The state of California has embarked on a path to reduce greenhouse gas emissions from cars. While the automakers and the federal government will fight California on this, if the state wins this battle, US energy consultant ESAI believes it will be a dramatic development for the US and global oil markets.

California’s Air Resources Board (CARB) unveiled a draft proposal on June 14 to cut greenhouse gas emissions from passenger vehicles and light trucks in the state by approximately 30% by 2014. The proposal, if adopted, would take effect at the beginning of 2006, but be implemented in stages between 2009 and 2014.

ESAI believes these regulations could have implications beyond the state of California.

“California is the only state that can set its own vehicle emission requirements because it began regulating air quality before the federal government did,” said Marc Sharrett, Oil Analyst at ESAI, “But other states have the option to adopt California standards.”

In fact, New York Governor George Pataki has already expressed support for California’s efforts on greenhouse gasses.

The proposal, however, could run into serious legal problems since the only way to currently cut emissions of greenhouse gasses is to employ technologies that are not currently standard on cars today. In addition to reducing emissions, these technologies improve fuel efficiency which, in turn, improves fuel economy.

“This is where the legal challenge may come,” said Mr Sharrett, “While California does have the power to regulate air quality standards, the Federal government has the exclusive authority over setting fuel economy requirements or CAFƒ standards. Although California regulators have insisted the plan is not a fuel economy measure, it will de facto improve the fuel economy of the California vehicle fleet.”

As a result, he said the automakers and the Bush administration are likely to fight this measure.