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January 2011
President’s Message: TCEQ Sunset Review Clears First Major Hurdle
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TCC President & CEO
Hector L. Rivero |
The Texas Commission on Environmental Quality (TCEQ) has cleared its first major hurdle in the Sunset review process. A formal Sunset Advisory Commission hearing was held on December 15th at the state Capitol to review the Sunset Commission’s staff recommendations on TCEQ operations and procedures, question the agency about the report and take public testimony.
The outcome of the TCEQ Sunset review process and the Sunset bill to continue the agency can have a significant impact on chemical plant operations and the economic viability of industry investment in Texas. For this reason, our active involvement and advocacy in the Sunset process is critical to our industry.
Throughout the interim, TCC has worked closely with Sunset Commission members and staff as they conducted their review of TCEQ. TCC technical committees have been involved in our development of recommendations and comments to the Sunset Commission. TCC member companies have also allowed Sunset staff to visit their plants to get a better understanding of how TCEQ regulations impact businesses operations.
Overall, we feel the Sunset staff report to the Commissioners was fair and reasonable and identified some areas for improvement. These include needed changes to the compliance history process and the agency’s lack of resources to ensure surface water during drought conditions.
TCC submitted oral and written testimony at the Sunset Commission hearing for TCEQ. We recommended substantial changes to the compliance history program, stated our opposition to the practice of speciating penalties, and our opposition to increasing the statutory caps on penalties as well as Title V air emissions fees.
(To view of copy of TCC’s written testimony, click here.)
The Sunset Commission hearing on TCEQ hearing lasted seven hours, and Commissioners took testimony from over 140 registered witnesses
Next, the Sunset Advisory Commission will meet on January 12, 2011 to adopt its final Sunset recommendations on TCEQ and submit its report to the full Legislature. TCC will continue to work with the members of the Sunset Advisory Commission to advocate on behalf of TCC members in the development of the final report, and we will be working throughout the session to advocate on your behalf. Stay tuned!
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Court Grants Administrative Stay on EPA GHG Regulations
On December 30th, the D.C. Circuit Court of Appeals (Judges Douglas Ginsburg and Judith Rogers) ordered an administrative stay on the Environmental Protection Agency’s (EPA) implementation of the federal greenhouse gas regulations in Texas pending further order of the court. The request for the stay came from Texas Governor Rick Perry and Attorney General Greg Abbott on the grounds that EPA is violating procedure by taking over the state’s air permitting program for the purpose of implementing federal greenhouse gas regulations.
The state’s petition to the court argued that EPA's creation of the new rules is an "improper overreach" that violates the federal Clean Air Act, which it said "declares pollution prevention to be 'the primary responsibility of States and local governments,' and not the federal government."
General Abbott said the state was determined to fight the EPA's intentions, saying that Congress had rejected such carbon rules but the EPA was now trying to legislate them itself through administrative rules. "Texas law does not currently deem greenhouse gases to be pollutants," Abbott said. "Once again, the federal government is overreaching, and improperly intruding upon the state of Texas and its legal rights."
The court directed EPA to file its response by January 6, and for Texas to file any reply briefs on January 7.
TCC will continue to follow this issue closely and keep our members apprised of any developments.
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Many in Congress Concerned over EPA Regulatory Grab
Two days before Christmas, the U.S. Environmental Protection Agency (EPA) handed the state of Texas the regulatory equivalent of a lump of coal for its stocking. The agency announced that effective January 2, 2011, it would follow through on the threat to take over issuance of air permits to industries in Texas.
This is a first for EPA and was prompted by the refusal of Texas to include greenhouse gas emissions in its air permit decisions. The EPA’s action, however, is sure to raise the heat to long-simmering efforts by Congressional Republicans to halt the agency’s climate change regulations in its tracks.
State Permits
For many years states such as Texas have been implementing aspects of the federal Clean Air Act, including issuing permits under the Prevention of Significant Deterioration (PSD) program, which regulates air emissions from new major industrial sources or major modifications to industrial facilities.
Until now, greenhouse gases have not been part of the PSD permit considerations. However, the U.S. Supreme Court in Massachusetts v. EPA told the EPA to make a decision whether greenhouse gases are “pollutants” under the Clean Air Act. EPA made such a determination in December 2009 with its endangerment finding. EPA’s next step was to include greenhouse gases as part of their permit programs.
