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Nick Cunningham

Nick Cunningham

Nick Cunningham is an independent journalist, covering oil and gas, energy and environmental policy, and international politics. He is based in Portland, Oregon. 

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The U.S. Oil Industry’s Dirty Little Secret

The oil industry engaged in a secret public relations campaign to undermine U.S. fuel economy standards, according to a new investigation from the New York Times.

One of the main actors was the largest oil refiner in the country, Marathon Petroleum. Marathon, along with others, ran a “stealth campaign to roll back car emissions standards,” the NYT reported. The campaign argued that the U.S. no longer needs fuel economy standards because it is now such a massive producer of oil.

“With oil scarcity no longer a concern,” Americans should be given a “choice in vehicles that best fit their needs,” a draft letter that was sent to members of Congress said. The Trump administration took up the talking points in its official justification for the proposed watering down of fuel economy standards.

Much of the debate about the corporate average fuel economy standards (CAFE), which were set to rise to over 50 miles per gallon by 2025, focused on the position of the auto industry. But California still has the authority to set its own fuel economy standards, something that the Trump administration is now contesting as it seeks to freeze federal standards at 37 mpg beginning in 2020.

The auto industry has been the dog that caught the car – it initially pressed the Trump administration to weaken the fuel economy standards, but realized that the aggressive rollback would leave the industry with a patchwork of state levels regulations, led by stricter standards in California. Different standards for different states would require automakers to produce different cars for different markets, a reality that would be more problematic than the more stringent nationwide standards.

However, while media coverage focused on this back-and-forth between major automakers, environmentalists and the Trump administration, it appears that oil refiners were waging a stealth PR campaign to convince the public that the standards are no longer needed. Marathon teamed up with the American Legislative Exchange Council (ALEC), according to the NYT investigation, where they pushed facebook ads, and lobbying at the state and federal level. They trumpeted a resolution calling the fuel efficiency standards “a relic of a disproven narrative of resource scarcity.” Related: Saudi Arabia Can Outwait The Khashoggi Crisis

The motivation is obvious: more efficient vehicles, including hybrids and increasingly electric vehicles, will cut into gasoline sales from refiners. While automakers have to worry about complying with state level fuel standards, refiners simply want to sell more fuel. Marathon’s CEO Gary Heminger told investors in early December on a conference call that the rollback in fuel economy standards would mean the refining industry would sell an additional 350,000 to 400,000 bpd of gasoline.

By 2030, freezing the auto standards, as proposed, would lead to increased U.S. oil demand by between 221,000 and 644,000 bpd, according to the Rhodium Group.

Some experts argue that the gutting of auto emissions standards would likely result in the largest impact on U.S. greenhouse gas emissions out of any other initiative pursued by the Trump administration, including the rolling back of methane limits, gutting the Clean Power Plan, or opening up vast new acreage for more oil and gas drilling.

The cleaning up of the electricity sector – more renewable energy, and a coal-to-gas switch – is happening on its own, due to pricing pressure from cheaper and cleaner sources of energy. Transportation is a tougher nut to crack and stricter federal standards have been critical to improving fuel economy.

But oil refiners were never going to sit on the sidelines and let federal regulations cut into their sales. Related: No, The U.S. Is Not A Net Exporter Of Crude Oil

Amy Myers Jaffe, a Senior Fellow on Energy and the Environment at the Council on Foreign Relations, summed up the New York Times investigation on twitter:

Marathon Petroleum, biggest US refiner, wants you to use more of its product, pay more for gasoline, drive car w inferior tech, lose future jobs to China, enhance Saudi/OPEC power, harm US national security  https://t.co/NWbMtcDB47

The oil industry argues that regulations are not needed because the U.S. is such a large producer of oil. This sentiment has permeated much of the political establishment as well, and helps explain the sudden indifference to the selling off of the strategic petroleum reserve (SPR) after decades of rigorous safeguarding of the stockpile. Washington seems to think that producing more oil insulates the country from supply risks.

But it doesn’t matter how much oil the U.S. produces, motorists are always going to be vulnerable to price swings so long as they burn a lot of fuel. Even recent data demonstrates this to be true. U.S. gasoline demand actually declined in the third quarter compared to a year earlier, a sharp drop off due to the run up in global crude oil prices. The fact that the U.S. was breaking oil production records did very little to insulate drivers from the price spike. It’s true that U.S. shale has contributed to lower global prices, but removing the most effective demand-side policy from the toolbox is really self-destructive.

