Search anytime by typing below

Thanks for joining the AEA efforts to help combat rising energy prices. We don’t want to bug you that often, so let us know what energy issues interest you, and we’ll keep your inbox happy.

*Please fill in all items

American Energy Alliance Releases 'Phantom Fuels' Video

June 18, 2012 by Leave a Comment

 

WASHINGTON D.C. — The American Energy Alliance released a video today exposing the failure of renewable energy mandates that raise the cost of producing and consuming transportation fuels in the United States. The “Phantom Fuels”video tells the story of cellulosic biofuel, a plant-based fuel source that is not commercially available despite federal law requiring refiners to blend 8.65 million gallons of it this year. Failure to blend the non-existent biofuel cost refiners $6.8 million dollars last year in fines assessed by the Environmental Protection Agency. Last week, American-based companies were forced to file a lawsuit in federal court seeking relief from the EPA’s rogue penalties.

“Cellulosic biofuel is the latest poster child of government gone bad. The Environmental Protection Agency is currently penalizing refiners because they are not blending an imaginary product. Congress has been complicit in the scheme, and both Republicans and Democrats are to blame,” noted AEA President Thomas Pyle.

“Renewable mandates like the cellulosic biofuel requirements eventually defraud American consumers, who are forced to pay higher energy prices to fund the political experiments of crony capitalists. These ‘phantom fuels’ are but another example of the kind of policies that have marked the Obama-Solyndra era.”

To view AEA’s “Phantom Fuels” video, click below.

Filed Under: News, Products and Power, Renewable Fuel Standard Tagged With: , , ,

Steven Chu Thinks He’s Smarter Than You

June 15, 2012 by 6 Comments

 

When he’s not busy picking “winners” like Solyndra, Energy Secretary Steven Chu has time to engage in original, peer-reviewed research. In a forthcoming paper, Chu and his co-authors argue that federal mandates for energy efficiency actually don’t increase prices for consumers, because the extra hoops force the producers to learn how to innovate. As usual, Chu’s views are at complete odds with basic economics.

In a June 14 article for E&E titled “For energy efficiency, Chu’s law is on the way,” Paul Voosen reports:

Energy Secretary Steven Chu is nearing publication on a pet research project that he has led with a small band of physicists….

The project…began with refrigerators. For decades, the government has placed minimum energy standards on household appliances like fridges, once a notorious power hog. The expectation has been that, while purchase prices might temporarily bump up, electricity savings would balance that expense down the road.

It seems a reasonable assumption….The thing is, historical data don’t show it to be true. There is no bump, he said.

“You really can have your cake and eat it, too,” Chu said. “You get higher performance. You get lower cost. And you’re saving tons of money. And by tons of money, I mean the cost of ownership going down threefold, fourfold. [It’s] really dramatic.”

The article goes on to explain that Chu and his co-authors believe that there is a “learning curve,” and that forcing producers down the energy-efficiency path will make them figure out ways to achieve the mandated goals at lower costs than people initially would have experienced. Since there is apparently no downside to slapping on new mandates for energy efficiency—hey, prices apparently don’t zoom upwards!—there are apparently a bunch of free lunches out there, waiting for the wise Energy Secretary to shove down our eager throats.

Whenever someone from the government tells you he’s going to force businesses to do something, and yet there will be no downside—we should be very suspicious. In this particular case, there are critics of the study, saying it relies on dubious data and methods.

But let’s concede all that. Suppose Chu et al. are right, and after the government slaps on a new efficiency mandate, that the price of the good doesn’t rise sharply. Can we conclude that the mandate is a pure boon to consumers?

This would be very odd if it were true. Again we have to ask: If the businesses in question really were capable of supplying the more desirable product, at the same price, then why didn’t competition lead them to this result already? Can it really be that Steve Chu and other government official know the appliance, automobile, insulation, and other industries better than the shareholders and managers who earn their living in them?

Part of the answer is that a product has many dimensions, only one of which is price. If the government imposes a new mandate, improving quality in one dimension (such as energy efficiency), then something has to give. It may not necessarily be on price, but it could be in other areas.

For example, consider CAFE standards on vehicles. When the government forces manufacturers to produce cars and trucks that have higher fuel economy than would occur in a free market, it distorts the mix of attributes that consumers would voluntarily choose. It forces the vehicles to get better fuel economy at the expense of other attributes, also desired by consumers.

Yes, CAFE standards have made cars more expensive than they otherwise would be, but they also have made cars lighter and therefore more vulnerable in crashes. One study estimates that for every mile per gallon in fuel efficiency attributable to CAFE, there are 7,700 additional traffic fatalities.

It’s not just CAFE and automobiles, the federal energy efficiency standards for washing machines might save money, but it lowers the quality of the washing machines. Sam Kazman reports in the WSJ:

In 1996, top-loaders were pretty much the only type of washer around, and they were uniformly high quality. When Consumer Reports tested 18 models, 13 were “excellent” and five were “very good.” By 2007, though, not one was excellent and seven out of 21 were “fair” or “poor.” [In May 2011] came the death knell: Consumer Reports simply dismissed all conventional top-loaders as “often mediocre or worse.”

The problem is not that washing machine engineers forgot how to clean clothes since 1996, but the federal government is forcing washing machine manufacturers to make their machines more energy efficient and that is coming at the expense of cleaning clothes.

Energy Secretary Steven Chu is an incredibly smart man. But his field is physics, and unfortunately his success in that area has given him the hubris to override the voluntary decisions of producers and consumers in energy markets. Federal mandates do come with a price tag, and these costs don’t show up exclusively on the actual price tags.

Filed Under: News, Products and Power Tagged With: , , , ,

Bird Deaths: Environmentalists Target Energy Instead of Real Killers

June 14, 2012 by Leave a Comment

Yesterday’s Wall Street Journal carried a prominent article about accidental bird deaths caused by communications towers. According to the article, a whopping 6.8 million birds are accidentally killed by flying into these towers (the article did not specify if bird suicides were included or not). These 6.8 million birds are usually attacked – apparently without provocation – by these aggressive and belligerent towers under the cover of darkness by their illuminated red lights.

As previously mentioned, 6.8 million birds are killed by these towers, yet that is only a tiny fraction of the 2.38 BILLION accidental bird deaths a year. Bird deaths by communication towers account for a minuscule 0.286% of accidental bird deaths a year. If you add up all the bird deaths from airplanes, wind turbines, communications towers, automobiles, pesticides, hunters, and power lines, it still doesn’t even come close to the most notorious, “accidental” bird killers, cats and buildings (and windows), which kill a combined 2 billion birds annually.

Conservationists and biologists are calling for the lights on these communications towers to be turned off at night to halt the ornithocide. The conservationists and biologists are also quick to point out the potential saved energy costs by turning off these lights.

That environmental activists are perennially hostile to energy development due to the wildlife impacts on birds, lizards, toads, and all other species of airborne and earthbound critters appears more ridiculous given today’s revelation by the Wall Street Journal.

Cats and windows (even energy efficient windows recently installed as part of the President’s stimulus package) are the unmatched killers of nature’s aviators. One wonders when the Sierra Club and the Natural Resources Defense Council will soon crank up efforts to oppose the American Association of Cat Fanciers, or the Associated Builders and Contractors’ Union, each of which is apparently complicit in a billion bird murders every year. In fact, they might want to step up efforts to increase the criminal penalties for cat hoarders while they’re at it.

