Regulation of US refineries has claimed two new victims. One of them is an Environmental Protection Agency enforcer, the other an operating refinery. There will be other casualties, oil consumers among them.
On his way out of the EPA, Eric Schaeffer, director of the Office of Regulatory Enforcement, wrote a letter complaining about efforts to rationalize a Clean Air Act program called New Source Review (NSR). The program, in effect since 1977, imposes permitting controls on fixed sources of air pollution, including refineries. Because of changes in EPA's interpretation of the requirements, refiners now find that nearly any change they make-or have made-to a facility invokes NSR permitting.
Strict interpretation
Interpretation became especially strict in the late years of the Clinton administration. Also in that period, EPA began to enforce NSR permitting retroactively. Refiners that conducted upgrade or maintenance projects under past guidance about NSR requirements now find themselves accused of violation because the requirements have changed. Some refiners point out that, under EPA's aggression with the NSR program, nonpolluting equipment installed to meet Clean Air Act fuel mandates puts them in enforcement jeopardy.
The approach makes no sense. It heaps costs and risks on refinery projects essential to compliance with other environmental regulations. And it takes effect while air pollution is diminishing nationwide. It is therefore self-defeating and unnecessary. And retroactive enforcement makes it wickedly unfair.
Schaeffer thinks the industries subjected to this abuse should quietly submit. His widely reported resignation letter to EPA Administrator Christine Whitman describes the energy industry as "very tight with the Bush administration" and accuses industry lobbyists of "interfering." He complains: "I've never seen that kind of political pressure applied to an enforcement issue."
Enforcement issue? EPA changes the rules, applies them retroactively, and issues self-congratulatory press releases when it extorts settlements from refiners with no way to win. This is a politically motivated enforcement trap. And it's discouraging investments refiners need to make to meet fuel-quality mandates. To expect such regulatory misbehavior not to raise political pressures is naïve.
Schaeffer's whining notwithstanding, the Bush administration hasn't yet acted on its NSR review. And deadlines loom for another Clinton-era lurch: diesel-sulfur limits lower than they should be.
In December 2000, EPA issued a rule requiring maximum legal cuts in the sulfur content of diesel fuel. It could have achieved the same reduction in pollution with a higher but still sharply reduced sulfur limit requiring far less investment by refiners. The industry supported such a move. But compromise with refiners would have angered environmental groups, support from which Clinton-era Vice-Pres. Al Gore needed in his unsuccessful bid for the presidency.
So with its diesel-sulfur fiat, EPA requires maximum possible changes to US refineries. And with its NSR interpretation, the agency booby-traps the changes with permitting delays, costs, and enforcement risks. When the Bush administration suggests that this mistreatment of refiners conflicts with national energy interests, Schaeffer throws a snit and environmental groups ridiculously warn that 30 years' worth of air-quality progress has somehow fallen into jeopardy.
Back in the real world, Premcor Inc. has announced plans to close another refinery because of fuel regulation. Last year it closed a 76,000 b/d plant at Blue Island, Ill. The day after Schaeffer's resignation the company said it would close its 70,000 b/d refinery at Hartford, Ill. The Hartford plant's economics couldn't have been helped by an NSR settlement to which Premcor agreed last year concerning modifications it made to the fluid catalytic cracker in 1994. Without agreeing that it should have secured an NSR permit, Premcor paid $2 million in penalties and committed to installation of antipollution equipment costing $8-10 million.
Effect on consumers
Refinery closures are bad news for consumers of oil products. Two years ago prices of gasoline and heating oil soared when demand tested limits of the US industry's ability to refine crude and import products. Those limits recede, and consumer interests suffer, with each refinery that falls victim to regulatory excess.
The Bush administration should continue to broaden its review of Clinton-era mistakes, which were made for environmentalists, not the environment. And it should correct them before the US oil-supply system sustains any more damage.
