Big Oil’s Claims About CA Climate Policies Were Wrong

The Western States Petroleum Association (WSPA), an oil industry lobbying group representing companies like Chevron, is breaking records with lobbying expenditures as it attempts to block efforts to extend California clean energy and climate programs beyond 2020, according to recent news reports. Now, WSPA and their members are trying to force government officials and lawmakers into a no-win Sophie’s choice: either hobble the state’s low-carbon fuel standard (LCFS) or the oil industry will try to kill proposed legislation to establish a statewide limit on carbon pollution for 2030 (Pavley, SB32).

But is what Big Oil is claiming about the LCFS program, which requires the industry to cut carbon pollution from fuels, true? A bit of fact-checking shows their claims are far from the truth.

Unfortunately, some state Assembly Members, many of whom represent districts most burdened by air pollution, aligned themselves last year with WSPA by opposing extension of climate programs while also stripping petroleum reduction goals out of another major clean energy bill (De León, SB350). This was contrary to the interests of the constituents they were elected to serve.

Lawmakers were inundated with the oil lobby’s doomsday claims against the state’s LCFS as well as the state’s cap-and-trade program that sets an economy-wide limit on carbon pollution. The oil industry’s claims—that the state would run out of fuel supply, consumer costs would go up, and jobs would be lost—ran counter to studies and evidence showing the enormous benefits of these clean energy policies, including helping to make California home to the most clean energy jobs in the country. These policies also are also saving all Californians, including low-income households, on their energy and transportation fuel bills, while helping avoid hundreds of thousands of illnesses each year caused by air pollution. Businessweek, which uncovered documents showing WSPA had created 16 fake front groups to serve as messengers to lawmakers, called Big Oil’s strategy a “conspiracy to kill off California’s climate law,” designed “to confuse people about an important law.”

Three big myths perpetuated upon lawmakers

With the 24/7 news cycle, it’s easy to forget the major calamities the oil industry claimed would happen if the state’s LCFS and cap-and-trade programs were allowed to continue. Here’s what the oil industry said and what actually happened.

Doomsday Myth #1: The LCFS will lead to a “Fuels Cliff” in 2015 where “bad things” would happen, including “price spikes, fuel shortages and more.” Tupper Hull, Western States Petroleum Association, 2013

Fact check: False. In a sadly ironic twist, an explosion on February 18, 2015 at the ExxonMobil refinery in Torrance, California was the only “bad thing” happening. The explosion led to four injured workers and 14 months of reduced fuel supply to the state as major units at the refinery remained offline. A government commissioned study by RAND, a major think tank, estimated the oil industry made $2.4 billion in additional windfall profits in the first several months alone as gasoline prices increased by an average of 40 cents per gallon due to reduced supplies to the state.

Using the same RAND methodology, I extended the analysis and found the oil industry windfall profits exceeded $6 billion over the entire 14-month incidence, costing the average household nearly $500 in additional fuel payments. In the aftermath, the state’s Attorney General has now issued subpoenas to several oil refineries on how they set gasoline prices.

Fortunately, thanks to the LCFS program, a record amount of alternative, clean fuel supplies was made available to the state in 2015, helping to partly offset the shortage after the explosion.  Rather than causing fuel shortages, over the past five years the LCFS has helped displace the need for over 6.6 billion gallons of gasoline and diesel, equivalent to the amount of fuel energy consumed in Southern California for more than a year. The clean fuels industry has also helped the oil industry outperform and exceed the LCFS requirements by an average of 80 percent thus far. As economists reported in a NRDC-commissioned study in 2014, the LCFS is helping protect consumers as a result of increased diversification and competition in the marketplace by new alternative fuel suppliers.

Lawmakers now have a chance, by supporting extension under SB32 and continuing a strong LCFS program, to help ensure the oil industry starts putting some of that $6 billion in windfall profits to further increase low-carbon fuel supplies while also investing in cleaner technologies and safety at their refineries.

Doomsday Myth 2: “There is a ‘likely’ scenario where the cost of compliance requires refiners to recover in excess of $2.50 per gallon of fuel and refiners are forced to reduce supply to the California market …this could happen in the 2015-2016 timeframe if LCFS regulations are not modified.” WSPA’s Understanding the Impact of AB32 Factsheet

Based on the recent market data on the LCFS program, the petroleum refineries’ costs to comply with the LCFS was about 80 times lower than WSPA’s ‘likely’ scenario. That LCFS value (seen as the small green bar in the graph above) went directly to companies producing alternative, lower-carbon fuel products. Californians in turn were provided with a record amount of alternatives, including renewable diesel, biogas, lower-carbon ethanol and clean electricity.

Even accounting for the oil industry’s compliance costs, a study commissioned by Consumers Union—the research and policy arm of Consumer Reports—concluded that California’s clean transportation programs would result in up to $1,530 in fuel savings per household, $350 in avoided congestion costs per worker, and up to $4.8 billion in avoided societal harms by 2030. California’s clean transportation programs are proving to be highly cost-effective.  

Doomsday Myth 3: The LCFS will “produce a steep decline in demand for refined products, particularly gasoline, resulting in the loss of 20 to 30 percent of the state’s refining capacity by 2017...”  Western Petroleum Association Factsheet

Over the past several years, WSPA continued to report to legislators the LCFS would result in dramatic declines in the state’s refining capacity. But five years into the program, the state’s refining capacity remains virtually unchanged. In fact, as the economy recovered, gasoline and diesel demand has even increased slightly.

Fool me once, shame on you. Fool me twice, shame on me.

Despite all this, WSPA continues its campaign against the LCFS by now arguing California doesn’t need the standard to hit climate targets.  Most technical experts, however,  have shown significant amounts of clean, low-carbon fuels are needed to meet current and future goals – precisely what the LCFS is helping deliver (here and here and here). Fighting climate change will require both a strong clean energy ‘offense’—embodied by the LCFS—as well as a strong pollution ‘defense’—like the statewide cap-and-trade provides.  

Lawmakers shouldn’t let themselves be distracted by another round of doomsday claims by WSPA. Instead, they should stay focused on the many benefits to their constituents from California’s climate policies and be part of the state’s climate leadership. California has shown, time after time, that it can move forward on both environmental and economic progress. It's time for the oil industry to conform to the needs of the state and Californians, and not the other way around.