 

Filed Under: Blog

NRDC Misleads on Keystone

June 8, 2012 by Leave a Comment

 

A recent report by the National Resource Defense Council (NRDC) makes the case that Americans should reject the Keystone XL pipeline because its construction would raise gasoline prices in the U.S. The NRDC report is based on absurd economic arguments and distorted analysis from another research group. Most ironic of all, NRDC has been a strong advocate of a government cap on carbon dioxide emissions, with the express purpose of raising the cost of fossil fuel energy. It’s therefore strange for them to be warning that Keystone would raise gasoline prices.

The following excerpt summarizes NRDC’s recent claims about Keystone raising U.S. gasoline prices:

The Keystone XL tar sands pipeline would divert oil from the Midwest to refineries on the Gulf Coast of Texas. Midwestern refineries produce more gasoline per barrel than refineries in any other region in the United States. That gasoline is then sold to U.S. consumers. In contrast, refineries on the Gulf Coast of Texas produce as much diesel as possible, much of which is exported internationally. By taking oil from midwestern gasoline refineries to Gulf Coast diesel refineries, Keystone XL will decrease the amount of gasoline available to American consumers.

Meanwhile the Keystone XL pipeline will increase the price that gasoline producing refineries in the Midwest pay for crude oil. TransCanada, the company sponsoring the pipeline, pitched the pipeline to Canadian regulators as a way of increasing the price of crude in the United States. Right now, Midwestern refineries are buying crude oil at a discount—a deep discount. This allows them to produce products more cheaply than they would otherwise be able to. Building Keystone XL would change that. If TransCanada’s analysis is accurate, under current market conditions, Keystone XL would add $20 to $40 to the cost of a barrel of Canadian crude—increasing the cost of oil in the United States by tens of billions of dollars. [Bold added.]

On the face of it, this analysis is absurd. The development of Canadian oil sands—and building pipelines to bring the new product to market—will lower worldwide crude prices. Now the NRDC study is alleging that Keystone will cause the United States market (in particular the Midwest refineries) to pay $20 to $40 more for a barrel of crude.

The idea here is that currently the Midwestern refineries, given their proximity to the Canada oil sands, are enjoying the benefits of the glut of Canadian production, and so they receive a discount on their crude compared to the prices that other buyers around the world have to pay. Before continuing, stop to consider what that means: Because Midwestern refineries are lucky to be located next to booming Canadian oil sands development, they get very cheap crude oil. We’re glad NRDC acknowledges that part of the issue.

However, the apparent problem is that from the perspective of Canadian exporters, they would rather be able to sell a barrel for (say) $75 to a Gulf Coast refiner, rather than at a discounted price of (say) $55 to a Midwestern refiner. The Keystone pipeline would allow them to physically do this, i.e. to efficiently move their product to where demand is the highest. This is the logic behind NRDC’s claim that building Keystone would raise crude prices in the Midwest.

Yet the argument is nonsense. Suppose the NRDC gets its way, and the U.S. government forbids construction of Keystone. Do we really think the Canadians are going to be content, selling their excess oil production at a steep discount to Midwestern refiners? Of course not. There are other refineries on planet earth besides those in the United States, and eventually the Canadians will figure out a different way to get their products into the hands of the highest bidders. For example, the Enbridge Northern Gateway pipeline would move Canadian crude from Alberta due west to a port in British Columbia, where it can be shipped to Asian markets. If NRDC thinks Canadians will be content to forever sell their crude at a steep discount to Midwestern refiners, they clearly don’t understand the worldwide oil market.

Beyond the basic error in the analysis, the NRDC paper distorts the actual position of TransCanada. The citation in the NRDC paper for these claims no longer works (i.e. the URL listed in their endnotes doesn’t lead to a working webpage), and thus far a telephone call to NRDC for clarification has not been answered. However, IHS Purvin & Gertz, the research group supplying the analysis for TransCanada on this issue, has released an official rebuttal in the form of a FAQ to the claims put out by NRDC and others. Here is Purvin & Gertz’s side of the story:

Q.      What did IHS Purvin & Gertz conclude regarding the impact of the Keystone XL Pipeline on heavy crude prices in Canada?

A.              We concluded that Keystone XL could increase the price that Canadian producers receive for heavy crude by $3 per barrel in 2013. This increase in heavy crude price was estimated to provide total benefits to Western Canadian producers in 2013 of between $1.8 and $3.4 billion.

In other words, there were many other factors involved in the analysis that TransCanada relied upon, and instead of NRDC’s claim of $20 – $40 per barrel, the actual number (at least according to the FAQ issued by the people who were being cited) was more like a $3 difference.

The global oil market is interconnected, and large price discrepancies cannot last long, absent government restrictions. Even so, temporary bottlenecks can develop in particular areas, leading to temporary price differentials. A Department of Energy analysis of the Keystone pipeline goes into some detail on these issues, and why the crude price spread currently exists across U.S. regions.  Ironically, the DOE analysis projects that building the Keystone pipeline would reduce U.S. gasoline prices on average.

If the goal is to lower energy prices and ease the pain at the pump, governments should remove obstacles to the development of both conventional and unconventional natural resource deposits. Greater global crude production, other things equal, obviously leads to lower worldwide crude prices. As far as regional pricing differences, the United States government cannot prevent Canadians from doing the obvious thing of selling their crude to the highest bidder on the world market. The U.S. government can, however, ensure that the “shovel ready” pipeline construction jobs, as well as refining jobs, go to Canadian workers rather than U.S. ones, by blocking Keystone.

Filed Under: News, Products and Power, Renewable Fuel Standard Tagged With: , , , , ,

We Can Learn from Canada

June 4, 2012 by 1 Comment

 

The United States should start taking lessons from Canada regarding oil development and its relationship to a pro-growth regulatory and tax structure. Canadian production of oil sands in northern Alberta is expected to reach 4.1 million barrels a day by 2020, up from last year’s production level of 1.6 million barrels per day. This area in Canada is the world’s third largest crude oil resource.[i] Unlike the United States, Canada’s budget treats its energy resources as assets that should be used for the public good.

Equally important, unlike the United States, the Canadians understand that the regulatory review process is too convoluted, too long, and too expensive.  The United States is headed in exactly the opposite direction. Their latest budget proposes firm review time lines and the removal of multiple reviews by the national and provincial governments. Canada’s Finance Minister, Jim Flaherty, has a catch phrase—“one project, one review.”[ii]

Canada’s Government Direction

Canada’s provincial governments, led by Alberta in the 1990s, cut taxes, slimmed government and created a stable investment climate in order to encourage energy development. Saskatchewan, British Columbia and Ontario followed. In 2006, when the Harper government took control of the nation, Canada started to cut national taxes, trim government employment and secure free-trade agreements. Its corporate tax rate dropped to 15 percent, which compares to the U.S. rate of 35 percent.

The government has pledged to balance the budget by 2015 without raising taxes. That compares with four consecutive years of U.S. deficits of $1.3 trillion. Canada’s federal debt as a share of GDP is falling while that of the United States is rising, heading toward 70 percent. Canadian Finance Minister Jim Flaherty explained that policies to “raise taxes, increase government spending, and shun new trading opportunities” would “kill jobs, impose crushing deficits, and cripple our economy.”

Canada’s Oil and Pipeline Development

One of the largest positive forces driving Canada’s economy is oil production and a recent oil production forecast from an analyst at CIBC World Markets captures show just how much oil production could increase. This latest forecast of Alberta oil sands production of 4.1 million barrels per day by 2020 is higher than the forecast made by the Canadian Association of Petroleum Producers (CAPP) that expected a more modest increase of 1.4 million barrels per day, reaching a total of 3 million barrels per day by 2020. But, just using the CAPP forecast, industry and government analysts expect Canadian oil production to bump up against current pipeline capacity by 2015 or 2016.

