Northeast Markets Eyed for Oil Sands as Clean Fuels Standard Fades

In New Jersey, Gov. Chris Christie’s administration pulled out of a proposed pact to cut global warming emissions in transportation fuels.

In New Hampshire, the House passed a bill to leave the same regional initiative. And in Maine, the government opted to continue to engage in the program, but not to apply the rules to its own transportation sector.

In those three states and others, leaders are reevaluating their role in the Clean Fuels Standard, a policy that limits consumption of high-carbon fuels like oil sands crude, as pressure from oil industry-backed groups mounts and support falls off. And it is happening just as the region’s entire fuel picture may be about to change.

A Montreal pipeline firm plans to transport tar sands oil to the Atlantic Coast for the first time by reversing the flow of its Maine-to-Quebec oil pipeline. Enbridge, Canada’s largest pipeline company, has its own plans to link to that Montreal line and carry Alberta crude east. And TransCanada Corp., the company behind the proposed Keystone XL pipeline, wants to pipe oil from tar sands mines to refineries in Ontario, Quebec and potentially to a New Brunswick facility that supplies fuel to the Northeast.

Since late 2009, 11 states in the Northeast and Mid-Atlantic region—New Hampshire, New Jersey, Maine, Connecticut, Delaware, Maryland, Massachusetts, New York, Pennsylvania, Rhode Island and Vermont—have been developing the Clean Fuels Standard. The idea was to create a policy modeled on California’s pioneering Low-Carbon Fuel Standard, which requires oil refiners and suppliers to reduce the carbon intensity of their fuel mix by 10 percent in 2020. The Northeast pact is expected to be completed next year.

But opponents have been ratcheting up efforts to keep a California-style standard from taking hold in the Northeast, and they’re finding receptive audiences in some Republican-leaning states.

Now, all participants are considering alternatives, including making the program voluntary.

Leading the charge to block the rules are two organizations: Americans for Prosperity (AFP), a group founded and funded by oil industry interests—including the conservative billionaires Charles and David Koch—and the Consumer Energy Alliance (CEA), which represents oil and gas producers, business councils and energy trade associations. Both argue that fuel emissions requirements would raise gas prices and cost the region hundreds of billions of dollars.

AFP launched a campaign last year to convince states to exit the Regional Greenhouse Gas Initiative (RGGI), the nation’s first cap-and-trade program for curbing greenhouse gases. Nine of the 11 states in the Clean Fuels Standard are part of RGGI; Pennsylvania never joined the cap-and-trade effort and Christie withdrew New Jersey late last year. Legislative attempts to force a withdrawal in New Hampshire, Delaware and Maine failed. A study found that every RGGI state has benefited economically from the pact.

AFP has been active in New Hampshire trying to repeal the Clean Fuels Standard, which it calls “liquid RGGI.”

In recent years, CEA has focused on fighting California’s low-carbon fuel standard. The group is embroiled in a two-year-old lawsuit to strike down that mandate. In 2010, it poured $1 million into television and radio ads to block an attempt by Sen. Debbie Stabenow (D-Mich.) to pass a national low-carbon fuel standard.

CEA told InsideClimate News it has met with legislators, governors and regulators in the Northeast to get them to reconsider.

CEA’s president is David Holt, a managing partner at HBW Resources, a lobbying and public affairs firm whose clients include the American Petroleum Institute (API), the largest oil industry trade group, and the Center for North American Energy Security (formerly the Center for Unconventional Fuels), an industry a group created to promote oil sands development. CEA is run out of the Houston offices of HBW Resources.

Michael Whatley, CEA’s executive vice president, said that “even though the oil and gas guys are members of our organization … they don’t drive the train, and they certainly don’t drive the policy.”

Where are the Supporters?

Advocates of the Clean Fuels Standard say the policy is key to cutting climate-changing pollution and to spurring the market for clean cars.

But just as opponent campaigns have gotten more aggressive, supporters have slowed down their advocacy efforts, and the process has lost steam, several policy experts told InsideClimate News.

“There have been some challenges moving forward that have affected the momentum,” saidChristina Simeone, director of the Energy Center for Enterprise and Environment at PennFuture, an environmental group in Pennsylvania.

One obvious challenge is shifting politics, Simeone said. States like New Jersey and New Hampshire have made the program less of a priority ever since more conservative Republican governors and legislatures replaced those who agreed to the program. Last year, the Midwestern Governors Association, which was creating its own clean fuels pact, dropped the project after five of the 10 governors who signed on were replaced by Republicans.

Cash-strapped state governments are also finding it difficult to dedicate resources to developing the Clean Fuels Standard, said Justin Johnson, deputy commissioner of the Vermont Department of Environmental Conservation. Vermont participates in the initiative through theNortheast States for Coordinated Air Use Management (NESCAUM), the nonprofit group coordinating the program.

The politics of gas prices are further complicating efforts, experts said. States supporting the low-carbon fuel standard have become more hesitant to back a plan that could potentially drive up gas prices.

Luke Tonachel, a senior vehicles analyst for the National Resources Defense Council, along with others, noted that legal challenges to California’s policy have had “a bit of a chilling effect” on the Northeast effort as well.

