Road warriors

Author Will Murtha, Senior Reporter

When it comes to emissions dispute between the Trump administration and the state of California, who will rule the road?

President Donald Trump this week decided to play auto executive and put the brakes on California's ability to set more stringent greenhouse gas emissions (GHGs) limits for cars and trucks.

“Many more cars will be produced under the new and uniform standard, meaning significantly more JOBS, JOBS, JOBS!” the president tweeted.

Environmental groups howled. The California Air Resources Board warned that greenhouse gas (GHG) emissions would increase by “tens of millions of tonnes” and jeopardize the state’s ambitious climate goals.

But this is a road race from which California does not intend to back down.

The state today sued over the withdrawal of its waiver and will head to court again when the administration releases a regulation to ease national fuel economy standards for cars and pickup trucks. The litigation will likely draw out for years (if the 2020 election does not first render the issue moot).

And if Trump prevails in bending California to his will, the state possesses other tools to clean up the transportation sector – at 40pc, the largest contributor of greenhouse gas (GHG) emissions.

The Low-Carbon Fuel Standard (LCFS) mandates a 20pc cut in the carbon intensity of transportation fuels by 2030. The program forces refiners and fuel importers over time to blend more biofuels or find other cleaner alternatives to gasoline and diesel or purchase credits from other companies that make alternatives, including ethanol, renewable diesel and electricity.

Under Trump’s plan, less efficient vehicles would require Californians to fill up more at gasoline stations. While refiners and fuel importers would sell more product, they would also face a greater compliance burden under the LCFS that would drive up demand for low-carbon fuels and potentially accelerate the transition to zero-emission vehicles.

An LCFS credit now sells for around $200/metric tonne, an important psychological level for the market. If the price moves much higher, the program could become a political target, as regulated entities pass through their costs to consumers at the pump. But to date the LCFS has proven politically resilient, and regulators last year approved more stringent targets for the decade ahead.

Where the LCFS fails to pick up the slack, the cap-and-trade program will step in. California’s carbon market, which also covers emissions from transportation fuels, acts as a “backstop” to ensure the state reaches its goal of reducing GHGs 40pc from 1990 levels by 2030.

Similar to the LCFS, cap and trade has survived legal challenges and maintained the support of the governor and lawmakers.

By implementing multiple programs to drive down emissions from cars and trucks, California is trying to ensure that Trump does not rule the road.

What’s next for the North American environmental markets?

In this series of blog posts, our Argus Air Daily team are tackling the key trends for these markets. We’ll bring you up to speed on the latest changes and upcoming developments on a state and federal level. Take a look at last week’s post, Strange days.

Don't miss out.

Sign up for the newsletter today to get the next blog post direct to your inbox.