California’s Cap and Trade Program starts, impacts on fuel prices hotly debated

By Bill Holloway
As of January 1, gasoline, diesel, and natural gas fuels are now covered under California’s Cap-and-Trade Program.  The program, which was established as part of the state’s 2006 climate change law, requires large companies to pay a price to emit carbon by purchasing carbon allowances. As described recently in the Sacramento Bee, while oil refiners were already covered under the law, they had been responsible only for their smokestack emissions, but not for carbon emissions released from car and truck tailpipes. Beginning in 2015, fuel wholesalers must purchase carbon emissions allowances based on the volume of fuel they sell to gas stations.
How fuel prices will be affected at the pump remains to be seen, with supporters and opponents of the carbon-pricing scheme offering very different predictions. State officials and others supportive of the policy maintain that the impact will be less than 10¢ extra per gallon, while some in the oil industry maintain that the impact could be closer to 75¢ extra per gallon. Others have voiced concerns that the oil industry, which has vehemently opposed the inclusion of motor fuels under the state’s cap-and-trade program, might manufacture a major price spike to stoke public anger at the law and dissuade other states from adopting similar measures.
According to a recent SFGate article that explored this issue, consumer advocacy groups are bracing for a fight with the industry, and Consumers Union—Consumer Reports’ policy arm—has written letters to state officials warning of potential market manipulation by oil companies.
To shed light on the issues driving fuel prices, the California Energy Commission has established a Petroleum Market Advisory Committee staffed by independent oil market experts, which will focus on understanding the factors that drive gasoline and diesel price fluctuations.
Bill Holloway is a Transportation Policy Analyst at SSTI.