Governor flexes his muscles on CO2, with oil price rises likely -


Energy giants will rush for renewables
Biofuel options casue concerns
The world’s first low-carbon vehicle fuel standard, launched this week by Arnold Schwarzenegger, Governor of California, will force the global energy industry into a major upheaval, requiring big investments in biofuels and even in the nuclear sector, energy analysts predict.
California’s drive to cut carbon emissions from transport fuel by 10 per cent will be copied across North America, causing a supply squeeze that will push up the price of fuel as oil companies scramble to invest in renewable alternatives to petrol.
NI_MPU('middle');
Governor Schwarzenegger used his State of the State address this week to offer Californians “freedom from dirty oil and from Opec” with his plan to cut carbon emissions from road transport.
Instead of prescribing the right fuel mix, the Republican Governor wants market mechanisms to determine what fuel or technology best delivers reductions in carbon.
Meeting the target would imply that California’s petrol consumption would fall by a fifth, forcing oil companies to increase sharply their use of renewable fuels, such as ethanol and a bigger switch to electric vehicles.
More importantly, Governor Schwarzenegger’s fuel standard will force oil companies to examine the carbon content of their operations from the wellhead to the exhaust of a car.
Every US state and every Canadian province will follow California’s lead, predicted Jeffrey Rubin, chief economist and strategist at CIBC World Markets. “North America has ignored implementing the Kyoto accord but it’s about to declare war on carbon emissions on its own terms,” he said.
The campaign will target the biggest carbon emitters — the energy companies — who will be forced to buy emission permits and credits in a North American carbon cap and trade scheme proposed last year by Governor Schwarzenegger.
The biggest impact will be on the future supply of fuel, said Mr Rubin, if Canadian oil sands cannot meet stringent American carbon fuel standards. The oil majors, including Shell, ExxonMobil and Total, are investing billions in a vast but carbon-intensive oil reserve on the scale of Saudi Arabia, requiring a big energy input to clean and refine dirty bitumen into synthetic oil.
“If planned additions to bitumen production are delayed or mothballed altogether, oil prices can only move in one direction — higher,” Mr Rubin said.
Already, companies are considering dramatic and expensive alternatives to burning natural gas to heat water in oil sands developments. Energy Alberta is promoting a nuclear power option to several oil sands investors, including Husky Energy and Total.
California’s carbon edict will also have a big impact on the biofuels industry, Friends of the Earth reckons.
“It’s a very radical target. They don’t seem to have any safeugards on the amount of biofuels that can be used,” the lobby group said.
The growth and promotion of biofuels has rung alarm bells over the use of food crops for fuel and the destruction of rainforest for palm oil and sugar cane cultivation.
If oil refiners seek to meet their carbon commitments by topping up petrol with more ethanol, a widely used fuel additive in the US, the cost of fuel will rise, predicts Stephen Jones, an analyst at Purvin & Gertz, the Houston energy consultancy.
“We will all pay for it at the pump. You are taking a dual-use commodity [ethanol made from corn] manufactured at small economies of scale, transporting it from the Midwest for use in the petrochemical industry, which operates on large economies of scale.”
Once derided as a notorious gas-guzzler with a fleet of Hummers, Governor Schwarzenegger has made a grab for the environmental vote with his pitch for a low-carbon economy.