State agency rulemakers ignore their own rules

by Sen. Doug Whitsett

In past newsletters, I have warned how the controversial Low Carbon Fuel Standard (LCFS) threatens to increase costs of energy for poor and working Oregonians, under the guise of protecting the environment.

The LCFS was originally enacted by House Bill 2186 in 2009, but included a “sunset” provision that required the Legislature to reauthorize the law before the program could be implemented. The sunset was lifted by SB 324, passed during the 2015 regular session on largely party-line votes, with unanimous opposition from Republicans and a few Democrats. Its passage was contingent upon the expectation that the Department of Environmental Quality (DEQ) and the Environmental Quality Commission (EQC) would follow the provisions of the act. However, all indications appear to be neither entity has thus far performed what is required of them under the law.

On Wednesday, December 9, the EQC is scheduled to adopt the proposed rules required under SB 324 that implement the carbon intensity numbers. Those rules are already facing heated opposition from some of the same groups that had initially supported the LCFS.

Growth Energy, a Washington D.C.-based trade association representing multiple ethanol suppliers, has gone on record with some of its objections. Most of their concerns have to do with the failure of DEQ to follow its own rules.

Objections raised by Growth Energy include DEQ’s inability to demonstrate how its proposed rules actually satisfy any purported need. Growth Energy also charges the agency with not performing its own research to determine whether the amending administrative rules would achieve their objectives. The company further accuses DEQ of not performing the work necessary to show whether the models it is using are sound.

DEQ is “effectively trying to delegate its statutory duties” to California, Growth Energy wrote in its comments. It goes on to state that the technical staff used by California officials has failed to address important scientific issues and has made findings based on faulty analysis.

Another point of contention is that DEQ has failed to adequately address the negative fiscal impacts on the public, as is required under SB 324. According to Growth Energy, the regulations rely on projections of fuel mix and vehicles that do not currently exist and would likely not exist in the future without massive costs placed on energy consumers.

The Renewable Fuels Association (RFA) is another group representing many ethanol suppliers, and has also raised many of the same issues, as well as other concerns.  The agency’s concepts “lack scientific integrity and balance into the regulatory framework,” RFA wrote. It further states that DEQ is proposing to use factors that have been shown to be grossly exaggerated and that are based on outdated information and data.

The Western States Petroleum Association (WSPA) has stated in written testimony that SB 324“required the analysis of cost containment as a component of clean fuel program rulemaking.” WSPA also claims that the agency has not performed the required robust feasibility analysis.

According to WSPA, the proposed rules would require unspecified, yet to be developed and unforeseen technological advances. The agency’s proposed rules would also require major market transformations for both fuels and vehicles as well as large infrastructure investments, “none of which are likely to occur within the target timeline for the proposed program.”

WSPA contends the agency’s financial analysis is inadequate and fails to comply with its statutory obligations because it excludes cost containment measures from the proposed rulemaking. Further, WSPA notes DEQ’s failure to produce the required fiscal and economic impact statements.

“It is not within the DEQ’s or the Environmental Quality Commission’s discretion to ignore that mandate,” WSPA wrote. “Neither the DEQ nor the Environmental Quality Commission is authorized to pick and choose which non-discretionary statutory obligations it complies with…absent the cost containment provisions, this rulemaking is in violation of the statute.”

“It is not within the DEQ’s authority to ignore or simply pay lip service to these statutory duties,” WSPA wrote. “It is a gross dereliction of the DEQ’s non-discretionary statutory obligation to fail to provide any meaningful consideration whatsoever of the potential impacts to fuel consumers….it is not within the DEQ’s or the Environmental Quality Commission’s discretion to ignore those requirements.”

The agency is also accused of failing to follow its own procedures.

“The statute does not provide any exception to this non-discretionary requirement,” WSPA wrote. “These specific considerations were intentionally placed in the statute by the Legislature and the Environmental Quality Commission cannot act without meeting these criteria. However, the proposed rulemaking package contains absolutely no consideration of these criteria. They are completely absent.”

Documentation provided by WSPA states that none of the potential gas blends will be compliant with the proposed rule after 2019 and that only two E10 blending options may be compliant. However, expected market forces are likely to result in none of those fuel blends being available in Oregon during the foreseeable future. Furthermore, all 5 percent blends of renewable and biodiesel are expected to be noncompliant by 2020. Even in the event that some blends are compliant, WSPA believes Oregon is unlikely to receive the volumes needed to supply consumers.

All things considered, one can easily argue that the LCFS is a solution in search of a problem. This documentation demonstrates that overall carbon emissions are falling at the same time that both population and jobs have increased. Oregon carbon emissions were 14 percent lower in 2013 than they were in 1990. Oregonians use 11 percent less energy per person than they did in 1990, and use 29 percent fewer gallons of gasoline. The state’s carbon emissions have declined well ahead of the national trend.

Ultimately, two pathways are available towards preserving the environment for future generations.

One involves the heavy hand of government. It lends itself to the kinds of crony capitalism that caused former governor John Kitzhaber to resign in disgrace. It involves enacting vaguely written laws like the LCFS that allow state agencies to invent rules that enhance sections they support and ignore sections that safeguard the public against runaway costs.

The other way is the free market economy that I’ve written about in a previous newsletter. One example is a school district that voluntarily converted a major portion of its bus fleet to propane autogas, resulting in significant cost savings, an 80 percent reduction in total hydrocarbon emissions and the virtual elimination of particulate pollution.

The fact that entities who originally supported both the LCFS and SB 324 are now unhappy with their implementation should cause concern for everyone. These are largely the out-of-state corporations that previously expected to reap significant financial benefits from the program.

The LCFS mandate will certainly substantially raise the costs that Oregonians must pay to heat their homes and drive to work. Further, artificially increasing the cost of transportation fuels will result in escalating costs for virtually all consumer goods. Virtually all of the money derived from those increased consumer prices will be diverted directly to favored “renewable” fuel providers domiciled outside of Oregon.

In my opinion, the free market approach would go much further towards providing the desired outcomes. State agencies should not be empowered to choose which business sectors will be financially favored and which sectors will be regulated out of existence.

We have already experienced the certain result. That outcome has been costly political corruption paid for by taxpaying Oregonians. No one should desire more of the same.

Senator Doug Whitsett is the Republican state senator representing Senate District 28 – Klamath Falls