American oil industry fights climate-change mandates

by Ben Gemen

An internal document circulating among members of an industry-environmental coalition that favours action on global warming provides a window into the oil industry's fight to scale back mandates in Democratic climate-change bills.
The US Climate Action Partnership (USCAP), formed with a huge splash in early 2007, helped provide an early push for cap-and-trade legislation by uniting several big green groups, large utilities, and major oil companies Shell, ConocoPhillips and BP. But the oil industry says current Capitol Hill plans would create costly burdens and companies inside and outside the group are seeking major changes to requirements for refiners. The document circulating within USCAP offers a different approach for addressing emissions from car and truck tailpipes.

Sources inside the group say the document has been circulated by ConocoPhillips and BP, but that it also reflects concerns voiced by other companies in the refining industry. Refiners object to Democratic bills that require them to obtain emissions allowances to cover both their facilities' direct greenhouse gas output and the larger emissions from the use of their products in transportation.
The industry argues the bills would raise industry and consumer costs and hand a competitive advantage to foreign suppliers, boosting reliance on imported gasoline.

The plan circulating within USCAP would greatly alter the treatment of transportation emissions. Rather than require refiners to buy allowances to cover various refined products, it envisions a consumer fee on transportation fuels that's linked to the market price of carbon emissions allowances under the cap-and-trade plan.
Oil companies would handle the "collection and remittance" of the fee, but the government would take responsibility for the allowances and offset credits to cover emissions from consumer use of transportation fuels, the document states. The document says this would curb the "disproportionate impact" of the bill on domestic refiners by "removing financial risk associated with securing allowances for consumer GHG emissions."

It envisions the fee, set by the government, would equal the average traded allowance price over the preceding three-month period and be fixed for the next three months. The fee would be applied to various transportation fuels-including gasoline, diesel and jet fuel-as well as kerosene and heating oil.
The proposal does not suggest removing the requirement that refineries must buy credits for direct emissions from the refineries themselves.

A staff member of the Natural Resources Defence Council, which is part of USCAP, warned the proposal is "not a consensus document." Another USCAP source familiar with the document said the oil companies circulating the idea wanted to "see if there was a possibility" of USCAP as a group supporting it.
"That's what they are looking for," this source said.

The idea of a consumer fee linked to allowance prices to address transportation emissions has also been circulated by refiners outside of USCAP. And while the three oil companies in USCAP back cap-and-trade in principle, the fight over refiners' treatment is more evidence that the oil industry is far from backing what's currently before lawmakers.
Refiners are fighting the bills through two big trade groups: the American Petroleum Institute and the National Petrochemical and Refiners Association. The consulting firm Wood Mackenzie issued a report earlier alleging the bill could cost the sector $ 100 bn annually by 2015, although environmentalists quickly called the estimate overblown.

"The treatment of the refining industry is singular under this legislation," said Scott Segal, a lobbyist for Bracewell & Giuliani who represents independent refining companies.
"Making sure that consumer emissions are not arbitrarily assigned to the refiners is a very important priority for fixing the bill."

But Joseph Romm of the liberal Centre for American Progress says the industry has vastly overstated the costsof the bill.
"The notion that this bill is going to have any noticeable impact on their business for 20 years if not longer, but certainly 20 years, is just absurd," he said. Romm, a former Energy Department official under the Clinton administration, has argued that studies touted by the industry showing burdensome costs for refiners assume overly high emissions allowance costs.

At the least, the industry wants to rectify what it calls an unfair approach to the bills' distribution of free emissions credits to various sectors, including utilities and "trade exposed, energy-intensive" industries like steel producers. Refiners currently receive a free allocation of 2.25 % of the carbon emissions allowances under the House and Senate plans.
Marvin Odum, president of Shell's US operations, told earlier this month that it should be higher, at least 4 %. The House passed a sweeping climate bill in late June but a similar bill is moving slowly in the Senate, and Majority Leader Harry Reid (D-Nev.) is eyeing floor debate next spring.

Ben Gemen is a correspondent for The Hill, from where this article was adapted.