State Sen. Darrell Steinberg’s proposed carbon tax will undoubtedly spark a spirited debate about how much Californians are willing to pay to address global warming. From our point of view, it’s the right conversation to have.
Under existing regulations, the refiners and importers who supply our fuel become obligated to purchase cap-and-trade allowances for every gallon of gasoline and diesel they sell starting Jan. 1. At the current cost of allowances, established by state-run cap-and-trade auctions, that will be at least $2 billion added to the cost of gasoline and diesel. That equates to an increase in cost of about 12 cents per gallon at today’s carbon cost.
Requiring refiners to buy allowances for gasoline and diesel under the cap-and-trade program is tantamount to putting a $2 billion tax on those products.
For too long, conversations about costly and complex climate change regulations in California have been occurring without the benefit of robust and broad dialogue of stakeholders and decision-makers, including the Legislature. The discussions, which have real impacts on the state’s businesses and consumers, have not broken through to the public-at-large in ways that give them choice in how California addresses climate change.
The petroleum companies our association represents have not taken a formal position on the carbon tax proposal. But the proposal does raise the broader issue relative to how fuels are currently scheduled to be regulated under the AB 32 cap-and-trade program.
We recognize, as does Steinberg, that existing regulations will provide a shock to fuel markets and to Californians who are woefully unprepared. This is why he proposes to continue the cap-and-trade provision for industry facilities; but replace cap and trade’s current 2015 expansion into the transportation fuel economy with a broader, more stable and more flexible carbon tax of a similar amount on these same fuels.
California’s refining industry – along with other energy intensive industries – have been grappling with the costs and complexities of AB 32 regulations for years, particularly the Low Carbon Fuel Standard. We’ve complained about them, made numerous recommendations to improve them and we are doing our best to navigate their murky waters. And most of it has been invisible to the average taxpayer and consumer.
There are many in government and academia who argue the higher fuel costs are an intended and necessary result of AB 32. They argue increasing the cost of petroleum-based fuels is the only way to change the types of cars Californians drive and the way they drive them. In their minds, raising the cost of petroleum fuels also has the likely result of making costly alternative fuels more competitive.
If that’s the true purpose of AB 32’s impact of gasoline and diesel costs, California’s political leaders – those who champion the state’s climate leadership – must be prepared to stand up and take ownership of these policies.
If nothing else, Steinberg deserves credit for doing just that.
Reheis-Boyd is president of the Western States Petroleum Association.