Cap-and-Trade

The U.S. is still years away from establishing a national carbon tax or cap-and-trade system — and it’s certainly possible it will never take either step. But there are state and regional cap-and-trade programs in place to incentivize refiners and others to reduce their greenhouse gas (GHG) emissions. In today’s RBN blog, our fourth and final on carbon emissions and the refining sector, we look at state and international efforts to reduce GHG emissions and their prospective impact on the U.S. refining industry. 

After averaging more than a nickel below Henry Hub all this year, the California Border natural gas price spiked to 66 cents/MMbtu above Henry on Friday.  This kind of price volatility is no surprise to anyone following the radical shifts in California energy markets, starting five years ago when the state legislature enacted its 33%-by-2020 renewable portfolio standard (RPS) law.  By mid-2015, more than 14,000 MW of new solar and wind power had pulled down gas demand in California to the point that natural gas prices at the SoCal Border were averaging a negative basis to Henry Hub.  Still not satisfied, last year California legislators voted to establish a 50% renewables target for 2030.  On top of it all, the West Coast was coming up on a La Niña year that would bring more rain –– and hydroelectric generation –– to the Pacific Northwest and eventually into California. With all that renewable power (solar, wind and hydro), California seemed headed for an unprecedented period of low gas prices, but it did not turn out to be so simple.  In today’s blog, we continue our look at California’s power and gas markets with the events and drivers that shaped late 2015 and the first six-plus months of 2016, and consider what’s to come. 

California energy markets look quite a bit different today than they did five years ago when the state enacted a renewable portfolio standard (RPS) law that requires every utility and other electricity retailer to serve 33% of their load with renewable energy by 2020. Since then, California has seen huge changes in its energy balances – it shut down the nuclear generating plants at San Onofre, regulators expedited the build-out of new transmission lines to get more wind and solar power into the market, the state implemented a carbon cap-and-trade program, the legislature increased the RPS target to 50%, and SoCal Gas’s Aliso Canyon natural gas storage facility sprung a leak.  Today, we look at the changes in California’s energy markets since 2011, and what they mean for future developments in a state far out front in the adoption of renewables and environmental regulation.

Arnold Schwarzenegger said “Hasta la vista, baby” to the governor’s office in Sacramento four years ago, but his 2007 executive order establishing a low-carbon standard for transportation fuels is only now starting to have a real effect on California refineries. Some refiners say the rule aimed at reducing “life-cycle” greenhouse gas emissions from the transportation fuel sector 10% by 2020 is unrealistic and could result in refinery closings and gasoline and diesel shortages. Others say California’s goal is achievable. Today, we consider the Golden State’s low-carbon fuel standard (LCFS) and what it may mean for refiners.