California’s low-carbon fuel standard was supposed to take effect on Jan. 1, 2012. But on Dec. 29, a federal judge said the rule violates the commerce clause of the U.S. Constitution by regulating economic activity outside California’s borders. The ruling ensures that California’s clean air agency can’t enforce the measure until the lawsuit by CEA and others is resolved in 2013.

“States are watching the litigation in California carefully and thinking about the path forward in light of the current legal and political obstacles,” said Vicki Arroyo, executive director of the nonprofit Georgetown Climate Center.

‘Everything on the Table’

The California fuel standard would require oil refiners, importers and distributors to cut the carbon footprint of their motor fuels, measured not just by emissions from tailpipes, but across the whole lifecycle, from extraction to combustion. It hinges on an analysis of each fuel’s “well-to-wheel” emissions. Fuels that release more carbon dioxide in the extraction process like oil sands crude would be considered to have higher greenhouse gas intensity than regular oil.

Those who miss targets would have to pay a penalty, or pay into a state fund dedicated to increasing the number of electric cars and other clean vehicles on the roads.

Johnson, the deputy commissioner in Vermont, said the Northeast is now considering alternatives to the California model. “Right now, we’re in the ‘everything on the table’ phase,” he said. Alternatives could include a voluntary program that offers incentives to oil suppliers to clean up their fuel mix.

States are looking to move ahead “correctly, not quickly,” Johnson said, adding that they are “at least a year away from anything significant.”

Confirmation of Canadian oil sands entering the Northeast, however, could help speed up the process, said Toncahel of NRDC. “Bringing dirty Canadian tar sands into the region … would bring more attention to the Clean Fuels Standard, and it would certainly raise the urgency of action in the region.”

Canadian oil companies, based largely in Alberta, are increasingly looking to the eastern provinces as a way to get their oil sands crude to new markets.

TransCanada is proposing a $5.6 billion pipeline system that would move 625,000 barrels a day of crude to Ontario, Montreal and Quebec City, the Globe and Mail reported last week. It could also connect to the major Irving Oil refinery in Saint John, New Brunswick, which supplies a significant portion of the Northeast’s transportation fuels.

InsideClimate News recently reported that Montreal Pipe Line Ltd.’s plan to reverse the flow of its South Portland, Maine-to-Montreal, Quebec oil pipeline suffered a setback when judges with the Court of Quebec rejected its request to construct a pumping station that could facilitate the reversal. Experts involved see it as a temporary obstacle.

Opponents Ramp Up Efforts

In the meantime, opponents of the Clean Fuels Standard are taking advantage of the slow pace of progress.

On Monday, CEA released a report that said adopting the California model would cost the Northeast nearly $130 billion in total economic activity and at least 147,000 jobs over a ten-year period. Gas prices, meanwhile, would double, according to group.

The findings contradict a NESCAUM study that found that a 10 percent reduction in the well-to-wheels emissions of fuels would create up to $41 billion in economic benefits over ten years. NESCAUM expected gasoline and diesel prices to grow from slightly over $3 per gallon of gasoline in 2013 to $3.59 in 2022.

Whatley, CEA’s executive vice president, told reporters that NESCAUM’s analysis was “not sufficiently thorough” and that it was based on “flawed” assumptions.

Proponents of the fuel standard decried CEA’s analysis as biased.

“The report was put out by the CEA, and the CEA is the voice of the American Petroleum Institute,” said Jennifer Rushlow, a staff attorney with the Conservation Law Foundation, in an interview. Her group is providing legal help to California’s air agency in its fuel standard lawsuit against CEA and others.

Whatley denied that accusation. “API is one of the 190-plus affiliate members of CEA, which include truckers, manufacturers, airlines, convenience stores, truck stop operators, chemical producers, iron and steel producers, farmers and energy producers.”

The CEA report comes weeks after New Hampshire’s GOP-controlled House voted to prohibit the state from regulating the types of fuels used in cars, jets or ships, or in home heating. The law would bar the state from participating in a Clean Fuels Standard, but would allow state officials to participate in discussions.

Environmental groups in the state expect the Senate to pass the bill in a few weeks. Last summer, Gov. John Lynch struck down a measure to back out of RGGI. It is unclear if the governor will veto this latest bill.

Whatley said that he was “excited” about the New Hampshire legislation and said that he met with a large number of legislators to get it passed. “We feel good about the results of the conversations that we’ve had,” across the region, he said.

In January, Christie’s administration said it wouldn’t adopt a low-carbon fuel standard, citing economic concerns. “We reached out to NESCAUM … advising them that we were not going to be working toward the low-carbon fuel standard in New Jersey,” Larry Hajna, a spokesperson for the New Jersey Department of Environmental Protection, confirmed to InsideClimate News.

In a Dec. 28 letter to NESCAUM, Maine’s Department of Environmental Protection said it would not be “developing a program for implementation in Maine,” but would continue to participate in the initiative.

“We had concerns about whether our rural state would be able to appropriately support the infrastructure associated with low-carbon fuel” such as electric vehicle charging networks or natural gas filling stations, Samantha DePoy-Warren, a spokesperson for the department, told InsideClimate News. “But we never said we pulled back our support.”

Johnson, the deputy commissioner from Vermont, said it was too soon to determine what kind of impact the absence of New Jersey or New Hampshire could have on the Clean Fuels Standard.

“At this point it’s a little premature, in the sense that there isn’t really a program to be had right now,” he said.