[Note from BenIndy Contributor Nathalie Christian: This post shares how Big Oil (and gas) lobbyists are using a frighteningly successful two-pronged strategy to stall climate progress here in California: (1) ‘Delay is the new denial,’ and I’d include both the oil industry’s hyper-focus on carbon offsets as panacea and widespread corporate greenwashing as two major delaying tactics, and (2) ‘We can’t improve what we don’t measure.’ With luck and careful implementation, these proposed bills could poke a few holes in the lobby-dam that is blocking essential climate progress. If you can, take a few minutes to write in to your representatives to express support for SB 253 and AB 1305. To find your CA reps, click here; most reps have contact forms on their sites that can help you connect. I’ll keep an eye open for any petitions or upcoming actions in support of those two bills and share them out as I can.]
Oil and Gas Lobbying Threatens California’s Game-Changing Climate Bills
Valero’s Benicia Refinery. Valero is one of several Western States Petroleum Association members fighting new legislation pushing for increased transparency in emissions and offsets. | Image uncredited.
New legislation aims to shine a light on corporate climate pollution and carbon offsets, but Big Oil giants like Valero say it will ‘disfavor the oil industry.’
Two transparency bills in the California Legislature would require corporations to disclose more information about their emissions and their efforts to fight the climate crisis. The oil and gas industry is spending millions to kill them.
The bills would force big companies that do business in California to report all of their emissions and require firms that buy or sell carbon offsets — which are credits that represent a reduction in greenhouse gas emissions — to disclose more information in an effort to crack down on bogus climate claims. Both SB 253 and AB 1305 have momentum but could be blocked by moderate Democrats historically aligned with corporate interests.
Since the legislation would make new information available beyond California, the two bills could represent a watershed moment for holding big polluters accountable when they claim climate bonafides, supporters say.
Reporting requirements for corporate emissions are currently fragmented, and SB 253 would be a landmark law pinning down the climate impacts of some of the world’s largest companies. And as more companies market themselves as partners in the climate fight, greater oversight over voluntary carbon trading markets could help verify their claims. Challenges range from a lack of information on who is buying and selling credits to credits handed out for emissions reductions that never actually happened. AB 1305 requires this information to be reported publicly.
The bills are opposed by the Western States Petroleum Association, which has already spent $2.38 million on lobbying and advocacy groups this year. While some oil and gas companies in California have expressed their support for rolling back climate change, industry opposition fits into an agenda of delaying action, said Ryan Schleeter, communications director at the Climate Center.
“Delay is the new denial,” said Schleeter. “Climate denial won’t fly in this state, and companies are smart enough to figure that out, so they delay as long as possible and squeeze out as much profit as they can.” [Emph. added.]
In California, WSPA insists that it wants to be part of the “climate conversation,” according to Kevin Slagle, the association’s vice president of strategic communications.
WSPA’s opposition to the transparency bills “is based not so much on not wanting to progress, as it is how we get to those places,” he continued, noting areas where the oil and gas industry is promoting solutions like hydrogen and biofuels. “Is it that we are often pushing too far, too fast?”
But industry warnings about pace and ambition contrast with the U.N.’s insistence that deep, rapid and sustained reductions are needed now. And the bills are in line with recommendations from a group of experts convened by the United Nations, which concluded that companies should annually report their emissions and reliance on carbon offsets as early steps to eventually ending fossil fuel production.
When pressed on the matter, Slagle deflected, offering his view that the oil and gas industry has been unfairly painted as “evil” due to its frequent opposition to climate accountability measures. In public comments and written testimony, WSPA representatives have said little about why they oppose reporting requirements proposed under SB 253. The California Chamber of Commerce, which has spoken for a broader opposition coalition that includes WSPA and other business associations, cites compliance costs.
Companies that participate in California’s cap and trade system already report emissions information to the state, including Scope 3 emissions, which account for the vast majority. These are from burning oil and gas sold by fossil fuel companies. Scope 1 and 2 refer to emissions from a business’s day-to-day activities and electricity usage.
SB 253, authored by Sen. Scott Wiener (D-San Francisco), expands reporting requirements to all companies generating revenues of more than $1 billion a year. It’s more expansive than a rule currently under consideration by the U.S. Securities and Exchange Commission, and the disclosures have the potential to affect climate action worldwide, said Mary Creasman, CEO of California Environmental Voters.
