Friday, October 07, 2005

E = HGP (Environmentalism=higher gas prices)

As noted in a previous posting, environmental lobbyists obstructed measures that would have minimized environmental damage from hurricanes Katrina and Rita. But the environmental efforts also had another unwanted effect: higher gasoline prices.

No new refineries have been built in the United States for 29 years, due largely to regulatory barriers promoted by environmentalists. In 1981 the U.S. had 325 refineries with a capacity of 18.6 million barrels per day. Today we have 148, with a capacity of 17 mb/d—despite a demand that is 20 percent greater than in 1981. So when a major portion of our refining capacity becomes a hurricane casualty, it is unavoidable that prices of petroleum products will escalate.

Existing refineries have had to pay more than $47 billion over the last 12 years to comply with, among others, the Clean Air Act, the Clean Water Act, the Toxic Substances Control Act, the Safe Drinking Water Act, the Oil Pollution Act, the Resource Conservation and Recovery Act, and the Comprehensive Environmental Response, Compensation and Liability Act. Naturally, the cost of complying with these regulations must be passed on to the consumers in the form of higher prices. And from 2006 to 2012, fourteen new major environmental programs will force additional costs on refineries.

One company, Arizona Clean Fuels, has been trying to build a refinery for sixteen years. It needs several federal and state permits. An environmental group headed by Steve Brittle has been fighting the project since 1992. Brittle figures if he can prolong the process for another 18 months, the permit from the state environmental agency will expire, and the company will have to start all over again.

Why was 47 percent of our refining capacity concentrated in such a geographically risky area as the Gulf of Mexico, particularly around New Orleans? Because federal policies effectively prohibited it from being anywhere else. “Government policies have largely limited offshore exploration and development to the Central and Western Gulf…. Unfortunately, offshore oil and gas development has been barred elsewhere—including the eastern half of the Gulf and the entire Atlantic and Pacific Coasts,” says Red Cavaney, president and CEO of the American Petroleum Institute. He might also have mentioned the prohibition on drilling in the ANWAR area of Alaska.

In the same way that environmental lobbyists prevented the construction of new oil refineries for 29 years, they also prevented the construction of nuclear power plants for a quarter of a century. During this time, France built 58 new nuclear plants—with complete safety—which now provide a whopping 79 percent of the nation’s energy needs. Had we built nuclear plants as the French did, our usage of fossil fuels would have been reduced, resulting in a better supply-demand balance for petroleum and lower prices at the gas pump.

Lastly, consider the federal requirement for a “boutique” variety of gasoline blends to meet a variety of emission standards in various parts of the country. It has little air-quality benefit yet imposes still another cost on refineries that is passed along to consumers. In addition, gasoline formulated for one area of the country can’t be transported for use in another. Thus areas of the country where gasoline shortages occur, such as from Katrina, cannot benefit from available supplies elsewhere.

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