By Nick Cunningham of Oilprice.com

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  • EHLipton on December 13 2018 said:
    TIP OF ANY HAT I CAN FIND TOO YOU Nick! Excellent!
    Now if we can only get the Federal Government involved,, it might bring some relief to the Citizens of this country. It goes along something like this; conspiring too price fix, a national natural resource on both private owners and PUBLIC LANDS paid for and maintained with FEDERAL TAX DOLLARS!
  • Tom Blazek on December 13 2018 said:
    Rather than challenging the electrics with more efficient vehicles and cleaner fuels, the Refining Industry is clinging to its past. So, lower efficiency vehicles putting out the same old dirty exhaust, will just make the electrics more appealing in the long run. I don't see any creativity on the part of the Refining Industry, other than to cling to the past, at all costs.

    Well Good Luck,

    Time has a way of moving on, without companies that refuse to change or improve.

    A friend of ours at Church has purchased a Tesla, and I can't wait to go for a ride!
  • lucien on December 14 2018 said:
    I drive an Hyundai accent and I average 50 mpg on the highway at 55-60 mph, so no need to make new café rules. Also notice that a prius cost way more than an Hyundai accent and also do not consume less gas at all, it do 50 mpg on the highway. The prius and each and all hybrid is a technological and commercial flop so it is fake news. The way the prius is build is just to help an inexperimented driver to save a little gas on acceleration in town. You can buy an Hyundai accent an accelerate gently and do the exact same mpg as a prius.

    Also I noticed that in fuel economy.gov they underrate the mpg of small gas car and overrate the mpg of costly hybrid cars.
  • Nate on December 14 2018 said:
    who would have thought that oil companies would be willing to sacrifice progress, natural resources, the environment and any potential benefit to their fellow man for a short term financial gain.
  • Randy Verret on December 14 2018 said:
    If this NYT story is true it is, indeed, disappointing & a misguided effort by the refining sector. The shale boom is not going to last more than 5-10 years (at most) and then domestic crude production will begin to decline unless the domestic E & P companies come up with new, significant breakthroughs. Possible, but given the ongoing facts on shale production it is unrealistic to think that current production levels will continue (or increase) unabated. Very short sighted.

    The Obama era CAFE standards of 53 MPG (?) for fleet averages just were not realistic, but diminishing those standards & NOT promoting better fuel efficiency in the long run is a fools errand. Conservation of resources needs to be a BIG part of the upcoming energy transition. Right now, transportation is the biggest component of CO2 generation in the U.S, so it needs to be (somehow) addressed & burning more fuel won't help. This type of foray by Marathon does NOTHING to inspire public confidence in the oil & gas industry. It feeds nicely right into the environmental NGO's "vilification agenda" of all things fossil fuel...
  • Randy Verret on December 14 2018 said:
    I read the New York Times article and as a former oil & gas industry regulatory operative, this saddens me greatly. For a misunderstood industry struggling with an image problem that rates in Pew polls near the bottom (right with Congress), this certainly will do NOTHING to improve that. The irony, in my view, is that this underscores what I found most detestable about federal rule making: the growing subversion & corruption of the public review process. Don't kid yourself. The well funded environmental NGO's & many other trade organizations through D.C lobbyists are just as bad as this misguided Marathon episode but they (most likely) won't endure any scrutiny from the media. I fully expect that the environmental "fanatics" will gain a lot of traction. A big set-back, in my view...
  • L J on December 15 2018 said:
    The more.oil and gas we use the.better our economy is able.to grow.
  • SteveW on December 15 2018 said:
    I am perfectly able to decide for myself what type of car I want. If I want a tiny econobox that's fine. If I want a big sedan for safety I should be able to choose that as well. I don't need the federal government or anybody else to mandate what sort of vehicle I should drive. It's called freedom, folks and I rather like it. No matter what the NY Times says freedom has served this country rather well over the centuries. We shouldn't give it up easily.
    The market works quite well. When Tesla gets their battery technology up to the point where it works as well as gasoline I would think most of us will switch to electric on our own. No need for the climate Nazis to force the issue.
  • H. Alex Huskey on December 27 2018 said:
    Regardless of one's position on the CAFE regulations' value with regard to national energy security, this author is mistaken in believing that those regs are the best way to insulate drivers from high gasoline prices--their driving habits are! When prices rise enough, some folks curtail trips, but are small shippers going out of business as they did when oil hit $140 per barrel? Of course not. Another canard is when the author asserts that the electricity sector's "cleanup" is occurring by itself: the truth is that wind, solar, and other alternatives are heavily and directly subsidized, as everyone knows. Their long-term profitability depends on financial results when subsidies end, and I wish this author would explain that.

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