An American Petroleum Institute study released this past week makes three rather deceptive claims about the impacts of climate change policy on the oil refinery industry in the US.

The first claim is that legislation to cap carbon emissions will cause a large drop in US refinery capacity utilization. In fact, the main reason that US refinery production will drop is that demand for transportation fuel is going to fall - the product of the Obama administration's higher standards for fuel efficiency and greenhouse gas emissions.

API projects a baseline case of continued high gasoline consumption and as a result refinery capacity utilization of 83.3% in the year 2030. In contrast, EIA accounts for the fuel savings from the higher mileage and lower GHG emissions standards in their baseline case, and expects refinery capacity utilization rates will only be around 77.6% in 2030 (in line with API's Basic Climate Policy Case). While API may wish that US consumers will continue to drive gas guzzling SUVs forever, the reality is that higher vehicle standards are expected to dramatically lower US oil consumption and are the reason why capacity utilization rates for US refiners are expected to remain subdued over the long term.

The second deceptive claim is that climate legislation would significantly cut US refinery output. The API study forecasts that US refining throughput will fall by up to 4.4 million barrels per day or 27% by the year 2030. The API study produces this result by 1) assuming an inflated baseline demand for transportation fuel - far higher than projected by the federal government's Energy Information Agency, and 2) assuming extremely high carbon prices - prices driven up by assuming no international offsets and little technology innovation. Under more reasonable assumptions, the projected drop in US refinery output shrinks to a tiny fraction of API's scary numbers. For instance, when you compare US refining output under API's own "Basic Climate Policy Case" in 2030 with the EIA's baseline case (which includes reduced demand from cleaner vehicles), the 4.4 mbpd drop in refining throughput in their key finding quickly shrinks to less than 600 thousand barrels per day (see table below):

The third deceptive claim is that legislation to cap carbon emissions will lead to a significant shift towards non-US refining capacity, investment, and employment, at the expense of US refiners. The main point of the API report is to argue for giving away more allowances for free to US refiners (they would receive 2.25% of the allocation under the House-passed bill). If this claim were to be true, we would expect to see a significant increase in the percentage of refined product coming from non-US refiners once these free allowances sunset in the year 2026. However, when we look at API's own "Basic Climate Policy Case" analysis of climate legislation, we see that non-US refining imports are actually projected to drop between the year 2020 and 2030 (see table below), making API's claims that imports will surge seem rather inconsistent with even their own analysis.   

In sum, the API assessment fails to demonstrate a need to increase the allocation of allowances to domestic refiners. Their study also fails to prove that legislation to cap carbon emissions would significantly decrease domestic refinery production, and increase refined imports.