Wednesday, August 26, 2009

Cap-And-Trade Is Refinery Killer


By INVESTOR'S BUSINESS DAILY | Posted Tuesday, August 25, 2009 4:20 PM PT

Energy Policy: A new study shows that Waxman-Markey will increase prices at the pump, deepen our dependence on foreign oil and shred our ability to turn crude into gasoline. Even fuel-efficient cars will still need fuel.

Read More: Energy

Oil may bubble up out of the ground, but gasoline does not. It's made in those ugly little NIMBY places called refineries we are loath to build anymore because we're too busy trying to save the Earth rather than our economy and American jobs.

When Hurricane Katrina shut down 20% of our refining capacity in a single day and raised gas prices in a single week by 45 cents a gallon, it showed how stretched to capacity our refineries were and are. Throw in the requirement for boutique fuels that vary by season and location, and our vulnerability to disruption is immense.

The number of refineries and total capacity to produce gasoline in the U.S. peaked in 1981, with 324 refineries able to process 18.6 million barrels of crude oil a day. Today, with U.S. demand for oil more than 20% higher, refinery capacity is roughly 17% lower.

Refineries operate near full capacity in the summer, leaving the nation's fuel supply chain vulnerable to disruption. That was the case a year ago, when Hurricanes Gustav and Ike shut down most Gulf Coast refineries, and gas stations throughout the Southeast ran out of fuel.

With climate-change hype taking legislative form in HR 2454 and the Waxman-Markey cap-and-trade bill, and with fossil fuels on the endangered species list, not many in Washington seem concerned that Waxman-Markey, among its other costs to jobs and growth, will further endanger our gasoline supply.

In 1981, the U.S. had 324 refineries with a total capacity of processing 18.6 million barrels of crude a day. A study by global consulting firm EnSys Energy shows that Waxman-Markey would reduce that figure to 12.2 million barrels a day from its current production rate of 14.5 million from just 141 active refineries.

Without Waxman-Markey, U.S. production rates would grow to 16.4 million barrels a day. With it, not only will refinery production rates drop but utilization rates as well, from about 83% today to about 63.4% in 2030.

The drop would have to be made up by foreign imports, the study finds, meaning the U.S. could end up relying on other countries for some 19% of its refined fuel, nearly twice the amount it imports today.

HR 2454 — which passed 219 to 212 on June 26, with the help of eight Republican congressmen — seemed to be aimed specifically at refineries.

Waxman-Markey is essentially a carbon tax on emissions. Companies will buy, sell and trade the emission permits. The bill also issues a fixed number of "allowances" for emissions, with companies paying for emissions they generate above those allowances.

Refiners are held responsible under the bill for 44% of all emissions, including their own (about 4% of the total), as well as the consumer emissions from heating oil, planes, trains and automobiles, as well as other petroleum uses. Yet they are allocated only 2.25% of emission allowances.

Production at U.S. refineries would drop, while production at refineries in countries that do not limit emissions would rise. The U.S. Gulf Coast, which houses the nation's largest refining complex, would bear "the full brunt" of competition posed by foreign refiners and the impact of higher energy prices in the U.S., according to EnSys consultant Martin Tallett.

Prohibition banned the manufacture and sale of alcohol. Now we seem to be headed in the same direction with oil and gasoline. For the sake of our economic future, not only do we need to drill, baby, drill, but we also need to refine, baby, refine.

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