September 14 2012
A Refinery Rescue Reconsidered
Carrie L. Lukas
The deal that saved a Philadelphia oil refinery was recently touted as an example of the Obama administration's success at saving jobs. But rather than bolstering the president's credentials as a steward of the economy, the story of the Sunoco refinery exemplifies the overregulation and politicization that are crippling U.S. businesses.
Last year, Sunoco, having ceased production at its refinery in nearby Marcus Hook, warned that it would have to close the Philadelphia plant due to decreased demand and increased operating costs. Analysts warned that the closure could spur a politically damaging spike in summer gas prices, as well as a loss of thousands of union jobs. So the White House swung into action.
Some campaign watchers have noted the irony that the White House had to turn to a private-equity firm, the Carlyle Group, to prop up the doomed Philadelphia refinery. After all, the Obama campaign has worked overtime to demonize Mitt Romney's record at another private-equity firm, Bain Capital.
Beyond the hypocrisy of the deal, though, Americans should recoil from its casual politicization of the economy, bringing the government into what used to be considered the private sector.
This particular oil refinery, in a battleground state, was considered politically important, so the White House brokered a deal to have it bailed out by Carlyle and Gov. Corbett's administration. Onerous state and federal environmental regulations, which were contributing to the refinery's costs, were renegotiated for the plant. Pollution credits from the closed Sunoco refinery nearby were allowed to be transferred to the Philadelphia facility. These were important enticements to Carlyle.
But what about all the other refineries and companies that aren't getting special deals and waivers? They still have to comply with the growing thicket of costly regulations that the administration continues to promulgate. And it's not just the cost of current regulations that plague these companies, but the uncertainty about what's next: What other regulations will the administration issue, and at what cost? And will it decide to waive the rules for more politically connected competitors, leaving other firms at a disadvantage?
In testimony before a House Homeland Security subcommittee earlier this year, American Fuel and Petrochemical Manufacturers president Charlie Drevna noted that in just three months, three Northeastern oil refineries had closed. Those closures eliminated 2,000 jobs and an additional 750 contract positions. And they jeopardized 36,000 more jobs at eateries and other small businesses that relied on those refineries and their workers.
Why did these refineries close? Higher crude-oil costs played a role, as did reduced demand due to the downturn. Yet, as Drevna explained, "The U.S. refining sector is facing a blizzard of costly and in some cases conflicting regulations that threaten its competitiveness in a global marketplace. Many of these regulations carry little environmental benefit."
The chairman of PBF Energy, which owns three Northeastern refineries, has said the Obama administration's renewable fuel standards are a burden for already-struggling facilities. In testimony before Congress' Joint Economic Committee this year, Thomas O'Malley called the recent refinery closures "the tip of the iceberg" and warned that thousands of additional jobs would be lost if these onerous regulations remain in force.
Pennsylvanians are undoubtedly happy that those working at the Philadelphia refinery were spared unemployment and that the plant remains open. But Americans shouldn't be happy about the fundamentally unfair process that prevented its closure.
Rather than ad hoc interventions to save select, politically important entities, Americans need sound, transparent policies and regulations that are uniformly applied, so that businesses know the rules and can compete in a fair environment. That's the real key to job creation.
The administration may have saved a few hundred union jobs in Pennsylvania by bailing out one factory, but its policies and arbitrary enforcement practices are helping keep millions of other Americans on the unemployment lines.
Carrie Lukas is the managing director of the Independent Women's Forum.