“This would be pretty monumental,” said Creasman, whose organization is sponsoring the legislation. “There is a movement to say we can’t improve what we don’t measure, full stop.”
Sometimes companies claim to reduce their climate pollution by buying offset credits, which can be used by a company or a country to offset their own emissions.
But offsets have dubious track records across industries and regions. One study into offsets for cooking stoves found that only one in seven represented actual reductions.
Another study found 93% of Chevron’s offsets over the last two years were likely junk. The company, a WSPA member, opposes AB 1305 and spent $1.27 million on lobbying this spring, the most of any oil company. It plans to use offsets while continuing to produce oil and gas.
In a legislative filing, WSPA called the bill’s reporting requirements unclear and redundant, pointing to the SEC’s rulemaking process.
For Assemblymember Jesse Gabriel (D-Woodland Hills), who authored AB 1305, the argument holds little water. Financial filings by one WSPA member company, the refining giant Valero, warned that disclosure rules could “be used to advance agendas that disfavor the fossil fuel industry.” [Emph. added.]
“If these companies want to get the benefit of showing they are on the right side of history, [AB 1305] will encourage them to show that they are purchasing offsets that will actually make a difference,” Gabriel said.
Moderate Democrats Will Decide Bills’ Fate
A nearly identical version of SB 253 failed last year by one vote in the Assembly. It’s now headed to committees in that chamber that must approve it before a floor vote.
Democrats dominate the chamber, 62 to 18 Republicans. This supermajority means opponents are focusing on swaying moderate Democrats, who are historically more likely to oppose regulations on businesses than progressive lawmakers.
In addition to all Assembly Republicans, one Democrat who is still in the Assembly — Sharon Quirk-Silva (Buena Park) — voted against climate disclosures last year. Fifteen others who registered “no vote recorded” in 2022 will have an opportunity to vote if the bill reaches the floor this year.
Combined, these legislators have received millions from the California Chamber of Commerce, as well as the oil and gas industry and other corporate interests.
“It’ll be a tough bill to pass in the Assembly,” said Creasman. “We’re hopeful this year, because it’s part of a strong package of other corporate leadership and accountability bills.”
Meanwhile, AB 1305 passed by a large majority in the Assembly and is now moving through the Senate. Gabriel is hopeful about its chances.
“I actually think the bills would fit together nicely in terms of creating a regulatory architecture that’s going to really just provide more accountability and transparency,” Gabriel told Capital & Main.
As scrutiny of the fossil fuel industry has grown, companies have cloaked themselves as climate warriors, said Melissa Aronczyk, an associate professor of media studies at Rutgers University who studies the history of the industry’s public relations strategies.
The public has caught on to squishy climate claims in recent years, but oil majors still often announce actions or aspirations that are impossible to measure.
“These are efforts to sidestep real rules, regulation or other frameworks, to actually hold these companies accountable,” Aronczyk said. “The irony is that it is a very simple need that we have, which is to phase out fossil fuels. It’s straightforward.”
Stimulus tax change helps translate losses into instant cash
Oil companies are uniquely poised to benefit, analysts say
As it headed toward bankruptcy, Diamond Offshore Drilling Inc. took advantage of a little-noticed provision in the stimulus bill Congress passed in March to get a $9.7 million tax refund. Then, it asked a bankruptcy judge to authorize the same amount as bonuses to nine executives.
The rig operator is one of dozens of oil companies and contractors now claiming hundreds of millions of dollars in tax rebates. They are employing a provision of the $2.2 trillion stimulus law, called the CARES act, that gives them more latitude to deduct recent losses.
“This is a stealth bailout for the oil and gas industry,” said Jesse Coleman, a senior researcher with Documented, a watchdog group tracking the tax claims. It’s geared to companies “that have been losing money over the last few years — and now they get that money back as a check from the taxpayers. That’s exactly what the oil industry has been doing.”
Electronic drilling with cyber chairs Source: Diamond Offshore Drilling Inc.
The change wasn’t aimed only at the oil industry. However, its structure uniquely benefits energy companies that were raking in record profits in 2018 as crude prices reached $76.41 per barrel, only to see their fortunes flip a year later.
