Here’s a prediction for the coming legislative session, which begins in January: The fuel industry, led by Chevron, will seek to change the law underpinning Oregon’s Clean Fuels Program in a way that hides the operation of its credit market securely from public view. When that effort begins, legislators should consider the state motto, “She flies with her own wings.”
This motto celebrates Oregon’s independent spirit, which has sent the fuel industry into a tizzy in recent weeks. How dare Oregon be different!
Perhaps nowhere is this indignation more evident than in the words of Jason Schwenneker, executive director of Iowa-based biofuel giant Renewable Energy Group. REG has joined a November lawsuit brought by Chevron that seeks to block the release of credit-transaction information related to the Clean Fuels Program.
Disclosing such information, Schwenneker practically huffs in a court filing, would make Oregon’s credit market “the only carbon compliance trading program in North America, if not in the world, in which this kind of disclosure occurs.”
Since when is being different a bad thing, if that’s what the public interest demands?
This transparency fight began in October, when the Oregon Department of Environmental Quality refused to release credit-transaction information requested by a Bulletin editor. The Bulletin appealed the denial, and in November the Oregon Department of Justice ordered DEQ to release the information. Chevron promptly summoned its lawyers to fight the release and, in an unmistakable message to journalists, sued the editor who’d made the request.
Transparency matters because the credit market is, at heart, a mechanism for spending public money.
Under the Clean Fuels Program, importers of conventional road fuels such as Chevron generate carbon deficits, which they eliminate by purchasing credits from a variety of entities, including producers of low-carbon fuels such as REG. This complex subsidy program is funded by motorists, who pay for carbon credits at the pump.
Problem is, the people footing the bill aren’t permitted to see where their money’s going, as DEQ makes only aggregate credit-sale data available to the public. Anyone who wonders which companies are winning big under the Clean Fuels Program, and whether the program is operating as lawmakers intended, is out of luck.
Of course, that’s just the way the fuel industry likes it. To paraphrase REG’s Schwenneker, if secrecy is good enough for the rest of North America — and maybe the world — why shouldn’t it be good enough for Oregon?
We’re in no position to judge the operations of credit schemes elsewhere. But to the degree that other schemes resemble Oregon’s fuel program, a better question might be why transparency is the exception rather than the rule. Consider Schwenneker’s arguments for secrecy.
The Bulletin, Schwenneker notes, requested information that would show “the timing of trades, the identities of the participants, the number of credits to be transferred and the price to be paid per credit.”
The release of such information, he argues, might allow competitors “to undercut and manipulate others’ pre-existing trading relationships, which in many cases have been developed over the years with significant effort and investment.”
Transparency certainly would change the credit-trading landscape.
However, as the DOJ argued in its order requiring disclosure, “it is at least as likely the efficiency of the credit market will improve as a result of greater transparency.”
An economist consulted by the DOJ noted, for instance, that “transparency should make it easier for the market participants and others to detect any collusive – and potentially illegal – market behaviors that could contribute to market inefficiencies.”
You’d think such a policing mechanism would reassure market participants. Yet Schwenneker argues that credit sellers “like REG, which have opportunities to do business in multiple markets, may opt to take their business elsewhere.” Harrumph!
But even as he insists upon secrecy, Schwenneker accidentally makes a case for its opposite: “To function effectively,” he argues, “a market requires an adequate supply of both buyers and sellers at each point when a transaction is needed. Oregon’s CFP credit market has already struggled with striking this balance. To date, the market has suffered from a lack of liquidity resulting from an insufficient supply of available credits when needed.”
So, even after two years in operation, the state’s Clean Fuels Program still doesn’t work well. And as a consequence, it suffers from a supply and demand mismatch that could, one imagines, encourage the sort of market behaviors about which the DOJ warns.
Yet journalists, lawmakers and other members of the public can do no more than imagine the kind sort of sausage that’s being made inside Oregon’s super-secret credit market. They must place their trust, instead, in program regulators. What could possibly go wrong?
If insisting upon transparency is weird, then state lawmakers should embrace weird next year. Resisting attempts to bury credit-market information even deeper would be a good start. Better yet, legislators should require its regular disclosure as a matter of law.
If such transparency causes the Clean Fuels Program to implode, as Schwenneker warns, that’s not necessarily a bad thing. If he’s to be believed, it doesn’t work well anyway.
And surely a state that prides itself on its independent spirit can come up with a way to subsidize alternative-fuels businesses and reduce carbon emissions without keeping the public utterly in the dark.