(Opisnet.com)  While already suffering through the highest pump prices in the continental U.S., Californians could face even higher gasoline and diesel costs when new low carbon fuel regulations gain traction Jan. 1, warn fuel experts. Price hikes of as much as $1/gal for gasoline and $2/gal for diesel could be coming as the rules come into force, studies show.

The California Low Carbon Fuel Standard (LCFS) aims to cut greenhouse-gas producing emissions from motor fuel by 10% between now and 2020. LCFS was implemented by the California Air Resources Board (CARB) beginning in 2011 as part of Assembly Bill 32 (AB 32), the “Global Warming Solutions Act,” signed by then-Gov. Arnold Schwarzenegger.

The LCFS aims to achieve AB 32’s goals by setting an increasingly tighter cap on carbon emissions from motor fuels supplied for sale in the state. Alternative fuels such ethanol or biodiesel are assigned Carbon Intensity (CI) scores based on the amount of carbon dioxide they cause to be emitted per megajoule of energy produced. Fuels that fall below CARB’s cap generate credits and those who have a CI higher than CARB’s cap generate a deficit.

Obligated parties can buy and sell credits on the open marketplace in order to balance their books and remain in compliance. The regs provide for refiners to pass on the obligation to comply to shipper/resellers, which include some jobbers.

But critics claim LCFS will have the unintended side effect of driving up pump prices as refinery capacity is shut in and restrictions on crude oil feedstock tighten supply. “High carbon” crudes, such as those coming from oil shale fields, will result in a higher CI rating for the petroleum products they produce.

A recent study on LCFS’ impact also predicts more fuel will leave the state in the form of exports, local supply will be reduced and jobs will be lost. Similar views were expressed by refiners this summer at a LCFS Symposium held in Sacramento. The symposium was put on by Fueling California, which calls itself a consumer alliance for responsible fuel policies.

Rick Zalesky, general manager of crude and manufacturing strategy, technology and commercial integration at Chevron, said during the symposium that the LCFS could result in refinery closures and that those refiners that did continue operations would export as much of their production as possible to skirt the LCFS requirements.

By contrast, Daniel Sperling, director of the Institute of Transportation Studies at the University of California-Davis, views LCFS as workable. He noted during the symposium that refiners already are generating carbon credits and that significant carbon-reduction mandates won’t hit until around 2017-2020. Others agreed that carbon reduction requirements are fairly modest now but that they could prove challenging starting in 2014-15.

…  Even if low CI biofuel supply is adequate, the BCG study estimates the cost of compliance with LCFS at between 33cts/gal and $1.06/gal by 2020 using current sugarcane price forecasts.

Sugarcane ethanol, sourced by and large from Brazil, enjoys the lowest CI ratings approved by CARB and industry observers predict it will be heavily advantaged over corn-based ethanol especially in the latter years of LCFS implementation.   READ MORE