Tags: climate | change | bill | costs

Annual Cost of Climate Change Bill: $560 Per American

Sunday, 28 Jun 2009 09:56 PM

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The passage of U.S. carbon legislation is likely to result in increased oil imports, declining investment and the closure of large refining plants in the United States by the country’s largest oil companies, according to experts interviewed by Bloomberg.com.

Under the Waxman-Markey climate bill that passed the U.S. House Friday, domestic companies would have to buy allowances for carbon dioxide spewed from their plants and from vehicles when motorists burn their fuel, Bloomberg reports. Foreign oil companies, though, need permits only for the latter, which ConocoPhillips Chief Executive Officer Jim Mulva said would create a competitive imbalance.

The measure, a key priority for President Barack Obama, squeaked through the House on Friday, 219-212, with 44 Democrats voting against it.

“It will lead to the opportunity for foreign sources to bring in transportation fuels at a lower cost, which will have an adverse impact to our industry, potential shutdown of refineries and investment and, ultimately, employment,” Mulva told Bloomberg. Houston-based ConocoPhillips has the second-largest U.S. refining capacity.

Not everyone with a background in the energy business agrees, though. T. Boone Pickens, the legendary oilman who has been pushing an alternative energy plan over the last year, called the House passage of the legislation “important first steps in advancing the use of renewable energy in our nation’s power grid. The American public wants this, and they recognize the important role a Green Bank, Renewable Electricity Standard (RES) and transmission provisions will have in revitalizing our economy,” Pickens said.

“But we cannot lose site of the work that needs to be done, and that is focusing on legislation that will address once and for all our ever-increasing dependence on foreign oil,” Pickens said in a statement released Friday. “It’s a national security and economic threat that we must face. We have to focus on replacing our foreign oil/diesel/gasoline use with abundant domestic fuels such as natural gas.”

On Sunday, though, leading GOP senators said they would fight the cap-and-trade legislation with every available resource.

“This bill coming out of the House is going nowhere in the Senate,” Sen. Lindsey Graham, R-S.C., said on NBC’s “Meet the Press.”

Sen. Chuck Grassley of Iowa, the top Republican on the Senate Finance Committee, said the House package would cost jobs and made the case for an international approach.

“We’ve got to have an international agreement so we have a level playing field,” he said in an appearance on ABC’s “This Week.”

Senate Minority Leader Mitch McConnell, R-Ky., appearing on “Fox News Sunday,” called the measure a jobs killer and argued it would lead to electricity rate hikes.

“If we do have a global warming problem, and many people believe we do, we need to target it on a global basis,” he said, suggesting the need to address foreign polluters like China and India.

Ironically, though, foreign producers of fossil fuels may actually benefit under the Democrat-backed plan now before the Senate. Imported gasoline would be 10 cents cheaper for each dollar in carbon costs tacked on to domestic gas, according to energy consulting firm Wood Mackenzie in Houston. Instead of reducing dependence on overseas energy suppliers, Americans would be more dependent than ever, Clayton Mahaffey, an analyst at RedChip Cos. in Maitland, Florida, told Bloomberg. Imports would rise dramatically.

“They’ll be searching the globe for refined products that don’t carry the same level of carbon costs,” said Mahaffey, a former Exxon Corp. refinery manager.

The cost to domestic fuel production in the United States will be enormous.

The equivalent of one in six U.S. refineries probably would close by 2020 as the cost of carbon allowances erases profits, according to the American Petroleum Institute, a Washington trade group known as API. Carbon permits would add 77 cents a gallon to the price of gasoline, said Russell Jones, the API’s senior economic adviser.

“Because it’s going to be more expensive to produce the stuff, refiners will slow down production and cut back on inventories to squeeze every penny of profit they can from the system,” said Geoffrey Styles, founder of GSW Strategy Group LLC in Vienna, Virginia. “We will end up with less domestic product on the market and a greater reliance on imports, all of which means higher, more volatile prices.”

Ordinary Americans will bear the brunt of these costs, experts told Bloomberg. Drivers, airlines and trucking companies would pay an additional $178 billion annually, or about $560 for each man, woman and child in the U.S., according to the API, whose 400 members include Irving, Texas-based Exxon Mobil and the U.S. unit of Royal Dutch Shell Plc, Europe’s largest oil company.

“That kind of price impact would significantly hurt the competitiveness of U.S. refiners versus importers,” said Glenn McGinnis, chief executive officer at Arizona Clean Fuels Yuma, a Phoenix-based company that’s attempting to build the nation’s first new refinery in three decades.

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