Green House Gas

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.

Last week (Feb 19, 2013) we explored California’s cap-and-trade program for Greenhouse Gas emissions (GHG) and saw that it has already increased electricity prices by 20% and pushed up the cost of refining a barrel of oil by $0.78/bbl.  These developments are just the tip of the iceberg.  California’s program will impact regional natural gas demand and basis.  Companies will shift the locations where crude oil is processed.  Power imports into the California market from the Pacific Northwest will soar.  Today we’ll dive even deeper into the emissions market to better understand the outlook for GHG pricing and how the cap-and-trade rules are likely to influence all sorts of energy and fuel markets.

On January 1st, 2013, California’s cap-and-trade program for Greenhouse Gas emissions (GHG) went live and West Coast energy markets entered a whole new world.  Wholesale electricity prices in California increased 20% as a result and other energy markets have felt the impact.  For example, the new rules pushed up the average cost of refining oil by $0.78/bbl.  For companies subject to the regulations, the bottom line is that if you generate GHG, you pay.  But exactly who pays, how much you pay, and when you pay are all subject to a dizzying array of rules and regulations.  Today we’ll navigate the turbulent and uncharted seas of California cap-and-trade markets.