Democrats are pushing a climate change agenda that would aim to, among other things, decarbonize the economy. President Biden is taking executive action to rapidly elevate climate change policy into a top priority. Moreover, many in Congress have targeted a ‘Net-Zero by 2050’ goal—an effort to reach overall net-zero emissions of carbon by the year 2050. Though the means of achieving that goal are often vague, concepts that could be used to achieve it include:
Low Carbon Fuel Standard (LCFS) (Priority 1): A Low Carbon Fuel Standard is a market-based program designed to reduce the carbon intensity (CI) of transportation fuels over time. All types of transportation fuel brought into the fuel system are measured against this standard. Fuels with CIs below the benchmark generate credits, and fuels above the benchmark result in deficits. Regulated parties, such as refiners, petroleum importers, and wholesalers, must then stay in compliance by offsetting deficits accrued with credits from blending lower carbon-intensity fuels or purchasing credits. Currently, California and Oregon have LCFS programs.
Cap-and-Trade (Priority 2): Under cap-and-trade, the government would set an overall emissions “cap” and then separate caps would be set for different industries and, in turn, applied to individual companies. If a company stayed under its “cap,” the company could generate and then trade credits, for a price set by the market. If a company were to exceed its emission allowance, the company would then need to purchase credits to come into compliance. Businesses might also generate credits by taking carbon out of the atmosphere. The cap provides a clear goal, but administering how the cap applies across the economy and setting up the functioning of the market could lead to difficulties. Unlike a carbon tax, where the amount of the tax is widely known, the price of emissions allowances (or credits) can vary widely in a cap-and-trade scheme, making it difficult for businesses to plan for expenditures. However, market pricing could also allow flexibility to adapt to market signals for pricing.
Carbon Tax (Priority 2): The tax would put the costs of carbon on businesses that generate it. A tax would likely be easier to administer than a cap-and-trade system. However, it may encourage tax evasion and the tax could escalate rapidly once enacted. Environmentalists have concerns that a tax might not adequately reduce carbon emissions.
SIGMA members support responsible and reasonable environmental policies that protect the health and safety of current and future generations, while ensuring sustained U.S. energy independence with affordably priced transportation energy sources. To that end, SIGMA believes environmental and climate policy should: (1) use science as its foundation; (2) ensure fair treatment for all consumers and avoid regressive cross-subsidies; (3) set performance goals without mandating specific technologies to allow for the benefits of innovations and technology development; (4) work with competitive market incentives to ensure a level playing field and provide long-term consumer benefits; and (5) harness existing infrastructure to help commercialize new fuels/technologies, maximize diverse investments, and achieve near-term and long-term emissions reductions goals.
Charging Infrastructure: As electric vehicles (EVs) enter the market, an electric charging infrastructure must be created to provide alternative fuel options to motorists. Given that SIGMA members are located in the highest traffic areas that allow motorists the most convenient locations to fuel their vehicles, utilizing existing private sector locations would be the most efficient way to create an alternative fuel marketplace if consumer demand warrants it. Utility companies, however, are seeking approval from state governments to enter the vehicle recharging business for EVs and treat their capital investments in the alternative refueling business as part of the utility rate base, effectively creating a monopoly on EV charging stations paid for by all electric power consumers. If a state provides special incentives to a public utility to allow it to build an electric charging infrastructure at a cost with which the private market cannot compete, SIGMA members will be placed at a disadvantage when investing in the alternative fuel marketplace.
Transportation energy consumers benefit from the highly competitive and well-established liquid fuels marketplace. The investments made in traditional motor fuels and renewable liquid fuels have resulted in reliable product availability sold at competitive prices to the consumer. As more fuel options enter the marketplace, such as new alternative fuels and battery power, SIGMA seeks a market-driven approach to further investment in those options. SIGMA members believe the American consumer benefits when transportation energy sources are available on a competitive and level playing field without government preference for one solution over another. Ultimately, SIGMA members want to be able to sell legal products in a lawful manner to customers who want to purchase them. SIGMA opposes granting a de facto monopoly on the provision of refueling services, which will undercut the competitive nature of the refueling marketplace, ultimately harming consumers. SIGMA seeks to ensure that any financial incentives for installing EV charging infrastructure allow private businesses to compete for funds and that those incentives do not favor utilities that get subsidies from all of their ratepayers to install EV charging infrastructure.
EVs and the Highway Trust Fund (HTF) (Priority 2): The Highway Trust Fund (HTF) is funded primarily by the 18.4 cents/gallon motor fuel excise tax and 24.3 cents/gallon diesel excise tax, which are paid by motorists when they purchase fuel. The HTF is used to fund investments in U.S. infrastructure, such as highways and bridges. Owners of EVs, however, do not pay these taxes (and hybrid owners only pay a percentage), despite using the roads in the same manner as gasoline and diesel-powered vehicles. SIGMA supports long-term, sustainable funding for federal highway programs, even if such funding requires raising the federal motor fuel excise tax. But, all vehicles that use the roads should pay their share of infrastructure costs.
Incentive Programs(Priority 2): Policymakers and governments are considering programs that support investment in electric vehicles, alternative fuels, and strategies to decrease fuel use or increase fuel economy. In an effort to incentivize the purchase of electric vehicles, the federal government offers a federal tax credit of up to $7,500 for EVs purchased from a qualifying manufacturer. Studies have shown that the bulk of the credits are received by wealthy Americans, despite being funded by all taxpayers.
SIGMA opposes the extension of the EV tax credit because it unfairly prioritizes one technology and primarily benefits wealthier Americans. SIGMA believes that infrastructure funding should be paid for in an equitable manner by all who use the roads. SIGMA opposes EV mandates and unfair CAFE treatment. Different fueling technologies should be able to compete on a level playing field using an unbiased analysis of environmental impacts. SIGMA favors Congress preempting state laws that regulate any entity that resells electricity to consumers as a utility.
