California Must Balance Climate Policies Against Economic Impacts of Scarcity
A smart person once said that the only qualification one needs to be a leader are followers. Well, if California wants to be a global leader in tackling climate change, it must do so in a way that motivates and inspires others to follow. Making the state even more expensive than it already is for working Californians, showering higher costs on businesses already struggling to compete and crashing our economy in the pursuit of net zero carbon is not the way. California must find a more balanced approach in its climate policies that recognizes the urgency of climate change while accounting for the potentially significant impacts these policies have on the pocketbooks of residents struggling to pay for life’s essentials and the economy overall.
Transitioning away from fossil fuels to an economy powered by renewables and other less carbon intensive alternatives is a very complicated process indeed. There are a million threads that need to be untangled and woven back together if we are to do this successfully. For example, when a barrel of oil is refined less than 50% of the end-product is gasoline; other products include jet fuel, diesel, heating oil, kerosene, asphalt, lubricants, even ingredients for makeup and common household products like petroleum jelly (Vaseline). If we suddenly stop using gasoline it becomes economically challenging, if not impossible, to make these other critical products. Imagine a Bay Area with no aviation fuel, no airports, no business travel, no tourism. These are the sorts of questions we need to ask ourselves as we craft policy and regulations around fuel sources and energy.
When the Valero refinery in Benicia recently announced its pending closure, this raised a huge red flag at the Bay Area Council. As a region we are a fuel island, not connected to a national refined fuel pipeline grid, so what fuel we need, we need to make here. When one of just three remaining refineries that makes gasoline and traditional aviation fuel in the region shutters, it places us in a very precarious position indeed. Some economists are predicting that gasoline prices could surge in the Bay Area to over $10 which would be catastrophic for those unable to afford an electric vehicle and for our economy as a whole.
As a result of misguided policies to limit domestic crude production, primarily from the Kern oil field northeast of Bakersfield, our refineries are increasingly having to rely on oil shipped from Alaska and overseas. In 1982 California produced 61.4% of its oil needs with 5.6% imported from overseas. Today we produce just 23.3% in-state with 13.3% shipped from Alaska and 63.5% coming from overseas (primarily the Middle East). Kern basin oil has traditionally supplied our region’s refineries via a system of pipelines which make for a much more efficient and less energy intensive delivery than a giant supertanker from Saudi Arabia, and it is important to point out that when these pipelines drop below a certain volume/pressure, they cease being operational, an inflection point we are near to reaching. Any further drop in domestic production risks putting us in a position of being 100% reliant on crude shipped from elsewhere.
Shutting down domestic production when we are not yet prepared to fully transition to non-fossil fuel sources is not a recipe for success which is why we applaud the news today that Governor Newsom and the Legislature are exploring ways to permit new wells and new domestic production in California.
The Bay Area Council was the first business group in California to support AB 32 the Global Warming Solutions Act, and we remain committed to a future dominated by renewable and carbon free energy alternatives, but we are equally committed to getting there in a thoughtful strategic manner. Beating our refineries into submission with no thought as to what happens when their products that we still heavily rely on are suddenly not available is neither thoughtful nor strategic.
