Alaska’s oil is some of the most energy-intensive out there, with a carbon intensity of 16 g CO2e/MJ (grams of carbon dioxide equivalent emissions per megajoule, a unit of energy). Thailand, although a small supplier, ranks among the lowest: just 4 g CO2e/MJ.  

That wide range reveals how carbon intensity could change competitive dynamics between fuel suppliers around the world. Oil is a global commodity. Even a small change in relative prices could create big winners and losers for oil-exporting nations. One clear winner is Saudi Arabia. “The higher carbon dioxide content of many crudes relative to the Saudi crudes warns that enactment of a carbon tax will confer a competitive advantage to Saudi oil relative, say, to crude oil from Russia or many other countries,” Verleger writes. “This advantage will add to the Saudis’ production cost advantage.”

In other words, carbon intensity standards like California’s could raise demand for Saudi Arabian crude in the short term, even as it steadily increases the prices of all fossil fuels.

Beyond fossil fuels

Another clear winner created by carbon intensity standards: alternative fuels. As oil importers, refiners, and wholesalers seek to minimize the cost of carbon emissions, they’re turning to an unlikely cast of fuel suppliers in California’s low-carbon competition.

More than 840 unconventional fuel sources have been certified by CARB for use in its trading scheme. Dairy cows in Indiana, pigs in Missouri, methane-rich landfills in Illinois, molasses ethanol producers in Brazil, and even waste wine from California vintners are all sources of transportation fuels such as ethanol (derived from plants), biogas (via animal manure), and hydrogen manufactured by splitting water using solar electricity. Several, such as biogas generation on dairy and pig farms, result in negative emissions due to their displacement of methane emissions, a potent greenhouse gas. At the moment, ethanol and biodiesel are the two largest alternative contributors to California’s transportation system, accounting for well over half its alternative transportation fuel generating credits, estimated at about $1 billion in 2018, according to Stillwater Associates, an energy consultancy.

So far, the effort in the state has seen emissions fall ahead of schedule. Researchers in the journal PLOS One estimate emissions in California’s transportation sector declined by about 10% due as a result of the program, while saving hundreds of millions of dollars in improved workers’ productivity due to better air quality.

California is planning to tighten carbon limits each year. In 2020, CARB imposed new penalties for dirtier fuel as the state’s fuel carbon intensity rose above its initial targets, raising compliance costs by about 24 cents per gallon of gasoline.

While most of the world lacks stringent carbon intensity standards, the program is now inspiring followers (pdf). Canada, the European Union, Oregon, and others are now adopting low-carbon standards of their own. Nearly a dozen US states are considering them. As global carbon standards tighten, the most carbon-intensive fuel sources will likely see their markets shrink first and prices fall below historical benchmarks.

Then, it will be time for a new class of energy suppliers to supply low-carbon—and even negative—transportation fuels.

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