Treatment of Petroleum Refining and Other Energy-Intensive and Trade-Sensitive Industries in Pending National Climate Legislation

Abstract

One of the major issues confronting Congress as it deliberates about legislation to limit carbon dioxide and other greenhouse-gas (GHG) emissions is the effect on international trade. If the U.S. implements a cap and trade program, the cost of emissions rights becomes a new business cost for domestic establishments that foreign establishments do not face. This puts domestic industry at a competitive disadvantage in export markets as well as against imported goods. Over time, investments in U.S. industries decline, taking jobs oversees and undermining progress in reducing greenhouse gas emissions. The concern, often called “carbon leakage,” is most acutely felt in trade-sensitive, energy-intensive manufacturing industries. The main climate bills that Congress is currently considering include H.R. 2454 and S. 1733, commonly termed the Waxman-Markey and Kerry-Boxer bills, respectively, in reference to their original sponsors. H.R. 2454 passed the House on June 26, 2009 with a recorded vote of 219-212. The companion Senate bill was filed on September 30, 2009, and is at this writing (11/06/09) under markup in the Senate Committee on Environment and Public Works. S.1733 incorporates many sections of HR 2454 verbatim, but differs in some respects in the way it treats energy-intensive and tradesensitive industries. This policy brief analyzes the way that both bills approach the issue of carbon leakage, with particular attention to the petroleum processing industry. The next section outlines the general treatment of energy-intensive and trade-sensitive industries that is common to both bills. Then, the brief discusses the specific treatment of refined petroleum products. Following that comes an analysis of the limitations and deficiencies in the approach that Congress is taking. The brief concludes with a discussion of potential modifications -- an outline of proposed amendments -- that could address the deficiencies consistent with the overall approach of H.R. 2454 and S. 1733