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Oil spill inspires slacker legislation on industry emissions

|Includes: iPath S&P Crude Oil Total Return Index ETN (OIL)
Refiners will receive a six-year reprieve from regulations being imposed on them by putting restrictions on greenhouse gas emissions under the climate bill introduced in the U.S. Senate this week.

The legislation is being co-sponsored by Senators John Kerry (D-MA), and Joseph Lieberman (I-CT). The electric power industry and the gasoline and diesel wholesalers will face caps on emissions starting in 2013 and will have to purchase emission credits at a maximum price of $25 per ton

Crude oil producers and refiners, on the other hand, will be handed a reprieve and will not face the emission caps until 2016. At that time they would have to purchase credits at a maximum of $30 per ton. Petroleum wholesalers, who face the earlier caps, would only be responsible for emissions generated when the fuel is consumed.

The bill focuses U.S. climate policy on the transportation sector and the electric power industry, where emissions-intensive coal-based plants supply 60 per cent of electricity. The bill is receiving a lot of attention from the media after the British Petroleum (NYSE:BP) oil well blowout with the resulting spill in the Gulf of Mexico last month. 

The main criticism for imposing carbon taxes on American energy is coming from consumers, who have already been battered by the current recession. The bill may not even be put to a vote prior to this year’s mid-term elections with other priorities being addressed by the U.S. Congress including securing U.S borders to control illegal immigration.

Senator Lindsey Graham (R-SC), who initially supported the proposed climate changeand energy legislation, has now withdrawn his support because Democrats might decide to first pursue immigration reform. Lindsey Graham said that the Democrats are pushing through immigration reform in a "cynical political" ploy to win over the Hispanic vote in the upcoming fall election.

Canadian oil sands producers are facing pressure from environmentalists in Canada and in the U.S., who are focusing on the fact that the production and processing of it is energy-intensive and emissions-heavy. Environmentalists say the crude extracted from oil sands produces more greenhouse gases than other sources, partly because it requires a more intensive refining process extracting the oil leaves toxic residue and damaged lands behind.


The petroleum industry argues that it is making progress on reducing those emissions and production of the oil sands will be sorely needed and carries less environmental risk than deep ocean drilling.
The American Petroleum Institute (NYSEMKT:API) has taken the position that the Senate legislation is an improvement from the punitive measures in legislation already passed in the House of Representatives.

Eventually, refiners in the United States will pay a steep price, for processing the heavy blends of crude oil being imported from Canada, Venezuela and Mexico, starting in 2016. That cost in turn is going to be passed along to the consumers of fuel and electricity. 
 
Rural areas will be more severely affected when the price of gasoline doubles according to an article published by the Energy Technology Innovation Policy Research Group, Belfer Center at the Harvard Kennedy School in Cambridge, Massachusetts.


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