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Oil & Gas

Refiners face competitive disadvantage with climate bill proposal

October 26, 2009
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A new report by energy consultants Wood Mackenzie, says that cap-and-trade legislation will cost U.S. refiners about $100 billion a year by 2015 and put them at a competitive disadvantage to refiners in Europe, according to the Associated Press. U.S. refiners would only get a tiny portion of emissions permits for free, leaving them on the hook to buy 2 billion tons of emissions permits in 2015. European refiners, in contrast, will need to buy only 3 million tons of permits. There are still plenty of uncertainties about how climate legislation would affect the refining industry. Wood Mac’s analysis is of the House version of climate legislation. It’s also not clear if refiners would be able to pass on the cost of carbon legislation to consumers. If they do, according to the report, it would add 45 cents to the price of a gallon of gas. Refiners may not be able to pass on the additional costs, because of the threat of a flood of cheap gasoline imports from Europe. Current legislation leaves a loophole in which imported gasoline wouldn’t be subject to the same restrictions. Which means that the government’s environmental plans could end up undermining energy security by increasing the share of imported fuels. Wood Mac also points out that although the impact would hit refiners hard, it doesn’t seem that it would actually do much to reduce U.S. demand for oil products.
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