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Thursday, June 21, 2007

A Low-Carbon Fuel Standard?

The ideas continue to roll out for how to fight global warming in ways that are politically feasible, have low administrative costs, and attain reductions relatively efficiently. Recently, Robert Reich explained a plan involving auctions, and here's another involving mandated reductions in the carbon content of transportation fuel:

A new carbon standard, by Daniel Sperling, Commentary, LA Times: Prominent voices are calling for national carbon taxes as ... the cure for our greenhouse gas pains. It isn't, at least for transportation. ... [G]lobal warming can't be solved by a single policy or solution.

Carbon taxes ... aren't a bad idea. But they only work in some situations. Specifically, they do not work in the transportation sector, the source of ... a third of U.S. emissions...

The one sector where carbon taxes will work well is electricity generation, which accounts for ... 40% of U.S. emissions... The carbon tax works because electricity producers can choose among a wide variety of commercial energy sources — from carbon-intense coal to lower-emitting natural gas to zero-emission nuclear or renewable energy. A modest tax of $25 per ton of carbon dioxide would increase the retail price of electricity made from coal by 17%. Given the many choices, this would motivate electricity producers to seek out lower-carbon alternatives. The result would be innovation, change and decarbonization.

Transportation is a different story. Neither producers nor consumers would respond to a $25-a-ton tax. Fuel producers would not respond because they ... cannot easily find low-carbon alternatives. Even corn ethanol is only slightly better than gasoline.

Drivers also would be unmotivated by a carbon tax. A CO2 tax of $25 a ton would raise the price of gasoline only about 20 cents a gallon. ... A recent study at the UC Davis Institute of Transportation Studies found that the "price elasticity" of demand for gasoline has shrunk; a price increase of 10% induces less than a 1% reduction in gasoline consumption. Thus, that 20-cent increase would be barely noticeable. In the transport sector, a carbon tax would have to be huge to induce change.

What about mandating use of particular fuels? That doesn't work because it is impossible to know which horse to back. At UC Davis, we have decades of experience in transportation technology, policy and consumer behavior — yet we still cannot predict which fuels are likely to succeed. ... The potential for new fuels with dramatically lower emissions is very real, but we have no clear winner yet.

And elected officials are no more qualified to pick winners than are university scientists. I just returned from ... Washington, where ... lobbyists have stirred a buzz for ethanol and ... coal-based liquids. But ethanol made from corn provides little reduction in greenhouse gas emissions, and coal liquids threaten huge increases. ...

Here is what we can say...: Cutting carbon emissions from transportation fuels with mandates and taxes won't work. But a new approach using a low-carbon fuel standard will. This new standard will require oil companies and other fuel providers to reduce carbon and other greenhouse gas emissions of transportation fuels by at least 10% by 2020. It will be up to the providers to choose how to do that, including blending low-carbon biofuels into conventional gasoline, selling low-carbon fuels, such as hydrogen, and buying credits from providers of other low-carbon fuels, such as low-carbon electricity or natural gas. This allows businesses to identify new technologies and strategies that work.

The low-carbon fuel standard picks ... sends a fuels-neutral signal that alternatives are welcome in [the]... transportation fuels marketplace. ... Real solutions to global warming are needed. Let's just be sure they're effective.

    Posted by on Thursday, June 21, 2007 at 12:33 AM in Economics, Environment, Regulation | Permalink  TrackBack (0)  Comments (14)


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