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New Study on Low Carbon Fuel Standards is Wrong

by Michael Levi
August 4, 2010

The National Petrochemical and Refiners Association (NPRA) has released a study showing that a “nationwide low-carbon fuel standard would increase global greenhouse gas emissions”. It is a distorted and misleading piece of work.

Here’s their basic argument: A low-carbon fuel standard (LCFS) would not have any impact on global oil production. It would, however, exclude high-emissions Canadian oil from U.S. markets. The United States would thus import more oil from the Middle East, and Canada would send its oil to China. This “shuffle” would increase emissions associated with crude oil transportation by 9-19 million tons of CO2 each year (with the exact amount depending on how much Canadian oil was shut out). That would also be the net impact on global emissions.

This is wrong. An LCFS affects oil consumption by increasing the price paid in the United States for fuels derived from oil in an amount proportional to their associated emissions. (It also increases the price of alternatives, but by less.) It thus reorders global oil consumption and decreases it. Lower U.S. oil consumption results in a mix of lower production and increased consumption elsewhere (through a slightly lower world oil price).

What is the net impact on emissions? The NPRA study argues that blocking all Canadian imports would increase transport emissions by 19 MtCO2 each year. Lifecycle emissions for a barrel of crude oil are about 0.5 MtCO2. Total U.S. consumption is currently about 20 million barrels per day. That leads to total annual emissions of about 3.7 billion MtCO2 per year. A decrease in that amount by 0.5% (net of any offsetting increases elsewhere) would completely offset the increased transportation emissions that NPRA identifies. And this analysis is generous to the NPRA: an LCFS would also increase the use of alternative fuels and promote greater efficiency in oil operations, which would also reduce emissions; I have, however, completely ignored those effects.

For the overall NPRA conclusion that an LCFS increases global emissions to be correct, the LCFS must be strong enough to shut out all Canadian crude, but too weak to result in an 0.5% decline in U.S. oil consumption (or perhaps 1% to be generous – there will be some offsetting consumption increases outside the United States). This is implausible.

The NPRA will argue that “LCFS implemented in the United States is not expected to change overall trends in energy use and demand for crude resources throughout the rest of the world”. This is probably true to a first approximation. But the 19 MtCO2 increase that they identify is also a rounding error – and an even smaller one.

I am not a big fan of an LCFS. But debate over one should be based on facts rather than nonsense.

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