Texas Response
EPA notified state and local air permitting agencies that they would need to be in a position to issue PSD permits for greenhouse gases or a federal plan would be implemented in Texas to avoid delay in issuing permits to new or expanding facilities. In response, Texas communicated to EPA last August its refusal to implement the federal plan based on the state’s legal analysis. To view the letter, click here: PDF.
Although seven other states (Arizona, Arkansas, Florida, Idaho, Kansas, Oregon and Wyoming) also are not in compliance with including greenhouse gases in PSD permits, those states have indicated that they are in the process of revising their programs. Only Texas has been adamant in its refusal and is part of lawsuits against EPA to block implementation of the agency’s rules.
On December 30th, a federal appeals court temporarily blocked the EPA’s plan to seize control of greenhouse gas permits from Texas.
The EPA must wait until at least Friday (January 7th) so the U.S. Circuit Court of Appeals for the District of Columbia can make a decision on Texas’ bid to prevent the federal takeover.
In its petition, the state accuses the EPA of abusing its powers by taking control of the permitting program without proper notice. The agency, in response, criticized Texas officials for filing suit instead of working with it to protect public health.
Congressional Concern
The big question, however, remains whether Congress will put a stop to all this. Newly installed Republican committee chairs in the House, such as Rep. Fred Upton (R-MI), head of the House Energy and Commerce Committee, threaten to do just that.
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Rep. Fred Upton
(R-MI) |
In a Wall Street Journal article on December 28th, Rep. Upton characterized the EPA regulations as “an unconstitutional power grab that will kill millions of jobs -- unless Congress steps in.”
Rep. Upton wrote: “The best solution is for Congress to overturn the EPA’s proposed greenhouse gas regulations outright. If Democrats refuse to join Republicans in doing so, then they should at least join a sensible bipartisan compromise to mandate that the EPA delay its regulations until the courts complete their examination of the agency’s endangerment finding and proposed rules.”
Upton – who co-authored the op-ed with Americans for Prosperity President Tim Phillips – said other tactics could include a two-year moratorium on EPA regulations, defunding EPA entirely or blocking funds for EPA’s climate change programs.
U.S. Sen. Kay Bailey Hutchison (R-Texas) is calling on the EPA to delay plans to implement new greenhouse-gas standards on oil refineries, arguing the regulations would amount to “a new gas tax.”
The new greenhouse-gas standards “will hurt every American driver, trucker, farmer and flier with higher gasoline, diesel and jet fuel prices,” Hutchison said in a letter sent to EPA Administrator Lisa Jackson. “Higher prices passed on to consumers will feel like a new gas tax.”
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EPA Issues Finding of Inadequacy and SIP Call for Texas Greenhouse Gas Permitting
On December 13th, the U.S. Environmental Protection Agency (EPA) issued a finding that the state implementation plans (SIPs) of Texas and 12 other states are substantially inadequate to meet federal Clean Air Act (CAA) requirements because they do not apply Prevention of Significant Deterioration (PSD) requirements to greenhouse gas (GHG)-emitting sources.
In addition, EPA issued a “SIP call” for each of these states, which requires each state to revise its SIP as necessary to correct the inadequacies. EPA stated in the notice that the SIP call is important because without it, large GHG-emitting sources in these 13 states may be unable to obtain a PSD permit for their GHG emissions and therefore may face delays in undertaking construction or modification projects.
EPA gave each of the 13 states a deadline to submit its corrective action SIP to assure that their PSD programs will apply to GHG-emitting sources. For those states that do not meet the deadline, EPA intends to immediately issue to the state a finding of failure and also immediately intends to promulgate a federal implementation plan (FIP) for that state. It is EPA’s view that the SIP call and the FIP will assure that in each of the 13 states – with the exception of Texas – either the state or EPA will have the authority to issue PSD permits by January 2, 2011, or soon thereafter.
The Texas deadline to submit the SIP revision is December 1, 2011, the default deadline. Texas sent a letter to EPA on August 3 relaying that the state has neither the legal authority, nor the intent, to implement the federal GHG rules and specifically the Tailoring Rule.
