28-07-04

As gasoline prices soared in recent months to $ 2 a gallon and beyond, it was not long before the question was asked: Are environmental regulations to blame? Is that why no new refineries have been built?

Industry executives argue that the cost of making cleaner fuel and reducing refinery emissions has diverted billions of dollars of capital that might have gone to expand refinery capacity or build new plants. But they also concede there are many other reasons that not a single new US refinery has been built in the last 28 years. And industry leaders agree with health advocates and environmentalists that there is no clear evidence that new clean fuel requirements and other environmental regulations had anything beyond a minimal -- if that -- role in the rapid run-up of gasoline prices this year.

In the last decade companies have spent $ 47 bn for environmental improvements and expects to spend another $ 20 bn over the next decade to meet cleaner fuel requirements, including virtually eliminating sulphur in gasoline and diesel, and reduce refinery emissions, according to oil industry trade groups. Even in an industry whose profits run into the billions, that is a sizable investment.
"Some policymakers seem to recoil from the obvious fact that clean fuel proposals that do much good also involve significant costs. They are not free," says Bob Slaughter, president of the National Petrochemical and Refiners Association.

But Slaughter says the industry is not asking for a "rollback" of environmental requirements, but only that government officials "balance environmental and energy goals" by giving adequate lead times and not "overlapping" multiple and expensive environmental burdens.

Environmentalists and health advocates argue that the costs to refiners is dwarfed by the benefits of cleaner motor fuels, especially new requirements for low-sulphur gasoline and diesel -- new standards that will be phased in over the next few years. Cleaner fuel requirements that have been in place foryears in areas with significant air pollution problems have cut toxic emissions by 30 % and reduced smog, while adding 4 to 8 cents a gallon onto the price of gasoline, according to the Environmental Protection Agency.

A second round of pollution controls, including the requirement for low-sulphur gasoline, will produce $ 24 bn a year in health benefits, prevent 4,300 premature deaths, more than 10,000 cases of chronic and acute bronchitis and tens of thousands of respiratory illnesses, says the EPA.

A separate low-sulphur diesel requirement is estimated to save twice that in health-related costs, the agency has said.

"The public health and environmental benefits of this program far exceed the costs to consumers," Jeffrey Holmstead, director of EPA's air office, told a recent congressional hearing. He said it will cost less than 2 cents a gallon at the pump when fully phased in 2006.

As for the recent run-up in gas prices, Holmstead said there is no evidence that requirements for cleaner gasoline or gasoline where MTBE -- an additive that contaminates groundwater -- had to be replaced had increased in price more than conventional fuel.

"The price increase was essentially the same," Holmstead said.

Bill Becker, executive director of trade groups that represent local and state air pollution control officials, said refiners were closely involved in crafting federal clear air rules including the tougher sulphur standards and have been given years of lead time and in some cases were exempted from the requirements.

"Environmental regulations are a very small fraction of the cost of gasoline," said Becker. "...The reason refineries have not been built has absolutely nothing to do with environmental regulations."

Source: Associated Press