I am returning from Atlanta where I attended the OPIS National Fleet Fueling Conference. Aside from flooding in the area, I enjoyed the conference and met many interesting people on the fuel side of the business. The focal point of the conference was diesel emissions fluid (DEF). DEF is a chemical that is consumed by selective catalytic reduction systems to control NOx in 2010 diesel engines. Vendors were looking forward to a new business line. I'm not sure fleet operators share this enthusiasm.

I did make a presentation at the conference that covered California's new Low Carbon Fuel Standard (LCFS). LCFS is California's approach to reducing carbon emissions from vehicles. LCFS is fundamentally different than the Federal Cap-and-Trade program that is being discussed nationally. LCFS is more like a surgical strike against one source of carbon emissions. Cap-and-Trade is a broad-brushed stroke against all sources. Why did California choose the LCFS strategy?

California's framework is to reduce greenhouse gas emissions (carbon) from all key sectors. Studies performed by the University of California and others determined that transportation accounts for about one-third of the carbon emissions. The studies found that a carbon trading price of $25 per ton (or is it tonne?) is sufficiently high to force dirty power generation such as coal to implement clean-up measures. In other words, it is cheaper to modify power generation than to purchase carbon credits at $25 per ton. For comparison, high quality carbon credits in the regulated European market cost about $20.

However, the study also found that $25 per ton is too low to influence the transportation sector to significantly reduce carbon. In fact, the cost would need to be much higher. The concern this raised is that one sector, power generation, would be forced to reduce carbon emissions while another key sector, transportation, would experience higher costs without dramatic carbon reductions. This result would be inconsistent with California's strategy of reducing carbon in all sectors.

What I found interesting in the literature is the wide range of estimated fuel cost increases for Cap-and-Trade. Some citations I found are:

• $0.88 per gallon (US Chamber of Commerce)
• 58% increase (Heritage Foundation)
• $0.02 per gallon (attributed to Sen. Barbara Boxer)
• $0.17 per gallon @ EPA's estimated $15/ton carbon

LCFS compliance applies to the fuel producer and not the fuel consumer. LCFS sets limits on fuel carbon (I am simplifying this concept). Fuel producers must either reduce the carbon in their fuel or purchase offsets from other fuels that have carbon reductions above and beyond the standard. The only impact the fuel consumer will see is perhaps a higher pump price for gasoline and diesel. LCFS implementation begins in 2010. By 2020, carbon must be reduced by 10% compared to gasoline and diesel. Reductions are phased in each year. Reductions are gradual in the near years and accelerate in out years. The reduction graph is shown below.

The good news on the natural gas front is that natural gas fuel already complies with the 2020 standard. LNG can reduce carbon emissions by over 20%. CNG reductions are almost 30%. Biogas reductions are over 70% to almost 90%. This means users of natural gas fuel are already in compliance - 10 years ahead of schedule - and will be insulated from any cost impacts experienced by other fuels in complying with the standard. Yes, one more reason to go with natural gas.