Environmental Regulations: Leading the Way Toward Restructuring the Petroleum Industry.
Authors: Modesitt Leland E. 
Published: December 2007

Despite the promises of the Reagan administration to deregulate where practical and to reduce the number of new regulations, Congress continues to write and to enact more environmental legislation, and the U.S. Environmental Protection Agency (EPA) continues to develop more environmental regulations. The overall scale and impact of these regulations, largely ignored outside the affected industries, add greater momentum to the ongoing petroleum industry restructuring process.

The Promise of Deregulation

One of the promises of the Reagan administration was to return government to the people by cutting back on unnecessary regulations. Overall, the number of new federal regulations has been cut from the level of previous administrations. The amount of paperwork required of businesses has been reduced. New regulatory proposals undergo far greater administration scrutiny at the Office of Management and Budget than in earlier years.

The Environmental Exception

As with all generalizations, a major exception exists. That exception has been environmental regulation. Although the first Reagan appointee to head EPA, Anne Burford, succeeded in reducing some EPA regulations, the scope of environmental regulation continued to grow even during her tenure. Since 1980, the federal office dealing with noise pollution has been eliminated. but Congress has enacted wider statutory authority for regulating hazardous wastes, groundwater contamination, and drinking water supplies. Congress has also used its oversight of EPA to force a stepped-up enforcement of a wide range of environmental laws.

In addition, EPA has continued to issue more and stiffer regulations covering all areas of the environment. In particular, EPA has added new oft-ices and new or substantially increased programs covering groundwater, marine and estuarine protection, underground storage tanks, wetlands protection, and hazardous air pollutants.

Despite administration concerns about budgetary impacts and program effectiveness, Congress has enacted legislation expanding the Superfund program, the Safe Drinking Water Act, the Resource Conservation and Recovery Act (RCRA), and the Clean Water Act, extending EPA's regulatory responsibilities. Along with these added duties have come new and tighter statutory deadlines, more rigorous environmental standards, and greater financial burdens on the affected industries and states.

Virtually all these additions to environmental law and their accompanying regulations will impact the petroleum industry. Some impacts, such as the tax increases under the Superfund Amendments and Reauthorization Act (SARA), can probably be partially passed on to the ultimate consumer. Others cannot.

While some environmental regulations are well known to the entire industry, others are obscure or known only to that segment of the industry primarily impacted.

It is clear that few, if any, government policy makers and legislators seem to have grasped the overall immediate and midterm impacts of these regulations on the petroleum industry. Even less well understood are the long-term impacts of continuing additional environmental regulatory requirements. In addition to the impact of more recent environmental laws, older statutes continue to place requirements on the industry. The Clean Air Act and the Clean Water Act and their accompanying regulations have basic programs that are well understood and have not changed substantially in the last decade. As well understood as they are, however, both the Clean Air Act and the Clean Water Act have a few surprises left.

The Clean Air Act

Despite the apparent maturity of the Clean Air Act, EPA continues to impose additional requirements on the petroleum industry. For example, in 1985, EPA required stricter new source performance standards (NSPS) for natural gas processing plants to reduce volatile organic compound emissions by 73 % by tightening standards for valves, compressors. and pumps. Another NSPS rule was published that would reduce sulfur dioxide emissions from new or rebuilt onshore natural gas sweetening plants. EPA estimated the capital cost at over $93 million for the plants involved.

During 1985, EPA's lead phase-down rule almost totally eliminated lead in gasoline, with a possible cost to refiners of up to $0.02/gal [$5.301m 3 ] and an eventual annual cost to the industry of from $450 million to $600 million.

Until recently, EPA has taken few actions under Sec. 112 of the Clean Air Act-the section requiring EPA to list those air pollutants that are especially toxic and to develop rules that restrict or ban their emissions.

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