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Oct. 1 (Bloomberg) — BP Plc and Valero Energy Corp. are among the U.S. oil refiners caught in the crosshairs of proposed new greenhouse gas regulations from the Environmental Protection Agency, an industry representative said.
“Any time you increase capacity, or if you want to upgrade your refinery to use a wider range of crude oils, you could trigger these new regulations,” Charles Drevna, president of the National Petrochemical and Refiners Association, said.
The EPA announced yesterday that newly built industrial facilities, or existing ones that undergo “major modification,” must use “best available control technology” to reduce their emissions if they are responsible for more than 25,000 tons of greenhouse gases a year.
This requirement threatens to halt U.S. refinery upgrades and expansions, which could boost gasoline imports, Drevna said today in a phone interview.
There were 150 operable refineries in the U.S. as of Jan. 1, 141 of which are operating, according to the Energy Information Administration. In 1999, 155 of 159 operable refineries were in service, according to EIA data.
BP, the largest natural gas producer in the U.S., has five U.S. refineries, with plants in California, Washington, Indiana, Ohio and Texas. BP’s Whiting, Indiana, refinery is undergoing a $3 billion upgrade to process heavy crude, said Tom Mueller, spokesman for BP America in Houston.
Business Impact
It’s unclear whether that work would count as a significant modification, Mueller said. “Clearly there’s potential for this to have a very large impact on our businesses,” he said.
Valero Energy Corp., the largest U.S. refiner, has capacity to process 3.3 million barrels a day of oil and other feedstocks at refineries in states including Texas, Louisiana, California, New Jersey and Delaware.
“It is too early to tell what impact it would have on our business,” said Bill Day, a company spokesman.
The EPA announced the regulations, which will undergo a period of public comment and further agency review before they are final, as Congress debates whether to create a “cap-and- trade” system of exchangeable pollution rights.
The regulations for industry should be ready by March to coincide with the planned enforcement of tougher fuel economy standards for new cars and trucks, according to the agency’s proposal.
‘Best Available’
The proposed regulation for industry doesn’t define “best available” control technology for refineries or other sources targeted by the EPA, such as power plants and factories.
Instead, a “case-by-case analysis” will be conducted for newly built and modified facilities because “the best available technology can change over time,” EPA Administrator Lisa Jackson told reporters yesterday.
Refiners already have to install best available control technology for other pollutants, such as “scrubbers” that remove the sulfur dioxide that causes acid rain, Drevna said.
There is no cost-effective technology to scrub carbon dioxide from refinery smokestacks, he said, and the rules may result in more gasoline being refined overseas where the environmental standards don’t apply.
“I don’t know of any technology to cut carbon dioxide emissions from an oil refinery other than cutting production,” Drevna said. “If you pass rules like this, we are going to be more dependent on foreign sources of oil and refined products than we have ever been before.”
Fears Overblown
The refinery industry’s fears are overblown, David Bookbinder, chief climate counsel of environmental group Sierra Club, said in a phone interview.
The EPA’s proposed regulations will probably only require refiners to “upgrade their systems to make them more efficient and burn less fossil fuel” when converting crude oil into gasoline and other petroleum products, Bookbinder said. The agency knows “there is no existing control system” that can capture and store carbon dioxide emissions on a commercial scale.
“They would not try to shoehorn something that’s not been commercially used into the definition of best available control technology,” Bookbinder said. “Politically, that’s suicide.”
In 2007, the Supreme Court ruled the EPA has the authority to regulate greenhouse gases under the existing Clean Air Act.
The Bush administration, which argued against the Supreme Court decision, declined to move ahead with any regulation because it said the Clean Air Act compels the EPA to take action against sources that produce as little as 250 tons of greenhouse gas a year, such as office buildings or hotels.
The EPA proposal says the agency can raise this threshold to limit regulation to large industrial sources to avoid “absurd results.” The EPA “lacks the legal authority” to raise the threshold for Clean Air Act regulation of greenhouse gases, Drevna said.
If there is a legal challenge to EPA’s proposed regulation, “the courts will uphold it,” Bookbinder said.
To contact the reporters on this story: Simon Lomax in Washington at [email protected]; Asjylyn Loder in New York [email protected].