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Refining and Environmental Regulations

Stephen Karlson over at Cold Springs Shops makes the following statement about refining and environmental regulation:

Note that I haven't mentioned two popular explanations. Some people have blamed environmental regulations that impede the construction of new refineries. That argument is special pleading. U.S. refinery capacity and production have both been increasing steadily since 1982, shortly after the end of the crude oil price controls in place during the Nixon, Ford, and Carter administrations as well as the severe recession early in the Reagan administration. There is a chart available from the BP Statistical Review of World Energy from June 2005 and some commentary by James D. Hamilton, an economist at the University of California, San Diego, at his web journal. Another economist, Steve Verdon, in his web journal, notes some evidence of oil companies using the environmental regulations to thwart their competitors' construction of refineries, which the Foundation for Taxpayer and Consumer Rights has been following closely. Such behavior doesn't surprise me. It reminds me of the way trucking companies would use the Interstate Commerce Commission to impede competition. “The existing service is adequate. If additional service is required, the existing carriers are ready to provide it. The applicant is incompetent to provide the service.”

I'm not sure how the evidence supports the claim of "special pleading." The chart actually shows that while production has been increasing since 1982, capacity has only been increasing since about 1992. This has largely been a process of squeezing out more efficiency - a noble process to be sure, but one that also carries with it risks, such as greater vulnerability and, quite likely, deferred maintenance. Also, Hamilton's post argues that regulation has been hampering efforts to bring new capacity online, which is driving up prices now. As for the fact that oil companies have been playing the regulatory game to protect their position, that only points out that the problems with regulation run in many directions; it doesn't negate those effects.

UPDATE: I would also add two things: 1) Karlson implies the solution in his post: deregulate refining the way that we deregulated trucking. 2) My sympathies are not with the existing or big oil companies, they are quite selfishly with me, the consumer. What I want is increased capacity, whether it comes from StartupOil, or ExxonMobilChevronShell.

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