US refiners in California including PBF Energy and Chevron strongly oppose proposed state emissions rules, saying the rules will lead to more closures and spiking fuel prices for consumers.
The California Air Resources Board (CARB) is seeking to remove 118mn metric tonnes (t) of carbon allowances over the near term and implement several program adjustments as part of a draft package aimed at keeping the state on track for its 2030 greenhouse gas (GHG) reduction target. The program is designed to achieve a 40pc cut in statewide emissions from 1990 levels by 2030 and support California's 2045 net-zero goal.
However, the costs to comply under the proposed amendments will "cripple the survivability of the state's remaining refineries" and "upend California's fuels market", Chevron president of downstream, midstream and chemicals Andy Walz said in a letter this week to California governor Gavin Newsom (D) and other state officials.
The rules will also cause California to increase reliance "on costly and slow-to-arrive foreign imports that are ill suited to respond to supply shocks and carry higher lifecycle emissions", Walz said.
Chevron operates two large refineries in California — the 285,000 b/d El Segundo and the 245,000 b/d Richmond facility.
Fellow refiner PBF Energy concurred, saying that the proposed amendments as written would make costs "skyrocket" and "drive in-state refining capacity to zero", according to a 25 February filing to CARB, which is holding a public comment period for the proposed changes through 9 March.
PBF's costs to comply with the proposed regulations would increase to $308mn annually by 2035, a 400pc jump from 2024, while competing importers are exempt from paying cap-and-invest fees, the company said.
PBF operates two California plants, the 156,400 b/d Martinez refinery and the 160,000 b/d Torrance refinery.
Under the current system, in-state refineries receive free allowances as part of the Emissions Intensive, Trade Exposed (EITE) sector, while importers buy allowances at auction.
CARB is mulling replacing its fossil fuel-based emissions product benchmark with one that rewards facilities that shift to biofuels.
Starting in 2031, refineries would receive free allowances for producing fuels such as gasoline blendstocks, allowing facilities that have shifted to biofuels to qualify for free allowances. CARB uses these product-based benchmarks to allocate free allowances to industry based on quantity of emissions for each unit produced, rewarding reductions in emissions intensity.
Under the proposed rules, importers could still buy allowances at auction.
The planned 118mn t removal represents the minimum reduction of options CARB had considered to address the program's accumulated allowance surplus since its launch. CARB proposed additional reductions to the 2030-45 allowance budget to support the long-term emissions target.
But the shutdown of Phillips 66's Los Angeles refining complex last year and Valero's ongoing idling of its 145,000 b/d Benicia refinery will leave more allowances available for purchase at state auctions.
The closures, which will shut about 17pc of the state's refining capacity, have also raised supply concerns in California's sometimes volatile fuels market and the impact on neighboring states.
The Western States Petroleum Association (WSPA), a lobbying group that often represents the industry in state negotiations, said that complying with the proposed cap-and-invest program will cost California refiners an estimated $1.5bn a year by 2035 compared with $357mn a year in 2026, citing an analysis by Capitol Matrix Consulting.
"For an industry already operating under uniquely high costs and narrow margins in California, this additional burden is not manageable, it is existential," WSPA said in a 25 February letter to Newsom and other state officials.
'Familiar arguments'
Environmental groups counter that the industry is repeating familiar arguments.
"They are running the same playbook we have seen before, which is [where] they say, ‘oh my gosh if you do x, y or z then gas prices are going to go through the roof'… and the sky has not fallen yet," Environmental Defense Fund (EDF) California state director Katelyn Roedner Sutter said in an interview with Argus.
The future of refining in the state depends on global market shifts as much as state climate policy, she added.
California lawmakers are unlikely to re-open the cap-and-invest statute during the current legislative session, but they are pressing CARB on the affordability impacts of the proposed amendments on electricity and transportation fuels.
CARB plans to bring a final proposal for its board to review as early as 28 May, with implementation by 1 September.
