U.S. Oil Refiners Say Low-Carbon Laws Worse Than Cap-and-Trade Regulation

Plans to reduce the carbon content of U.S. transportation fuels are likely to boost oil imports from the Middle East and lead to more pollution from diesel-fueled tankers, according to a report commissioned by the National Petrochemical and Refiners Association.

A low-carbon standard is “even worse” than the “terrible” cap-and-trade legislation for carbon dioxide and other greenhouse gases that recently collapsed in the U.S. Senate, said Charles Drevna, president of the refining industry group. The association estimated that plan would have cost the industry more than $20 billion a year.

Low-carbon fuel standards, in which the government mandates the use of oil alternatives such as ethanol, natural gas and electricity, are already planned in some U.S. states, including California. Refiners are concerned that federal lawmakers will follow suit, Drevna said.

A low-carbon standard would “discourage the use of Canadian crude in the U.S. and encourage imports of crude from areas that produce light sweet crude, most notably the Middle East,” according to the study by Minneapolis-based Barr Engineering Co.

Oil shipped from the southern Iraqi port of Basra would be “less penalized” than crude recovered from tar sands in Canada, Joel Trinkle, a senior consultant with Barr Engineering and co-author of the study, said in a telephone interview.

The tar sands must be heated to separate the oil from sand and clay. The process requires more energy and produces more carbon dioxide than pumping crude oil from conventional wells.

‘Redirection’ of Supplies

If a low-carbon fuel standard blocked the importation of tar-sands oil in the U.S., the oil would probably go by pipeline to Canada’s west coast and by tanker to China, Trinkle said. More Middle East crude would be shipped by tanker to the U.S. to make up for the Canadian supply, he said, meaning a new rule would “simply cause a redirection of crude supplies.”

The extra tanker runs might produce up to 19 million metric tons of carbon dioxide, according to the study. That is less than 1 percent of the 2.3 billion tons of carbon dioxide from U.S. oil consumption last year, according to Energy Information Administration data.

‘Counterproductive’

If a U.S. low-carbon fuel standard causes a “shuffle” in crude oil consumption that boosts tanker fleet emissions, then it’s a “counterproductive piece of regulation” that “shouldn’t even be on the table,” Drevna said.

Refineries in the U.S. Midwest and South have invested in upgrades to their operations to handle the heavier Canadian crude and would be hurt financially if imports of tar-sands oil were curtailed, he said.

Stanley Young, a spokesman for California’s Air Resources Board, said the state’s low-carbon fuel standard “will promote the development of next-generation and alternative fuels.” The standard, proposed in 2007 by California Governor Arnold Schwarzenegger, a Republican, aims to cut the carbon content of fuels consumed in the state by at least 10 percent by 2020.

“That will generate local jobs, provide cleaner fuels to consumers, and help reduce our dependence on petroleum and crude, no matter where it comes from,” Young said in an e-mail.

Ethanol Industry Concern

The Renewable Fuels Association, the ethanol industry’s largest trade group, sued California in December over its low- carbon fuel standard, or LCFS, citing a component of the regulation that would measure emissions created by land use. Ethanol is made from corn in the U.S., and the law includes the emissions from raising corn in ethanol’s carbon total.

If California “were to do away with the indirect land-use changes we likely wouldn’t have a problem with the LCFS,” Geoff Cooper, the Renewable Fuels Association’s vice president of research, said in a telephone interview.

“It’s critically important that we get the first one right,” Cooper said.

To contact the reporters on this story: Simon Lomax in Washington at slomax@bloomberg.net; Mario Parker in Chicago at mparker22@bloomberg.net.

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