Refiners eye US west coast climate rules

Author Jessica Dell

Environmental regulations along the US west coast will be ramping up over the next decade, just as California makes a strong push for electric vehicle growth. Taken together, these changes will make the region an increasingly challenging environment for gasoline and diesel sales.

Carbon intensity reduction targets will ratchet up under both California and Oregon's low-carbon fuel standard (LCFS) programs over the next decade.

California's Air Resources Board (ARB) voted last year to double the LCFS program's carbon intensity targets to 20pc by 2030, up from 10pc by 2020. The credits that refiners must buy to comply with the LCFS standards have recently traded at the highest level in the program's history. Prices in Oregon's Clean Fuels Program also have risen sharply to trade at their highest level to date. Oregon's program requires a 10pc carbon intensity cut by 2025. It is hard for refiners not to notice these trends.

Carbon intensity targets in CA and OR

The LCFS and Clean Fuels Programs are not the only environmental programs regulating transportation emissions on the US west coast.

California uses a cap-and-trade scheme to address climate change, and a lower emissions cap is on the horizon. The state's climate rules are set to tighten after 2020. A carbon market coupled with LCFS poses a unique compliance obligation for petroleum product sellers along the US west coast.

Click the following link for more information on Argus US Products: proven methodology, trusted intelligence, now at 3:45 pm

Added to this, California state policies instituted over the past year were designed to drive electric vehicle sales, further putting a key gasoline market in the US in jeopardy.

California is making no bones about its desire to see the number of zero emission vehicles on the road rapidly rise. ARB chair May Nichols has said the board, which enforces climate and air quality standards, is striving for more incentives to propel the state to zero-emissions in the transportation sector. "We want zero emissions everywhere, except if it is impossible, and then we will go for near zero," Nichols said in March.

This push for "zero emissions" in the transportation sector will ultimately take a chunk out of diesel demand. California regulators voted unanimously last week to require that all airport shuttles operating in the state be powered by electricity by 2035. The ARB adopted the Innovative Clean Transit rule in December, which requires transit agencies to run zero-emission fleets by 2040. The state under former governor Jerry Brown set a goal to hit 5mn zero-emission vehicles by 2030. Brown’s successor, governor Gavin Newsom (D), is backing that push.

Taken together, these moves have jolted fuels industry executives, given how big the California gasoline market is. California trails Texas as the largest gasoline consuming state in the US, according to most recent data from the Energy Information Administration.

Industry sources charge that California policymakers are picking winners – electric cars – and losers – vehicles powered by liquid fuels.

Diesel and gasoline demand is clearly not going away in the state, and no one thinks that will be the case. The trucking industry, for example, is expected to continue to rely on diesel, with electrification less of a ready option for heavy duty vehicle fleets.

But the refining sector is keeping an eye on all the factors that could dampen demand for their fuels in California. The day when zero emission vehicles could even come close to outnumbering internal combustion engine cars is far down the road. But California’s environmental regulations could chip away at domestic demand and increase refined products exports from the region.

Comments

Leave a reply

Required
Please fill in your name
The name is not correct (only letters allowed)

Related blog posts

03 July 2019

US crude exports: A new player dominates the Asian market

With domestic output exceeding regional demand, US crude producers are increasingly looking toward the export market for new outlets.

Filter:

Asia-Pacific Crude oil English North America

05 June 2019

Not all ‘net zero’ targets are created equal

When a country reaches net zero emissions it has, in effect, ended its contribution to global warming. But not all net zero goals are equal.

Filter:

Emissions Europe Natural gas/LNG Power Coal English

23 April 2019

IMO 2020 and jet fuel: What to expect?

On October 2016, the International Maritime Organization (IMO) enacted a new regulation for sulphur content in marine fuels requiring sulphur content to be reduced from 3.5% to 0.5%. The implementation date for this change is effective January 1, 2020.

Filter:

Oil products Africa Asia-Pacific English Europe FSU Global Latin America and Caribbean Middle East North America