Internal Combustion Engine (ICE) Bans (Priority 1): There is a growing movement among states to ban the sale of new internal combustion engine vehicles, an aspirational policy to push the fleet to electrification. SIGMA opposes efforts to ban the internal combustion engine. Some states also have or are considering policies that mandate certain numbers of EVs. Such measures are bad policy as market incentives that follow fair and complete analyses of the carbon footprints of different vehicles are needed to avoid negative economic and energy security outcomes that can arise from centrally planned technology bans or mandates.
The Renewable Fuel Standard (RFS) Program was first enacted in 2005 and expanded in 2007. The RFS was intended to displace traditional petroleum-based fuels derived from unstable geographic regions with renewable substitutes that would achieve environmental benefits and diversify supply. To implement the program, EPA sets annual blending requirements that establish the amount of biofuel that must be blended into the nation’s fuel supply. The Agency may adjust the annual blending targets, which were established by Congress, using the agency’s statutory waiver authorities. Obligated parties (refiners, importers, etc.) must demonstrate their RFS compliance to EPA by retiring sufficient renewable identification numbers (RINs) to satisfy their blending obligations, which are based on the overall motor fuel they produce or import in a given year. When the RFS was enacted, Congress believed that fuel demand would increase over time and that biofuels, particularly cellulosic and advanced biofuels (as opposed to corn-based ethanol), would enter the market within the first few years of the program. Neither of those assumptions have held true.
SIGMA supports the rational administration of the RFS program. Specifically, SIGMA
supports EPA assessing the state of the fuel market, evaluating external policy developments, and using this data to set appropriate blending levels. It is important for EPA to ensure that renewable fuel mandates do not exceed the volume of renewable fuel that the market could reasonably absorb.
Renewable Volume Obligations (RVOs) (Priority 2): The RFS program requires EPA to establish Renewable Volume Obligations each calendar year by November 30 for volumes in the following year. SIGMA’s members sell approximately 80 billion gallons of motor fuel each year. The integration and regulation of renewable fuels into the motor fuels marketplace presents a number of opportunities and legal challenges for fuel marketers and retailers. As Congress and the regulatory agencies consider renewable fuels issues, it is important for them to consider SIGMA’s experience and knowledge of the marketplace.
Electric Renewable Identification Numbers (e-RINs) (Priority 2): EPA has the authority to write regulations initiating Electric Renewable Identification Numbers (e-RINs). These e-RINs would be generated by recharging an electric car using the electricity generated from power plants that burn biogas. EPA is in the process of determining whether it should initiate such a program and, if so, how e-RINs would be generated, traded, and retired. EPA’s design of this system may prove to be a model for how to take into account electricity as a transportation fuel and integrate its use into a regulatory scheme that oversees the use of all transportation fuels. As such, this decision may be an important harbinger of the future of policy and how it will impact SIGMA members.
Since the mid-2000s, many states have begun to undertake individual state legislation to reduce climate impacts. A group of 12 Northeast and Mid-Atlantic states along with the District of Columbia have formed the Transportation and Climate Initiative (TCI) to coordinate their efforts on this topic. The TCI calls for participating jurisdictions to enact a cap-and-invest program covering the movement and sales of motor fuels in their areas. In December 2020, three states (Massachusetts, Connecticut, Rhode Island) and the District of Columbia announced they would be the first jurisdictions to launch the TCI Program.
Proponents of TCI estimate that the program would add 5 to 17 cents per gallon to the cost of gasoline in the participating jurisdictions. The burdens of program compliance would fall on many of SIGMA’s members when they move fuel into one of the participating jurisdictions. But, TCI would be very difficult to administer and would likely lead to widespread evasion of its requirements. This would create a bifurcated marketplace that would harm businesses that comply with the law.
SIGMA has serious concerns with the proposed TCI framework. It would not improve the climate due to significant implementation challenges and widespread evasion of its requirements. TCI is not a practical solution to climate concerns and it would be economically harmful to the motor fuels market and consumers that depend on it.
Commercialization of Rest Areas – Priority 2
Off highway communities – which rely on the motoring public for survival – derive much of their commercial activity and tax revenue from healthy off-highway businesses, like those of SIGMA’s members. The ban on rest area commercialization has been critical to the livelihood of businesses that are located near the highway and the communities that depend on their tax dollars. SIGMA members have made substantial business decisions relying on the prohibition on rest area commercialization. Thousands of off-highway businesses would effectively vanish if Congress were to commercialize rest areas. Accordingly, SIGMA opposes rest area commercialization.
Recently, interest has grown on Capitol Hill to allow electric vehicle (EV) charging at rest areas. Making available EV charging stations is a commercial service and SIGMA opposes it on the same grounds that it opposes other forms of rest area commercialization. In addition, if EV charging is made available at rest areas on the Interstate right-of-way, it will impair SIGMA members’ ability to make EV charging infrastructure investments and prove to be counterproductive to the goals of advocates of this policy.
Liability Protection – Priority 2
SIGMA members have continued to serve customers throughout the COVID-19 pandemic. They are vulnerable, however, to legal claims of COVID-19 being contracted at their businesses. Even if fuel marketers can prove they are not liable for a customer or an employee contracting the virus, the cost of fighting a lawsuit is substantial.
SIGMA has advocated for legislation to protect fuel marketers and other essential businesses from meritless lawsuits while still allowing true bad actors to be sued. Congress should pass legislation to offer liability protection to essential businesses that operate responsibly during the COVID-19 pandemic.
SIGMA: America’s Leading Fuel Marketers is the national trade association representing fuel marketers & convenience store chain retailers in the United States & Canada.
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