More than $1.9 billion in CARES Act tax benefits are being claimed by at least 37 oil companies, service firms and contractors, according to a Bloomberg News review of recent filings with the Securities and Exchange Commission. Besides Diamond Offshore, which declined to comment, recipients include oil producer Occidental Petroleum Corp. and refiner Marathon Petroleum Corp.
Other oil companies say they didn’t lobby Congress for the change, which is widely available across all industries. “We did not request any benefit, but we are obligated to follow the tax laws as passed by Congress, which apply to all corporate manufacturers nationwide,” said Jamal Kheiry, a spokesman for Marathon, which got a $411 million benefit.
Congress embedded the tax change governing losses in the stimulus measure early on, as lawmakers moved rapidly in March to steer trillions of dollars in aid to coronavirus-ravaged workers and companies. Alongside expanded unemployment payments and payroll loan programs, lawmakers saw an opportunity to harness the tax code to help get cash flowing to companies struggling to pay rent, workers and insurance.
It “was sold as help for the little guy — help for small business,” said Steve Rosenthal, a senior fellow with the Urban-Brookings Tax Policy Center. “In the name of ‘small business,’ we’re shoveling out billions of dollars to big corporations and rich guys.”
The provision loosened rules governing how businesses deduct net operating losses — incurred when deductible expenses exceed gross income. For years, companies were able to apply those net operating loss deductions to previous tax returns as well as going forward — but Congress ruled out retroactive relief as part of the 2017 tax cut law.
That new forward-focused approach works well when the economy is expanding, but the promise of using today’s losses as tomorrow’s deductions isn’t much help to coronavirus-battered companies with no guarantee they will survive long enough to claim them. So in the stimulus package, Congress gave businesses the chance to carry back all their losses — and claim immediate tax refunds — for five years from 2018, 2019 and 2020.
“The thought was temporarily we should bring them back so that firms that are seeing significant losses in the next year or over the past year or two can carry those back and get some short-term liquidity,” said Garrett Watson, a senior policy analyst at the Tax Foundation, a non-profit that supports pro-growth tax policies.
Traditionally, the ability to deduct net operating losses is meant to ensure companies get fair tax treatment even amid volatility, Watson said — a plus for the notoriously boom-and-bust oil industry. “You are going to see the biggest benefits for firms like oil and gas that are seeing volatile profits — and now, of course, extreme losses,” he said.
The combination of big losses now and the congressional tax changes mean it may be years before some oil companies have to pay corporate income taxes at all.
“We’re going to have some large losses this year,” ConocoPhillips Executive Vice President Don Wallette said in an April 30 earnings call. The company is in “a zero-tax-paying position in the U.S. and expect to remain there for quite some time,” Wallette said.
There’s no limit on how the new refunds can be used — and even bankrupt firms can get them.
Consider Diamond Offshore. Once one of the world’s largest drilling rig contractors, it filed for Chapter 11 bankruptcy protection on April 26 after crude prices plunged along with demand for its high-tech drillships.
In a first quarter filing, Diamond, which is majority owned by Loews Corp., said it had recognized a tax benefit of $9.7 million as a result of the carryback change. In an emergency motion filed with a federal bankruptcy court May 1, the company asked for the freedom to dole out $16.7 million in cash incentives to 85 of its 2,300 full-time employees, including as much as $9.7 million for nine senior executives.
The company said at the time that deteriorating market conditions and the collapse of Diamond’s stock had made its existing equity-based bonus program “largely worthless.” The tax filing did not specify how the $9.7 million would be used.
Dozens of other oil businesses have reported reaping the benefits, including $55 million for Denver-based Antero Midstream Corp., $41.2 million for supplier Oil States International Inc. and $96 million for Oklahoma-based producer Devon Energy Corp.
Occidental Petroleum, which enlisted its employees to ask Congress to “provide liquidity to the energy industry,” said it now anticipates a cash refund of about $195 million as a result of the carryback provision and a separate change in the stimulus bill that allows the immediate refund of unused alternative minimum tax credits. An Occidental spokesperson declined to comment.
Millions in Refunds
National Oilwell Varco Inc., a manufacturer of oil and gas equipment, expects a $123 million refund by carrying back its 2019 losses and applying them to its 2014 tax filing.
San Antonio-based refiner Valero Energy Corp. recognized an extra $110 million by carrying back losses to 2015 — when the corporate tax rate was 35% instead of the current 21%.
