Climate change legislation being considered by Congress has the potential to make the US more dependent on imports of gasoline and other refined products, according to a study commissioned by the American Petroleum Institute.
Additional imports would undermine one of the Obama administration's key justifications for the bill, which passed the House of Representatives by a narrow margin in June. The White House has repeatedly called for a price to be placed on carbon emissions to reduce greenhouse gas pollution and cut America's dependence on energy imports.
To win support for the bill, Congressional leadership gave away about 85% of the available emissions allowances for free to various energy-intensive industries. The bill is designed to cut carbon dioxide emissions 14% from 2005 levels by 2020 and 80% by 2050.
Refiners and oil producers felt left out of negotiations over the Waxman-Markey climate change bill, which could end up giving away free emissions allowances worth over half a trillion dollars if carbon prices surpass $20 a metric ton.
Refiners would be held responsible for emissions from their plants and also for emissions caused by consumption of their products. This adds up to some 43% of total US greenhouse gas emissions, but refiners would receive only 2.25% of the free allowances that would be made available under the bill.
Other industries garnered a much higher percentage of the allowances, giving them more time and flexibility to invest in new equipment and fuels that will cut their carbon emissions.
US electricity companies, which account for 39% of the emissions covered by the legislation, will receive 35% of the free emissions allowances allocated over the course of almost two decades.
Energy-intensive manufacturers, including car and heavy-truck manufacturers, will receive 15% of the free allowances, nearly twice their share of overall US emissions.
Consulting firm EnSys Energy, which conducted the study for the API, said US refining throughput could plummet by as much as 25%, equal to about 4.4 million barrels a day, if the bill becomes law in its present form.
Investment in the US refining industry would fall by as much as $90 billion through 2030, with refineries along the Gulf Coast and in California being hit hardest, according to the study.
EnSys calculated that it would cost the US refining industry about $15 billion a year by 2030 to buy the necessary emissions allowances, while consumers of oil products would face costs of about $120 billion a year. Refinery utilization rates would fall to 72.9% by 2015 and remain below 80% through 2030, according to the study's base case scenario.
Refiners in countries with no limits on greenhouse gas emissions could potentially increase both their exports of oil products to the US and their greenhouse emissions, the study found. EnSys assumed that global demand for refined oil products would continue to increase, with refining throughput outside the US rising by up to 3.3 million barrels a day by 2030.
The US currently imports about 9.6% of its refined products, but EnSys estimated that number would increase to 19.4% under Waxman-Markey. Last year the US imported 3.1 million b/d of oil products, including 540,000 b/d from Opec countries.
The bill includes language that would allow the US to impose trade sanctions against countries that do not participate in a future UN climate change treaty, although the use of such sanctions could be at odds with World Trade Organization rules.
Waxman-Markey is expected to have a tough time passing the Senate this fall. The administration's preoccupation with health care legislation and opposition from a large number of Democratic Senators from coal-producing and manufacturing states could force negotiators to give away additional emissions allowances or even drop plans for a carbon emissions market for the time being.
Bill Murray, Washington
