WHITE HOUSE:

'Big Oil' huddles with Obama's 'first friend,' and refining rules stall

At 9:30 a.m. on a warm day in March, eight men and two women stepped off Pennsylvania Avenue and into the northwest gate of the White House.

They were top-level refining executives from the world's largest oil companies, Chevron Corp., Marathon Petroleum Corp. and BP PLC, escorted by Jack Gerard, the brash president of the American Petroleum Institute, the oil industry's top lobby.

Ushered into the West Wing, they met Valerie Jarrett, a longtime confidante of President Obama and White House power player whose second-floor office was once occupied by George W. Bush consigliere Karl Rove.

In the weeks before the meeting, EPA was advancing toward the White House new restrictions on the amount of sulfur in gasoline. Oil refiners wanted the rules stopped, and they had an argument that could scare any president facing re-election -- the rules would increase gasoline prices.

Prices at the pump were rising toward $4 a gallon, a level that had inspired a Republican rebellion in Congress that threatened Obama's election in the summer of 2008.

Since that meeting with Jarrett, best known as Obama's "first friend," the sulfur rules have stalled in bureaucratic limbo while environmentalists have stewed.

The White House declined to comment or provide information on the specifics discussed at the meeting. Neither would API, but officials there confirmed that delaying development of the rules was a top priority.

The timing is suspicious to those who have spent years fighting to lower the sulfur content of the nearly 370 million gallons of gasoline burned every day.

"It is appalling to think that the president's chief confidante may have sacrificed public health in order to appease Big Oil," said Frank O'Donnell of Clean Air Watch. "This meeting could also explain why EPA was never permitted to move forward on these very critical standards. They may have been killed behind closed White House doors."

EPA would say only that it is still developing the Tier 3 standards. The oil company executives who attended did not return messages.

The meetings also offer clues about the careful détente that has emerged between the White House and the oil industry on select issues like Tier 3 and hydraulic fracturing.

"A meeting at that level is a great coup for an industry, though maybe not surprising for an industry as powerful as the oil industry," said Viveca Novak of the Center for Responsive Politics. "This is the sort of meeting where what is said can go directly to the president."

EPA had been widely expected to propose lowering the sulfur standard from 30 parts per million to 10 ppm, bringing the United States in line with many European countries, Japan and even California, which has already made the shift to tighter limits. The regulations have been a top priority for environmental groups, as lower sulfur leads to significantly less harmful air emissions of nitrogen oxides and carbon monoxide in tailpipe exhaust.

The oil industry has staunchly opposed the proposal, arguing that the standards would translate into higher gas prices at the pump and could even force some refineries to close.

Momentum builds, along with push-back

In the weeks before the March 7 meeting, momentum was building behind the Tier 3 standards.

Near the end of January, EPA indicated in its regulatory agenda that it would issue the proposal by March with hopes of finishing it in October. Shortly after that, though, EPA Administrator Lisa Jackson told a congressional committee that the target date for finalizing the rules could have slipped by four months or more.

Within the following month, The New York Times editorialized in favor of moving forward and EPA air chief Gina McCarthy fired back at industry with a letter to congressional Republicans rebutting warnings about price increases.

The new sulfur limits, McCarthy said, would add a penny a gallon to prices, not the 6 to 9 cents per gallon industry studies estimated. Several refineries, McCarthy wrote, were already reducing sulfur content in their fuel.

"As many as 17 refineries are already able to meet the 10 ppm sulfur standards we are considering, and some are currently producing and exporting to European countries gasoline that meets this standard," McCarthy wrote (E&ENews PM, Feb. 28).

On top of that, automakers also threw their support behind the proposal, creating an unprecedented level of agreement on an auto air rule at such an early stage, said Paul Billings of the American Lung Association.

"I can't recall any of the previous light-duty rules for tailpipes," Billings said, "where we've had this kind of buy-in up front."

On the other side of the issue, the oil industry was becoming increasingly vocal about its opposition to the measure. API issued multiple studies on the potential cost impact of the new sulfur standard and warned, in conference calls with reporters, that it would actually increase greenhouse gas emissions (Greenwire, Feb. 10).

Charles Drevna, president of American Fuel & Petrochemical Manufacturers, one of those who met with Jarrett on March 7, told E&ETV's OnPoint in an interview aired several days before the meeting that Tier 3 could shut down refineries.

"Most refiners are going to have to do significant upgrades for those hydrotreaters to take out that last little bit of sulfur. So, in essence, you may have some refineries not be able to do it. You may have some refineries that will shut down" (OnPoint, March 1).

Republicans on Capitol Hill have repeatedly sought to delay the Tier 3 rules, passing multiple pieces of legislation in the House that target the regulations. But none of those bills has moved in the Senate.

