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Energy

Valero CEO says EPA rules will freeze investment

* Klesse says EPA carbon regulation would freeze investment

* Industry watching U.S. Senate compromise bill

* Refiners advised to plan for climate change legislation

PHOENIX, Az., March 22 (Reuters) - The U.S. refining industry will freeze investment in anything beyond maintaining operations if the Environmental Protection Agency moves to regulate carbon pollution, the chief executive of Valero Energy Corp VLO.N said.

Bill Klesse, also chairman of the National Petrochemical and Refiners Association, said late Sunday at the industry trade group’s annual meeting in Phoenix, Arizona, that such regulation would increase costs for an industry already struggling with low margins and sluggish demand amid a slow economic recovery.

“Expansions will disappear. Improvements will disappear. We will replace everything exactly the way it is so you don’t have to change your CO2 footprint,” Klesse said when asked what the industry would do should the EPA move ahead on regulating carbon emissions.

The EPA says it will take steps to regulate carbon emissions on its own if Congress fails to pass a climate control bill.

Last June, the House of Representatives passed a bill that would have set an economy-wide cap and trade system that applied to power companies, refineries and factories.

The bill, which would have required emissions to fall by 17 percent from 2005 levels by 2020, appeared to lack enough votes to pass the Senate, and the climate change issue fell into the shadow of healthcare reform.

Under cap and trade, companies need government permits for every ton of carbon and other greenhouse gases they emit. The number of permits would fall over the next 40 years, and companies that hold more permits than they need can sell them to companies that are bigger polluters on a regulated financial market.

The bill passed by the House could make refiners responsible not only for their plant emissions, but also for emissions from vehicles that burn the products they process, said Iraj Issac Rahmim, a chemical engineer and vice president of technology for CO2 Solutions LLC in Houston, Texas.

He said it would be “catastrophic” to refiners if they bore the burden for such emissions without being able to pass the potentially enormous cost on to consumers.

Democratic Senator John Kerry, Republican Senator Lindsey Graham and independent Senator Joseph Lieberman have been working on a compromise climate bill, an outline of which is expected to be unveiled on Tuesday, which they hope will gain support from 60 of the Senate’s 100 members.

The bill will be anchored by a cap-and-trade plan to cut carbon emissions from utilities, such as power plants.

Charles Drevna, NPRA president, indicated the industry is more concerned about EPA-regulated carbon emissions than a climate bill that may lack votes to pass.

Also, there is wide agreement that Congress won’t take on another contentious, politically polarizing issue like climate change after the fractious ride to healthcare reform this year when elections loom in November.

“We think that cap-and-trade legislation has pretty much seen its course,” he said. Amid the buzz about the Kerry-Graham-Lieberman bill, “there is no deal. We have seen no legislation,” Drevna said.

But Jon Moretta, a director at Jacobs Consultancy in Chicago, Illinois, said refiners shouldn’t breathe easy after Congress narrowly passed President Barack Obama’s healthcare overhaul on Sunday.

“There’s a heck of a lot of uncertainty,” he said, advising refiners to examine their assets and implement emission-reducing measures in anticipation of a mandate. (Editing by Marguerita Choy)

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