Thus, three  proposed pipelines, TransCanada Corp’s Keystone XL pipeline to Texas, Enbridge’s Northern Gateway pipeline to the Pacific Coast, and Kinder Morgan’s Trans Mountain Project are needed to transport the crude to buyers. Due to opposition to pipeline construction from environmental organizations, the national government is revamping legislation on environmental assessments for major energy projects.  The government has concluded that existing laws have granted too much power to delay needed infrastructure by groups simply opposed to energy production.

Besides the Northern Gateway project, Enbridge is planning to spend C$3.2 billion ($3.15 billion) on pipeline expansions, mostly to get oil from Alberta and North Dakota to refineries in the U.S. Midwest and in Eastern Canada. East coast refineries are currently fed by foreign oil , which are more expensive than U.S. benchmark prices. According to Stephen Wuori, the head of Enbridge’s liquids pipeline business, “Refineries in Ontario and Quebec are paying premiums of $20 per barrel or more to obtain crude oil from the foreign sources they are currently largely dependent on. Access to Canadian and U.S. Bakken production will help level the playing field for these refineries, protecting their long term viability and safeguarding jobs.” The expansions are expected to be completed in 2014.[iii]

Currently the United States is Canada’s largest export market for oil and Canada is America’s largest single source of imported oil. However, because President Obama “delayed’ the Keystone XL pipeline decision despite three years of study and subsequently found that the pipeline was not in the national interest, Canada has decided to ship more oil to China and other Asian countries. It intends to press forward with a pipeline to Asia.

A May 3 poll conducted on behalf of the Canadian Chamber of Commerce found that the vast majority of Canadians believe they need to broaden their  markets beyond the United States and that developing Alberta’s oil sands is more positive than negative.  Three-quarters of those surveyed agree it is important for Canada to build the infrastructure needed to reduce its dependency on the United States for hydrocarbon exports.[iv]  It is clear that the president’s decisions to postpone and reject the Keystone XL permit have had a profound impact on the way Canadians view the United States.

According to Canadian Prime Minister Harper, the United States under President Obama has become too unreliable an energy partner; leaving no doubt who will be to blame for rising prices in the United States in the years to come. Harper indicated that until now the United States had been receiving oil at a discounted price from Canada, but that would end. In the future the United States will have to pay full price – no more breaks. Harper said, “Look, the very fact that a ‘no’ could even be said underscores to our country that we must diversify our energy export markets.”[v]

Policy and Data on U.S. Oil Development

The United States government is operating in sharp contrast to the Canadian government with more taxes, more regulation, and more red tape on energy industries.

According to a report by the Energy Information Administration, using Interior Department statistics, oil production on U.S. public lands is down 14 percent from last fiscal year, an outcome largely due to the moratorium and permitting delays that the Obama Administration put into effect after the oil spill accident in the Gulf of Mexico.[vi] Recently, the Obama Administration moved even further backward when it produced its draft offshore leasing plan for 2012-2017. It removed from leasing the offshore areas that President Bush and Congress had opened to drilling in 2008 when oil and gasoline prices hit a record high.[vii]  The effect of the 5 year plan is that through 2017, U.S. policy will be no different than if the moratorium was never lifted.

Delays are rampant under the Obama Administration. According to Garret Graves, director of coastal activities for the state of Louisiana, “There have been intentional efforts to slow down new production by slowing the permit approval process.”  For example, operators submit plans to the government before they can apply for permits, a process that used to take 50 days but now takes, on average, 212.[viii]

In the Western states of Colorado, Utah and Wyoming, the U.S. Interior Department reduced the available lands for oil shale production by 75 percent. Further, the administration is promoting new environmental requirements that will negatively affect oil production on parcels already leased. And while the Trans Alaskan Pipeline System is moving less than a third of the oil it was built to move, which is currently produced on private and state lands, the Obama Administration is not opening Federal lands in Alaska to oil development that would sustain the life of the pipeline and provide domestic oil to the lower 48 states.

Conclusion

Unfortunately, President Obama’s debacle with the Keystone XL pipeline has left a bad feeling in Canada and the country is moving forward with plans to develop Asian markets for their oil sands that will just lead the United States further away from a stable oil environment in the future. While Canada is moving toward less regulation and debt reduction, the United States is doing just the opposite. Canada believes less regulation, less taxes, and less debt will boost its economy, while the United States is doing just the opposite with little progress towards a better economy.


[i]      Reuters, Canada oil sands output beating projections, May 17, 2012,http://www.reuters.com/article/2012/05/17/canada-oilsands-forecast-idUSL1E8GHGSI20120517

[iii]   Wall Street Journal, Canada’s Enbridge to Expand Oil Pipelines, May 16, 2012,http://online.wsj.com/article/SB10001424052702303360504577408892726239780.html?mod=googlenews_wsj

[iv]     Bloomberg, Enbridge CEO to Tap Canadian Oil Sands Support for Gateway Pipeline, May 9, 2012,http://www.bloomberg.com/news/2012-05-09/enbridge-ceo-to-tap-canadian-oil-sands-support-for-gateway-pipe.html

[v]     National Center for Policy Analysis, Canadian PM Is Clear: Blame Obama for Higher Gas Prices, April 5, 2012,http://environmentblog.ncpa.org/canadian-pm-is-clear-blame-obama-for-higher-gas-prices/

[vi]    Energy Information Administration, Sales of Fossil Fuels Produced from Federal and Indian Lands, FY 2003 through FY 2011, March 2012, http://www.eia.gov/analysis/requests/federallands/pdf/eia-federallandsales.pdf

[vii]   Institute for Energy Research, Obama’s Offshore Plan: One Giant Leap backwards, May 8, 2012, http://www.instituteforenergyresearch.org/2012/05/08/obamas-offshore-plan-one-giant-leap-backwards/

[viii]    L.A. Times, A political debate plays out among Louisiana oil rigs, May 20, 2012,http://www.latimes.com/news/nationworld/nation/la-na-energy-politics-20120521,0,3763298.story

Filed Under: Products and Power, Renewable Fuel Standard, Threats, Tier 3 Standards Tagged With: , , , ,

Regulations and American Refineries

May 30, 2012 by 1 Comment

 

American refineries are closing and more closures are likely, often because of overly-burdensome regulation as well as lower gasoline demand. Several refineries in Pennsylvania are idle and possibly closing if no buyers come forward. The refining industry is one of the most highly regulated in the country and has been struggling for years to maintain minimal profit margins. In the face of even more regulations from the Environmental Protection Agency (EPA), who are, imposing carbon-emission regulations as well as proposing overly-strict ozone regulations and other regulations, more closures are likely. Not only do EPA’s federal standards impose burdens on the industry, but state and local regulators are also part of the problem.[i]

Regulations Affecting Refinery Operations

The Clean Air Act of 1970 was the first regulation to significantly change the refinery industry by prohibiting lead additives in gasoline. Later amendments were added that created oxygenated and reformulated gasoline bringing about the “boutique fuel” issue. Each of these fuels are available in 3 grades (regular, mid, and super) and are adjusted for winter/summer and northern/southern driving conditions.[ii] When refineries must switch over from winter grade to summer grade gasoline in the spring, motorists have historically seen gasoline prices rise.

Reformulated gasoline was the result of Amendments to the Clean Air Act in 1990 and mandated gasoline that burned more cleanly than conventional gasoline. Areas of the country that did not meet the EPA’s ozone regulations were required to use reformulated gasoline. Reformulated gasoline burns cleaner by reducing smog-forming and toxic pollutants, is less prone to evaporation, and uses an oxygenate to improve combustion.