In the final rule, EPA states that the agency is planning additional actions to ensure that GHG sources in Texas can be issued permits as of January 2, 2011. At this time, TCC is unclear as to what those additional actions might be.
The 13 states impacted by the EPA’s final rule are Alaska, Arizona, Arkansas, California, Connecticut, Florida, Idaho, Kansas, Kentucky, Nebraska, Nevada, Oregon and Texas. TCC will continue to work with TCEQ and EPA on the resolution of these important permitting issues in Texas.
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TCEQ Initiates Rulemaking to Increase the Title V Air Emissions Fee
On December 10th, TCEQ hosted a Title V Stakeholders meeting on the agency’s proposed rulemaking to increase in the Title V Air Emissions fee. TCEQ is facing a deficit in revenue coming into the Title V Operating Account, thus subjecting the state to possibly losing federal approval of the Title V program if fee revenue is not increased. 
TCEQ’s presentation on the rulemaking to adjust the fee can be found at this link.
Currently, the annual emissions fee is $25 per ton of all regulated air emissions subject to Title V and is capped at 4,000 tons. The fee is adjusted annually based on the consumer price index (CPI) and on the previous year’s carbon monoxide (CO) emissions (as a percentage of overall emissions).
For fiscal year 2011, TCEQ anticipates a deficit of approximately $9 million to administer the program, and is proposing to change the base rate from $25 to $35 per ton (which would raise about $9.2 million). TCEQ also wants to amend the current rules to allow for annual adjustments of the fee to ensure adequate revenue for the operating account, up to a predetermined cap.
At the meeting, TCEQ stated that decreasing revenue could be explained by cleaner air, fewer Title V companies, consolidations, mergers, etc. The increase in obligations is explained by more enforcement activity, the revised NAAQS, and increase in salaries. TCEQ staff did clarify in this proposal that their goal is to have the flexibility to raise enough money to cover the costs of the program and nothing more. They also stated that this rulemaking would eliminate the need for any statute changes (as suggested by the sunset staff).
Moving forward, TCEQ reported that the proposal is being fast-tracked to the February 23, 2011 agenda. Stakeholders will have an opportunity to formally comment on the rule from March 11 – April 10, 2011. The goal is to make the rulemaking effective on August 18, 2011.
TCC will continue to work closely with TCEQ on this proposal going forward to ensure that TCEQ properly manages the funds and that the agency is raising the fee only enough to cover the agency’s operating expenses.
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EPA to Delay Final Ozone Rule Until July 2011
On December 8, 2010, EPA announced that it plans to delay finalizing a new 8-hour ozone standard. The new deadline to finalize the rule is July 2011.
EPA spokesman Brendan Gilfillan said the agency is seeking more input from its Clean Air Science Advisory Committee (CASAC), the body that had recommended a range of standards more aggressive than the Bush-era smog standards.
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EPA Administrator
Lisa Jackson |
“[EPA] Administrator [Lisa] Jackson proposed that EPA select a standard in the range that CASAC indicated would be protective of Americans’ health. As part of EPA’s extensive review of the science, Administrator Jackson will ask CASAC for further interpretation of the epidemiological and clinical studies they used to m ake their recommendation,” he said in a statement.
EPA first proposed the tougher rules in draft form last January. The agency is rejecting the Bush administration’s 2008 standard of 0.075 parts per million (ppm), and is instead proposing a standard in the range of 0.060-0.070 ppm.
TCC has been actively opposed to EPA’s proposals to lower the federal 8-hour ozone standard and will continue to monitor EPA’s development of the lower standard.
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Environmental Groups Send EPA Notice To Sue On Texas Air Permits
Six environmental groups sent the U.S. Environmental Protection Agency (EPA) a notice of intent to sue if the federal agency does not resolve Texas air-permitting issues that it has objected to in a timely matter.
Advocacy groups including the Environmental Integrity Project, the Sierra Club, Public Citizen, Environment Texas, Air Alliance Houston, and Texas Campaign for the Environment sent a letter to EPA Administrator Lisa Jackson for “failing to issue or deny” permits for 43 facilities after raising objections to them. The groups said they intend to file a suit in 60 days after the EPA receives the notice to compel the agency into action.
