by Sheena Martin, Investment U Contributing Editor

America’s refining companies are under severe financial pressure.

As the recession has blanketed the markets, demand for petroleum products has collapsed, causing refiners to scale back production.

And a bill currently working its way through Congress could also have an adverse effect. Democrats support less reliance on foreign crude, but the hotly debated Climate Change bill would do just the opposite. The burden of carbon cap-and-trade provisions for refiners makes it reasonable for U.S. companies to consider moving production overseas.

Why? Because foreign refiners will enjoy a significant cost advantage. Assuming even a modest carbon allowance of $26 per ton, the American refining industry will be spending an additional $58 billion annually.

And recent studies put this closer to $100 billion per year for U.S. refiners by 2015 for 2,000 million credits.

Some may suggest that Europe’s refining industry is already capped by the European Union, yet the industry still thrives. So why are carbon restrictions in the United States so much more onerous?

A Tighter Grip on Restrictions of Domestic Refiners

The House and Senate climate bills put a tighter grip on restrictions of domestic refiners compared to Europe.

The primary complaint is that U.S. refiners are responsible for purchasing emission credits for “stationary” emissions. This means emissions from the refinery itself, plus those from the fuel combustion that occurs later.

For instance, if Shell’s refinery produces gasoline, Shell must buy credits for emissions from the refinery during production of the gasoline and for emissions released from the gasoline when I go to a Shell gas station to fill my tank.

As you can see, this isn’t a bill that really protects America’s energy security, or bodes well for America’s refining companies.

Sheena Martin

View original at: Investment U

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