Photo Credit: COURTESY OF SEQUENTIAL PACIFIC BIODIESEL - Cooking oil left over from making French fries is one of the components used to make motor vehicle fuel at SeQuential Pacific Biodiesels Salem plant. Another showdown looms in Salem between Big Oil and environmentalists, but this time environmentalists appear to have the upper hand.

Heavy lobbying last year by the Western States Petroleum Association helped stall the state’s Clean Fuels Program, which would require a 10 percent reduction in carbon emissions from gasoline and diesel fuel over the next decade. But environmentalists like their chances of passing the program in the 2015 session that opens Jan. 12, after Democrats picked up two Senate seats and one in the House in last month’s election.

First approved in 2009 but still not operative, the Clean Fuels Program could cut Oregon’s total carbon footprint about 3 percent, no small achievement when combined with other efforts to forestall global warming. It also could promote biofuels and other made-in-Oregon fuels, keeping some of the $6 billion spent yearly on gasoline and diesel — all produced outside the state — in Oregon.

A Senate bill to keep the program alive failed 15-15 when pro-business Democrat Betsy Johnson, D-Scappoose, sided with Republicans in an otherwise party-line vote. But in January, Democrats will have a commanding 18-12 Senate majority and a 35-25 advantage in the House.

“I feel confident in the Senate; the House is another story,” said Angela Crowley-Koch, legislative director for the Oregon Environmental Council, a leading promoter of the Clean Fuels Program. House members have never voted on the issue, Crowley-Koch said, and oil companies can be expected to paint the measure as a hidden gas tax increase, which could scare some Democrats.

Gov. John Kitzhaber isn’t buying that argument.

Photo Credit: PAMPLIN MEDIA GROUP: JONATHAN HOUSE - A car is filled with B50 Biodiesel fuel during morning rush hour at Jays Garage in Southeast Portland.“Most, if not all, of the alternative fuels on the market today cost less than gasoline and diesel,” said Margi Hoffmann, Kitzhaber’s energy policy adviser, testifying on the Clean Fuels Program last month (before oil prices started to slump) before the state Environmental Quality Commission. “This is the No. 1 priority for the governor on energy and climate issues in the 2015-16 legislative session,” she said.

How it works

The program would require about 90 companies that import motor vehicle fuel into the state to gradually reduce the “carbon intensity” of their fuel mix. They can achieve that by producing or blending more lower-carbon fuels, or buying credits from companies that provide those fuels.

The production and variety of alternative fuels are both growing rapidly, especially since California and British Columbia adopted clean-fuels policies.

Companies have a variety of ways to meet the standard. Oil companies could mix ethanol made from Brazilian sugar cane to their gasoline, because it has a much lower carbon footprint than ethanol made from Midwest corn. They could buy biogas made from rotting landfill waste or dairy cow dung. Entrepreneurs could develop new biofuels from Oregon forest slash or wheat straw. Companies can switch to electric vehicles, or convert trucks to run on natural gas or propane.

Companies also could simply buy credits from other companies that produce alternative fuels. The credit program is designed to harness the fruits of free market competition. Alternative-fuels makers would have incentive to ramp up production because of the new mandate, and make more money by selling credits to oil companies.

The Oregon Department of Environmental Quality devised new rules on how the Clean Fuels Program can be carried out, and the Environmental Quality Commission is expected to approve those Jan. 7-8.

Then the issue goes back to the Legislature.

Two big questions

Two controversies dominate the debate: whether or not the program will drive up gasoline and diesel prices; and whether enough alternative fuels will be available.

“This rule is infeasible and unsustainable,” said Frank Holmes, Northwest regional director of Western Photo Credit: COURTESY OF SEQUENTIAL PACIFIC BIODIESEL - Portland-based Sequential Pacific Biofuel has expanded from producing 1 million gallons of fuel in 2005 to 6 million gallons this year.States Petroleum Association, testifying before the Environmental Quality Commission.

Holmes points to a Boston Consulting Group study that his trade group commissioned, which concluded that California’s clean-fuels program will drive up gas prices 33 cents to $1.06 per gallon. Holmes maintains the plan relies on alternative fuels that don’t exist yet, such as cellulosic ethanol made from Oregon products. And he argues companies won’t be able to buy credits after the fourth year of the 10-year phase-in.