Valero spokeswoman Lillian Riojas said that is tied to tax losses generated in the first quarter, since the company did not generate a net operating loss for federal income tax purposes in 2018 or 2019. And she said the actual refund will be dependent “not only on the company’s performance for the remainder of the year, but also on the impact” of other tax provisions.
The benefits are “turbo-charged,” said Rosenthal, with the Urban-Brookings Tax Policy Center. That’s because businesses can carry back losses to offset income at a higher corporate tax rate of 35%, before the 2017 tax cut law lowered it 14 points. “Getting those losses at 35% is very, very favorable — especially in 2020 when the losses are going to be devastatingly large.”
The filings themselves reveal only part of the picture. Private companies are able to generate tax refunds too — without disclosing it to the SEC. And while some public companies said they benefited from the tax break, they didn’t reveal by how much.
For instance, refiner Phillips 66 boasted an effective income tax rate of just 2% for the first quarter — well below the federal statutory income tax rate of 21% — partly because of the carryback. But the company did not specify the amount of its expected refund.
Dennis Nuss, a spokesman for Phillips 66, declined to comment when reached by phone Thursday. Representatives for Oil States, National Oilwell Varco, Antero and Devon didn’t respond to messages seeking comment.
The importance of the provision hasn’t been lost on President Donald Trump’s administration. Energy Secretary Dan Brouillette recommended oil companies consider taking advantage of the expanded deduction in an April 21 interview with Bloomberg TV, calling it one of several “important liquidity tools that are going to help the industry.”
Congressional tax analysts initially estimated that the expanded loss carryback provision would cost $25 billion over 10 years — just when used by corporations. Now, some are questioning whether the final pricetag could be much higher, and Democrats are seeking to limit the value of the tax break after raising concerns it overwhelmingly helps corporations and the wealthy.
In a new stimulus bill advanced Tuesday, House Democrats proposed scaling back the provision so companies could only apply losses back to 2018. Their plan also would prevent companies with “excessive” executive compensation or stock buybacks from claiming the tax break — a change that would be retroactive back to March.
Rosenthal stressed that it was logical for Congress to help businesses that were profitable before the pandemic. “But the CARES Act goes too far, tilting its benefits overwhelmingly to the wealthiest Americans,” he said in an essay. “I think Congress did not know the extent of what it was doing.”
— With assistance by Ari Natter, Laura Davison, David Wethe, Kevin Crowley, Leslie Pappas, and Rachel Adams-Heard
Dangerous oil trains moving along Texas gulf coastline – 30,000 barrels per day
Crude Summit: Valero grows Mexico rail flows
By Sergio Meana & Elliot Blackburn, Argus Media, 04 February 2020
Valero increased the volume of refined products sent by rail to Mexico last year to roughly 30,000 b/d, up from about 2,000 b/d just two years ago, chief executive Joe Gorder said today.
The US independent refiner reached into the recently-opened Mexican market through a combination of joint ventures with local partners and building out its own storage infrastructure, Gorder said during the Argus Americas Crude Summit in Houston, Texas. Valero railed gasoline and diesel from its Texas refineries, including four along the coast and its landlocked 200,000 b/d McKee refinery in the Texas Panhandle.
The company has six fuel storage agreements that give the company 5.8mn bl of storage capacity in Mexico, but fuel pipeline capacity is still constrained in the country and mostly only used by state-owned Pemex.
“We invested in some terminal assets,” Gorder said. “We have got joint ventures around several, and we are actually railing a lot of barrels into Mexico rather than waiting for the pipeline infrastructure to be built.”
Franchisees opened the first Valero-branded retail fuel station in Mexico last week, Gorder said, with two more now opened since. Valero in Mexico said it plans to open 15 retail fuel stations in the next three months.
For Gorder the US Gulf coast is the most efficient refined product center as it has an able and affordable workforce, access to feedstocks and multiple transportation options.
“We have got all the advantages to be a supplier to the world,” Gorder said. “It is going to be some time before [Mexico] will be able to satisfy their own demands if ever. And so it is a logical, natural market for us.”
Valero exported 343,000 b/d of fuels in 2019 to all markets.
