US President George W. Bush addressed the right problem when he hinted in a speech Apr. 27 about building refineries on unused military bases. Refining capacity in the US has all but ceased to grow while consumption of refinery products increases steadily and fuel specifications tighten. Refining capacity that works consistently near maximum rates bespeaks a system needing expansion.
So whatever comes of the proposal about military bases, the president gave the challenge of increasing refining capacity high-level attention it deserves. At the National Small Business Conference in Washington, DC, he said, “I will direct federal agencies to work with states to encourage the building of new refineries-on closed military facilities, for example-and to simplify the permitting process for such construction.” Helpful as grassroots construction would be, a quicker and more probable strategy for addressing the challenge lies closer at hand. It involves completing reform of the New Source Review (NSR) program and avoiding the types of mistakes that make reform necessary.
Modernization discouraged
Growth in refining capacity is much more likely to occur from modernization of existing facilities than it is from grassroots construction. Modernization is how capacity grew through much of the 1990s even as the number of refineries shrank. Yet continuing confusion over NSR regulation discourages that kind of work.
A longstanding problem with the NSR program, which grew out of the Clean Air Act of 1970 and its amendments of 1977, is an absence of clarity about the level of modification that turns a facility into a new source of pollution, triggering the requirement for NSR permitting. That’s important because permits can be difficult and time-consuming to acquire and can require more-and more costly-modification than originally planned.
For years after the Environmental Protection Agency published its NSR rules in 1980, refiners and their regulators treated most modifications of existing plants as exempt from permitting requirements. The Clinton administration’s EPA in 1998 decided otherwise and enforced its decision retroactively. In fact, it went on an enforcement binge, forcing refiners to pay heavy fines to avoid criminal sanctions. As a result, refiners have been reluctant to upgrade their facilities, and regulators overruled by the EPA have become heavy-handed.
The Bush administration’s EPA has tried to repair the damage. At the end of 2002, it published a final rule on NSR reform and a proposed rule on routine maintenance, replacement, and repair (RMRR). The reform measure encouraged the use of best available control technology and clarified some of the nebulous parts of the NSR program. EPA issued the final RMRR rule in August 2003. Environmental groups and a group of state attorneys general challenged both actions. The RMRR rule, subject to a stay order, remains in court.
A favorable ruling on RMRR coupled with the 2002 reform provisions already in place would of course help refiners make decisions about plant modifications. But improvement, if it happens, shouldn’t end there.
Refiners need relief from the threat of capricious treatment at the hands of antagonistic regulators. The clampdown by the Clinton administration EPA did little for the environment. Many of the modifications found in hindsight to be in need of NSR permits related to fuel efficiency and compliance with clean-fuel requirements. The EPA of that era acted as though it cared less about the environment than about acting tough with refiners and producers of electric power.
Regulatory excess
The NSR squeeze isn’t the only example of regulatory excess by the Clinton-era EPA. The same regime required maximum permissible cuts in the sulfur content of highway diesel, even though a smaller cut would have achieved the same environmental gains at much less cost. Consumers will begin feeling those costs next year. It’s too late to limit the damage. If anyone tried, environmental groups would wail about opening the gates to a flood of pollution. And they’d be just as wrong as they have been in resisting NSR reform.
The future of NSR reform is now largely up to the courts. But the US can learn from the program’s legacy. Maximum possible regulation limits the refining capacity and operating flexibility that the country so obviously needs. And it seldom does more for the environment than more-moderate options that cost much less. ✦