How California is Breaking the Petroleum Habit

The California Low Carbon Fuel Standard is starkly simple. It requires that all transportation fuels have, on average, ten-percent less carbon intensity than today's gasoline by 2020.
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For more than three decades we have tried to break our nation's century-long addition to petroleum -- and failed. When the price of oil rose we suffered, and when it dropped our need for it grew. Last week, we began the first step of an effective long-term cure when California's Air Resources Board adopted a far-reaching regulation requiring cleaner transportation fuels.

The Low Carbon Fuel Standard, enacting a 2007 Executive Order by Governor Schwarzenegger, is starkly simple. It requires that all transportation fuels sold in California have, on average, ten-percent less carbon intensity than today's gasoline by 2020.

Driven by the need to tackle global warming, the new fuel standard's primary goal is to reduce greenhouse gases. It will certainly do that, reducing emissions by 16 million metric tons in 2020. That's one tenth of the reductions the state has committed to under AB 32, California's climate change law. Put another way, it's the equivalent of taking more than 3 million cars off the road.

As with other efforts to address climate change, there are a range of attendant benefits: less harmful air pollution and fewer illnesses from smog for starters.

But this regulation carries with it a benefit for our economic health, too. In 2020 cleaner, renewable biofuels, electricity, hydrogen, or compressed natural gas will replace four billion gallons of petroleum -- twenty percent of the state's annual consumption.

The standard pries the grip of petroleum from our throat one fossil-fuel finger at a time, setting us on a course towards a diversity of cleaner fuels. It will also liberate the economy from the roller-coaster ride of the international oil market.

How does the standard provide a foundation for a healthier and more secure economy? By fixing the problem that has bedeviled US energy policy for 35 years.

Previous attempts to take on oil depended upon a range of chosen alternatives: methanol one year, ethanol the next. The Low Carbon Fuel Standard breaks new ground because it does not anoint winners and losers. It leaves that decision to the marketplace.

Coupled with other policies supporting advanced vehicle technologies, the standard sends a clear signal that there will be a steady demand in California for low-carbon fuels for the next decade at least. By establishing this steady market the standard provides the private sector with confidence that there will be demand for alternative products no matter what happens with oil prices. As a result, makers and distributors of electric, flexfuel, hydrogen and other alternative cars and fuels will no longer have to worry that whipsawing oil prices could pull the economic rug out from under their investments, dooming us once again to even greater dependency on oil.

The standard also adds a new twist by including electricity and hydrogen as transportation power players. This will entice the broadest cross-section of investors and entrepreneurs to get into the market, including well-capitalized competitors such as electric utilities which in California already produce some of the world's cleanest electricity. They will provide capital for fueling, charging stations and other infrastructure investments while promoting the competition that has long been missing in the transportation fuel sector.

And by sending a signal that there is a price to pay for choosing carbon-heavy fuels like gasoline and some biofuels produced from food products, the market is primed to develop a new generation of the cleanest fuels in the nation and the world. Investment to develop and distribute these new fuels is already flowing into California. While every other sector of the economy is flagging in these difficult times, the clean technology sector continues to grow as investors pump billions into clean, renewable power, and millions into the research and development of a new generation of fuels in California. These include powerful enzymes that can break down agricultural waste such as straw, common invasive weeds such as switchgrass or even wood or solid municipal waste (yes, that's garbage) to create ethanol and other fuels.

There's another reason to take on petroleum now. We're already requiring car manufacturers to reduce their greenhouse gas emissions thirty percent by 2016, with greater reductions in the future. (Our Clean Car Law is awaiting a green light from the EPA.) Up until now the oil companies, with far greater cash reserves than Detroit and equally responsible for emissions from the transportation sector, have gotten off scot free. Last year Exxon reported $45.2 billion in profits, ahead of Chevron's $23.9 billion. The standard now requires them to do their fair share, and in the process may also hasten their inevitable transformation from oil companies to energy providers. Certainly in years to come, they will all have to go 'beyond petroleum'.

But now it won't only be the oil companies who will be calling the shots for the future. Under the standard, it's the consumer who will make the decision whether to buy a plug-in hybrid, battery electric, hydrogen fuel cell, or compressed natural gas vehicle. Those who stick with internal combustion engines may not even be aware that what they are pumping into their cars contains a new generation of biofuels made from, say, algae or the chemical breakdown of solid municipal waste. It will be a new world of cleaner fuels.

That's why I am convinced California's standard holds such promise for a national solution to help us kick the petroleum habit. It draws upon two powerful elements that have served us well in the past: American ingenuity, and creative capitalism. Harnessed together under the standard they will help break our dependence on the dirty fuels of the past and usher in the necessary transition to a clean, low-carbon future and an abundance of twenty-first century sources of energy to fuel our economy.

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