| NEW YORK, March 12
NEW YORK, March 12 Pending California carbon
regulations could make it too expensive to operate refineries in
the most populous U.S. state, drastically increasing gasoline
prices and costing thousands of jobs, a senior Chevron Corp
The No. 2 U.S. oil company, which runs California's two
largest refineries, believes a bill first passed in 2006 and
being introduced in phases, would hurt the state's economy and
have little impact on climate change, Michael Wirth, who
oversees Chevron's refining and chemical businesses, said in an
interview on Tuesday.
Chevron is especially opposed to a part of the bill, known
as AB 32, that starting next year would require all California
distributors of transportation fuels to purchase carbon permits
to cover emissions from automobiles, a cost the Boston
Consulting Group, in a study on behalf of the oil industry,
estimates could exceed $3.7 billion.
"It's a cost, frankly, that Chevron can't absorb," Wirth
said at the company's annual investor day. "No matter how big
and successful we are, we can't absorb that cost. We'd have to
pass that onto consumers."
Wirth said the rules could sharply push up gasoline price in
California, which already has the most expensive gasoline in the
United States. Some environmentalists say higher prices would
force people to use alternative fuels.
California has at times introduced rules tougher than those
of the U.S. Environmental Protection Agency, while the Sierra
Club and other environmental groups have publicly stated a goal
to eliminate all refineries in the San Francisco area.
State legislators approved AB 32 with the goal of reducing
California's greenhouse gas emissions to 1990 levels by 2020.
The bill gave the California Air Resources Board (CARB)
authority to craft regulations that would help meet that goal.
CARB decided a cap-and-trade system would best accomplish
the greenhouse gas reduction goal. The first phase, for power
plants and refineries, was put into place last year. The vast
majority of carbon permits thus far have been given out freely.
Next year, the second phase will target transportation
fuels, which worries Chevron. Under current plans, there will be
no free carbon permits for transportation fuels.
Carbon permits cost about $12 per tonne today in California,
which if the regulation was in effect on transportation fuels
today would translate to a roughly 12 cents per gallon increase.
Boston Consulting Group estimated the price of California
gasoline could jump 49 cents to $1.83 per gallon by 2020 under
the new regulations. Other estimates show a lower impact.
Global demand for oil is far more likely to cause a sudden
rise in California gasoline prices in the coming years than an
unlikely run up in carbon prices, according to analysts. But
unlike world markets, carbon is a cost that California voters
could take steps to ease or remove.
It is far from probable, however, that Chevron could pull
out of the California refining market entirely, said Wayne
Miller, associate director of the University of
California-Riverside's College of Engineering Center for
Environmental Research and Technology.
"They're such a large producer of fuel in California that if
they closed, it would be beyond a crisis," said Miller, who
worked for Unocal years ago before it was bought by Chevron.
"Still, I'm sure they're concerned about all the fees."
For the cap-and-trade system to be amended or revoked, CARB
would have to find alternate ways to reduce emissions, or state
legislators would have to repeal the law.
Chevron's Wirth said that even if AB 32 is not altered, it
is unlikely to have a meaningful impact on climate change.
"California, by itself, cannot change the (global) inventory
of greenhouse gases," Wirth said.
Chevron also is lobbying hard for approval to renovate its
105-year-old refinery in Richmond, northeast of San Francisco.
California's safety regulators told Chevron to repair its
245,000 barrel per day Richmond refinery after a 2012 fire that
sent thousands to hospitals with respiratory woes but caused no
The company received preliminary approval to upgrade the
refinery in 2008 before a lawsuit was filed by environmental
groups. An appeals court ruled in 2010 that Chevron did not
properly disclose the type of crude oil the upgraded refinery
Effectively, Chevron has proposed a simplified renovation
project to replace the refinery's hydrogen plant and smaller
parts. It is unclear whether the company will receive approval
this time from Richmond officials.
"The reality is, these kinds of plants need to be
continually upgraded to modern standards for safety and
environmental performance," Chevron executive Wirth said. "If
you reach a point where you can't continue to do that, it's hard
for the facility to continue to be viable."