Since the Obama Administration took office, the EPA has been vocal in its concern that various types of air permits issued by the Texas Commission on Environmental Quality (TCEQ) violate the federal Clean Air Act. At the heart of the problem is EPA’s allegation that permits issued to oil refineries, chemical plants and other facilities in Texas do not properly regulate or provide adequate information about emission sources.
Under federal law, Texas had 90 days to submit revised permits after the federal agency issued its objections, but it failed to do so, and the “EPA has a duty” to take over that task, the letter said.
The EPA “may be talking to these companies for all we know, we just don’t know what’s going on behind closed doors,” said Ilan Levin, senior attorney of the Environmental Integrity Project, in an interview with the Wall Street Journal. “That is what this law suit is about: to get transparency.”
Out of the 43 permits listed in letter issued by the environmental groups, 17 of them are for facilities with flexible air permits. Roughly three dozen are for facilities where the 90-day window has closed following then EPA's objection and another six months have passed, Levin noted.
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Chemical Makers Upbeat on 2011; Wary of Obama Administration
Stronger consumer appetites for clothes, cars and electronics should fuel higher profits among U.S. chemical makers in 2011, even as executives worry that regulations may hamper long-term growth.
A jump in profits for companies would be a stark change from the recession of two years ago, when the industry saw demand erode and laid off thousands of workers. Executives now express guarded confidence that 2011 will mark a transition from recovery to strength.
The U.S. chemical industry makes the building blocks for thousands of common products, ranging from Amazon.com’s Kindle, to Procter & Gamble’s shampoos and plastic toys sold at Wal-Mart. A return to pre-recession chemical profits would be a sign the American economy is back.
One positive indicator is that economists expect the U.S. gross domestic product to increase 2.7 percent in 2011 on an annualized basis.
Dow Chemical, the largest U.S. chemical maker by revenue, should see 2011 earnings increase 31 percent compared with expected 2010 levels. That’s according to StarMine SmartEstimates, which puts more weight on recent forecasts by top-rated analysts.
Below is a graphic on 2011 chemical profit forecasts, which can also be found here. 
DuPont, with products that include Teflon non-stick coatings and Tyvek non-woven covering, should see earnings grow 13.7 percent next year, according to the StarMine data.
“We’re seeing slow, sequential improvement,” DuPont Chief Executive Ellen Kullman told Reuters in a recent interview. “We’re not seeing a double-dip” recession.
Smaller rival Solutia is expected to see earnings grow 41.2 percent next year, with a 15.7 percent jump forecast at Celanese and 4.3 percent jump at Eastman Chemical, all across same time period.
Wall Street already bakes in these expectations. Most chemical stocks are at or near pre-recession levels, and the benchmark Dow Jones U.S. Chemicals index is at an all-time high.
 “2010 was a year of recovery, largely driven by expanding trade,” said Kevin Swift, chief economist with the American Chemistry Council. “But there's increasing talk about a supercycle in terms of profitability.”
Part of that cash may go toward acquisitions, with about 54 percent of large chemical makers expecting to be involved in deals within 12 months, according to business advisory firm AlixPartners.
Exports, especially of polymers, will continue to be the industry’s strength in 2011. Capital expenditures should increase 6 percent across the U.S. chemical industry, Swift said.
Demand for thermoplastics, a type of polymer that is easily shaped, is expected to remain robust. About 95 percent of U.S. plants that make the popular thermoplastic polyvinyl chloride, or PVC, are operating at full capacity, a rate not expected to slow next year.
LyondellBasell, which makes key thermoplastics such as polyethylene, is betting demand for low-margin, high-volume commodity chemicals will fuel a supercycle for the chemical industry during the next few years.
U.S.-based chemical makers will continue to have an advantage in 2011 due in part to cheap North American natural gas. Most European chemical makers use naphtha, which is derived from expensive crude oil, to make their products.
With the U.S. literally sitting on a natural gas stockpile in the Marcellus Shale, Barnett Shale and other new fields, production of ethane, a building block for thousands of chemicals, should substantially increase.
Natural gas currently trades at about $4 per mmBtu, compared with roughly $90 per barrel for light, sweet crude. That price spread is one of the largest in recent memory, and lets U.S. chemical makers export products at attractive rates.
