SECURITY ALERT: BAD REGULATION SABOTAGING REFINERIES

Fear of terrorist attack has brought new attention to the security of US refineries and pipelines.

The concern is obviously justified. If suicidal fanatics can bring down both towers of the World Trade Center in New York and destroy part of the Pentagon in Washington, DC, they can no doubt damage large, stationary targets like refineries.

Whether it would serve the agenda of Arab radicals thought responsible for the Sept. 11 tragedies in New York, Washington, and Pennsylvania, however, is subject to doubt.

But questions of motivation shouldn't ease worry about the security of US refineries. Indeed, the subject is receiving much attention in the mass media. That's good.

Where, though, was worry about processing infrastructure when federal caprice was shuttering refineries?

In the last half of the Clinton administration, the Environmental Protection Agency ran amok with refinery regulation.

Among other things, it tightened gasoline sulfur and air-toxics standards, allowed extra-territorial air-quality regulation on behalf of four Northeastern states, and adopted a diesel sulfur standard much stricter than warranted by environmental considerations.

Taking affect almost at the same time, the measures force refiners to make large equipment adjustments or additions all at once. And, as though to aggravate the timing difficulty, the EPA said it would retroactively interpret its New Source Review program in such a way that many refiners might be deemed out of compliance with permitting requirements.

The regulatory crackdown occurred while US air pollution, thanks to historic regulation, was in steep decline.

The EPA under Bush has been more hospitable to refiners than its predecessor. But it comes under assault whenever it tries to correct Clinton-era excesses. And it has caved on occasion.

In a trade-off for farm-state support of the Bush tax cut, for example, EPA earlier this year refused to waive the oxygen content requirement for reformulated gasoline. With methyl tertiary butyl ether in decline as an oxygenate, the requirement guarantees a market for ethanol, which would be entering the gasoline pool anyway as an octane and volume booster.

In a more constructive move, the Bush team agreed to look again at the thumb in the refiner eye over diesel sulfur. Environmentalists and Democrats naturally and absurdly wailed about how any change in the rule would damage air quality.

On Oct. 3, a coalition of oil industry trade associations took some of the heat off the Executive Branch. It asked the US Court of Appeals for the DC Circuit to send the diesel sulfur rule back to EPA for revision, warning of shortages beginning in 2006.

It's a good and responsible move. If successful, it would not at all compromise environmental values. The industry fully supports lowering the sulfur content of highway diesel by 90%. The difference between that cut and the 97% reduction demanded by the Clinton EPA is environmentally insignificant but economically great. The larger cut requires much more investment by refiners.

The Clinton EPA acted in refinery regulation as though environmental protection was a direct function of economic pain imposed on the regulated. Many environmentalist stooges went along with the nonsense.

Regulations adopted under that notion have already caused some refineries to close. Unless EPA or the courts fix the damage, others will follow.

A terrorist attack on a US refinery would indeed be dreadful. But the market effects alone-embodied in refineries not delivering oil products to market-would differ little from what the Clinton EPA accomplished with regulatory recklessness.

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