US climate rule will hit military fuel: Refiners

Valero, Delek and other refiners are warning that a proposed rule to start factoring climate into federal procurement decisions will hurt the ability of the military and other agencies to acquire needed fuel.

Refiners argue that draft acquisition rules the Biden administration proposed last year are so disruptive that many will choose to stop supplying billions of dollars of fuel to the government. That could limit the number of refiners willing to supply liquid fuels to military vehicles like F-16 jet fighters and Blackhawk helicopters, they say, and increase government acquisition costs.

If the rule is finalized as proposed, refiners will have only one "reasonable course of action — cease being a provider of liquid fuels to the government," Valero said in comments filed this week. "Otherwise, compliance with this proposal is paramount to a planned and accelerated phase-down of the refining sector."

The rule as written, Delek wrote in separate comments, would "severely limit" the government's ability to buy fuel for its fleet of 650,000 vehicles and tens of thousands of military vehicles that cannot run on alternative energy sources. Delek said the rule might force the company to stop supplying fuel to military bases in Louisiana, Oklahoma and Texas that are home to B-52 bombers and C-17 transport aircraft.

"The proposed rule as written suggests that companies, such as Delek, would no longer be able to supply the US military with jet fuel and other fossil-based fuels," the company wrote.

The US government spent $637bn on federal contracts in fiscal 2020, according to government data, buying nearly 250,000 b/d of oil products and $4.4bn worth of electricity that year. The draft proposal aims to use the government's vast buying power to support Biden's goals for the US to reach net-zero carbon emissions by 2050.

The rule as proposed would require contractors with at least $50mn/yr in federal business to disclose direct and indirect greenhouse gas emissions. Those "major" contractors would also have to set "science-based" decarbonization targets in line with the Paris climate accord and have them validated by the third-party nonprofit the Science Based Targets Initiative (SBTi).

But refiners say those requirements would block them from supplying fuel to the government, since the SBTi is currently unable to validate emission targets for oil and gas companies. That would provide "no pathway" for refiners to supply fuel to the government, Delek said. Even if the regulation is tweaked, refiners say there is no commercial technology ready to entirely decarbonize the combustion of fossil fuels, making compliance impracticable.

BP in separate comments this week said while it supports the administration's net-zero goals, the rule could be "damaging and counter-productive" by forcing companies to choose between remaining a federal contractor and giving up control of their decarbonization strategies. The rule could also limit the ability of companies to supply fuel in times of crisis, BP said, because boosting production could conflict with third-party validation.

Natural gas suppliers, major airlines and other contractors have raised similar concerns with the rule. The American Gas Association in comments this week urged the administration to delete the SBTi validation requirement, which it said would prohibit the federal procurement of natural gas and hydrogen from most major contractors.

By Chris Knight