California regulators are pressed for transparency on gasoline prices

Nov. 5, 2024 3 AM PT

California Air Resources Board is set to vote Friday on a measure many say is likely to raise gas prices. Officials say they won’t make a prediction, after initially giving an estimate of 47 cents a gallon.
Some lawmakers and others want the vote delayed until there is a cost estimate of the measure, which is aimed at hastening the transition away from fossil fuels.

California regulators are poised to vote Friday on a measure intended to accelerate the state’s transition away from fossil fuels by imposing tougher carbon-reduction requirements for gasoline and diesel.

California Air Resources Board officials months ago projected that the new standards would mean potentially large price hikes for gasoline. But now they claim they’re unable to make any estimate about the price impact. That has raised predictable ire 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) has called for 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 analyst’s office. She wants “an independent review to ensure transparency and accountability in the regulatory process.”

On Friday, the air board will vote on tighter carbon-reduction rules that, according to the board’s own projections last year, could raise gasoline prices by up to 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, aside from inflationary costs.

Line chart shows the projected increase in the price of gas. In the next two years, the price would rise by about 50 cents, before falling slightly and rising to a $1.83 increase by 2041.

State air board officials have since backed away from that estimate, saying they’re unable to project costs, even within a range.

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

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

There may be good reasons for raising the costs of fossil fuels, 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 innovative new industries and new companies that lead to jobs and income growth for the state.

Those commendable aims, however, are undermined by lack of transparency on the part of state officials, he said.

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

Some environmental groups are seeking better communication and more clarity from CARB, although their concern is not so much gasoline prices as what they see as a giveaway to the biofuels industry, which is favored under the CARB carbon-reduction policy.

Adrian Martinez, an attorney for Earthjustice, said biofuels create pollution that contributes to climate change, leads to deforestation and shifts land from agriculture to fuel production.

“They’ve given no clarity on why they want to invest most of the program’s billions in fuels that will pollute our air when they’ve set a North Star of zero emissions,” Martinez said in a statement.

Cliff and CARB Chair Liane Randolph declined to comment on the criticisms over the agency’s transparency.

Gasoline price hikes?

Reporters recently asked CARB Executive Officer Steven Cliff to clarify the agency’s mixed messages about new climate policies and projected gasoline price increases. Here’s what he said.

From online media briefing Oct 25.

UPDATED Nov. 4, 2024 | 9:49 AM

How will CARB policies affect the everyday person? Any concerns about raising the price of gasoline?

“Everyday Californians benefit greatly from this program for a couple of reasons. One, it’s helping to fund infrastructure and lower the costs of fueling for vehicles, especially using those using alternative fuels, and overall, it reduces the cost of driving. I think our estimates are about a 40 plus percent reduction in the cost of driving by 2040.

“In addition, there’s massive greenhouse gas emission reduction benefits associated with this, and air pollution benefits associated with it, job increases, investment, secure and clean energy and so on. And happy to send a full list of benefits, I guess. Most notably, there’s about $5 billion in health cost savings associated with this proposal. First and foremost, we’re a public health agency, so our focus is on protecting public health while considering the economic impacts. And in this case, it’s a win win. We get public health benefits. We reduce costs for public health. Uh, reduce health costs. We see lower costs of driving, and we help turbo charge those investments in clean energy infrastructure that helps drive the future, our zero emission future.”

Why did you include gasoline price projections in your 2023 report if, as you say, such projections are impossible?

“What I’m trying to get at, is that it’s an estimate of a cost pass-through for various scenarios, not meant to represent a retail price, but the difference between the scenarios is important, not the absolute number that’s represented there.”

If [the the projected 47 cents per gallon] doesn't represent the retail price, what does it represent?

“It helps inform the ultimate proposal that we would present to the board, but it’s not intended and in fact, we say that this is not retail gas prices. We have a caveat in there that says retail gas prices are complicated and a factor of a number of different considerations, and that’s in the paragraph that follows the table, that is a mandated requirement as part of the [report] is to use these numbers to try and compare the various regulatory scenarios. It’s not intended to be a retail price and not intended to be an actual price at the pump.”

Why not update your gasoline price projections so drivers can understand what the CARB vote might mean?

“I always think it’s important to kind of go back and say what that analysis actually shows and what it does, what it doesn’t, it really helps inform a regulatory proposal. So the analysis is looking at various credit scenarios where credit prices could impact the energy costs that they affect. And so in this case, we’re looking at things like fossil jet, fossil diesel and fossil gasoline. Those credit prices are not really a prediction by us of what the actual credit prices will be. It’s it’s really just to provide kind of a range or a scenario for what potential impacts could occur, and those typically are going to be and we always find this in our rule making work much, much higher than is actually revealed when a program is implemented, and that’s because a program such as this is is driving innovation, and that innovation can come in at lower cost...

“So we’re comparing various policy choices with common sets of assumptions so that we can understand how this particular alternative might compare to a different alternative. So that relative difference between those policy choices is important. The absolute number is not intended to be a price at the pump or something that you know, individuals would see as part of, you know, as part of purchasing gas...running the scenarios would not actually help, because, again, it’s not a prediction of fuel prices at the pump. It isn’t intended to be what an impact to gasoline would be, and as I’ve presented in my slide deck, we don’t have that capability.”

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

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

“If CARB wants the public, through their elected representatives, to be supportive of new initiatives to protect the environment, CARB should be forthcoming with all information — so the public can consider costs and benefits,” Republican lawmakers said in their own letter.

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

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

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

The program uses a carbon-trading market to achieve its goals. Basically, it works this way: 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 an imbalance of deficits must buy credits from alternative fuel makers.

Biofuel producers can keep the credit income for themselves, while gasoline and diesel makers usually pass extra costs through to consumers. Prices at the pump rise and fall with global oil markets, but state taxes, environmental fees and these pass-through costs add to the total price. According to AAA, Californians typically face the second-highest gasoline prices in the U.S., topped only by Hawaii.

Amendments to the carbon rules to be voted on Friday would stiffen those carbon limits over time, meaning more expense for deficit holders. What CARB is vague about is how much of that expense will fall on gasoline and diesel customers. The state’s energy commission reports the pass-through cost to consumers currently amounts to 8 to 10 cents per gallon.

The original CARB projections assume that oil refineries will pass through their carbon reduction costs to consumers. CARB chose an “upper bound” maximum to project a worst-case scenario: 47 cents a gallon next year rising to $1.80 by 2040.

Those worst-case costs might 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 the 2025 cost could be as high as 65 cents a gallon. Using CARB’s formula, he said, he updated the numbers to account for inflation and changes in CARB’s proposed amendments since the original report was published.

Cullenward, who also serves as vice chair of California’s Independent Emissions Market Advisory Committee, doesn’t expect that maximum to be reached, but he points out that CARB is refusing to even discuss a range of possible price hikes.

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

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

If the public and legislators “already don’t like hearing about the potential for gasoline price increases, what do you think their response will be when these costs come to fruition? What do you think their reaction will be when the cost of gasoline in California increases from $1 over the national average to more than $2 over the national average?”

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

Assemblymember Joe Patterson (R-Rocklin) complained that he’d written a letter to Randolph, the CARB chair, four months earlier seeking clarification on the gas price issue, but got no response. Two Assembly Democrats echoed his frustrations. Several 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.