As we enter the brave new world of low carbon fuel standards and cap and trade programs to reduce greenhouse gas emissions, one fact is becoming clear: the future of petroleum and other liquid transportation fuels is tied inextricably to the future of low carbon biofuels. Federal and state programs to reduce greenhouse gas emissions will put enormous pressure on fuel makers to produce low-carbon gasoline and gasoline blends. As it becomes more difficult to locate and produce new supplies of crude oil, the carbon footprint of petroleum is climbing, exacerbating that challenge. Petroleum made from sources like Canadian tar sands likely will make a larger and larger contribution to our domestic gasoline supply.

A low carbon fuel standard and/or a cap and trade program will impose restrictions on the amount of greenhouse gases that can be emitted from the transportation sector. Fuel suppliers will either need to reduce the carbon intensity of their fuel to comply with restrictions that are expected to get tighter each year, or purchase so-called carbon offsets – greenhouse gas credits that are generated by projects like no-till farming that sequesters carbon in the soil or the use of methane digesters that prevent the release of methane to the atmosphere. The aggregate cost of these carbon offsets may add substantially to the cost of high-carbon gasoline, eventually tilting the balance in favor of non-liquid energy sources (i.e. electricity).

Already, electric vehicles and electric hybrids (vehicles that can run on electricity and gasoline) are gaining market share, propelled along by consumer concerns about global warming and by the period of high gasoline prices that we experienced recently. Their market share is expected to increase over time. And biofuels proponents should not be threatened by that phenomenon; a diverse mix of low-carbon fuel types is healthy for the country. However, we should recognize it will challenge us to overcome historical differences and work cooperatively with other transportation fuel providers who have a stake in preserving a large future market for liquid transportation fuels. Part of the solution will involve increasing the amount of biofuels that can be blended into each gallon of gasoline.

The fate of biofuels and petroleum in world transportation markets is now inextricably intertwined. Ethanol producers and oil companies alike need to work together to develop commercial quantities of low-carbon biofuels that can be blended with petroleum to produce a more climate-friendly retail fuel. If we fail, then we may ultimately stand to be replaced with electricity.