The Wall Street Journal is reporting that the Obama administration played “a central role” in encouraging a private equity firm to rescue a struggling refinery in Pennsylvania. This is rather ironic since part of the reason for the refinery’s financial troubles were the Obama administration’s burdensome regulations.
Earlier this year, refineries on the East Coast were struggling. Sunoco’s northeast refining business had lost over $900 million over the past three years and was considering selling or closing its Philadelphia refinery and its Marcus Hook refinery. These refineries were suffering under the weight of years of regulation and trying to compete in the global marketplace. The outlook was bleak for these refineries and the jobs and petroleum products they supplied.
One of the more important reasons for these possible closures was the ever-increasing and changing regulations that affect the industry. Since the 1990s, 66 U.S. refineries have closed, and according to the Department of Energy the costs of regulatory compliance are one of the prime reasons for these closures.[1] Since 1990, refineries have spent $128 billion to comply with federal environmental regulation.[2] To put that in context, that works out to over $850 million per operating refinery in 2011.[3]
The Obama administration likely saw the bad press it was receiving in Pennsylvania, a swing state, and took action by working to get Carlyle Group—a private-equity firm like Bain Capital—to buy a controlling interest in Sunoco’s Philadelphia refinery.
The Wall Street Journal Reports:
Carlyle last month said it would take a two-thirds stake in the refinery and invest at least $200 million to upgrade [the Philadelphia refinery], staving off the potential for fuel-price increases and saving 850 unionized jobs in Pennsylvania, a likely battleground state in November.
To help seal the deal, expected to be made final in September, the Obama administration and state regulators agreed to loosen certain environmental restrictions on the refinery. Pennsylvania’s Republican governor, Tom Corbett, contributed $25 million in state subsidies and other incentives.
This is just backwards. The Obama administration has been increasing the regulatory burden on all refineries, but instead of working to rationalize the regulations so that all refineries can compete, the administration worked with a private equity firm to help a single refinery.
Refining is a tough business. Instead of singling out one refinery to help, the administration should work to standardize reasonable, balanced regulations for all refineries. With rational regulation the refining business can grow in the United States, providing jobs and products in an increasingly competitive world.
[1] Department of Energy, Small Refinery Exemption Study An Investigation into Disproportionate Economic Hardship, p. 29–30, March 2011, http://www.epa.gov/otaq/fuels/renewablefuels/compliancehelp/small-refinery-exempt-study.pdf.
[2] Written Statement of American Fuel & Petrochemical Manufacturers as Submitted to the Subcommittee on Counterterrorism and Intelligence, Committee on Homeland Security, United States House of Representatives on Implications of Refinery Closures for U.S. Homeland Security and Critical Infrastructure Safety, Mar. 19, 2012.
[3] Energy Information Administration, Number and Capacity of Petroleum Refineries, http://www.eia.gov/dnav/pet/pet_pnp_cap1_a_(na)_8o0_count_a.htm.