Bait-and-Switch in Mich

New interest group report claims an LCFS in Michigan would create jobs, revenue and security – all by making the fuel Michiganders rely on today scarcer, more expensive and less reliable

Earlier this week, an Ann Arbor-based environmental group known as the Ecology Center released a 52-page position paper detailing the ways in which the imposition of a Low-Carbon Fuel Standard (LCFS) would, from its perspective, “substantially benefit” Michigan’s ailing economy – currently saddled with an unemployment rate of 15 percent, easily the nation’s highest.

The plan the Center puts forth is simple: Adopt an LCFS policy that bans secure Canadian energy from crossing the border and forces local fuel producers to either “purchase credits” to stay in business or start selling something called “low-carbon hydrogen” instead – all while requiring the government to do more to artificially “stimulate demand” for next-generation energy.

Do this, the report says, and we can “move Michigan beyond oil.” Missing from the report, however, is any indication of how this will move Michigan toward a future in which jobs are created, energy is kept affordable and available, and the state is able to reclaim its rightful place among the nation’s economic and industrial leadership. The report also fails to mention that 63 percent of Michigan’s oil comes from Canada. The question of how that vacuum would be filled appears to have fallen beyond the scope of the Center’s examination.

As is typical with papers of this type, details on how an LCFS policy would be implemented or what effects it might have on state employment and revenue are scarce — while desperate statements insisting that Michigan “has little time to lose” in imposing an LCFS on its citizens predominate.

Still, what follows is a brief enumeration of some of the key assertions found in the report, along with relevant, fact-based responses:

Claim: “By setting a 10 percent reduction goal for global warming emissions from transportation fuels by 2020, Michigan would rely on a market-driven approach … without picking winners and losers.”

Response: There is nothing “market-driven” about a government-directed system that dictates the places from which energy can be purchased; identifies the favored sources that would receive direct subsidy; and sets out a course whereby the only way to reduce the emission of carbon is to reduce the level of economic activity and job growth. An LCFS doesn’t merely pick winners and losers; it mandates them. Unfortunately, under an LCFS, Michigan energy consumers would find themselves on the wrong side of this ledger.

Claim: “Michiganders send over $14 billion per year to other countries and states to import petroleum. … Michigan imports 97 percent of its petroleum.” (emphasis added)

Response: According to the Energy Information Administration (EIA), 100 percent of Michigan’s “foreign energy” imports come from nearby Canada, entering the state via ports in Detroit, Port Huron, and Sault Ste. Marie on the Upper Peninsula. That’s an inconvenient fact for the report’s authors, who take great care to imply throughout the document that Michigan is dangerously and near-completely dependent on far-away dictators for the balance of its energy needs. Although that is not the case right now in Michigan, under an LCFS, it absolutely would be.

Claim: “At the current rate of worldwide annual petroleum consumption … all proved reserves would be consumed in the next 38 years. Nearly 75 percent of these reserves are concentrated in just seven nations: Saudi Arabia, Iran, Iraq, Russia, Venezuela, Kuwait, and United Arab Emirates.”

Response: Here we see the commonly employed tactic of defending an LCFS on the grounds that the world’s oil is about to run out anyway, contrary to every piece of credible geological evidence available. What’s interesting is that the report’s authors chose not to include in that world energy estimate the very energy sources they seek to destroy – Canada’s oil sands. The Canadian oil sands are one of the world’s largest known hydrocarbon deposits, second in size only to those found in Saudi Arabia. For some scale, consider that Canada’s proven oil reserves currently stand at 179 billion barrels of oil. Oil sands represent 97 percent of that figure.

Ignore that monumental resource, and the report is correct: most of the world’s proven oil resides in countries whose strategic interests don’t often align with our own. This is Exhibit A for why an LCFS would be so costly to America’s security. By cutting off American access to Canadian crude, foreign producers of light, sweet oil – many of them from the countries identified above – would claim an even larger share of the U.S. fuel market, increasing America’s dependence on unstable regimes abroad.

Claim: “This report finds that an LCFS is Michigan’s best option for growing its economy while also reducing oil dependence and lowering greenhouse gas pollution from transportation fuels.”

Response: As we’ve seen, an LCFS seeks to reduce the public’s “oil dependence” by making that energy prohibitively expensive and incrementally scarce. But what of the claim that an LCFS will lead to significant reductions in greenhouse gas emissions? According to one recent report published in the American Economic Journal, an LCFS might have the effect of “possibly increasing net carbon emissions” – not lowering them.

How can that be? For starters, the existence of an LCFS doesn’t magically eliminate the existence of Canadian energy — it simply denies Americans access to it. In our place, countries like China and India will be happy to claim the resources we’ve decided to leave on the table. Energy previously earmarked for America will instead be shipped half-a-world away to markets in Asia, and once it gets there, the carbon emissions involved in processing that oil abroad will dwarf the levels needed to do the same work in the United States. Recent news of China’s $1.7 billion investment in the Canadian oil sands is proof positive that if Americans don’t use that energy, the Chinese will.

Claim: “An LCFS is thus a necessary complement to the [Renewable Fuel Standard] because it advances other technologies—such as plug-in hybrids, natural gas, or hydrogen from natural gas—and, moreover, it discourages high carbon fuels like [oil] sands, oil shale, and coal-to-liquids.”

Response: Michigan’s proposed LCFS, as sketched out in this report, is nearly identical to the plan put forth by California, and as such, would do absolutely nothing to complement a Renewable Fuel Standard (RFS) that favors corn-based ethanol. Indeed, under Michigan’s LCFS, conventional ethanol would be deemed to have “greater life-cycle global warming emissions than gasoline,” according to Ecology Center paper.

This, we think, should put to rest any suggestion that an LCFS would be good news for Michigan’s farmers and agricultural community. Quite the contrary. Under an LCFS, producers of ethanol would be targeted for elimination, not subsidization. And the story is scarcely any better for producers of natural gas vehicles, biodiesel, and even hydrogen. None of these, it turns out, were deemed good enough to receive a “green light” score from the Ecology Center’s analysts. All were granted a yellow – for caution.

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