Environmental regulations are a tiny sliver of oil refinery costs.
As expected, one of Bush’s complaints in last night’s speech was that there haven’t been new refineries coming online, thus creating a “bottleneck” in the system. There’s some truth to that, but note that he contradicted himself when he said that jawboning other countries to boost supplies would lower the price of gas at the pump. [I should add: high gas prices are generally OK with me because they reduce long-run demand, though I’d prefer that extra money go to the U.S. government in the form of gas taxes rather than, say, into the opaque coffers of Ayatollah Khamenei, Hugo Chavez, or Crown Prince Abdullah of Saudi Arabia.]
Oh, and cry me a river about the refinery issue and the oh-so-costly regulations. The oil companies are doing just fine, according to the subscriber-only Wall Street Journal:
Exxon Mobil Corp. and Royal Dutch/Shell Group both reported huge increases in first-quarter income, benefiting from the industrywide bonanza also swelling the coffers of their peers: high prices for the oil they pump and high margins for refining it. Both companies reported that their oil production declined, however.
Here’s how the NRDC explains the matter:
Rolling back pollution protections, as some advocate, to allow refinery expansions is also not the answer. Although refinery capacity is a factor in today’s higher gasoline prices, environmental regulations are not the reason for tight refinery capacity, according to the DOE, the Environmental Protection Agency, the General Accounting Office, and even oil industry executives. Consider the market fundamentals: refiners reap higher profits when capacity is tight, so they actually have a disincentive to significantly expand production. In fact, oil executives have stated that the reason they did not expand refining capacity in the 1990s is that the low profitability of the business did not justify the investment.
In June 2002, the Bush administration nevertheless went forward with a wholesale weakening of the Clean Air Act’s preconstruction permitting requirements for refineries even though the agency concluded that these requirements — namely, New Source Review — had “not significantly impeded investment in new power plants or refineries.” Besides disregarding the conclusions of EPA staff, when making this decision the administration ignored information from the DOE, which concluded that environmental requirements accounted for only a very small share of the refining industry’s decline in profitability in the early 1990s. And even a top executive at refining company Valero emphasized that it was “the poor margins that had the biggest impact, not the environmental rules.” Lastly, the GAO concluded that the industry criticisms cited by EPA in support of the new NSR loopholes and exemptions were self-serving and unsubstantiated.
Bush officials and others also blame clean-fuel standards for tighter gasoline supplies, complaining that “boutique” gasoline blends drive up prices. However, oil refiners themselves insisted on the current menu of formulation requirements as an alternative to a unified national standard. And in spite of loud complaints, the number of fuel requirements is often exaggerated. For example, in 2001 when ExxonMobil created a map to advocate against clean fuel requirements, it showed 48 different requirements. However, the company multiplied requirements by three, claiming that this accounts for low-grade, mid-grade and high-octane gas. This conveniently ignores the fact that most companies create their mid-grade gas by mixing the other two. The EPA pegs the current number of requirements at 15 to 17, depending on the season.
In addition, it is important to keep refining costs in context. In 2002, refining costs and profits were just 13 percent of the total average cost of gasoline, while 87 percent went to distribution, marketing and federal and state gas taxes, with the biggest slice (43 percent) going to pay for crude oil. Refining costs are typically a mere 15 percent of what we pay at the pump or just 30 cents of a $2 gallon of gas.
All bolding mine.