Climate bill costs upset oil refiners

Domestic oil refiners on Wednesday kept up their attack against climate legislation, saying a Senate bill under consideration could increase gas prices and cost jobs.

The group, among the fiercest critics of the measure, said the proposal could add 77 cents a gallon, or around 30 percent above today’s prices. It would also force plants to close, refiners said.

Democrats on a key Senate panel shot back, saying the industry’s estimate is based on an inflated projection of the price of permits companies will have to hold to cover their carbon emissions. A cost containment mechanism will keep the price from approaching the industry’s estimate, supporters said.

The lawmakers said the bill will spur industry innovation and that will create millions of new “green” jobs.

The chief complaint from refiners is that they wouldn’t get enough free pollution allowances to cover emissions they are on the hook for under the legislation. The Senate bill would give refiners 2.25 percent of the allowances available to cover emissions at their plants. But the industry is also responsible for the emissions from vehicle tailpipes.

To make up the difference, refiners would have to buy emission permits on the market created under the legislation.

Bill Klesse, CEO, president and chairman of Valero Energy Corp., told the Senate Environment and Public Works Committee that covering tailpipe emissions would cost the industry $63 billion a year. He said the climate bill would force Valero to close some plants and give an advantage to refiners outside the United States.

The climate bill was “very unfair to this industry,” Klesse said.

The 77 cents figure Klesse referred to comes from an analysis by Science Applications International Corp. (SAIC) and was funded by industry. Klesse said it is based on a carbon allowance price of $87 per ton.

Sen. Barbara Boxer (D-Calif.), the chairwoman of the Senate Environment and Public Works Committee, noted during the hearing that the legislation seeks to restrain the costs for emissions permits from $11 to $28 through a price “collar.” If the prices rise above $28, more allowances would be released to the market from a reserve fund.

“We won’t see prices over $28,” Boxer said.

The Energy Information Administration, a nonpartisan branch of the Energy Department that tracks and analyzes energy data, has estimated a climate bill could increase gasoline prices by just 20 cents by 2020.

Environmental groups that support the bill also note that offshore refiners would still be forced to buy permits to cover carbon emissions from the products sold in the United States, which would minimize any competitive advantage.

But refiners insist the climate bill as currently structured would force many of them out of business, and some are stepping up their lobbying efforts to kill the bill.

The National Petrochemical and Refiners Association, for example, spent more than $850,000 to lobby Congress during the last three months, more than twice what it had spent over the first half of the year. The American Petroleum Institute spent $5.8 million on lobbying so far in 2009, versus the $3.6 million it spent at this point in 2008.

Refiners are also trying to active a grassroots network to block the climate bill.

Tesoro, a large oil refiner like Valero, has started a new website to encourage its employees to contact their representatives to oppose the measure. CEO Bruce Smith toured the company’s refineries this summer to explain the company’s concerns with climate legislation to his workers.

The Congressional Budget Office (CBO) has said the climate bill would have “comparatively modest” effects on the overall economy. However, industries like oil refining suffer significant job losses, CBO has said.

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