Dec. 23 (Bloomberg) -- The U.S. Environmental Protection Agency weakened plans to reduce air pollution from new refineries after petroleum-industry lobbyists complained about potential costs for oil companies including Exxon Mobil Corp.

The Washington-based regulator, supported by environmental groups, had proposed tighter limits on “flaring,” or burning waste gases, when refiners start or shut down production. The process eliminates the build-up of flammable gases such as hydrogen sulfide by turning them into less-volatile or less- poisonous gases that can be released into the sky.

Flaring restrictions, proposed by the EPA in June for new or modernized refineries, were removed from final regulations the agency published yesterday that govern emissions from refiners, automakers, paper mills and other industrial polluters.

“You need a way to safely manage startup and shutdown gases,” said John Wagner, senior attorney for the American Petroleum Institute, an oil-industry lobby group that said the proposed flaring limits would have cost refiners almost $500 million just in monitoring equipment. “Safety is the primary concern.”

Disposing of gases in a new way that doesn’t release residue into skies over local communities would have required the installation of new equipment. Refiners that avoided these expenses include Valero Energy Corp., the largest in the U.S., and Irving, Texas-based Exxon, the world’s biggest oil company.

Valero, Exxon Expansions

San Antonio, Texas-based Valero plans to spend $2.4 billion to expand its Port Arthur facility in its home state. Marathon Oil Corp. said it will spend $1.9 billion to upgrade a refinery in Detroit to be able to process heavy oil from Canada.

Exxon Mobil plans $1 billion in refinery expansions including work on two plants in the U.S.

The petroleum institute successfully opposed the limits with help from the National Petrochemical and Refiners Association and the Western States Petroleum Association.

The EPA regulations published yesterday are set to take effect in two months. Their final version contains rules “more consistent with the capabilities” of existing refinery pollution control, Wagner said.

Eric Schaeffer, director of the Washington-based environmental lobby Environmental Integrity Project, said the EPA staff succumbed to pressure from oil interests.

‘Overwhelmed by Industry’

“In these rule-makings, EPA staff gets overwhelmed by the industry,” Schaeffer, a former EPA official, said in an interview yesterday. “Were there political direction from the agency to fix this, I think we would have gotten this rule” to restrict flaring.

The regulation governs pollution released directly into the air by industries. These “fugitive emissions” can include windblown dust from surface mines or volatile organic compounds such as benzene, a component of crude oil that’s carcinogenic.

Many refiners already control some emissions during starts and stops, Schaeffer said. Environmental groups also asked the EPA to ban flaring during routine operations.

“It’s a shame something they’re already starting to do can’t be reflected in this rule,” Schaeffer said.

Under the new rule, the EPA will ask refiners to develop plans to correct equipment problems that require them to flare gases. The public has 45 days to comment on the rule.

“Flaring is essentially a waste of energy,” said Tim Ballo, an attorney for Earthjustice, an Oakland, California-based environmental group. “There’s equipment that refiners can install that will capture the gases that would otherwise be flared and route them back into the refinery. This is being done at some refineries in the absence of any legal requirement because it makes economic sense.”

Court Ruling on Flaring

In a separate ruling on factory emissions, an appeals court said manufacturers such as Dow Chemical Co. aren’t automatically exempt from clean-air rules during factory starts, stops and malfunctions. The Dec. 19 decision from the U.S. Court of Appeals for the District of Columbia said the EPA must set pollution limits during flaring events.

In 1994, the EPA exempted from the Clean Air Act manufacturers that exceeded pollution limits during certain operations. The loophole was expanded under President George W. Bush, and manufacturers used it routinely, environmental groups said.

To contact the reporter on this story: Jim Efstathiou Jr. in New York at jefstathiou@bloomberg.net

Last Updated: December 23, 2008 12:39 EST