There are currently 15 distinct boutique fuels required in portions of 12 states by federal regulation.  But, in addition to the federal standards for reformulated gasoline, State Implementation Plans (SIPs) require low-Reid Pressure conventional gasoline. California, whose gasoline prices are higher than the rest of the nation, requires a cleaner fuel than the federal reformulated gasoline and the Midwestern states require an ethanol-blended reformulated gasoline.

The Energy Policy Act of 2005 amended the Clean Air Act and limited the number of boutique fuels to those existing as of September 1, 2004. The Boutique Fuel Reduction Act of 2009 further amended the Clean Air Act to provide temporary waivers for unexpected problems that would not allow delivery of the additives and to allow the EPA Administrator to reduce the number of boutique fuels if any became identical with a federally approved fuel or was no longer included in a SIP.

Between 1992 and 2005, oxygenated fuel blends were required by EPA to reduce ground-level ozone and smog. At that time, methyl tertiary-butyl ether (MTBE) was used as the oxygenate for states other than the Midwest and ethanol was used as the oxygenate in the Midwest. MTBE and ethanol served as an octane booster, a volume extender in gasoline, and as the oxygenate for reformulated gasoline. Later, MTBE was banned in many states because of ground water concerns, leaving ethanol as the most cost-effective oxygenate. While MTBE could be blended at the refinery, ethanol, because of its corrosive nature, has to be blended at the storage facility where the fuel is dispensed to the fuel truck.

The Energy Policy Act of 2005 created the Renewable Fuel Program that mandated the use of renewable fuels in gasoline. That act required the production of 7.5 billion gallons of renewable fuels for 2012. The Energy Independence and Security Act of 2007 increased the target volume to 36 billion gallons by 2022, mandating that 15 billion gallons could be from corn-based ethanol and the remainder had to come from advanced biofuels, namely cellulosic ethanol. EPA administers the program and can lower the targets for cellulosic ethanol if not commercially available. However, the lowered EPA targets are still difficult for refineries to achieve since cellulosic ethanol does not exist commercially. As a result, refiners have had to purchase waivers, needlessly increasing the cost of gasoline. The penalties are estimated to be $6.8 million in 2011 and higher for 2012 since EPA is mandating that 30 percent more of the nonexistent fuel be purchased by refiners.[iii] EPA has also determined that vehicles of model year 2001 or newer can use a blend of 15 percent ethanol and 85 percent gasoline without hurting those engines. Currently, the maximum blend is 10 percent ethanol and 90 percent gasoline.

In 2007, the Supreme Court ruled that the EPA had the authority to regulate carbon dioxide emissions under the Clean Air Act. In response to the FY 2008 Consolidated Appropriations Act, EPA required suppliers of fossil fuels, manufacturers of vehicles and engines, and facilities that emit 25,000 metric tons or more of greenhouse gas emissions annually to submit reports to EPA (the Mandatory Reporting of Greenhouse Gases Rule). The rule provides the basis for future legislation or regulation to limit greenhouse emissions from refineries and other industrial users.

While a ‘cap and trade’ program to limit greenhouse gases did not pass in Congress as the Obama Administration had wanted, because of the Supreme Court’s ruling allowing the EPA to regulate carbon dioxide emissions, additional regulations are being levied upon industries.

Among the upcoming regulations for refineries are Tier III and emission standards for refineries and U.S. smog and particulate matter air-quality standards. Since 2004, when EPA’s Tier II standards were implemented, refiners cut sulfur levels in gasoline by 90 percent, from an average of 300 parts per million in 2004 to an average of 30 ppm today, at a cost of $10 billion.[iv]  EPA’s Tier III rules would cut the sulfur content of gasoline more from 30 to 10 parts per million.  A reportconducted by Baker and O’Brien for the American Petroleum Institute (API)[v] found that the rule would add $2.4 billion in annual compliance costs, resulting in an increase of  6 to 9 cents per gallon of gasoline.[vi] Achieving the incremental sulfur reduction would require large capital investments in equipment that would emit more carbon dioxide and could lead to as many as seven additional refinery closures.[vii]

Refinery Closings and Purchases

U.S. refiners are closing plants that have become uneconomic. In recent years, refineries closed in Westville, New Jersey, and Yorktown, Virginia and this past December a large refinery in southeastern Pennsylvania and one in New Jersey were shuttered.[viii]

Two refineries in Pennsylvania with a joint capacity of 363,000 barrels per day owned by Sunoco and Conoco Phillips were recently idled due to losses resulting from increased regulatory requirements and lower demand for petroleum products.  Sunoco estimates that environmental regulatory costs represent about 15 percent of its operating budget. The two idled Pennsylvania refineries along with a third Sunoco refinery still operating in the Philadelphia area employ 1,200 workersand almost as many salaried and contract workers, manufacturing 50 percent of the petroleum fuels produced on the East Coast of the United States.[ix]   However, while these refineries are experiencing losses and two are idled, there seems to be some recent interest.

Energy Transfer Partners and Sunoco have entered into a merger agreement where Energy Transfer Partners will acquire Sunoco for $5.3 billion, creating one of the largest and most diversified energy partnerships in the country. According to Sunoco, its Marcus Hook plant, which it idled in December, will remain closed under the merger.  Its Philadelphia refinery, which is the largest on the East Coast, is still operating, employing about 850 workers.[x]

The Conoco Phillips refinery in Trainer, Pennsylvania produces 185,000 barrels a day.[xi]   Over the last 10 years Conoco Phillips invested 100 percent or more of its profit into its Trainer refinery to meet regulatory requirements and has lost money in each of the previous three years.[xii]  Delta Airlines just purchased the Conoco Philips facility as a hedge against increasing jet fuel prices for $150 million. Delta plans to invest $100 million in maximizing the refinery’s jet fuel output, cutting the airline’s fuel bill by $300 million a year.[xiii]

A major Caribbean export refinery supplying the East Coast (Hovensa’s U.S. Virgin Islands refinery) has closed.  The Hovensa refinery in the U.S. Virgin Islands was located in a region that was in attainment with the Clean Air Act.   However, EPA required the company to spend an additional $700 million replacing turbines.  After losing $1.3 billion in last three years, the refinery could not afford the additional regulatory compliance costs.[xiv]

According to a March 2011 Department of Energy report, in the past 20 years, federal regulations were a significant factor in the closing of 66 U.S. refineries. (See chart below.) Refinery closures and the recession have led to a loss of over 3,000 direct jobs and 506,000 barrels per day decrease in capacity.

Source:  U.S.  Department of Energy, Office of Policy and International Affairs, Small Refinery Exemption Study – An Investigation Into Disproportionate Economic Hardship, p.  28-30, found at:  http://www.epa.gov/otaq/fuels/renewablefuels/compliancehelp/small-refinery-exempt-study.pdf

According to the Energy Information Administration, the recent refinery idlings and closures have not affected markets so far because the loss of fuel from the Sunoco and ConocoPhillips refineries has been partially offset by the start up of a refinery in Delaware City, Delaware, that opened in October 2011. The refinery had been shut down for two years by Valero and was recently purchased by PBF Energy, which is attempting to make a profit from it.[xv] However, according to PBF Energy chairman, Tom O’Malley, under Tier III, the sulfur removed from PBF’s total gasoline production at its three refineries, which produce about 4.5 billion gallons, would be less than one-eighth of what a 500 megawatt coal plant emits in a year, questioning the benefits of the EPA’s latest refinery rule.[xvi]

The closures and potential closures mark a change taking place in the refinery business, due to the differences in the prices of different crude oil grades from different global producing areas. U.S. east coast refiners pay a higher price for imported crude than other U.S. refiners using Canadian or domestic crude. Other problems affecting the refinery industry are lower demand for gasoline, increasing volumes of ethanol, improvements in vehicle fuel efficiency, permitting delays, and policies to encourage the purchase of electric and other alternate fuel vehicles. Some researchers believe that the United States and other developed nations have reached “peak travel,” and that the number of miles driven per year is not expected to increase as it has in the past.

