US refiners to be hit hard by climate bill

A new study by EnSys Energy on the impact of the Waxman-Markey bill on US refiners underlines how hard it is going to be to reduce global warming. That is not the point of the study. The study by the global consulting firm homed in on the fact that investment in US refining capacity could plummet if the bill becomes law because the cost of doing business could soar:

Production at US refineries would drop while production at refineries in countries that do not limit their own greenhouse gas emissions would rise. The impact on global refinery greenhouse gas emissions would be minor as reductions in US emissions mostly would be offset by increases in emissions in other countries.

Not to mention that more emissions would be incurred in importing the foreign-refined products into the US. According to the EnSys study, which was commissioned by the American Petroleum Institute, the industry’s national trade organization, the US would need to increase its imports of petroleum fuels in order to meet as much as nearly one-fifth of US refined product demand in 2030 if the House climate bill becomes law – double what imports would otherwise have been.

The API’s takeaway is focused on the industry, lost profits and lost jobs. Here is what Jack Gerard, API president and chief executive, had to say:

This study clearly shows the devastating impact this legislation could have on US jobs and US energy security. Climate legislation should not come at the expense of US economic and energy security. Congress needs to analyze carefully the impact of any climate policy on ordinary Americans, American jobs and American companies. A deep decline in US refining activity would have a ripple effect throughout the economy, affecting jobs in sectors beyond the oil and gas industry. Steelworkers, construction workers, even the shop keepers, school teachers and waitresses working in communities where refineries operate would feel the pinch.

Of course that is true, but the industry is being narrow minded here. The bigger issue is that the US must not pass climate change legislation while much of the rest of the world carries on as it sees fit. Bernstein Research addressed this point in a research note last month, in which it said import tariffs could be introduced to level the playing field. That way, there is no point to closing US refining operations to import those same products from abroad.

The research firm notes that the current bill, as it now stands, having gone through the House and awaiting action in the Senate, leaves US refiners at a major disadvantage. The main controversy, as Bernstein Research sees it, is that US refiners are allocated only 2 per cent of emissions allowances, while being held responsible for petroleum products that generate around 40 per cent of the carbon emissions in the US. All refiners will be affected, no matter how green their refineries are:

Depending on the price of emissions, we estimate that the total annual incremental cost on the sector could be $30-$60bn, and a company like Valero (the US’ biggest refiner) could face costs of $3-$6.5bn per year. This represents a significant incremental burden on the refining sector and could pressure the economics of small/simple refineries. Additionally, it could disadvantage domestic refiners versus foreign refiners who don’t face CO2 emissions costs, and ultimately lead to zero global net reduction in emissions, due to simply shifting emissions abroad.

One has to hope the Senate is considering this. Not just for the interests of US refiners. But for the greater good of attempting to actually reduce global warming.

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