Do clean fuels standards like the California Low Carbon Fuel Standard (LCFS) increase the price of fuels at the pump? As states in the Midwest consider adopting a clean fuels standard, consumers want to know how such policies will impact their wallets.
Thankfully, new findings from Bates White Economic Consulting show how consumers can benefit from clean fuels standards. That’s welcome news, especially in a year when people faced record-high gas prices.
Here are three takeaways from the Bates White study for Midwestern consumers and policy makers as they consider clean fuels standards:
- Clean fuels standards result in more fuel options for consumers.
- A clean fuels standard incentivizes the deployment of more renewable and low carbon fuels, which often provide cost savings compared to petroleum fuels.
- The study shows no correlation between the LCFS and retail fuel prices in California.
The new study from Bates White found no statistically significant correlation between California’s LCFS credit prices and retail gasoline prices in the state. In fact, the study finds that the LCFS incentivizes lower-cost options, giving consumers more choices.
As described in the study, the Low Carbon Fuels Coalition (a member of the GPI-facilitated Future Fuels Coalition) engaged Bates White to “evaluate the primary drivers of transportation fuel prices in the state [California] and to determine whether the California LCFS program has a discernible impact on retail gasoline pricing.”
State-level market context key to understanding clean fuels standard implications
As states in the Midwest, like Michigan, Minnesota, Nebraska, Ohio, and others consider the implications of a clean fuels standard, it’s important to understand each state’s market. In this post, we’ll look at the example of Minnesota, where the state legislature considered a clean fuels standard legislation called the Future Fuels Act.
As Minnesota considered a clean fuels standard, clean fuels policy skeptics argued that a Minnesota clean fuels standard would increase gas prices. Yet, their evidence does not reflect the Minnesota market context or accurately reflect the experience from other states.
A report published by a conservative Minnesota think tank alleged that a Minnesota clean fuels standard would burden consumers with higher fuel prices at the pump, citing a study by Stillwater Associates that claims the LCFS increased gasoline prices in California by 22 cents per gallon in 2020. The study also cites the Oregon Department of Environmental Quality’s webpage, “Annual Cost of the Clean Fuels Program,” as evidence to back their claim.
By the Oregon Department of Environmental Quality’s description, the approach and values used to calculate the cost or cost-savings of the Clean Fuels Program (CFP) are conservative. According to the same web page that the report cites, the methodology for estimating cost does not take into account “the value of CFP credits being used to lower the cost of the low-carbon biofuels being blended into gasoline and diesel for use in Oregon, nor does it capture the value of the credits making other low-carbon fuels such as electricity, renewable natural gas, or renewable propane cheaper and more affordable to consumers in Oregon.”
The Stillwater Associates study estimates that if the Future Fuels Act passes, the cost of gasoline and diesel per gallon would increase as a result. Stillwater Associates’ Minnesota projections are based on two assumptions:
- Adoption of clean fuels standard programs in other states will increase competition for limited low-carbon intensity feedstocks and fuels.
- Bigger changes in the fuel mix will become necessary to accommodate an increasingly stringent standard—all leading to increased costs for the fuel consumer.
However, according to the same study, there are several differences between the fuel markets in Minnesota and California that would lead to different clean fuels standard compliance costs:
- Biofuel feedstocks are more widely available in Minnesota.
- There is a higher share of diesel in Minnesota’s fuel mix that could be replaced by biodiesel and renewable diesel without significant (and costly) infrastructure investments.
- The carbon intensity reductions for the first few years of a Minnesota program can be attributed to existing biofuel use in the states since the 2018 baseline in the Future Fuels Act is based on petroleum fuels.
Additionally, the Bates White study examined the retail gasoline price effects of the California LCFS. The study found that while fuel prices are higher in California compared to other states, that difference cannot be linked to the LCFS, and fuel prices are not correlated with credit prices.
In fact, Bates White found that diversifying the fuel supply by incentivizing renewable fuels provides lower-cost options than petroleum fuels and therefore cost savings for the consumer. Ultimately, the study concludes that the primary driver of fuel prices in California is the price of crude oil.
California’s gasoline prices are also impacted by the California Reformulated Gasoline fuel blend specifications, excise and sales taxes, the state’s cap-and-trade program, and the fact that California’s isolated transportation fuel market makes it reliant on a handful of large refiners.
These California-specific factors do not apply to Minnesota or any other state. Therefore, they cannot be used to project price impacts elsewhere.
Moreover, the report’s assumption that deficits are passed on to the consumer in the form of higher gas prices does not take into account that a clean fuels standard would incentivize the deployment of a wider variety of lower-carbon fuels, giving consumers more to choose from at the pump, and giving fuels the opportunity to compete— thanks to its market approach.
Download the California and Oregon issue brief
Looking ahead: Recognizing the benefits of a clean fuels standard for Midwestern consumers
A clean fuels standard bill did not pass the Minnesota legislature in 2022, leaving the door open in 2023 for more conversations and analyses that communicate the fuller picture, including the demonstrated benefits of clean fuel standards at the pump and at the plug. And as other states across the Midwest consider clean fuels standards, they’re now better equipped to communicate those benefits to consumers and businesses.
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