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California Carbon Market May ‘Hurt’ Refiners, S&P Says

California’s planned cap-and-trade program to cut greenhouse gases may hurt the credit of refinery owners in the state, such as Tesoro Corp. and Valero Energy Corp., Standard & Poor’s said.

Companies with California refineries will have to buy “a substantial number of carbon credits” in the program that is set to start next year, a “potential adverse development” for corporate credit, New York-based S&P said today in a report.

The California Air Resources Board approved last month the cap-and-trade regulation that will force power plants, refineries, factories, cars and trucks in the state to cut their pollution roughly 15 percent by 2020.

The program, in which companies buy and sell a declining number of pollution rights, is authorized under a 2006 state law aimed at limiting carbon dioxide and other greenhouse-gas emissions that scientists have linked to global warming.

Valero is “very concerned” about the economics of the California greenhouse gas limits, Bill Day, a company spokesman, said in an e-mail. The cap-and-trade program will “make costs go up for refiners” and “significantly raise prices at the pump for California consumers,” he said.

Mike Marcy, a spokesman for Tesoro, said he didn’t have an immediate comment.

The carbon trading system’s effect on the credit of California electric utilities, such as those owned by PG&E Corp. and Edison International, will probably be “modestly negative,” the ratings agency said.

Utilities will get free carbon credits, also called permits or allowances, to cushion the cost of limiting the emissions from power plants, S&P said. Electricity prices are regulated by the California Public Utilities Commission, so utilities will probably win rate increases to cover the cost of any additional allowances they need to buy, according to the report.

Still, the potential of public opposition to electricity rate increases is a risk for the utilities, S&P said.

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