Lower emissions can cut gas prices, study finds

Gov. Arnold Schwarzenegger on Friday released a University of California study showing that the state can cut gasoline prices and stimulate the economy by reducing greenhouse gas emissions in the production of transportation fuels.

In January, he signed an executive order mandating that California refineries reduce the carbon content of passenger vehicle fuels 10% by 2020. The effort is critical for California to reach its target of cutting all greenhouse gas emissions over the same time by about 25%.

For the state to begin working on a plan to do so, however, it first needs a formula to calculate pollution from refineries and companies that blend gasoline and a way to measure the progress.

The UC study attempted to solve the problem. It created a complex way to measure total greenhouse gas emissions created during fuel production in the state.

The study also concluded that an emissions credit system -- in which overachieving refineries can sell credits to those failing to meet the standard -- could stimulate enough competition and investment in alternative fuels that California could surpass its 10% reduction goal.

“Our low-carbon standard is a solution, a policy to recognize that we can’t transform our multibillion-dollar fuels market unless the private sector sees a reason to invest and customers see a reason to buy,” Schwarzenegger said.

In customary style, he cast the state’s challenge to reduce greenhouse gas emissions in outsized terms.

“This is our race to the moon,” the governor said. “And like that race, this, too, would be ‘one giant leap for mankind.’ ”

Refineries, gasoline companies and auto producers took pains Friday to stress that they support the governor’s efforts. But they also raised concerns about how the state would implement the study, which will be released in its entirety May 31.

“With all the uncertainty and unanswered questions, how do you come to the conclusion that ... it’s really feasible?” asked Catherine H. Reheis-Boyd, chief operating officer for the Western States Petroleum Assn., which represents refineries that produce about 90% of all gasoline in California.

She said the industry must ask tough questions before the regulation is made final. For example, she said California must consider the greenhouse gases produced in growing and processing corn for ethanol to develop a fair formula.

“We don’t want unintended consequences,” she said.

Scientists offered only a peek at the formula Friday, acknowledging that many details must still be worked out. The California Air Resources Board is expected to vote on it next month.

If approved, it would launch an 18-month rule-making process that would start the clock ticking toward a 2010 deadline to implement the so-called low-carbon fuel standard, said Daniel Sperling, a co-author of the report.

He said one advantage of the credit-trading program is that it would not push refineries and fuel producers toward one technology or another.

“The government is not picking winners and losers,” said Sperling, director of the Institute of Transportation Studies at UC Davis. “We’re creating a framework, a process to guide investment and introduce clean fuels.”

If refineries have trouble meeting the standard, he said, they might be able to buy credits by investing in electricity for electric cars.

Sperling and other advocates also said they believe the low-carbon fuel standard could help stabilize, if not reduce, gas prices by introducing competition to traditional gasoline imports and production.

“In the near-term it’s hard to say, but in the long-term it should lower gas prices,” he said. “This is not an Exxon or Chevron issue, this is a global oil issue. Oil costs about $25 to $30 a barrel to [produce]. There’s no market reason it should cost $60 a barrel.”