Asked about Gerard's meeting with Jarrett, API spokesman Reid Porter wouldn't provide details but forwarded a transcript of a Feb. 10 media briefing featuring Howard Feldman, API's director of regulatory and scientific affairs. Feldman laid out his organization's top concerns with the Obama administration's plans, including greenhouse gas rules for refineries, air standards for industrial boilers and new emissions standards for refineries. But Feldman started and ended with the industry's objection to the Tier 3 sulfur rules.

"We would again call on EPA to not issue a Tier 3 vehicle emission proposal before there is a full airing of the impacts, costs and benefits of further reductions of sulfur and vapor pressure in gasoline," Feldman said.

In response to questions, EPA issued a statement saying it is still developing the sulfur rules.

"The agency continues to engage a diverse group of stakeholders as it develops the proposal and assesses further cost-effective reductions of harmful tailpipe emissions," the statement said.

Obama's link to the world

It's difficult to clearly define Jarrett's role within Obama's inner circle.

Like the previous occupant of her office, Rove, Jarrett is known as a savvy operative whose title, "senior adviser and assistant to the president for intergovernmental relations and public liaison," significantly understates her influence.

Obama met her on his way up in Chicago politics, and her role has been described as the president's link to the world outside the White House bubble.

In early September, The New York Times quoted a former senior White House official who called her "the single most influential person in the Obama White House."

Around the time of her meeting with API and the supermajors, lobbyists for industry and environmental groups were both filling up the appointment calendars of administration officials.

Public health advocates met with Heather Zichal, Obama's top assistant for climate and energy issues, in early March, before the industry meeting with Jarrett, according to a participant in the meeting.

Green groups also had frequent calls with EPA from mid-February into early March. One participant, granted anonymity to speak candidly, said EPA assured them that the proposal was finished by the end of last year, and the agency's top political appointees were comfortable with the package.

But rising gas prices were also entering the presidential race around this time. On Feb. 5, former House Speaker Newt Gingrich, then still a contender for the Republican nomination, said the policy would raise gas prices by a quarter per gallon, citing a flawed API study. API later revised its projections, lowering its estimate to a 6- to 9-cent-per-gallon increase (E&ENews PM, March 22). The nonpartisan Politifact.com said Gingrich's claim was "false."

"I think that sort of charge, bogus as it was, really intimidated the White House," said O'Donnell of Clean Air Watch. "And it led to the slowdown."

Ahead of the health advocates' early March meeting, Gerard and six top executives from API had met with Zichal, who'd been a top aide to former Obama energy and environmental adviser Carol Browner before Browner departed the White House.

A little more than a month later, on April 13, Gerard would meet with Zichal again, this time joined by American Chemistry Council Vice President Michael Walls and Regina Hopper, president of America's Natural Gas Alliance.

On the same day, Obama issued an executive order creating a new "interagency working group" to promote the safe development of shale gas and coordinate policy on drilling, a move that API had requested. He tapped Zichal to chair the group.

In May, Zichal started talking publicly about the Obama administration's new and improved relationship with the oil and gas industry.

Invited to speak before reporters at an API luncheon, Zichal touted the administration's support for increased domestic production, challenging the Republican charge that the boom in drilling came despite administration policies to thwart it.

She borrowed some of the language of the oil and gas lobby, stressing the importance of oil and gas for job creation and energy security. And she joined the industry in its position that state oil and gas officials, rather than federal agencies such as EPA, should serve as the "lead regulators" of drilling.

"It's been incredibly helpful, to have their information to inform our thinking," she said.

Since then, the administration has also agreed to an industry request to slow progress on a proposal to require public disclosure of the chemicals used in hydraulic fracturing on public lands. It extended a deadline for drillers to comply with new air rules, which a spokesman cited from the press room lectern as an example of cooperation with industry.

The administration put together a task force set up to resolve drillers' concerns about a multiyear study of hydraulic fracturing by the United States and assembled a working group including EPA and the Office of Science and Technology Policy to resolve the gas industry's complaints about EPA figures on the amount of gas that drillers vent into the atmosphere.

After her May speech, Zichal sought to tamp down the idea that the administration had gotten too close with "Big Oil."

"It's probably safe to say the notion that we rolled out the welcome mat or had this hunky-dory relationship where we're all holding hands and singing Kumbaya is not exactly where we're at today." she said. "It's been very good, but it's not terribly smooth sailing, either."

But Gerard didn't hesitate to brag that his industry had brought the administration to heel.

"The administration's views are clearly moving," Gerard told reporters. "There has been a recognition that some of the proposals they have made need to be pushed back and need to be modified because many of them were counterproductive to energy production and job creation in the country."

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