California passed rules discouraging the state’s refiners, including Chevron Corp. (CVX) and Tesoro Corp. (TSO), from processing types of crude that release more carbon when produced and delivered, such as output from Canada’s oil sands.
The regulation, approved as a change to the state’s low- carbon fuel standard, assigns “carbon-intensity” values to about 250 types of crude oil, favoring those that take less energy to produce and transport. Next year, companies will have to cut their carbon scores on a statewide average and potentially on a refinery-by-refinery basis.
Refineries have fought high-carbon crude regulation since the state approved it in 2009, saying the rules are anti- competitive and compound other costly measures under the low- carbon fuel standard and the state’s cap-and-trade program.
The standard, the first of its kind in the country, seeks to cut the carbon-intensity of transportation fuels 10 percent by 2020.
“The mission of these rules is to use less of that carbon- intensive stuff,” Dave Clegern, a spokesman for the state California Air Resources Board, said in a telephone interview from Sacramento. “This will hopefully help us keep a wide variety of crudes available but create deficits with the dirtier kinds.”
While the air board estimates that higher-carbon crudes are a small part of California’s refining mix, imports from outside Alaska and Central California have been climbing since 1999, state Energy Commission figures show.
Crude-oil production in Alaska has declined every year since 2002. California oil production has fallen for the last 13 years. Alaska has historically been the largest source of non- Californian oil in the state.
The percentage of non-Alaskan oil imported to California refiners made up almost half of the crude processed in the state last year, according to the energy commission.
The regulation will raise the costs of refining in California and eventually boost retail gasoline and diesel prices, David Hackett, president of energy consultant Stillwater Associates in Irvine, California, said in a telephone interview.
“After Alaska, you’d rather get the rest from Canada next door than from Saudi Arabia halfway around the world,” Hackett said. “But these rules make it so you can’t use that dirty Canadian stuff.”
The Western States Petroleum Association, which represents California’s major refiners including BP Plc (BP/), Chevron and Exxon Mobil Corp. (XOM) and Tesoro, is lobbying the air board to change the rules in a way that doesn’t differentiate between crude types.
The individual scoring imposes “a very limiting, inflexible provision” for refineries that are designed to run off heavy oil, Catherine Reheis-Boyd, the group’s president, said in a telephone interview from Sacramento.
“This one I scratch my head at,” Reheis-Boyd said. “Canada has been very clear that they will develop oil sands and put them on boats to China and India, and it’ll be burned in much less-efficient refineries than we have here in California. So the rule doesn’t achieve any of the goals it wants to anyway.”
The association is fighting against provisions in the fuel standard that forces refiners to blend increasingly more low- carbon biofuels into gasoline. Biofuels, particularly sugar cane and cellulosic ethanol, required to meet the standard will surpass supplies in 2015, a report commissioned by the association shows.
The Air Resources Board “likes to go out and make these rosy projections,” Scott Folwarkow, a governmental affairs director for Valero, said in a telephone interview from Sacramento. “They’ve got all these different scenarios they think might work, but in reality, they throw caution to the wind and hope to address deficiencies at a later time.”
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