By Catherine Ngai and Liz Hampton | NEW YORK/HOUSTON, Aug 12, 2016 12:46pm EDT
Dead sunflowers stand in a field near dormant oil drilling rigs which have been stacked in Dickinson, North Dakota January 21, 2016. REUTERS/Andrew Cullen
It may seem odd that the opening of one pipeline crossing through four U.S. Midwest states could upend the movement of oil throughout the country, but the Dakota Access line may do just that.
At the moment, crude oil moving out of North Dakota’s prolific Bakken shale to “refinery row” in the U.S. Gulf must travel a circuitous route through the Rocky Mountains or the Midwest and into Oklahoma, before heading south to the Gulf of Mexico.
The 450,000 barrel-per-day Dakota Access line, when it opens in the fourth quarter, will change that by providing U.S. Gulf refiners another option for crude supply.
Gulf Coast refiners and North Dakota oil producers will reap the benefits. Losers will include the struggling oil-by-rail industry which now brings crude to the coasts.
The pipeline also will create headaches for East and West Coast refiners, which serve the most heavily populated parts of the United States and consume a combined 4.1 million barrels of crude daily. They will have to rely more on foreign imports.
The pipeline, currently under construction, will connect western North Dakota to the Energy Transfer Crude Oil Pipeline Project (ETCOP) in Patoka, Illinois. From there, it will connect to the Nederland and Port Arthur, Texas, area, where refiners including Valero Energy, Total and Motiva Enterprises operate some of the largest U.S. refining facilities.
“That’s a better and cheaper path than going out West and down through the Rockies,” said Bernadette Johnson, managing partner at Ponderosa Advisors LLC, an energy advisory based in Denver.
CHEAPER THAN RAIL
Moving crude by pipeline is generally cheaper than using railcars. The flagging U.S. crude-by-rail industry already is moving only half as much oil as it did two years ago: volumes peaked at 944,000 bpd in October 2014, but were around just 400,000 bpd in May, according to the U.S. Energy Department.
Rail transport has become less economical for East and West Coast refiners when compared with importing Brent crude, the foreign benchmark, because declining supply out of North Dakota made that grade of oil less affordable.
“If you look at the Brent to Bakken arb, it’s tight,” said Afolabi Ogunnaike, a senior refining analyst at Wood Mackenzie in Houston. “If you look at the spot rate, it’s uneconomical to move crude by rail right now.”
Ponderosa Advisors estimated that the start-up of the pipeline could reroute an additional 150,000 to 200,000 bpd currently carried by rail to the U.S. East Coast and Gulf Coast.
Crude imports into the East Coast are now on the rise, averaging 788,000 bpd this year, with nearly 960,000 bpd in July, the highest level in three years, according to Thomson Reuters data.
On the West Coast, refiners like Shell, Tesoro and BP may have to commit to some railed volumes for longer because of shipping constraints, although it will largely depend on rail economics. They also face declining output from California and Alaska.
Tesoro’s top executive Gregory Goff told analysts and investors last week he expects rail costs to drop as much as 40 percent from the current $9-to-$10 barrel cost to compete with pipelines, in order to move Bakken to its Anacortes, Washington, refinery.
CHANGING TIDES
Rail companies have been trying to adapt. CSX Corp, which runs a network of lines in the eastern part of the country, said it was evaluating potential impacts of the pipeline. BNSF Railway declined to discuss future freight movements, but said that at its peak, it transported as many as 12 trains daily filled with crude, primarily from the Bakken. Today, it is moving less than half of that.
In a recent earnings call, midstream player Crestwood Equity Partners said it was working to capitalize on the pipeline and not be dependent on loading crude barrels onto trains. That includes building an interconnection to its 160,000 barrel-per-day COLT crude rail facility in North Dakota.
As refiners bring in more barrels from overseas, Brent’s premium over U.S. crude will eventually widen. On Thursday, December Brent futures settled at a 97-cent premium to U.S. crude, one of its widest premiums this year.
Separately, Bakken crude, a light barrel, could rise further due to the additional competition, especially as production is still falling. Bakken differentials hit a six-month low earlier this week of $2.65 a barrel below WTI, according to Reuters data, but rose to a $1.80 a barrel discount by Thursday.
(Reporting by Catherine Ngai in New York and Liz Hampton in Houston; Editing by David Gregorio)
You must be logged in to post a comment.