Air Quality Chief Sees Valero Reversal as Vindication of Climate Law

This post is updated with a response from Valero, below.

California's top air regulator has found a victory of sorts in this week's decision by the nation's largest oil refiner to keep its California refineries.

A spokesman for Texas-based Valero Energy Corp. told the Wall Street Journal that it has reconsidered its plan to sell its two California refineries. The larger of the two is in Benicia, on the northeast fringe of the Bay Area.

At a San Francisco panel organized by the greenbiz group E2 (for Environmental Entrepreneurs), the plainspoken chair of the state Air Resources Board seized on Valero's change of heart as vindication of California's aggressive moves to curb greenhouse gas emissions. The initiative includes the cap-and-trade program launched last year and the nascent Low Carbon Fuel Standard, both of which impose heavy costs on big refiners.

The comments came as Nichols was giving a general overview of how the state's climate strategy -- known as AB 32 -- is playing out.

"I'm not particularly a Valero fan," Nichols told the audience, recalling that the Texas company was the major funder of Prop 23, the failed attempt to suspend AB 32 implementation by referendum. "But the fact is somebody's gonna be operating those refineries. And the fact that this Texas-based oil company that thought you couldn't do business in the state of California is now deciding that they can stay here, and that they can make money and comply with our rules, I think is a hopeful sign."

Afterward I asked Nichols if this didn't seem to her to be a high-stakes game of "chicken."

"I don't know about that, but I do think that businesses frequently think that if there's a rule on the books that they don't like, they can go to the legislature, and in Texas that's the way they do it," she responded. "California's a little different."

During her earlier remarks,  Nichols said, "We think that, despite the claims to the contrary, we are actually seeing energy costs going down as emissions go down as well." Economists have said that a slump in industrial activity during the recession has been the biggest factor behind the recent tapering off of greenhouse gas emissions.

Nichols conceded that regulating emissions would impose some costs on businesses and consumers, but she insisted that the cost would be offset by the regulations' economic and environmental benefits.

"On the whole," she said, "California's energy efficiency and renewable policies are both reducing emissions and overall costs for Californians."

The net benefits amount to several billion dollars a year, she said.

UPDATE: After this post appeared, I heard from Valero spokesman Bill Day, who begs to differ.

"She's wrong," he told me, "if [Nichols] thinks Valero has had a change of heart about AB 32 and its ill effects on California's economy or on the refining industry." Day says the company's two refineries in the Golden State are struggling to stay afloat, with the highest operating costs and lowest operating income in its system. "That needs to change," he said. Valero has been compensating by bringing in less foreign crude by ship and more "North American" crude (which includes Canadian) by rail.

"We believe some refineries will close in California because of this regulation," said Day, though he wouldn't speculate on which company's operations would succumb.

Valero's two California refineries, in Benicia and Wilmington, can process more than a quarter-million barrels of crude per day, combined. The company has 1,600 employees in the state.