A proposal by California Gov. Gavin Newsom would funnel hundreds of millions of dollars in tax credits to encourage more “sustainable aviation fuel” — and in the process, crunch Californians hit by record-high gas prices even further, economists warned.
The trailer legislation, currently making its way through the state legislature, would offer a one-dollar credit to fuel producers for every gallon of alternative jet fuel that emits 50% less carbon dioxide than conventional jet fuel. If there’s more reduction in that greenhouse gas blamed for climate change, that credit could be bumped up to two dollars.
All those tax credits, though, would have a price for payers at the gas pump. The California Fuels and Convenience Alliance, which represents fuel retailers, said gasoline and diesel prices may rise by 10 to 15 cents per gallon.
“The benefits are narrowly concentrated, but the costs are widely shared,” said Alessandra Magnasco, a lobbyist for the alliance. The tax credit would add “billions in annual costs for consumers, while also reducing diesel excise tax revenues that fund road repairs,” she told lawmakers.
Economists from the University of California, Berkeley published a study February that also predicted gas price increases. Not only would tax revenues take a hit, but the study said the credit is so appealing that it could encourage more companies to shift production to making the green jet fuel rather than renewable diesel for trucks, for example. That would constrain the supply of diesel and raise its prices.
“They’re going to incentivize a whole lot more sustainable aviation fuel than they’re planning,” Aaron Smith, a Berkeley economist, told CalMatters.
The total amount of tax credits is staggering. The state Department of Finance predicted the total credits would add up to 165 million, rising to 300 million, dollars during the tax credit’s proposed lifetime from late 2027 to end of 2035.
Helen Kerstein, with the Legislative Analyst’s Office, said it could be even bigger: a billion dollars or more, if companies import alternative jet fuel to California to take advantage of the credit.
The analyst’s office in fact recommended to lawmakers that Newsom’s proposal be rejected.
“We think the environmental benefits are probably quite limited, potentially overstated, and this is a very, as we see it, a potentially quite an expensive approach to decarbonization,” Kerstein said.
The Newsom administration defended the proposal as an important step to the state’s climate goals as alternative jet fuel is more expensive to produce. Andrew March, a budget analyst with the Department of Finance, told lawmakers other states with similar programs haven’t seen costs balloon.
“We know that this is important to help decarbonize the aviation industry, which is one of the most difficult industries to decarbonize in the nation,” March said, “and that there are a number of other states that have taken the opportunity to provide sustainable aviation fuel incentives, including the state of Washington and the state of Illinois.”
Four companies would qualify for the incentives, March told lawmakers, including Phillips 66, which has a refinery in Contra Costa County producing biofuels.
A number of lawmakers have backed Newsom’s proposed tax credit, arguing it would save jobs and prop up an energy sector that has been facing closures in the state.
“We must stand by this industry and our partners who have made the choice to embrace renewable fuels,” said Democratic Assemblymember Anamarie Farias. “Closing our refineries will have detrimental impacts in my district. This is not a regional problem. This is a statewide problem.”
Read the full article here
