API FOCUSES ON CLEANLINESS, ECONOMICS OF FOSSIL FUELS

Fossil fuels, consumed in free markets, are playing positive economic and environmental roles as the world economy becomes integrated, industry leaders said last week.

Speakers at the American Petroleum Institute's annual meeting in Chicago encouraged the membership to form broad coalitions to sustain and improve the political climate in which the industry operates.

Environmental zealots threaten to force conversion from gasoline as a motor fuel in the U.S. and oppose the growing integration of the world economy, they said.

Fossil fuels, free markets, human creativity, and entrepreneurial spirit-not government intervention-are the keys to a clean environment, said API Pres. Charles J. DiBona and outgoing Chairman C.J. (Pete) Silas, chairman and chief executive officer of Phillips Petroleum Co.

DiBona said proponents of the BTU tax defeated earlier this year used erroneous assumptions to make a case against oil use in an effort to "replace the efficiency of the marketplace with the inefficiency of bureaucracy."

The government's role is to set tough standards and avoid dictating the way environmental standards are met, they said.

Other speakers warned that voluntary measures put forward by the Clinton administration to address global climate change issues likely will fall short.

Silas is being replaced in API's top post by Kenneth T. Derr, Chevron Corp. chairman and chief executive officer.

AGAINST ERRONEOUS PESSIMISM

DiBona sought to counter what he called erroneous, pessimistic views that threaten to lead to more government intervention in the energy business.

The main antiindustry credo is that cars and gasoline are to blame for air that is dirty and getting dirtier.

Other caveats he said the industry must fight:

• The world is running out of oil.

• Americans are wasting energy.

• Alternative fuels can replace oil imports without hurting the economy.

• Burning fossil fuels is dangerously raising the earth's temperature.

• Government should force or subsidize the use of nonpetroleum based alternative fuels.

• Other states should follow California's example and adopt extremely stringent clean air regulations even though their pollution problems aren't nearly as bad.

• Washington should divert billions of dollars to develop a hybrid fueled supercar.

• Drilling for oil and gas should be severely restricted if not virtually banned in most areas of the U.S.

DiBona said those views are leading to unwise and unneeded Government actions, just as in the 1970s ideas that the U.S. was running out of oil and that the Organization of Petroleum Exporting Countries had a strangle-hold on energy markets led to government price and allocation controls.

CLEANER CARS, GASOLINE

It makes no sense for the government to focus nearly all its efforts on the smallest part of the problem by forcing Americans to subsidize design of electric cars or requiring costly substitutes for gasoline, DiBona said.

He said, "To pour billions of dollars into some kind of government designed car-a car with the heart of a golf cart, the convenience of a donkey cart, and the appeal of a grocery cart is about as wise today as pouring billions of tax dollars into synthetic fuels was a decade ago."

The combination of tailpipe emission standards, new cars coming on line, reformulated fuels, fleet turnover, and sensible maintenance requirements will clean up nearly all the remaining pollution, DiBona said.

Instead, Americans should be told the truth: Gasoline is the world's cleanest, safest, most efficient, affordable, and abundant transportation fuel.

"The efforts of the oil and auto industries have made it possible for Americans to drive 2 1/2 times as many cars three times as many miles with tailpipe emissions that are only one third what they were 40 years ago," Dibona said.

Refiners in 1995 will produce an entirely new fuel for cars and light trucks that will make even greater cuts in emissions.

DiBona cited a research study that showed reformulated fuel can cut emissions better and cheaper than methanol ethanol blends. A slightly larger canister the Environmental Protection Agency will require in 1998 collects nearly all emissions lost during refueling, and preheated catalysts in cars would reduce start-up emissions, he noted.

New tailpipe standards will achieve almost a 99% reduction in tailpipe emissions from precontrol days, but the U.S. is only beginning to address the most cost effective solution-the poorly maintained car. Many studies show 7-10% of the vehicles on the road produce half of all vehicle pollution, he said.

Vehicle turnover alone will cut emissions of hydrocarbons nearly in half by 2005. However, "dirty" cars of every model year that are poorly tuned or whose emission systems have been disconnected still pose problems. DiBona said existing remote sensing devices could be placed along roads to cost effectively identify polluters.

ANSWERING OTHER CHARGES

The rest of the case against oil also hinges on myths, DiBona said.

Oil is not running out. The world has 50 years of reserves today, compared with 20 years worth in 1950.

Americans are not wasting energy or ignoring conservation. The U.S. is energy efficient when comparisons to other nations take into account relative population densities and the makeup of each country's exports and imports, he explained.

Oil markets aren't inherently unstable. World supply is diversifying, and the U.S. has a 73 day supply stored in the Strategic Petroleum Reserve.

Drilling in the U.S. should not be banned. World class oil deposits still exist there and should be developed when they can be brought to market less expensively than imports.

Natural gas and other alternative energy sources cannot readily replace oil imports. Gas will play a greater role once bans on drilling are lifted, but gas is likely to replace coal-not oil-in electricity generation. Other alternatives to oil such as ethanol have different-not better-emission characteristics.

"The science that makes the case for global warming is at best uncertain and cannot support the apocalyptic claims some environmentalists make," DiBona said.

ENVIRONMENTAL MYTH

Silas said environmental hazards must not be minimized, but the wasteful use of capital to solve problems not certain to exist is what threatens the energy industry and the economies it supports.