Conclusion

The U.S. refinery industry has spent $128 billion since 1990 to comply with federal environmental regulations[xvii], which adds significantly to the costs of manufacturing refined products.  Historically, refiners have supported regulations that were clearly beneficial to the environment.  However, as environmental standards are tightened, the cost to meet those standards increases exponentially, threatening the competitiveness of American refineries in the global marketplace.  

According to Bill Klesse, former Chairman of the National Petroleum and Refiners Association, overregulation is not only likely to cause expansion of existing plants to slow down if not stop altogether, it could curtail improvements to those facilities. That was a warning he made 2 years ago. But the warning is not being heeded by the Obama Administration and his Environmental Protection Agency. According to Environmental Protection Agency (EPA) official, Region VI Administrator Al Armendariz, EPA’s “general philosophy” is to “crucify” and “make examples” of oil and gas companies.[xviii]

Bob Greco, API downstream and industry operations director, well-stated what the regulatory situation should be:

“We must be sure that new regulatory proposals are necessary, properly crafted, practical and fair to allow US refiners to remain competitive, preserve good paying refinery jobs and ensure our energy security.”

That should be true of all regulations.

[i] Politico, Far-reaching effects of refining regulations, January 13, 2012,http://www.politico.com/news/stories/0112/71396.html

[ii] Congressional Research Service, The U.S. Oil Refining Industry: Background in Changing Markets and Fuel Policies, November 22, 2010, http://www.fas.org/sgp/crs/misc/R41478.pdf

[iv] U.S. House Of Representatives, Committee on Homeland Security, Testimony of American Fuel and Petrochemical Manufacturers, The Implications of Refinery Closures for U.S. Homeland Security and Critical Infrastructure Safety,” March 19, 2012

[v] American Petroleum Institute, Addendum to Potential Supply and Cost Impacts of Lower Sulfur, Lower RVP Gasoline, March 2012, http://www.api.org/news-and-media/news/newsitems/2012/mar-2012/~/media/Files/News/2012/12-March/Addendum-Potential-Impacts-of-Lower-Sulfur-Lower-RVP-Gasoline-Report.ashx

[vi][vi] Fuel Fix, EPA low-sulfur rule could hike cost of making fuel, industry says, March 22, 2012,http://fuelfix.com/blog/2012/03/22/epa-low-sulfur-rule-could-hike-cost-of-making-fuel-industry-says/

[vii] U.S. House Of Representatives, Committee on Homeland Security, Testimony of American Fuel and Petrochemical Manufacturers, The Implications of Refinery Closures for U.S. Homeland Security and Critical Infrastructure Safety,” March 19, 2012

[viii] Oil Price, Peak Oil Crisis Being Compounded by Refinery Closures, January 26, 2012, http://oilprice.com/Energy/Oil-Prices/Peak-Oil-Crisis-Being-Compounded-by-Refinery-Closures.html

[ix] National Geographic, With Gas Prices High, U.S. Refinery Closures Hit Workers and Drivers , April 4, 2012,http://news.nationalgeographic.com/news/energy/2012/04/120404-northeast-us-refinery-closures-gas-prices/

[x] Texas-based natural gas company buys Sunoco for $5.3 B, May 1, 2012, http://www.nj.com/gloucester-county/index.ssf/2012/05/texas-based_natural_gas_compan.html

[xi] AOL Energy, Refinery Closures Would Disrupt Supply Chain, Marketers Say, February 7, 2012,http://energy.aol.com/2012/02/07/refinery-closures-would-disrupt-supply-chain-marketers-say/

[xii] U.S. House Of Representatives, Committee on Homeland Security, Testimony of American Fuel and Petrochemical Manufacturers, The Implications of Refinery Closures for U.S. Homeland Security and Critical Infrastructure Safety,” March 19, 2012

[xiii] USA Today, Delta buys oil refinery in a bid to offset rising fuel costs, May 1, 2012,http://travel.usatoday.com/flights/story/2012-04-30/Delta-buys-oil-refinery-in-a-bid-to-offset-rising-fuel-costs/54648888/1

[xiv] U.S. House Of Representatives, Committee on Homeland Security, Testimony of American Fuel and Petrochemical Manufacturers, The Implications of Refinery Closures for U.S. Homeland Security and Critical Infrastructure Safety,” March 19, 2012

[xv] Energy Information Administration, Potential Impacts of Reductions in Refinery Activity on Northeast petroleum Product Markets, February 27, 2012, http://www.eia.gov/analysis/petroleum/nerefining/update/

[xvi] U.S. Congress Joint Economic Committee, Testimony of Thomas D. O’Malley, Chairman of PBF Energy, Gas Prices in the Northeast: Potential Impact on the American Consumer Due to  Loss of Refining Capacity, April 26, 2012

[xvii]U.S. House Of Representatives, Committee on Homeland Security, Testimony of American Fuel and Petrochemical Manufacturers, The Implications of Refinery Closures for U.S. Homeland Security and Critical Infrastructure Safety,” March 19, 2012

[xviii] Cnsnews, EPA Official’s ‘Philosophy’ On Oil Companies: ‘Crucify Them’ – Just As Romans Crucified Conquered Citizens, April 25, 2012, http://cnsnews.com/blog/craig-bannister/epa-officials-philosophy-oil-companies-crucify-them-just-romans-crucified

Filed Under: Facts, News, Products and Power, Renewable Fuel Standard, Threats, Tier 3 Standards Tagged With: , , , ,

AEA President Opposes Obama Push for More Wind Handouts

May 24, 2012 by Leave a Comment

For Immediate Release
May 24, 2012

WASHINGTON D.C. — In advance of President Obama’s campaign-year stop in the State of Iowa to tout his administration’s support for wind energy handouts, AEA President Thomas Pyle released a letter to all Members of the 112th Congress opposing the administration’s call for more deficit spending on renewable energy.

“Decades of clamoring for subsidies and cash handouts by wind power proponents have done nothing to mature the industry into a viable competitor in a free energy market,” Pyle wrote.  “If the past three years have proven anything, they have demonstrated that record deficit spending does not create jobs. Neither does limitless taxpayer-funded handouts to an uneconomic, uncompetitive renewable sector reduce the cost of electricity for American consumers nor midwife a sustainable industry.”

To read Pyle’s letter, click here.

###

Filed Under: Press Releases Tagged With: , , , , ,

Ethanol Hasn’t Made Gasoline Cheaper

May 24, 2012 by 1 Comment

The Renewable Fuels Association (RFA) is touting a new study claiming that ethanol reduced gasoline prices by more than a dollar per gallon in 2011. As with similar studies in the past, the methodology used here to calculate this number rests on a basic fallacy in how they frame the question, which we’ll explain below. Beyond framing the question incorrectly, there is the obvious point that ethanol has lower energy content than conventional gasoline. If ethanol really were efficient, it wouldn’t take government favors to prop up the industry.

The Alleged Benefits of Ethanol

Here’s an excerpt from the RFA’s media blitz:

America’s growing use of domestically-produced ethanol reduced wholesale gasoline prices by an average of $1.09 per gallon in 2011, according to updated research conducted by economics professors [Dermot Hayes and Xiaodong Du] at the University of Wisconsin and Iowa State University…

“Growth in US ethanol production has added significantly to the volume of fuel available in the US,” said Professor Hayes. “It is as if the US oil refining industry had found a way to extract 10% more gasoline from a barrel of oil. This additional fuel supply has alleviated periodic gasoline shortages that had been caused by limited refinery capacity…” [Bold added.]

