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US plans to regulate and restrict greenhouse gas emissions will cause a sharp drop in refining capacity, the American Petroleum Institute – which remains sharply opposed to the proposed legislation – has warned.

The Waxman-Markey climate change bill, which would introduce a cap-and-trade system for greenhouse gas emission, was narrowly passed by the House of Representatives in June and is now waiting to go before the Senate in September. The bill aims to cut US greenhouse gas emissions 17% from 2005 levels by 2020.

A report by the refining consultancy EnSys Energy, commissioned by the API, says that the output of US refineries could drop as much as 17% by 2030 if the bill became law, cutting refinery output from 14.5m bbl/d at present to 12m bbl/d. As a result, average refinery utilisation would drop from 83% to 63.4% and imports of refined fuels into the US would almost double to 19.4%. At the same time, future investment in the sector would fall by 88%, to $90b.

However, this worst-case scenario assumes that there is no meaningful reduction of refinery CO₂ emissions through carbon-cutting technologies, no international offsetting mechanism and no significant rise in the future contribution of nuclear power. It also presumes that refiners in other countries are not subject to similar climate change restrictions.

The refining industry would be hit particularly hard by the bill because they are held responsible not only for greenhouse gas emissions generated at the refinery itself, which account for around 4% of the US total, but also for the emissions of the vehicles running on the fuel produced in the refinery, the houses burning heating oil etc. This brings the total share of emissions attributed to refineries to 44%. However, while industry is due to initially receive free permits for 85% of their emissions, only 2.25% of the US free permits are due to be allocated to refineries.

Refiners have already seen a drop in demand for petrol thanks to the economic downturn and the rising percentage of biofuel added to US fuels. The ongoing drive for more fuel-efficient cars will likely accelerate this development.