“Through the course of 2010, we started to see better and better volume numbers coming out of the U.S.,” said Alembic Global Advisors analyst Hassan Ahmed. “Things like auto sales numbers keep going up. The resiliency of the consumer seems to be returning.”
Politics & Policy
There is frustration within the chemical industry about pending rule changes by some U.S. regulatory agencies, despite gains by Republicans in November’s U.S. elections that should help temper some of those concerns.
Chemical executives are worried the U.S. Environmental Protection Agency will make rules that would hamper innovation, including rules about toxic chemical storage.
The industry is particularly concerned about the EPA’s pending Boiler MACT rule, which would regulate industrial boilers. The American Chemistry Council says the EPA is using “faulty data” and wants to impose “far more stringent” standards than are necessary.
“Is the Obama administration going to continue a very aggressive and overreaching regulatory approach that does not give proper consideration to maintaining international competitiveness of the manufacturers in the United States?” said Cal Dooley, president of the American Chemistry Council.
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Dow and Mitsui Complete Formation of Joint Venture
The Dow Chemical Company has announced that Dow and Mitsui & Co., Ltd., of Tokyo, Japan (“Mitsui”) have completed the formation of a previously announced 50:50 manufacturing joint venture to construct, own and operate a new membrane chlor-alkali facility located at Dow’s Freeport, Texas, integrated manufacturing complex. The companies also announced their appointments to the joint venture management team.
Named Dow-Mitsui Chlor-Alkali LLC, this joint venture combines the strengths of two global companies to build a world-scale chlor-alkali plant on the U.S. Gulf Coast that will drive integration advantage for downstream businesses and customers. Dow will operate and maintain the new facility under contract to the joint venture.
“Completing the formation of Dow-Mitsui Chlor-Alkali LLC marks another key milestone in Dow’s strategic transformation and underscores our commitment to the company’s long-term earnings profile,” said Carol Williams, president, Dow Chemicals & Energy Division. “By enabling our world-class Basic Chemicals franchise to supply downstream performance businesses at lower cost and with less capital, this partnership bolsters our integration strength while liberating capital for investment in businesses that are technology- and customer-driven with higher, more consistent earnings.”
Dow’s share of the chlorine produced by Dow-Mitsui Chlor-Alkali LLC will serve the growing feedstock needs of the company’s performance and market-driven businesses with cost-advantaged chlorine supply. Dow will market the caustic soda on behalf of the joint venture.
Mitsui’s share of the chlorine produced by the joint venture will be converted to ethylene dichloride (EDC) by Dow for Mitsui’s use. Mitsui will market the EDC world-wide.
The new chlor-alkali facility is expected to begin operations in mid-2013, and will have a capacity of approximately 800 kilotons per year. The new plant will create approximately 50 long-term jobs at the Freeport, Texas, location, as well as approximately 500 construction jobs. The joint venture company headquarters will be located in Houston, Texas.
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Upcoming TCC & ACIT Meetings & Events
February 2nd – Golden Triangle TCC/ACIT Reverse Trade Show at Port Arthur Civic Center.
February 16th - Mid Coast Joint ACIT/ABC Luncheon at River Place in Freeport. Details to follow.
February 24th – Mid Coast Reverse Trade Show at the Lake Jackson Civic Center.
March 3rd – Houston Ship Channel Political Breakfast. Details to follow.
March 8th – Chemicals Day Legislative Dinner at Sullivan’s Restaurant in Austin, sponsored by The Mundy Companies.
March 9th – TCC/ACIT Chemicals Day at the Texas State Capitol.
March 16th – South Texas Political Forum Luncheon. Details to follow.
April 6th – Mid Coast Economic Outlook Breakfast. Details to follow.
April 21st – Houston Ship Channel Clay Shoot. Details to follow.
June 6 -9, 2011 – TCC/ACIT EHS Seminar at Moody Gardens in Galveston.
All 2011 TCC and ACIT events are now listed on the website. Click here for more details.
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Upcoming Member Events
For a listing of TCC & ACIT Member promotions and events, please click here.
(These events are not organized or endorsed by TCC or ACIT.) |
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