EPA is ramping up its enforcement activity in the refining sector, including a focus on refinery expansions to allow the facilities to process Canadian extra heavy crude from the Alberta tar sands -- a fuel source that environmentalists fear may result in significant emissions increases over conventional petroleum but which industry sources say could bolster domestic energy security.
The renewed focus on refineries by EPA's Office of Enforcement & Compliance Assurance (OECA) -- which includes involvement in permitting discussions with the air office, boosting refinery enforcement staff and conducting a spate of recent inspections across the country -- comes despite the agency removing refineries from its list of enforcement priorities for fiscal years 2008-2010.
However, EPA's stepped-up enforcement is prompting complaints from industry that the scrutiny is unwarranted after more than 80 percent of refiners entered into consent decrees with the agency between 2000 and early 2008 to address Clean Air Act violations.
EPA listed refineries as a priority for FY05-07 but removed the sector from the current priority list, prompting concern from environmentalists that the agency may back away from fully completing its global enforcement initiative with the remaining companies, denying the industry a level playing field.
OECA has taken a number of recent actions to signal its ongoing focus on refineries, including conducting inspections of refineries in Texas, Utah, Hawaii, the Midwest and the Pacific Northwest, an industry source says.
Industry sources now say EPA's revived focus on companies that settled with the agency -- spending billions of dollars to install pollution controls -- may sour other industry sectors from agreeing to settle with the agency in future sector-based initiatives. Refiners signed "consent decrees for certainty. . . . and they thought they were buying peace, but they haven't. EPA is still . . . looking at them with microscopes," one source says.
However, environmentalists say EPA is right to keep focusing on refineries, particularly because so many are planning expansions, in many cases to accommodate crude from tar sands.
The fuel, which is derived from an energy-intensive process, is proving to be controversial. With geologic deposits spread over thousands of acres in Alberta, Canada, industry supporters argue it can provide a plentiful and secure supply of crude. However, environmentalists say the fuel results in significantly higher greenhouse gas emissions than petroleum and are challenging scores of proposed permits for refinery expansions to accommodate supplies of tar sands. In an attempt to block the refinery expansions, activists are challenging the permits lack of any greenhouse gas limits, a strategy that mirrors ongoing efforts to block permits for new or expanded coal-fired power plants prior to adoption of federal climate change regulations.
One of EPA's enforcement investigations is focused on a BP facility in Indiana that is in the midst of a review of a draft permit to allow processing of tar sand fuel. The investigation comes just months after EPA issued the same facility a notice of violation (NOV) alleging that it modified a unit in violations of the agency's new source review program (NSR) and other clean air regulations.
OECA launched the investigation Feb. 28, sending a letter to BP Products North America, Inc. that requires the company to submit information about its planned expansion. The so-called section 114 letter, which is an initial Clean Air Act enforcement action, asks BP for "all documents between Jan. 1, 2000, and Feb. 28, 2005, that related to the actual or potential ability of the Whiting refinery to process or increase the processing rate of heavier and/or more sour crude oil, including crude oil produced from Canadian tar sands."
The letter also seeks documents from 2000 through the present that "pertain to the capability of [the fluidized catalytic cracking unit (FCU 500)] to process crude feed fractions that would result from the processing of" Canadian tar sand fuel. Relevant documents are available on InsideEPA.com.
The NOV issued to the facility last Nov. 29 charges BP with making modifications to its FCU in violation of NSR and other air rules.
BP signed one of the first consent decrees with EPA under the refinery initiative, agreeing in January 2001 to spend an estimated $600 million to install sulfur dioxide (SO2) and nitrogen oxide pollution controls, reduce flaring and boost monitoring at the Indiana facility and eight others. BP also agreed to pay $10 million in civil penalties.
While OECA pursues the new enforcement actions against the facility, the Indiana Department of Environmental Management -- working with EPA Region V -- in February issued a draft permit to allow BP to modify the plant to process Canadian tar sands as a minor source, rather than as a major source subject to NSR.
The draft permit -- which is opposed by Democratic presidential candidate Sen. Barack Obama (IL) as well as environmentalists -- lets BP avoid triggering NSR in part by allowing the facility to "net" credits for 10 percent of SO2 emissions reductions it made under the consent decree that went beyond what the agreement required.
The consent decree requires that "netting" emissions provisions only be allowed to offset emissions increases at clean projects, such as those producing ultra low sulfur diesel.
One EPA source says, "There was a question internally as to whether this project would qualify as a clean fuels project and the decision was made -- at the regional administrator and assistant administrator level -- that the project did qualify." The ability of refiners to use consent decree netting provisions to process the Canadian tar sands and other dirtier -- or sourer -- crude is "a hugely contentious issue," the source adds.
The issue is becoming particularly tricky as refiners seek to take credit for pollutants that have been reduced by the consent decrees but are not actually identified in the agreements, such as sulfuric acid mist (SO3).
Another industry source says Marathon Petroleum Co. asked EPA air office staff and enforcement staff if it could net SO3 reductions that would allow it to expand under a minor source permit, but the agency said no. "We didn't fight it," the source says. "We had a project pending and needed to know."
However, the source says the ability to qualify as a minor source "is a huge deal" because it saves time, resources and environmental scrutiny.
In this case, the source notes that Region V permitting staff had an enforcement official "at the table, and then we took it to headquarters. . . . Some on the permitting side feel it is a stretch to say non-mandated pollution reductions aren't credible but the enforcement group indicated they would object."
A third industry source says there is often disagreement between OECA and EPA air office staff over how much flexibility to allow in permitting, and that OECA appears to be winning in forcing a narrow application of the consent decree netting provisions to avoid NSR.
However, an environmentalist questions whether emissions reductions that are achieved through installing pollution controls mandated in consent decrees should qualify as netting at all, since NSR requires netted emissions to be voluntary and enforceable. "If they take the credit, then they should at least amend the permits to make the limits enforceable," the source says.
A second EPA source says the netting provisions in the consent decrees are a "technically complex area" that evolved since 2000 as the agency reached agreement with more refining companies. "We wanted to have a flat prohibition that said any reduction you get as a result of implementing the decree can't be used to offset emissions elsewhere. But in early 2000 that presented legitimate problems" because refiners needed to make modifications to produce EPA-mandated low-sulfur diesel fuel and to reduce benzene in gasoline.
"To make sure there was an adequate supply of compliant fuel" EPA allowed netting so the necessary modifications could be made under minor source rules, the source says, explaining that did not absolve companies of the need to install pollution controls.
The source notes that the consent decrees do not prohibit expansion, such as the dozens in the works at refiners that want to process the Canadian fuel. "But you have to do it legally. And where we've become aware of a refiner potentially attempting to use credits for projects under the consent decree, we raise our hand to say you can't do that [unless they meet the specific requirements of the consent decree]. Sometimes it gets to be a difficult calculation to do," the source says.
Additionally, the source says EPA continues to conduct inspections at facilities to determine whether they are complying with their consent decrees. At the same time, EPA is trying to maintain a "separation between permitting and enforcement because you don't want one side to hold the other hostage," the source says. "As part of a permitting process, a refiner's intention to do something becomes known and that may trigger something from an enforcement perspective."
But an industry source says the agency is wrong to keep the heat on refiners after the vast majority signed consent decrees in lieu of going to court, and that EPA "needs to be careful" if it intends to launch another sector-based enforcement initiative.
However, another environmentalist says it is EPA's job to ensure consent decree compliance. A decree "is not a get-out-of-jail-free card." The source adds that refiners' complaints are unlikely to be greeted with sympathy due to "the incredible amounts of money they are making" from record high oil prices.Clean Air Report
