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California refiner sues to block new fuel rules

October 1, 2008 |  5:33 am

Professing concern about corn-based ethanol's greenhouse gas emissions and indirect effects on U.S. food prices, fuel-maker Tesoro Corp. on Tuesday sued to block California regulations that would boost the biofuel's content in gasoline to 10% by 2010.

The San Antonio company, which owns refineries in Los Angeles and the Bay Area city of Martinez, said in a press release that its newly-filed lawsuit seeks a preliminary stay and eventual nullification of the new gasoline rules.

"More and more questions are emerging about the impact crop-based ethanol has on our environment and food supply," Tesoro Chief Executive Bruce Smith said. "We think greater review of the environmental and economic impact of this fuel supply is needed."

But the text of the lawsuit, filed in Sacramento Superior Court, says precious little about Tesoro's worries over food supply and prices. Rather, the company's core complaints are that California Air Resources Board's new rule: takes effect too quickly, forces companies to pay for emissions offsets if they don't meet the 2010 deadline, and requires expensive refinery modifications that might not be compatible with California's still-evolving Low Carbon Fuel Standard. 

A little background is in order here.

Technically speaking, California's gasoline regulations -- both old and new -- don't require refiners to use ethanol at all. The rules require that gasoline sold in the state contain certain amounts of oxygen and comply with a complex set of emissions limits (and believe me, you don't want to see the formulas involved).

California's Low Carbon Fuel Standard, meanwhile, is supposed to place limits on the carbon 'footprint" of all fuels sold in the state. The details aren't worked out yet, but the goal is to assign a carbon 'cost' to every fuel sold in the state, taking into account greenhouse gas emissions covering the fuel's full life-cycle, and including everything from feedstock production and drilling impacts to how the fuel gets to market and what leaks into the air when it gets consumed by a car.

Most of the gas sold in California today includes 5.7% ethanol. All but a tiny fraction of it is made from corn, and the majority of it is imported by train from the Midwest. The crop's production and rail ride to California is problematic, carbon wise, according to the Air Resource Board. Those drawbacks, if not eliminated, will make ethanol a tough sell once the low-carbon rules kick in.

But the biofuel still gets high marks from air regulators because it produces far less pollution and smog than gasoline and also reduces the airborne particulates that have been blamed for the rise in asthma and other ailments.

Under federal mandates, U.S. refiners must sell fuel with an average renewable content of 9% next year, a figure that rises to 10% in 2010. That's the same year California's new 10% ethanol formula kicks in.

The problem for Tesoro and other refiners is that the whole move to biofuels is eating away demand for its products. That might have something to do with the company's sudden concern about ethanol's impact on the environment and the nation's food supply.

-- Elizabeth Douglass

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