“The program sounds very, very simple, but once you get into it, it’s extremely complex,” he said.

Holmes wants the state to rely on incentives, such as tax breaks encouraging electric vehicles, rather than a new mandate on the oil industry.

Oregon’s trucking industry is allied with out-of-state oil companies.

Compliance would require a diesel fuel blend that contains more than 20 percent biodiesel, which renders engine warranties invalid, testified Debra Dunn, former Oregon Trucking Associations president.

“Ultimately, it translates to us as a hidden gas tax,” said Mark Gibson, president of two Ashland companies that employ many truckers.

Business support

But this is no simple fight between business and environmentalists. The Oregon Business Association, which includes many of the largest Portland-area employers, favors the Clean Fuels Program, arguing it can bring jobs and economic development to the state.

And the alternative fuels movement has expanded well beyond hippies filling up Volkswagen vans with recycled French fry oil.

Portland General Electric promotes electric vehicles. NW Natural is pushing the use of compressed natural gas in vehicles. Other Oregon companies are turning food scraps and landfill waste into biogas. Buses and garbage haulers are converting their fleets to alternative fuels.

In the Port of Morrow near Boardman, Pacific Ethanol makes 40 million gallons of ethanol with a lower carbon footprint than Midwest corn-derived ethanol now added to Oregon gasoline.

Portland-based Sequential Pacific Biofuel has expanded from 1 million gallons of fuel produced in 2005 to 6 million gallons in 2014, said Gavin Carpenter, sales director. The company now employs 83 people.

Countering oil claims

The DEQ calculates the Clean Fuels Program could bump up gas prices 4 cents to 19 cents a gallon, but that is a “very conservative estimate,” and the actual impact likely will be lower, said Cory-Ann Wind, an air-quality planner who wrote the proposed rules.

California hasn’t experienced demonstrable gasoline price hikes, she said.

The price of credits is likely to go down, Wind said, as more alternative fuel supplies come on line. The DEQ proposal also includes a provision for the state to intervene if gas pump prices rise more than 5 percent because of the new mandate.

Wind questions the price hikes forecast by Boston Consulting Group because the oil industry-funded study didn’t even consider the potential impact of several fuels, including natural gas, biodiesel, propane, biogas, hydrogen and ethanols made from sorghum or wheat.

For the price of gasoline fuel in California to rise by $1 a gallon, Wind said, credits would have to cost $1,000 per unit. The current price is about $20 per unit, she said, down from an earlier high of $80.

A DEQ-commissioned study by consultant ICF International concluded that an adequate supply of alternative fuels could be available without any cellulosic ethanol.

Many backers of the Clean Fuels Program say the oil industry wants to protect its monopoly and retain a business model that’s very lucrative.

The industry spent $2 trillion on crude oil production and exploration from 2006 to 2011, but only 0.5 percent of that amount on renewable fuels, said Simon Mui, the Natural Resources Defense Council’s director for California vehicles and fuels programs. “This standard is transitioning the oil industry toward cleaner fuels,” Mui said.

The same oil companies panning the Clean Fuels Program made identical arguments in 2011, when the Oregon Legislature mandated a 10 percent blend of ethanol in gasoline and 5 percent in diesel, Carpenter said. “There wouldn’t be enough, and prices are going to go through the roof,” he recalls oil lobbyists saying.

Hoffman remembers similar complaints when the Legislature required large electric utilities to assure at least 25 percent of their energy came from renewable sources by 2025. “That has had a zero to 1 percent impact on electrical rates in the state of Oregon,” she said.

Angus Duncan, chairman of the Oregon Global Warming Commission, likens the new clean fuels mandate to the development of hydro dams on the Columbia River, which initially were viewed as very costly, but wound up saving loads of money for consumers and businesses.

“It’s really important that the oil industry do its fair share to reduce carbon pollution,” said Jana Gastellum, climate program director for Oregon Environmental Council. “It’s something that one of the wealthiest industries on the planet should be able to do.”

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