The part we’ve put in bold gives away the game; it shows how Professor Hayes and Du got the ethanol rabbit in the hat. Although their study relies on apparently impressive regression analysis, what they are doing in a nutshell is looking at the U.S. refinery infrastructure in 2011 and asking, “What would happen to gas prices if all ethanol production suddenly disappeared overnight?” Based on their careful statistical tests, they conclude that gasoline prices at the pump would jump more than a dollar per gallon.

Yet that is a totally different claim from saying that if the U.S. government had never subsidized and mandated the increased use of ethanol, that gasoline prices would now be higher.

The basic mistake underlying the paper is that it assumes the conventional refining capacity of the petroleum sector would have developed in the same way, under a free market in fuels. But on the contrary, had the government not artificially carved out market share for ethanol, then conventional refining capacity would have grown more quickly than it did in reality. In that alternate timeline, the lack of ethanol in 2011 wouldn’t have made gasoline more expensive; in fact, because ethanol needs to be propped up by the government to maintain its current market share, gasoline would have been cheaper in 2011 if the U.S. had had a free market in fuels for the last decade.

The authors actually admit all of the above criticism when they wrote in their original 2008 paper:

These [theoretical] reductions in retail gasoline prices [reported in the paper] are surprisingly large….The availability of ethanol essentially increased the “capacity” of the U.S. refinery industry and in so doing prevented some of the dramatic price increases often associated with an industry operating at close to capacity. Because these results are based on capacity, it would be wrong to extrapolate the results to today’s markets. Had we not had ethanol, it seems likely that the crude oil refining industry would be slightly larger today than it actually is… [p. 13, bold added]

Unfortunately, the authors don’t seem to realize the full significance of this admission, and they don’t appear to have carried forward these caveats into their latest update of results.

Pro-Ethanol Results Make No Sense

Perhaps the best way to show that there is something fundamentally wrong with the Hayes and Du paper, is to look at their Table 3 where they provide their disaggregated, regional results. The two extreme ends of the spectrum show that they think ethanol in 2011 made gasoline 73 cents cheaper per gallon in the Gulf coast, while ethanol in 2011 made gasoline a whopping $1.69 cheaper in the Midwest.

Stop and ask yourself: Does that make any sense at all? Can it possibly be that in the absence of ethanol, gas prices would have jumped only 73 cents in the Gulf coast, while prices would have risen more than twice as much—$1.69—in the Midwest?

Of course not; that wouldn’t have happened. Market forces and competition would have spread out the price rise uniformly; there couldn’t be such a huge discrepancy laid on top of the small differences already present.

So what then is generating the strange result in the Hayes and Du paper, showing that ethanol apparently is much stronger at slowing gas price hikes in the Midwest than it is in other parts of the country?

The answer relates to the development of refining capacity. Given the government’s support and mandates for ethanol, it makes sense that the Midwest (where corn is grown) would see the biggest deviation from how the market would have normally developed. So then if we ask—as the study does—which region of the country would be shocked the most if ethanol suddenly disappeared, it would naturally be the one that was most distorted by the ethanol programs in the first place. Yet this hardly shows that Midwest gasoline prices were held down more than in other areas of the country; instead it shows that the whole premise of the study is flawed.

Common Sense

Besides all of the high-brow statistics, we can tell there is something fishy about the RFA’s claims by considering the obvious fact that ethanol contains less energy by volume than conventional gasoline. Indeed, AAA has estimated that even at today’s relatively high prices, once we adjust for BTUs (i.e. energy contain), E85 (i.e. fuel with 85% ethanol content) is more expensive than conventional gasoline mixtures. The government isn’t helping motorists by using tax dollars and mandates to force refiners to incorporate a fuel that gets less mileage for the money.

Conclusion

Ethanol may have a niche in the fuel market, even without government intervention. But in order to tell just how it fits in, we need a level playing field. Government subsidies and mandates for ethanol do not help consumers and they don’t make gasoline cheaper.

Filed Under: Facts, News, Products and Power, Renewable Fuel Standard, Threats Tagged With: , , , ,

Nothing Convenient About RFS

May 22, 2012 by Leave a Comment

 

A recent study by the National Association of Convenience Stores (NACS) found that two most prominent regulations affecting fuel use in the United States—the Renewable Fuel Standard (RFS) and the Corporate Average Fuel Economy (CAFE) standards—have competing requirements that will have a negative impact on the more than 120,000 convenience stores that sell motor fuel around the country, as well as the Americans that frequent them.

Under the RFS, which was set by Congress in 2005 and is administered by the Environmental Protection Agency, increasing amounts of biofuels like ethanol must be blended into our fuel every year, culminating in a target of 36 billion gallons per year in 2022.  However, under the CAFE standards that President Obama has set, automakers will be required to make automobile fleets with a combined average fuel economy of 54.5 miles per gallon by the year 2025.  As such, the ratio of ethanol to gasoline will increase, while fuel economy lessens the overall amount of gasoline we use.  An excerpt from NACS’ press release on the recent study notes, “The cumulative effect of the two mandates is that renewable fuels will be required to represent a significantly greater share of the market than originally anticipated — perhaps as much as 40%, or four times higher than today.”

According to the NACS, the combined impact of these two regulations is extremely problematic for the retail fuels market.  NACS Vice President of Government Relations John Eichberger said, “to meet such a high renewable fuels concentration, it is likely that most retailers in the country will have to replace their underground storage tank systems and fuel dispensers.  For the convenience industry alone, this will require a minimum infrastructure investment that will add nearly $22 billion to the cost of retailing fuels.”  These costs will ultimately be passed on to consumers in the form of higher prices.

Ironically, using CAFE to decrease consumption while increasing the ethanol mandate will  also have a significant impact on how much bang consumers get for their buck at the pump in terms of gas mileage.  A gallon of ethanol contains about 30 percent less energy than a gallon of gasoline; this is one of the reasons that  the May 15th AAA Daily Fuel Gauge report shows that, on an energy-output basis, gasoline containing 15 percent ethanol is 58 cents more expensive than regular grade gasoline.  If CAFE drops gasoline demand from 140 billion gallons per year to 100 billion gallons, and the RFS requires 36 billion gallons of ethanol by 2022, the current blend of E10 (gasoline with 10 percent ethanol) will need to be increased to E40 nationwide.

In addition to being much less efficient than gasoline, E40 cannot be used in most current car models, lawn mowers, and other small engines.  The U.S. Energy Information Administration forecasts that even in 2022, just 16 percent of on-road vehicles will be able to use flexible fuel.

Mandating the use of renewable fuels has, thus far, been a failed experiment; the lack of commercial-scale cellulosic biofuels plants in the U.S. has left it unclear if even a drop of cellulosic biofuel was blended into the fuel supply in 2011.  Nonetheless, refiners incur fines for not using fuel that isn’t available, and this situation will be exacerbated as CAFE standards and the RFS are ratcheted up.  NACS’s Eichberger notes that, “unless something dramatic happens, we will hit the ‘blend wall’ within the next two years and will not be able to meet RFS requirements. This will trigger massive fines throughout the petroleum distribution system that will increase the cost to sell motor fuels.”  Again, these are costs that are passed on at the pump.

The NACS’ findings show that, despite their stated goal of decreasing the amount of gasoline we use here in the United States, the Obama administration’s proposed RFS and CAFE standards conflict with each other, and in doing so the regulations negate the beneficial effects that they are supposed to provide.   And not only will these regulations make fuel more expensive for less miles per gallon, they reduce the ability of drivers to choose what is most appropriate for their needs. Selecting a vehicle that has the attributes they want should be a choice that Americans are able to make for themselves, rather than being forced to buy a car that is more fuel efficient over the long term but costs thousands more up front.

