Saturday, February 13, 2016

Plucked Out of the Air - Putting Gasoline & Diesel Reduction Targets In Law

From the same proponents of the 100% by 2045 Renewable Portfolio Standard, Senate Bill 3044 and House Bill 2085, both propose to make mandatory the reduction of the use of diesel oil and gasoline by the following targets:

  • less than 400,000,000 gallons by 2025
  • less than 300,000,000 gallons by 2030
  • less than 200,000,000 gallons by 2035
  • less than 100,000,000 gallons by 2040
  • less than 1,000,000 gallons by 2045
According to the Department of Business, Economic Development & Tourism (DBEDT) testimony, the 2045 target would mandate a 99% reduction in the use of fossil fuel for ground transportation.

Like the 100% renewable portfolio standards, while great for soundbites and, of course, this is an election year, how wise is it to put aspirational goals in statute targets which do not have any kind of analytical basis or have not been carefully scrutinized?  These "plucked out of the air" targets, without a keen understanding of the existing fuel/transportation markets, have profound consequences on existing businesses and the investment/business climate in Hawaii today given the uncertainty and unreasonableness this type of legislation proposes.

While I can understand the proponents' desire and urgency for emissions reductions to address climate change, you cannot just wear your rose colored glasses and make pronouncements to take on real world problems.  Without any entity or person having direct accountability, we are talking major paradigm shifts involving customer preferences (that the Hawaii market cannot move alone) and related infrastructure costs.  It will take hard work and commitment to come up with a public-private partnership roadmap that is enough to be a "stretch" but achievable to establish the necessary clean fuels and clean vehicle markets to facilitate any type of fossil fuel use reductions.  You can't have one without the other, therefore, the more practical approach (we already have policies but they may need to be further refined) is setting the market floor to incentivize alternative fuels and clean fuel vehicles rather than focus on fossil fuel use reductions which these bills propose. 

Here are the problems with the bills:

1.  The renewable portfolio standards (RPS) is already in Chapter 269.  There is no need to restate them in Chapter 196.  The reason the RPS is in Chapter 269 (the Chapter governing the Public Utilities Commission(PUC)) is because the electric utilities (which are regulated by the PUC) are responsible for meeting these targets.  Penalties imposed for failing to meet mandated targets are enforced by the PUC.  Chapter 196 can reference the RPS but it should not restate it to remove any potential for inconsistency between the two Chapters.

2.  The ground transportation fuel reduction targets have no basis in sound analysis and go way beyond a reasonable planning horizon.  If the Legislature is seriously considering putting such targets in statute they should give guidance and require DBEDT to convene a working group, conduct the necessary studies, cost/benefit analysis and review driving policies and infrastructure requirements to determine reasonable targets and timeframes before passing a law with mandates. 

Here are the big problems and challenges associated with aspirational targets for the transportation sector:
  • Unlike the electricity sector, the refineries and importers of transportation fuels are subject to the market forces of supply and demand.  Who will be held accountable to achieve these reductions?
  • Do we have an understanding of the potential and timetable for replacement fuels?  Locally produced bio-fuels is minimal and continues with a slow, difficult progress lacking a suitable crop.  Electric cars and hydrogen fuel cell vehicles may have potential but rely on consumer preference and infrastructure build out to accelerate.  What will the adoption rate be?  What kind of policies will help to incentivize adoption?  Are these the types of cars and trucks Hawaii residents and businesses will want to buy?      
  • It was not too long ago Hawaii avoided a major fuel infrastructure crisis when a buyer for Tesoro finally stepped forward.  Has that crisis and the vulnerability of our current fuels infrastructure, built on and balancing the operational and financing viability of both refineries, been forgotten?  The work of the Refineries Task Force needs to be reviewed and considered to avoid future catastrophic consequences. A critical question that needs to be addressed and planned for is how do we develop a fuels infrastructure platform that allows for a variety of fuels, with a preference for clean burning fuels and competitive pricing, to create a robust market while ensuring fuel security to be developed.

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