Our family has been in the retail gasoline business for four generations. During that time, we've met a lot of challenges, not the least of which were the gas lines and odd-even rationing days of the 1970s Arab oil embargo.
Now we're facing an embargo of another kind, from a source much closer to home. This time, the threat isn't from Middle East oil sheiks but from Sacramento, in the form of the California Air Resources Board's low- carbon fuel standard.
The low-carbon fuel standard sounds simple enough: Require refiners to reduce the carbon intensity of transportation fuels over the next 10 years and increase the use of low-carbon biofuels and other non-petroleum fuels during the same period.
But it's become obvious to all but the insulated people at the Air Resources Board that the technology and supply of biofuels and other low-carbon fuels are simply not available at the mandated levels. And there's no back-up plan to permit the use of conventional gasoline and diesel fuels, creating an inevitable supply deficit — which could happen by as early as 2015.
A recent study concluded that if the low-carbon fuel standard goes forward as planned, almost half of California's refineries could be forced to stop production. The cost of compliance could add up to a California-only $1.06 addition to the cost of producing a gallon of fuel (on top of the about 37 cents per gallon of unleaded regular above the national average that, according to the Auto Club, we already pay at the pump).
Our customers are painfully aware of increasing gas prices; even a penny or two makes a difference, and they're not shy about telling us. We spend a lot of time explaining California's significantly higher fuel taxes, higher cost of state-mandated boutique fuels and the cost of required equipment upgrades such as enhanced vapor recovery systems and sophisticated underground storage plumbing. Consumer frustration with this is understandably high.
Those costs and associated price impacts are beyond our control, but we do all we can to pass value on to our customers by initiating options such as cash and credit pricing. But the low-carbon fuel standard is like nothing we've ever seen, and saving a few pennies by paying cash instead of by credit card is not going to help our customers with spiraling costs created by this experimental program.
In real-world terms for our business and our customers, the writing is on the wall: long lines at the pump for fuel consumers can't afford even if they can get it.
We're not just talking about families filling up their tanks to get to work or to school. We also supply businesses such as farms, vineyards and landscape companies and some local government fleets. It's bad enough to think about people not having the fuel to go about their daily business, but higher prices and inadequate supplies of the fuel that runs our police and fire vehicles can cause serious risks to public safety. And the low-carbon fuel standard could make already-scarce school buses even rarer.
We've seen what happens when fuel supplies are interrupted by events outside our control, such as unplanned refinery outages, manipulation by foreign suppliers such as the Arabs in the '70s, or the $1 per gallon cost spike last October.