Filed Under: Facts, News, Products and Power, Renewable Fuel Standard Tagged With: , , , ,

EPA Staff’s Attempt to Regulate Greenhouse Gases Under the Clean Air Act

May 21, 2012 by Leave a Comment

 

Explaining the ANPR

The Environmental Protection Agency announced in 2008 that it was well on its way to regulating at least 85 percent of the energy used in America in the name of global warming (nevermind the fact that global temperatures have inexplicably not increased since at least 2001).[1] Because energy is an indispensable part of economic activity, if EPA’s plans go forward they will exercise some regulatory control over most of the American economy.

The problems created by regulating greenhouse gases under the Clean Air Act are legion. Nothing says it better than the following statement by former EPA Administrator Johnson himself:

If EPA were to regulate greenhouse gas emissions from motor vehicles under the Clean Air Act, then regulation of smaller stationary sources that also emit GHGs—such as apartment buildings, large homes, schools, and hospitals—could also be triggered. One point is clear: the potential regulation of greenhouse gases under any portion of the Clean Air Act could result in an unprecedented expansion of EPA authority that would have a profound effect on virtually every sector of the economy and touch every household in the land. [2]

Administrator Johnson is correct. Eighty five percent of the energy used in America comes from fossil fuels.[3] Carbon dioxide emissions are an unavoidable byproduct of the combustion of fossil fuels. EPA staff is seeking to regulate the most widespread sources of energy in the United States.

To understand the scope of EPA’s potential regulations, below is a diagram of the sources of greenhouse gas emissions in the United States. [4] To reduce greenhouse gas emissions, EPA’s regulations will affect all of these sectors, industry, transportation, commercial, residential, and agriculture. It will raise the price of energy and thereby increase the cost of doing business.

How did we get here?

Since at least the late 1990s, environmental activists have tried to get EPA to regulate greenhouse gases. [5] In 1998, EPA General Counsel, Jonathan Cannon, wrote a legal opinion stating that EPA had the authority to regulate greenhouse gases under the Clean Air Act. [6] Despite this opinion, EPA declined to regulate greenhouse gases. One reason EPA did not attempt to regulate greenhouse gases at the time is because Congress attached riders to appropriations bills forbidding EPA from spending any money on greenhouse gas regulations.

To force EPA to take action, in 1999, a coalition of environmental activists used Mr. Cannon’s opinion to sue EPA in an attempt to force EPA to regulate greenhouse gas emission from mobile sources. [7] These environmental activists realized that if a court would find that EPA had the authority to regulate greenhouse gases under §202 of the Clean Air Act (the section that regulates emissions from vehicles), then EPA would be forced to regulate greenhouse gases under the rest of the Clean Air Act and apply regulations to all fossil fuel use in the United States.

The Supreme Court Weighs in—Massachusetts v. EPA

A group of attorneys general, led by the Attorney General of Massachusetts, also sued EPA in an attempt to bolster the case against EPA. This case became Massachusetts v. EPA. [8] On April 2, 2007, in a 5-4 decision, the Supreme Court agreed with the environmental activists that EPA had the authority to regulate greenhouse gas emissions from motor vehicles under the Clean Air Act because they found that greenhouse gases are an “air pollutant.” Because greenhouse gases, in the Court’s opinion, are air pollutants under the Clean Air Act, the act then requires EPA to regulate greenhouse gases. The Supreme Court held that EPA had to regulate greenhouse gases or for EPA to justify its decision not to regulate greenhouse gases.

The Supreme Court’s Tortured Logic

To reach this result the Supreme Court had to use some tortured logic. Section 202 of the Clean Air Act requires EPA to regulate “any air pollutant” . . . “which may reasonably be anticipated to endanger public health or welfare.” [9] The question is, what is the definition of an “air pollutant” under the Clean Air Act? The majority decided that an air pollutant was any “airborne compound of whatever stripe.” [10] They even went so far to say that the CAA was unambiguous on this point.[11] Sadly they are unambiguously wrong.

The Clean Air Act defines a pollutant as, “any air pollution agent or combination of such agents, including any physical, chemical, … substance or matter which is emitted into or otherwise enters the ambient air.” [12] For something to be a pollutant, therefore, it must be an “air pollution agent,” not merely anything in the air.

Carbon dioxide sure doesn’t sound like an “air pollution agent.” It is inert, colorless, odorless, and it isn’t toxic to human at 20 times ambient levels. Justice Scalia in dissent explained how flawed the majority’s misconstruction of this term was. He wrote from the majority’s opinion “it follows that everything airborne, from Frisbees to flatulence, qualifies as an ‘air pollutant.’ This reading of the statute defies common sense.” [13] Regardless of Massachusetts v. EPA defying common sense, it is the law.

EPA’s Renewed Efforts to Regulate Greenhouse Gases

After Massachusetts v. EPA, EPA had a few options: 1) promulgate a new rule regulating greenhouse gases from vehicles; 2) attempt to extend their authority in the Clean Air Act to the fullest extent and try to regulate all U.S. greenhouse gas emissions; or 3) provide a “reasonable explanation” of why they weren’t going to regulate greenhouse gas emissions. [14]

The problem with declining to regulate greenhouse gases is that EPA has in the past essentially stated that greenhouse gases are harmful to human health and welfare. The Supreme Court also made it somewhat difficult for EPA not to regulate greenhouse gas emissions. For example, the Court wrote:

Under the clear terms of the Clean Air Act, EPA can avoid taking further action only if it determines that greenhouse gases do not contribute to climate change or if it provides some reasonable explanation as to why it cannot or will not exercise its discretion to determine whether they do. [15]

The real question is not if greenhouse gases contribute to climate change (greenhouse gases obviously contribute to the greenhouse effect), but whether greenhouse gases “endanger public health and welfare” as defined by the Clean Air Act. For EPA to avoid taking further regulatory action, they would need to rebut the Supreme Court’s claims of alleged harms from global warming and EPA’s past claims of harms from greenhouse gas emissions.

The Advance Notice of Proposed Rulemaking

Instead of taking the difficult path of explaining the latest climate science and data and refusing to regulate greenhouse gases, EPA instead is attempting to expand their regulatory reach. In late 2007, EPA unofficially announced that it was going to find that greenhouse gases endangered public health and welfare and should therefore be regulated under the Clean Air Act. Before this rule came out, however, other Administration officials questioned the wisdom of such a move. Because of the complexity of potentially regulating 85 percent of all energy use in America, EPA decided to ask the American public for comments on how to proceed. To do this, they put out an “Advance Notice of Proposed Rulemaking” (ANPR). [16]

In many cases, an ANPR is a short document that asks the public for comment without revealing an agency’s policy preferences. But instead of a small request for comment, EPA released an enormous 588 page ANPR explaining some of the possible ways to regulate greenhouse gases using the Clean Air Act. The worst part of the ANPR is that EPA staff has essentially predetermined their course of action—regulating greenhouse gases.

What will the ANPR Lead To?

The ANPR envisions massive amounts of regulation on all forms of greenhouse gas emissions and the activities that lead to greenhouse gas emissions. Massachusetts v. EPA dealt with the regulation of mobile sources and EPA will likely start by regulating anything that has an engine such as automobiles, light-duty trucks, heavy-duty trucks, motorcycles, planes, ships, boats, recreational vehicles, farm tractors, construction equipment, garden equipment, and even lawnmowers just to name a few.

And what will these potential regulations look like? EPA is proposing to require a 10 percent reduction in the output of America’s energy-intensive industries, lowering the speed limit back to 55 mph, and requiring ocean-going vehicles to take 10 percent longer to deliver their cargo.

