AB 32 Implementation:
California May Lose $4.4 Billion in Tax Revenue Due to Low Carbon Fuel Standard, Economists Report

A study released June 19 finds that California may lose up to $4.4 billion in state tax revenue because of oil refinery closures resulting from regulatory burdens imposed by the state's Low Carbon Fuel Standard (LCFS).

LCFS is a regulatory program put in place by Governor Arnold Schwarzenegger in 2007 that requires transportation fuels to be less carbon-intensive.

Brad Van Tussel, a partner with Boston Consulting Group (BCG), said that four to six refineries – or 20 percent to 30 percent of California's refining industry – may close as a result of the regulatory program. BCG estimates that these refinery closures would cost the state $4.4 billion in lost tax revenue because the state would collect less corporate and personal income tax, excise tax and property tax, on top of the decline in jobs.

Mr. Van Tussel estimated that for refineries to absorb costs associated with the LCFS, as well as other AB 32-related programs such as cap-and-trade, they may need to raise prices at the pump by $2.07 per gallon of gasoline.

The study was prepared by BCG and sponsored by the Western States Petroleum Association (WSPA). It was unveiled before a symposium discussing the impacts of the new fuel standard. The symposium, sponsored by Refueling California and moderated by an executive from United Airlines, brought together business leaders, environmentalists and lawmakers.

Senator Michael Rubio, whose district in the Central Valley includes several refineries, stated that the LCFS has proven very difficult to implement, and said it is essentially "dictating a path" that leads to higher fuel imports into California.

Catherine Reheis-Boyd, president of WSPA, said the timeline for implementing the program poses significant concerns, because the technology needed to comply with the program is not yet feasible. She said WSPA is not trying to undo the regulation, but is working to modify the program's timeline and expected outcome.

Rick Zalesky, general manger of crude and manufacturing strategy at Chevron, elaborated on this point, noting that after five years of research and development, his company could not determine how to implement the LCFS in a cost-effective manner. He said existing technology does not make the program feasible, and that the costs of building a bio-fuels plant are more than what Chevron would spend on a brand new refinery.

Both the report and the symposium came shortly after BP released its 61st Annual Statistical Review of World Energy. The report notes that the world's energy supply in 2011 was greatly affected by global crises, including the "Arab Spring" and the temporary loss of Libyan oil and gas supplies, as well as the Fukushima incident in Japan. To deal with these losses, American exports of coal and natural gas rose to meet the challenges of a growing and interconnected global market. BP noted that open and competitive markets have helped bolster the U.S. energy industry's ability to compete on a global platform.

June 22, 2012
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