Monday, August 24, 2009

The Energy to Kill an Industry

If we force the price of energy up with various schemes that are nothing but taxes, the price of everything else in the economy will increase too. On the other hand, nations smart enough to ignore the Global Warming legislation trap will enjoy an even greater manufacturing advantage over the US. Thus, a growing amount of imports will become the low-cost alternatives to American-made products.

Oil Industry Details Costs of Climate Bill

Proposed federal legislation aimed at curbing global warming would drastically reduce domestic fuel production, according to a new study commissioned by the oil industry as part of its campaign to oppose new restrictions.

The report's findings, which are expected to be released Monday, project that by 2030, U.S. refining production could drop 17% from today's levels if the climate bill is passed as currently proposed. The drop would have to be made up by foreign imports, the study says, meaning the U.S. could end up relying on other countries for 19.4% of its refined fuel -- nearly twice the amount it imports today.

The American Petroleum Institute, the U.S. oil industry's main trade group, commissioned the study in an effort to hammer home its argument that restrictions on emissions will be a burden on U.S. refiners. Although part of an attempt to derail the bill, the report gives the first detailed prediction of the legislation's impact on refining operations. The report was done by EnSys Energy, a consultancy that specializes in the refining sector.

The report also underscores the bleak prospects for refiners, who have had profits wiped out by slumping demand during the recession.

Even beyond the recession, industry experts expect demand for gasoline to continue declining as vehicle mileage improves and new biofuels are developed. Valero Energy Corp., the largest U.S. refiner by volume, last month posted a quarterly loss, and analysts are expecting at least one refinery to shut down due to slackening demand.

The industry sees the climate-change bill sponsored by U.S. Reps. Henry Waxman (D., Calif.) and Ed Markey (D., Mass.) as the harbinger of a grimmer future. Proponents of the law say its costs would be minimal and that it would create millions of new jobs in renewable-energy industries and help steer the U.S. away from a dirty fuel source.

The Waxman-Markey bill, which the House narrowly passed in June, would put a price on greenhouse-gas emissions, such as carbon dioxide, that contribute to climate change. It would issue a fixed number of "allowances" for emissions, and companies would have to pay for emissions they generate beyond those allowances.

The bill requires refiners to have permits for nearly half of U.S. carbon-dioxide emissions, though the industry would receive only about 2.25% of the total emissions allowances. The electricity-generating sector, also a major source of greenhouse gases, obtained a larger share of the allowances.

"Equity is really what we're asking for," API President Jack Gerard said in a phone interview.

The API study is based on the current state of the industry, assuming scant use of nuclear power or new technology to reduce emissions of greenhouse gases -- a reflection of doubts over how widely such technologies can be used. The study also assumes there will be no international program allowing companies to offset their emissions by buying pollution credits.

If the U.S. puts a price on carbon emissions, domestic production would decrease as U.S. refiners deal with higher costs and lower demand for fuel, the API-backed study concludes.

Average U.S. refinery output would drop to 12 million barrels a day in 2030 from about 14.5 million barrels a day currently, if nuclear power, technology to reduce carbon emissions and the use of international offsets fail to become widespread. Refinery utilization rates could drop to 63.4%, from about 83% today.

Without the restrictions of a Waxman-Markey bill, U.S. production rates would grow to an average 16.4 million barrels a day in 2030, according to the study.


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