EPA’s regulation will not be limited to mobile sources. By starting to regulate greenhouse gases under one section of the Clean Air Act, EPA would be forced to regulate it under other sections, including a program called Prevention of Significant Deterioration. This program regulates sources that emit 100 tons or more of emissions a year. [17] This may sounds like a lot, but a 100,000 square foot building (more or less 10 stories) would emit that much in a year. This means that EPA would regulate the energy use of all large buildings, and any buildings, such as computer data centers, which use large amounts of energy. There are likely one million new sources that EPA would have to regulate [18] and require the buildings to use “Best Available Control Technology”—whatever EPA decides that is for the buildings. [19]

These regulations could extend to the heating sources of large single-family homes, as well as stores, church, hospitals, and police stations.

EPA would also likely regulate all large beef or dairy operations in the country because cows emit (to put it delicately) large amounts of the potent greenhouse gas methane. Who knows how EPA will propose to control these emissions.

EPA Regulation of Greenhouse Gases Will Lead to Higher Energy Prices

Reducing the greenhouse gas emissions from 85 percent of the energy used in the United States would require tremendous amounts of regulation. The form of these regulations is unclear, but what is clear is that the regulations would dramatically increase energy prices and the price of everything that uses energy, including computers, cars, trucks, washing machines, lawnmowers, and air conditioning units. The economy is already suffering from high energy prices and EPA’s plan will just make that worse.

EPA Regulation of Greenhouse Gases Will Not Affect the Climate

Maybe the most amazing thing about EPA plan is that it won’t affect the global temperature unless the developing world reduces their greenhouse gas emissions. China, not the United States is the world’s largest emitter of carbon dioxide. The U.S. will emit a smaller and smaller share of the world’s total greenhouse gas emissions. [20] If the U.S. were to reduce our carbon dioxide emissions from the transportation sector to zero, the rest of the world would replace those emissions in less than 2 years. [21] A unilateral U.S. reduction in greenhouse gas emissions from the transportation section will have not have a noticeable impact of global climate because of the increases from other countries.

The developing world’s carbon dioxide emissions are far outpacing the emissions from the United States. From 2000 through 2007, China’s carbon dioxide emissions increased 98%, India’s increased 36%, the global total increased 26%, Russia’s increased 10%, the U.S.’s increased 3%. [22]

Worldwide emissions continue to increase, however, because the developing world is more concerned about the health and welfare of their citizens than greenhouse gas emissions. For example, India recent released its National Climate Action Plan on Climate Change. In the plan they stated, “It is obvious that India needs to substantially increase its per capita energy consumption to provide a minimally acceptable level of well being to its people.” [23]

India and other developing nations are not going to limit their energy consumption to pacify EPA. Because they won’t, EPA’s regulation of energy use will only drive up energy prices in America without having any affect on global temperatures.

[1] The Intergovernmental Panel on Climate Change (IPCC) projected that temperature should increase about 2 degrees Celsius per century because of greenhouse gas concentrations and temperatures should increase linearly. So far this century global temperatures have not increased. See http://rankexploits.com/musings/2008/result-of-hypothesis-tests-very-low-confidence-2ccentury-correct/ The lack of warming is especially evident in the satellite temperature record. The satellite temperature data from the University of Alabama at Huntsville is available here: http://vortex.nsstc.uah.edu/public/msu/t2lt/tltglhmam_5.2 and the satellite temperature data from Remote Sensing Systems is here: ftp://ftp.ssmi.com/msu/monthly_time_series/rss_monthly_msu_amsu_channel_tlt_anomalies_land_and_ocean_v03_1.txt.

[2] Environmental Protection Agency, Regulating Greenhouse Gas Emissions under the Clean Air Act, p. 5.

[3] Energy Information Administration, Greenhouse Gases, Climate Change, and Energy, http://www.eia.doe.gov/bookshelf/brochures/greenhouse/Chapter1.htm.

[4] Environmental Protection Agency, Inventory of U.S. Greenhouse Gas Emissions and Sinks: 1990–2006, p. ES-16, http://www.epa.gov/climatechange/emissions/downloads/08_CR.pdf.

[5] One of the first attempts was the International Center for Technology Assessment’s petition for EPA to regulation greenhouse gases in 1999. See http://www.icta.org/doc/Chronology%20Short%208-31-06.pdf.

[6] Jonathan Z. Cannon, The Significance of Massachusetts v. EPA, May 21, 2007, http://www.virginialawreview.org/inbrief.php?s=inbrief&p=2007/05/21/cannon.

[7] The groups which sued are: Alliance for Sustainable Communities, Applied Power Technologies, BioFuels America, California Solar Energy Industries, Clements Environmental Corporation, Environmental Advocates, Environmental and Energy Study Institutes, International Center for Technology Assessment, Friends of the Earth, Full Circle Energy Project, Inc., Green Party Rhode Island, Greenpeace U.S.A., Network for Environmental and Economic Responsibility of the United Church of Christ, New Jersey Environmental Watch, New Mexico Solar Energy Association, Oregon Environmental Council, Public Citizen, Solar Energy Industries Association, and the SUN DAY Campaign.

[8] www.supremecourtus.gov/opinions/06pdf/05-1120.pdf.

[9] 42 U.S.C. § 7521(a)(1).

[10] Mass. v. EPA, 127 S.Ct. at 1460.

[11] Id.

[12] 42 U.S.C. § 7602(g).

[13] Mass. v. EPA, 127 S.Ct. at 1476.

[14] Id. at 1462.

[15]Id. at 1462.

[16] Environmental Protection Agency, Advance Notice of Proposed Rulemaking: Regulating Greenhouse Gas Emissions under the Clean Air Act, http://www.epa.gov/climatechange/anpr.html

[17] Specifically this is defined as a source that emits at least 100 tons per year of an air pollutant of any other source with the potential to emit 20 tons per year of an air pollutant.

[18] Portia M.E. Mills & Mark P. Mills, A Regulatory Burden: The Compliance Dimension of Regulating CO2 as a Pollutant, http://www.uschamber.com/assets/env/regulatory_burden0809.pdf.

[19] For a more complete explanation of the issue with Prevention of Significant Deterioration see William Kovacs’ testimony before the United States Committee on Environment and Public Works: http://epw.senate.gov/public/index.cfm?FuseAction=Files.View&FileStore_id=9cc4d7e4-f066-4534-9337-9bf53154b0e1 and Marlo Lewis’ testimony before the same committee: http://epw.senate.gov/public/index.cfm?FuseAction=Files.View&FileStore_id=38ed7b76-2817-4f03-9e51-537515c9ffd2.

[20] According to the Global Carbon project in 2007 China emitted 21% of the world’s carbon equivalent and the U.S. emitted 19%.

[21] Calculated using the emission data from the Global Carbon Project. According to the ANPR, the GHG emissions from the transportation sector total 28% of total U.S. emissions. ANPR at 44403. Twenty eight percent of the U.S.’s 2006 carbon dioxide emissions are 436,141 GgC. From 2005 to 2007, the world’s emissions, with the emissions from the U.S., grew by 476,324 GgC.

[22] Calculated using the emission data from the Global Carbon Project. In 2000, China emitted 910,950 GgC, India 316,804 GgC, Russia 391,652 GgC, and the U.S. 1,541,013 GgC. By 2007, China emitted 1,801,932 GgC, India 429,601 GgC, Russia 432,486 GgC, and the U.S. 1,586,213 GgC.

[23] Government of India, National Action Plan on Climate Change, http://pmindia.nic.in/Pg01-52.pdf

 

Filed Under: Facts, News, Products and Power, Threats Tagged With:
Previous
Next