Smaller refiners pull climate support

Executives at small oil refiners who broke with the industry to support
the House climate bill now oppose it advancing in the Senate,
illustrating the stiffening resistance to the sweeping legislation.

The relationship between the oil sector and the majority party in Congress is often antagonistic. But climate deliberations in the House made frenemies — if not friends — of Democrats and small-refinery executives, even though the bill seeks to drive down the market for fossil fuels.

That’s so because House Democratic leaders added a provision to their cap-and-trade bill that could mean billions of dollars for small oil refiners as they searched for support in the days before the critical floor vote.

{mosads}In addition to the 2 percent of total emissions allowances earmarked for refiners, those refiners classified as small and independent would receive an extra 0.25 percent of the allowances themselves under the climate legislation. An allowance covers emissions and can be sold to companies that don’t meet their reduction targets.

According to an analysis by the Union of Concerned Scientists using data from the Energy Information Administration, the extra allowances could mean $5 billion cumulatively from 2014 to 2026 for small oil refiners.

In return, executives at the refiners wrote a letter expressing support for the bill passing in the House, providing some political cover to centrist Democrats on the fence.

“The undersigned companies support H.R. 2454 moving forward to the Senate,” 15 companies wrote in a letter sent on June 22, four days before the House floor vote.

Executives also gave thousands of dollars in campaign contributions to both the party and one vulnerable freshman, Rep. Harry Teague of New Mexico, whom sources said spearheaded the discussions that led to the change.

Fundraisers held the week before raised more than $10,000 for the party and Teague, according to the Center for Responsive Politics.

A few months later, though, the bloom seems to be off the rose in the budding relationship.

Some small oil refiners say they appreciated efforts to accommodate their concerns. But they now oppose the legislation sponsored by Reps. Henry Waxman (D-Calif.) and Edward Markey (D-Mass.).

A Senate version has yet to be introduced but is expected soon. However, Senate Majority Leader Harry Reid (D-Nev.) has said it will not be taken up until next year.

Glen Gonzalez, whose company AGE Refining signed the House letter, said small refiners “remain deeply concerned that what the House has offered is not nearly enough.”

“We agreed only that the legislative process should move forward, with a view toward working subsequently with the Senate. We did not agree to support H.R. 2454,” Gonzalez, the CEO and owner of AGE, wrote in response to questions submitted by The Hill.

A small refiner employs fewer than 1,500 workers and produces less than 205,000 barrels a day in gasoline.

Charlie Drevna, the president and CEO of the National Petrochemical and Refiners Association (NPRA), said his group is united in opposition to the Waxman-Markey climate bill.

“Each one of these refineries is going to be hit hard,” he said. Most of the 15 refiners that signed the June letter supporting House passage of the bill are members of NPRA, Drevna said.

What upsets oil refiners of all sizes is the amount of emissions allowances they receive under the bill.

The 2 percent of the total allowances set aside for refiners is intended to cover the emissions at the plants where oil is refined into gasoline and other products. But the industry is also on the hook for the tailpipe emissions of their products. Putting the onus on millions of drivers was considered impractical, both from a regulatory perspective and a political one.

In total, the industry is responsible for around 44 percent of annual carbon dioxide emissions in the country.

Domestic refiners fear more competition from foreign companies that don’t have to comply with carbon caps back home. While those companies would also be responsible for the tailpipe emissions of their products used here, their plants back home would not have to comply with carbon caps, giving them a cost advantage, the domestic refining industry argues.

Environmentalists and other supporters of the bill dispute the contention that the bill would drive domestic refiners out of business.

Small refiners complained to Teague, a former oilman, that they would be particularly vulnerable because they are less able to leverage economies of scale to absorb the higher costs.

“An improperly structured program could have an unintentional disparate impact on small refiners compared to the industry at large,” the letter sent in June and signed by the 15 small refiners stated.

{mosads}The issue was of particular concern for Teague not only because of his background. Western Refining, a small refiner based in El Paso, Texas, operates two plants in New Mexico. Navajo Refining, meanwhile, operates one in Teague’s district.

“We get a lot of our gasoline from small-business refiners,” said Sara Schreiber, a spokeswoman for Teague.

The congressman is in a tough fight against the man he replaced, former Rep. Steve Pearce, who left the seat to run for the Senate. Pearce lost the Republican primary.

Gonzalez said Teague’s change helps “offset ineluctable [small-business refiners’] economics” — that is, higher per-barrel operating and capital costs than large companies face.

But he added: “Overall, the bill greatly increases the likelihood that AGE Refining and other small-business refiners will close in the near term and severely harm fuel consumers in large geographic areas of the United States.”