406 Dirksen EPW Hearing Room
Joseph I. Lieberman
Senate Environment and Public Works Committee
Hearing to Examine the Regulatory Framework Affecting Oil Refining and Gasoline Policy May 12, 2004
Thank you, Mr. Chairman, for calling this important hearing today. With gas prices rising to their highest level in decades, I appreciate this forum to focus on the causes. However, I do not believe that the environmental regulatory framework – the focus of today’s hearing – is truly to blame for these problems.
Any claims that environmental regulations at oil refineries are to blame for recent gas price spikes should fall upon deaf ears – the two are not related. For the refineries that we will hear about today, environmental regulations are not a new or different expense. They are known costs of doing business, and any well-run business would have accounted for these costs in their plans long before it would have to spike gas prices or run short of production.
Widely accepted academic reviews of the oil and gas industry bolster this argument. For example, one paper by Eli Berman of Boston University from 1998 analyzed the effect of environmental regulations on the oil refineries in the Los Angeles Air Basin and found that despite regulatory obligations, productivity in the Los Angeles Basin rose sharply, at a time when other regions were experiencing decreased refinery capacity. I believe this example casts doubt on the veracity of claims that environmental regulations are strangling the refining capacity of this country. Mr. Chairman, I ask that this paper be submitted for the record.
Another paper by Vasanthakumar Bhat of Pace University from 1998 analyzed an oil refinery with a good environmental compliance record and found that compliance actually had a positive effect on the firm’s bottom line. The paper concluded that in order to comply with environmental regulations companies had to become innovative and efficient. Because they found ways to create a more cost-effective processes to reduce emissions they ended up with a higher profit margin. Mr. Chairman, I also ask that this paper be submitted for the record.
In fact, in recent history, the refining capacity of the United States has expanded, not shrunk. According to EIA data, total U.S. refinery capacity has been growing all through the 1990’s, despite environmental regulations. Mr. Chairman, I ask that a chart from the Energy Information Administration’s March 2004 presentation on refining capacity be placed in the record.
Now, the provisions of the Clean Air Act that apply regulation to the refineries’ products admittedly may result in a patchwork quilt of varying gasoline requirements throughout the nation, which could make it more difficult for refiners to provide a secured supply to all areas. But we tried to address that problem, Mr. Chairman, in S. 791 that passed unanimously through this committee. Unfortunately, the delicate compromise that S. 791 represented – a compromise between American Petroleum Institute, the corngrowers, and environmental interests – was decimated by the energy bill conference and the insistence of MTBE producers on liability protection, a delayed phase out of MTBE, noxious legislative findings, and several other poisonous provisions. I fear that the greed displayed in that conference may have set back our attempts to fix the gasoline requirements through the nation for a while to come.
But none of this would be so much of a problem if our nation did not have an ever-expanding appetite for petroleum products. How can we act surprised that oil prices are on the rise – give the laws of supply and demand – when Congress continues to refuse to raise the nation’s fuel economy standards even the slightest bit? In a time when we do not wish to be dependant on the Middle East for reasons of national security, and in a time when the OPEC cartel is turning off the spigots to our economy, our nation must come to grips with our addiction to oil and begin to wean ourselves away from it.
Finally, as we look for a culprit for the gas price spikes, I think it is important not to overlook the most obvious possibility. In the first quarter of this year, we all know that gas prices were abnormally high. In the first quarter of this year, we also know that the oil industry reported record profits – according to one company, as a result of “higher prices for its products.” Wouldn’t it be a reasonable assumption to make that the oil industry’s high profits were financed by high prices at the pump? I recognize there are more complexities involved here, and OPEC is driving up the prices of oil throughout the world, but if one were to take a step back and view the larger picture, it just may be that simple.
The bottom line is that the rise in oil and gas prices is indeed a serious problem for my constituents and for our nation and deserves investigation and hopefully a solution. But, to make the unsupported conclusion that the prices are somehow caused by environmental regulations, while ignoring the more obvious causes and effects, is not a productive way to get prices down. It is merely a convenient way to use a very real and immediate problem to chip away at environmental protections designed to protect our health and environment.
Attachment 1: Bhat, V. "Does Environmental Compliance Pay?" Ecotoxicology 1998.
Attachment 2: "Environmental Regulation and Productivity: Evidence from Oil Refiners," National Bureau of Economic Research.