Fueling discontent: Minnesota’s costly push for a low carbon fuel standard

Lawmakers in Minnesota are considering a Clean Transportation Standard (CTS) that would impose increasingly stringent carbon-intensity reduction targets on all motor fuels used in the state. Carbon intensity is measured in grams of carbon dioxide-equivalent greenhouse gas emissions per unit of energy for each finished motor fuel, including gasoline, ethanol, and grid-based electricity. The carbon intensity standards would be phased in during 2026-2050. Supporters promise substantial consumer benefits. However, technology mandates indisputably increase producer costs, which tend to raise consumer prices.  

Here is a quick recap of the state of play. The Minnesota legislature in May 2023 passed a bill that required four state agencies to convene a CTS Work Group. The group was tasked to study and address information gaps and opportunities for reducing the aggregate carbon intensity of Minnesota transportation fuels “to at least 25 percent below 2018 levels by 2030, 75 percent by 2040, and 100 percent by 2050.” The Work Group submitted their report to the legislature in February. It recommends drastic reductions in motor fuel carbon intensity.

Acknowledging that “the carbon intensity targets included in the law may be very difficult to achieve given what we know today about transportation fuel markets and clean fuel technologies,” the report “recommends changing the [100-percent] 2050 target to a goal and re-evaluating at a later program review period.” Nonetheless, most members of the Work Group recommend that the targets be set “at or somewhere between the Moderate Case and the 2023 [spring] session law.”

How moderate is the Moderate Case? You can judge for yourself by comparing it to the Work Group’s business-as-usual (BAU) projection under current policies and the targets proposed in the 2023 law. So, perhaps a 30 percent reduction by 2035, a 50 percent reduction by 2040, and a 75 percent reduction by 2050.

Figure Source: Clean Transportation Standard Work Group

Note, the Work Group’s recommended levels would make the CTS significantly more aggressive than California’s Low Carbon Fuel Standard, which maxes out at a 20-percent carbon intensity reduction in 2030. But these days every blue state wants to be a “climate leader.” Minnesota presently boasts of having the nation’s “strongest” biodiesel blending mandate.

The Center for the American Experiment, a Minnesota based think-tank, calculates that a CTS designed to achieve 100-percent carbon intensity reduction by 2050 could increase gasoline and diesel prices by 39 to 45 cents per gallon by 2030. That would increase the cost of driving for Minnesota families by an average of $350 to $476 per household in 2030, but families in rural counties would pay up to $1,151 in 2030 a result of these regulations.

Figure Source: Center for the American Experiment

As a climate policy, the CTS would be all pain for no gain. The Center calculates that “eliminating all of the greenhouse gases emitted by transportation in Minnesota would reduce future global temperatures by 0.00095°C by 2100, an amount so small it is impossible to measure with even the most sophisticated scientific equipment.”

By law, the Work Group must include two individuals from each of 20 special-interest groups—renewable and conventional fuel producers, environmental justice organizations, automotive manufacturers, electric vehicle charging infrastructure companies, labor unions, and more. Two groups not represented are automobile consumers and auto dealers—companies that specialize in satisfying consumer demand.

Unsurprisingly, the Work Group does not address the most basic questions about the CTS. If the CTS is truly a font of consumer benefits, then why is the BAU scenario so different from the Moderate CTS scenario, much less the All-In scenario?

After all, fuel and vehicle manufacturers are in business to make profits. Profits come from selling products consumers want at prices they can afford. If consumers value carbon-intensity reduction as much as certain Minnesota legislators profess they do, the purported need for regulatory compulsion would not exist. The motor fuels market would already be on a trajectory resembling the regulatory scenarios. 

The Work Group touts “economic development” as a CTS “co-benefit.” And if the Minnesota government picks fuel market winners and losers, the winners will likely hail the program as a big success. Unless, of course, their ventures go bust for lack of consumer demand. So-called sustainable development is not always financially self-sustaining. Ford Motor Company last year lost $4.7 billion on electric vehicles (EVs), equivalent to “about $67,731 for every EV it sold,” energy analyst Robert Bryce reports.

But even if some regulatory beneficiaries get rich, that would only be the “seen” part of Minnesota legislators’ economic interventionism. The unseen includes all the businesses, profits, jobs, and innovation that were not created because politicians substituted their preferences for consumer and investor preferences in the transportation marketplace.

Minnesota is a cautionary tale. We should pay attention to what’s happening in state capitals and on the federal level. Vigilance is essential if we are to remain free to drive the cars we want and avoid unwanted expenses and cost of living increases.