have all the information readily available — so the public can weigh the costs and benefits,” Republican lawmakers said in own letter.

Catherine Reheis-Boyd, executive director of the Western States Petroleum Assn., said CARB’s refusal to address the financial impact is “not only bad for politics, but bad for democracy.”

“Unfortunately, that’s what happened with California’s climate policies. Compensation is hidden from Californians, and the price is trust in a transparent process,” she said.

Read more:State Sen. Melissa Hurtado wants more information

At issue Friday is a vote to amend a CARB program called the Low Carbon Fuel Standard, or LCFS. Created in 2009 under Gov. Arnold Schwarzenegger, it aims to shift California’s fuel supply away from gasoline and toward biodiesel, hydrogen, electricity and other alternative fuels.

The program uses a carbon trading market to achieve its goals. Basically, it works like this: the state sets limits on the carbon intensity of fuels. Producers of lower-intensity fuels, such as renewable diesel, earn credits from the state. The state issues deficits to producers of higher-intensity fuels such as gasoline and diesel. Producers with a deficit imbalance must purchase credits from alternative fuel producers.

Biofuel producers can keep the revenue from the credit for themselves, while gasoline and diesel producers usually pass the additional costs on to consumers. Prices at the pump rise and fall with global oil markets, but state taxes, environmental taxes and these transit costs add to the total price. According to AAA, Californians typically experience the second highest price for gasoline in the US, second only to Hawaii.

Amendments to the carbon rules to be voted on Friday would tighten those carbon limits over time, meaning more spending for deficit holders. What CARB is unclear on is how much of that expense will fall on gasoline and diesel customers. The state’s Energy Commission reports that the cost to pass on to consumers is currently 8 to 10 cents per gallon.

CARB’s original projections assumed that oil refiners would pass on the costs of carbon reduction to consumers. CARB chose a maximum “upper bound” to project a worst-case scenario: 47 cents a gallon next year, rising to $1.80 by 2040.

Those worst-case costs could be even higher. Danny Cullenward — a climate economist in San Francisco who also serves as a senior fellow at the Kleinman Center for Energy Policy at the University of Pennsylvania — estimated that the cost for 2025 could be up to 65 cents per gallon. Using CARB’s formula, he said, he updated the numbers to account for inflation and changes to CARB’s proposed changes since the original report was published.

Cullenward, who also serves as vice chairman of the California Independent Emissions Market Advisory Committee, does not expect that maximum to be reached, but points out that CARB refuses to even discuss a range of possible price increases.

He said he respects much of the work CARB has done to reduce pollution and greenhouse gases, but “I don’t feel comfortable saying it’s not possible to predict” gasoline prices in a range . “I criticize them for hiding the ball,” risking an erosion of public confidence in the state’s climate policies.

Jim Duffy, former chief of CARB’s transportation fuels division, said in an Oct. 16 message to CARB that air board staff “continue to ignore warnings about the potential for future costs. Whether staff and some Councilors want to admit it or not, Pandora’s box has been opened and the curse of pass costs has been released.”

If the public and lawmakers “already don’t like hearing about potential gas price hikes, what do you think their response will be when those costs do materialize?” What do you think their reaction will be when the cost of gas in California goes from $1 above the national average to more than $2 above the national average?”

The transparency issue came to a head at a special legislative hearing in September. It was requested by Governor Gavin Newsom to pave the way for state control of gasoline storage at oil refineries.

Assemblyman Joe Patterson (R-Rocklin) complained that he wrote a letter to CARB Chairman Randolph four months earlier asking for clarification on the gas price issue, but received no response. Two Assembly Democrats echoed his frustrations. A few days after the hearing, Patterson received a letter from Randolph.

Patterson said via email that Randolph failed to adequately address his concerns.

“We still don’t have answers, and Californians are left in the dark about the potentially large impact of their upcoming decision,” he said.

This story originally appeared in Los Angeles Times.