Oil industry presence complicates Houston's potential air pollution solution

While the heavy concentration of processing plants in the Houston area is largely responsible for high levels of certain air pollutants in the city, the typical regulatory responses are likely to create other problems, such as fuel price volatility, or simply shift the problem elsewhere. So said panelists at a Houston roundtable last week, hosted by the University of Houston's Energy Institute (see related story, OGJ Online, Sept. 11, 2000).


Karen Broyles
OGJ Online

HOUSTON�While the heavy concentration of processing plants in the Houston area is largely responsible for high levels of certain air pollutants in the city, the typical regulatory responses are likely to create other problems, such as fuel price volatility, or simply shift the problem elsewhere. So said panelists at a Houston roundtable last week, hosted by the University of Houston's Energy Institute (see related story, OGJ Online, Sept. 11, 2000).

Steve Reeves, manager of health, safety, and environment for Shell Oil Co. and a member of the Houston region Business Coalition for Clean Air, said he believes that Harris County and the surrounding seven counties can collectively work to reduce the ozone problem here without sacrificing the economic viability of the Texas Gulf Coast region. While Houston's ozone problem is significant, the city is in compliance with standards for the other five criteria pollutants listed by the US Environmental Protection Agency, said Reeves.

It has been widely reported in the press that Houston's pollution problem is now worse than Los Angeles's, but Los Angeles doesn't comply with three of the six criteria. "We think it's misleading to hear ourselves compared to LA," said Reeves.

Los Angeles has dramatically improved its air quality in recent years. As a result, it has moved to second place in the list of cities with air quality problems. But LA had much more ground to cover in terms of cleaning up its air.

"They're only [now] approaching Houston" in terms of air quality, said Reeves.

Significant improvements have been made in Los Angeles, thanks to control of automobile emissions, despite the fact that the US population and car mileage have risen. But concerns remain about retrofitting refineries to reduce their nitrogen oxides (NOx) emissions by 90%, and if California-style fuels were introduced in the Houston area, price supply volatility might also become a problem.

The economics of control
Bill Gilmer, senior economist and assistant vice-president for the Houston branch of the Federal Reserve Bank of Dallas, believes more restrictive regulation of Houston's processing plants would only shift the pollution problem to a different city or region. This is because the high amount of volatile organic compounds present in Houston and the surrounding area is the result the concentration of those industries along the Gulf Coast from Corpus Christi, Tex., to New Orleans.

Refining tends to suffer as a result of higher oil and gas prices, while upstream operations benefit. For this reason, the presence of both upstream and downstream operations in the Houston area act as a balance for the local economy, noted Gilmer. This is in contrast to other "oil cities" such as Tulsa or Midland, Tex., which have mostly upstream energy companies.

In 1995, economists initially were optimistic that greater environmental regulation would have a minimal impact on local US economies. A report released that year supported the conclusion, but had several caveats. One included the fact that the report focused on the average control costs for the plants, which actually only represent 20% of total environmental costs. The report also examined only certain industries.

Regions under regulation were able to clean up their air in about 3 years, but Gilmer said that a follow-up report conducted by a Brown University professor showed that heavy polluters simply relocated to an area less regulated. And once a city had improved its air quality standards after 3 years' time and relaxed its restrictions, industries seeking to avoid heavy regulation could return.

Heavy regulation also created a disincentive for new companies to invest or expand in a heavily scrutinized region. Houston and other cities in the so-called sunbelt region experienced significant growth in industry and population because of the lower cost and fewer restrictions in the region vs. other areas of the US. Those differences are being eroded by regulation, however.

Houston will not likely see any major rollback of environmental standards and may see them expanded, regardless of whether Gore or Bush is elected president, noted Lynn Scarlett, vice-president of research and executive director of the public policy institute for the California-based Reason Foundation. While air pollution is the city's current hot button, the focus will likely shift next to water pollution, she said.

What solution?
If traditional "command and control" legislation isn't the answer to the air pollution problems, what is?

Drivers across the country will likely have to adjust to the effects of new federal regulations around 2004 restricting NOx emissions, noted Reeves. He thinks government and industry can find a way to reduce NOx by 30-40% without switching fuels, however.

Offering fiscal incentives as opposed to pure regulation would be far more affordable, he noted.

The EPA should also reconsider its approach by tackling environmental problems in a more holistic manner, rather than looking at how pollution impacted single elements, said Reeves.

A holistic approach might have prevented the EPA from approving the use of methyl tertiary butyl ether in California gasoline supplies, said Reeves. MTBE polluted the local water supply of some cities in the state after it leaked from underground storage tanks.

Sen. Bob Smith (R-NH), chairman of the Senate Environment and Public Works committee, in July proposed a bill phasing out MTBE's use in US gasoline within the next 4 years (OGJ Online, July 28, 2000).

More in Government