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Environmental Regulations Threaten Refining Sector Jobs

I had the privilege of meeting with Charlie Drevna, President of American Fuel and Petrochemical Manufacturers this week. He had some extremely interesting things to say about the way mounting environmental regulations are threatening jobs in the refining sector that he represents.

A particularly compelling insight he provided was that many of the Obama administration's environmental regulations actually contradict each other. For instance, CAFE regulations require higher fuel efficiency from automobiles. Yet the Renewable Fuel Standard, which mandates the use of less efficient ethanol, reduces fuel efficiency. Meanwhile, the Tier III rules from EPA contradict the rulemaking on greenhouse gas emissions: refineries need to do more processing to reduce sulfur in gasoline, which increases emissions at a refinery by up to 2.3 percent, while at the same time they are required to reduce greenhouse gas emissions.

Two more examples: to reduce ozone in the atmosphere under the National Ambient Air Quality Standards (NAAQS) requires more energy. More energy requires more greenhouse gas emissions, so there is another clear contradiction. Finally, state sulfur regulations contradict federal greenhouse gas regulations -- if you use energy to reduce the sulfur in heating oil, you will increase your greenhouse gas emissions.

Because the administration is happily promulgating yet more regulations without thinking through their implications (as the above examples show), the burden will hit the refining sector hard. While manufacturing in general is feeling the brunt of this regulatory impact, it is the refining sector that is feeling it the most. According to a report for manufacturing organization MAPI last year, the refining industry's output will decrease by 13 percent as a result of environmental regulations, while higher energy prices resulting from regulation will cost it $85 billion.

This will hit individuals hard. The manufacturing sector will probably have to reduce its wage bill by 5 percent. At a time when people are struggling to find jobs, this is not helpful. The resultant loss of purchasing power could hit 10 percent of median household income. The refining sector alone has already shed thousands of good quality high-paying jobs.

Charlie was particularly concerned about new regulations coming down the pipeline (rather than oil) -- in particular a new NAAQS standard that could lead not just to every airport in the country being ruled in non-attainment, but even Yellowstone Park. The marginal benefit of a regulation like that has to be questionable at the very least.

In total, the refining industry has spent about $400 for every U.S. citizen in compliance with environmental regulations. Yet the regulations keep on coming. It is time for the administration to step back and review just what its regulations are achieving or meant to achieve. Looking at the contradictory regulations Charlie identified would be a very good place to start.