Fossil fuels can play a positive role in making the world a better place to live for all people, not just those in advanced countries, Silas said. Sustained economic growth has been possible in industrialized nations only when reasonably priced energy sources were available, he noted.

Oil, gas, and coal represent about 90% of the energy purchased worldwide. Reserves of those fuels are large enough to last 170 years at existing consumption rates.

But the most serious challenge the energy industry faces is a myth, Silas said. Environmentalists' claim is that the sustainability of future life is in doubt because the industrial world has used so much of the earth's ecological capital, and their cure is that they want to slow the process of economic growth everywhere.

"Environmental salvation, they claim, can only be achieved by reducing the standard of living in developed countries and by discouraging the Third World from industrializing at all," Silas said.

The most extreme environmentalists advocate return to a subsistence economy that Silas likened to the Stone Age.

He said, "We need to do every thing we can to convince Washington and the courts to avoid policies that force the industry to waste scarce capital on the wrong solutions to the wrong problems. That won't be easy."

He cited a March 1992 Gallup poll in which only 17% of climatologists said they believe human induced global warming has occurred while 53% of the scientists polled remain convinced that the jury is still out on global warming.

"Present evidence does not justify slowing the global economic recovery by wasting enormous amounts of scarce capital on solutions that may not be needed," Silas said.

TWO FORCES VYING

The energy industry is part of the solution to the world's environmental dilemmas and may be the one that is trying hardest to balance economics with ecology, Silas said.

Some environmentalists are among the loudest opponents of the North American Free Trade Agreement, the General Agreement on Tariffs and Trade talks, and other efforts to promote the growing integration of the global economy.

Two forces are contending for dominance in the world, Silas said. One is the emergence of an increasingly integrated world economy with less reliance on government control and regulation and more trust in the marketplace. The other force is special interests that claim free trade encourages the export of environmental irresponsibility.

"The passage of Nafta, the spread of capitalism, the growth of democracy-all of these trends, if allowed to continue, will reduce the ability of true believers of any persuasion to hold the rest of the world hostage to their narrow agendas."

He urged the petroleum industry to work to improve the political climate in which it operates in and outside the U.S. by making a positive case for oil as an economically and environmental preferable fuel.

Higher energy taxes, alternative fuel mandates, and onerous environmental regulations can pose an economic threat that may not be justified by any reasonable expectation of environmental progress, he said.

CLIMATE CHANGE WARNINGS

The climate change issue did not die as a political threat just because President Clinton's October initiative on greenhouse gas emissions stressed voluntary measures.

Participants in a panel discussion on the subject warned that:

• The Clinton administration will toughen regulations if the voluntary approach doesn't work.

• The voluntary approach won't work.

• International politics are creating pressures for stricter measures.

Dirk Forrister, special assistant for policy to the U.S. secretary of Energy, said the administration's initiative contains about 50 measures. But the administration is considering at least 150 other options that could be implemented if the current approach fails to achieve the president's goals of stabilizing U.S. greenhouse gas emissions at 1990 levels by 2000.

W. David Montgonery, group director of DRI-McGraw Hill, Washington, D.C., said elimination of the targeted 109 million metric tons of carbon equivalent emissions will be 50 million tons short of emissions likely to result from energy consumption his firm expects in 2000.

The administration's plan allows an increase in CO2 emissions, which will be offset by reductions in emissions of other greenhouse gases.

"How is it that oil comes off so easily in this process?" Montgomery asked. "And what might that imply about future developments and policies?"

The risks to industry of the program's failure to achieve the goal are conversion of voluntary measures into mandates, an increase in the number of emission reduction programs, and extension of all programs beyond 2000.

Extension beyond 2000 would be especially difficult for the industry because expected energy demand growth in the next century implies growing emissions of CO2.

If oil were made part of an emission stabilization effective through 2000, demand would have to fall below baseline forecasts by 7-9%, Montgomery said. A mandatory program to stabilize emissions from oil through 2010 could reduce demand by 10-15%.

DRI estimates that capping carbon emissions from oil through 2000 would require a carbon tax equivalent to about $13/bbl on oil. Holding the line on emissions through 2010 would require a tax twice that large.

A mandatory emissions reduction policy would hurt gas out of proportion to its CO2 emissions contribution due to cancellation of power plants, Montgomery said.

He called for climate change policies based on planning that goes beyond 2000 to at least 2100.

"It is only when we look this far out that we begin to consider the economics and costs in perspective with what scientists and policy makers look at as the time scale of climate change," Montgomery said.

A WARNING

Norman H. Pearlman, partner in the law firm Patton, Boggs & Blow, Washington, D.C., urged industry representatives to participate in international climate change debates.

The Intergovernmental Panel on Climate Change (IPCC), which grew out of the 1992 Earth Summit in Rio de Janeiro, recently adopted policies aimed at increasing participation by outside interests and improving peer review of its scientific findings.

"If industry doesn't follow through it has no right to complain about economic or scientific or technical assessments you don't like," Pearlman said.

International politics are driving climate change issues in the U.S. and other countries, he noted.

It is "inconceivable," he said, that a U.S. president would, as President Clinton did last April, call for greenhouse gas emission stabilization in the current decade "were it not for the international political climate and its pressures."

During the next 19 months, international efforts will intensify to impose legally binding emissions goals on the U.S. and other industrialized nations.

"Climate change activities at Geneva or at UN headquarters at New York are going to shape policies at the White House and on Capitol Hill, and we have seen it already," Pearlman said.

Copyright 1993 Oil & Gas Journal. All Rights Reserved.