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Tradeoff on climate bill might fracture oil and gas industry

Bob Tippee
Editor

Compromise forming around climate-change legislation in the US Senate promises despair for the oil and gas industry.

Senate Democrats have signaled their willingness to consider expansion of federal oil and gas leasing to secure support for cap-and-trade legislation.

Proposed late last month by Barbara Boxer (D-Calif.) and John Kerry (D-Mass.), the legislation sets targets for greenhouse gas emissions that are tougher than those in a cap-and-trade bill passed by the House in June.

But it glosses over the crucial question of emission-credit allowances, which House-bill sponsors Henry Waxman (D-Calif.) and Ed Markey (D-Mass.) incorporated to overcome business opposition.

If the Senate bill passed, reconciliation with the House measure would become a high-dollar competition for allowances and other favors.

The oil and gas industry could hope only to limit damage.

In the House bill, which makes refiners responsible for their customers’ emissions as well as their own, damage is extreme.

The American Petroleum Institute estimates the measure would force the refining industry to make or pay for 44% of total required emission cuts yet allow it only 2.5% of available credits.

To expect meaningfully better treatment of refiners on the Senate floor or in conference would be dangerously hopeful.

As presented, the Boxer-Kerry bill faces probable defeat in the full Senate because of its costs.

But some opponents say they might back the legislation if it contained support for nuclear energy and new oil and gas leasing.

The industry should resist the tradeoff.

Politically inspired side deals steer attention away from two core cap-and-trade drawbacks: that the framework invites corruption and obscures increases in energy costs.

Furthermore, expanded access to federally owned hydrocarbon resources has merit by itself and never should have to come at the expense of refiners’ health.

The compromise under discussion also has the potential to divide producers from refiners and independent refiners from their integrated counterparts.

A fracturing like that would be regrettable.

A united industry speaks more coherently and exerts more influence than a splintered one. In the confused politics of the day, the oil and gas industry needs all the influence it can muster.

(Online Oct.9, 2009; author’s e-mail: bobt@ogjonline.com)


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