Study Reveals Negative Economic Impacts of A National Low Carbon Fuel Standard

A new study by the Charles River Associates, on behalf of the Consumer Energy Alliance, analyzed the economic and energy impacts from a national Low Carbon Fuel Standard (LCFS). A LCFS restricts the use of higher carbon intensive fuels and requires the use alternative fuels. The problem is that few alternative fuels exist, and those that do exist are very expensive. Thus the practical effect of a LCFS is to restrict the use of crude oil and increase the costs of transportation fuels. Below are the study’s major findings analyzing economic impacts associated with a national LCFS. Economic Impacts

  • By 2025, a nation-wide LCFS is estimated to cause a net loss of between 2.3 – 4.5 million total jobs from baseline levels. Regions around the U.S. would be disproportionately affected. The losses will not be evenly distributed across industrial sectors. These impacts include all so-called “green jobs” that will be created as a result of the LCFS.
  • By 2025, the proposed legislation is estimated to reduce household annual purchasing power by $1,400 to $2,400 relative to 2010 income levels.
  • By 2025, the proposed legislation is estimated to reduce investment by $200 to $320 billion relative to the baseline.
  • By 2025, GDP, a commonly used measure of total economic activity, is estimated to decline below the baseline by approximately 2 to 3% or $410 to $750 billion.
  • The impact on regional economic growth (GRP) from a nation-wide LCFS mandate will vary by location. Impacts on regional investment will follow a pattern similar to the GRP impacts.

Energy Industry Impacts

  • By 2025, a LCFS is estimated to increase the cost of transportation fuels to consumers by 90% to 170% relative to the baseline.
  • In order to keep the cost of transportation fuel from increasing even further in the year 2025, it will be necessary for low carbon fuel production to increase to more than 2.5 times the production forecasted in the baseline for the year 2015.
  • By 2025, the higher cost of transportation fuel will cause drivers to reduce their driving by 9% to 14% relative to the baseline. Trucking ton-miles will be down by 9% to 13%.
  • By 2025, refinery throughputs will decline by 4.0 to 5.8 million barrels per day (mmbd) resulting in the additional closing of 43 to 55 refineries with an associated loss of 4.6 to 6.5 million barrels of refining capacity.
  • By 2025, a LCFS will cost about 21,000-33,000 direct refinery jobs and reduce ongoing refining investment by $2.1 to 3.2 billion/year.

A LCFS would be particularly disastrous for the Midwest and Wisconsin. Canadian crude is the predominant source of fuel for the region. Canadian crude derived from the oil sands in particular is carbon intensive to extract from the ground, and thus is the target of a LCFS. Wisconsin business groups last legislative session successfully defeated a provision in the global warming legislation – the so-called “Clean Energy Jobs Act” (SB 450/AB 649) – that would have significantly increased the cost of oil. This latest study further highlights the negative economic impacts a LCFS would have for Wisconsin and the rest of the nation.