The People of America's Oil and Natural Gas Indusry

Kerry-Boxer Hearings: Day 2

Jane Van Ryan

Jane Van Ryan
Posted October 29, 2009

One of America's largest refiners told a Senate panel yesterday that climate legislation could force his company to shutter some U.S. refineries. Bill Kleese, president and CEO of Valero Energy Corp. (not a member of API) made his comments during the second day of the Senate Environment and Public Works Committee hearings on the Kerry-Boxer bill which proposes to reduce greenhouse gas emissions by 20 percent in 2020. The Kerry-Boxer bill would likely reduce U.S. refining jobs because refiners would be forced to pay billions of dollars for carbon credits.

Under the Kerry-Boxer climate bill as well as the House's Waxman-Markey bill, U.S. refineries would be held responsible for about 44 percent of all U.S. carbon emissions, including the carbon from every car, truck, train, plane and other petroleum-fueled conveyance.

But the Waxman-Markey bill provides only 2.25 percent of the free carbon credits to refiners, and the Kerry-Boxer bill is even worse. It proposes to hold about 20 percent of the total credits in reserve, thus reducing the overall number of credits that would be allocated. In the Kerry-Boxer bill, 2.25 percent represents a tiny piece of a smaller pie.

Additionally, the U.S. refining industry has been squeezed by the recession. Demand for oil products has been markedly lower in recent months--especially for diesel fuel and other distillates--and profit margins have suffered. Reports to date show that the crack spread, a measure of refining profitability, has averaged 12 cents in October and as a result, many might have been losing money.

Kleese yesterday said the Kerry-Boxer bill could cost the industry $63 billion a year, according to one study. These higher costs could give a competitive advantage to refiners overseas and double America's reliance on imported oil products.