It Pays to Pollute

As you drive into Baytown from the west on State Highway 330, the ExxonMobil refining and chemical complex sprawls before you on 2,400 acres abutting the Houston Ship Channel. Its stacks and flame-topped towers billow smoke and steam-—an industrial fortress guarding the approach to town. The Baytown refinery is the largest in the nation. It handles 557,000 barrels of crude oil each day, and is the most prolific producer of oil-based lubricants in the world. The complex houses two adjoining chemical plants that produce more than 13 billion pounds a year of various petrochemical products, the prime material for such necessities as rubber, plastic, detergents, and all manner of auto parts.

To accomplish all this, the complex emits a slew of toxins into the air each year, according to state emissions data. Among the poisons released in 2001 (the last year for which data is available) were 6 million pounds of carbon dioxide, 38,000 pounds of the carcinogen benzene, and 17 million pounds of nitrogen oxide, which causes ozone pollution and acid rain.

Thanks to the Bush administration’s environmental policies, the Baytown complex may soon spew more pollutants into Houston’s air—threatening the health of the fourth-largest city in the nation. The White House has carved a gaping loophole into a key provision of the federal Clean Air Act that will ease pollution limits on thousands of refineries and power plants. The new rules will save the energy sector billions of dollars in environmental fines. ExxonMobil’s Baytown facility offers a prime example of just how beneficial the Bush administration’s environmental stewardship has been to industry.

In October 1988, Exxon (it merged with Mobil in 1998) upgraded the segment of its refinery that produces lube oil with a more efficient oxygen-enrichment process. Exactly a year later, Exxon added to this section of the refinery again, installing two oxygen blowers. These improvements made the refinery more profitable and productive. Problem is, the refinery also became dirtier. The upgrades boosted the refinery’s emissions and ran Exxon afoul of a section of the Clean Air Act known as new source review.

New source review’s dry, bureaucratic name belies the common-sense public policy behind it. When Congress passed the federal Clean Air Act in 1970, lawmakers exempted older power plants and refineries from the stricter pollution limits, hoping to ease the new law’s economic drag on industry. They assumed that the energy industry would soon have to replace these older facilities with new plants. Instead, energy producers skirted the Clean Air Act requirements by continually updating their “grandfathered” plants. To combat this, Congress in 1977 fashioned the new source review stipulations that simply state that if plant owners perform “significant” upgrades to their facilities that result in more air emissions, they must install the latest pollution controls. The energy industry howled about what it deemed the inherent unfairness of new source review. Eventually, power plants and some refineries took to ignoring the new source review mandates; they simply upgraded their plants and increased their emissions without bothering to tell the government about the expansions.

That’s what Exxon did in Baytown. When the company expanded its refinery in 1988 and 1989, it didn’t apply for a new source review permit from the Environmental Protection Agency (EPA). For a while that seemed the right decision. No one from the state environmental agency or the EPA questioned Exxon about the upgrade for nearly a decade.

In 1996, the Clinton EPA opened an investigation into new source review compliance, and found there wasn’t much. Hundreds of plants and refineries across the country had apparently expanded and increased their output without building in corresponding pollution controls. The EPA enforcement division compiled evidence and painstakingly built cases against dozens of facilities it believed to be in violation of clean air laws. During the next three years, the crackdown produced results. On November 3, 1999, the Justice Department filed suit against 51 facilities in 10 states for new source review infractions. Some companies settled out of court; others the Justice Department prosecuted and fined.

Eventually, ExxonMobil’s turn came. On March 14, 2000, according to government records, the EPA requested documents about Exxon’s expansions at its Baytown refinery. On January 19, 2001, EPA sent ExxonMobil a notice of violation—the first step in an environmental prosecution—for violating new source review requirements at the Baytown refinery. Specifically, the EPA charged that Exxon’s upgrades 13 years before had “significantly” increased the refinery’s nitrogen oxide emissions in Baytown. Nitrogen oxide helps form ground-level ozone, the very pollutant that has long caused Houston to have some of the dirtiest air in the nation. The effects on public health can be devastating, especially for children and the elderly. Even at low levels, according to the EPA, ground-level ozone scars lungs much like sunburn inflames the skin, triggers asthma, and increases the chances of pneumonia and bronchitis. Repeated exposure causes permanent lung damage.

In Baytown, the problem could be even more acute. Unfortunately, it’s hard to know what impact emissions from the Exxon refinery have had on the community. Long-time refinery activists in the Houston area, and officials from the University of Texas Health Science Center in San Antonio as well as Houston’s MD Anderson Cancer Center all say they know of no large public health study ever conducted in Baytown.

ExxonMobil faces little to no organized opposition in the city. Anyone who has launched public campaigns against the refinery has had their land bought out, and they have since left Baytown, says long-time Houston environmental activist LaNelle Anderson. In fact, ExxonMobil has purchased most of the neighborhood closest to the refinery fence line. Where the houses once stood are now empty streets and grass lots owned by ExxonMobil. A half-dozen holdouts remain, clinging to their land and homes, and refusing to sell. Several of these residents, when interviewed by a visiting reporter, complained about their industrial neighbor, but wouldn’t criticize ExxonMobil on the record.

An ExxonMobil spokesperson in Baytown defended the company’s environmental record. “We strive to operate in an environmentally sound manner and strongly believe that we are operating within the requirements of our environmental permits and the Clean Air Act,” said company spokesperson Tricia Thompson in response to written questions from the Observer.

Founded in 1919, the Baytown refinery was originally operated by Humble Oil Co., which Exxon later swallowed. The Humble executives built themselves two-story ornate mansions across the street from the refinery that overlooks Upper San Jacinto Bay. Some Exxon Baytown executives still live in these houses that stick out amid the poor, mostly minority neighborhoods that surround the refinery.

The company is not only the town’s main employer but also the biggest taxpayer. Just how much power the company exercises in Baytown was evident in 1995. That was the year black sludge began oozing from the playground at G.W. Carver Elementary School. Exxon had donated the land to the school district in 1940. It turned out the school had been built on a festering well of Exxon toxins. The children were moved to another campus, and Exxon committed to clean up the site. But the company couldn’t promise that other contaminants wouldn’t eventually leak to the surface.

The school district appealed for help to the state’s environmental agency, which promptly told school officials to work out an agreement with Exxon. Baytown ISD threatened to sue, but the Baytown Chamber of Commerce persuaded school officials not to drag the district’s biggest property taxpayer into court. Eventually, the school district abandoned the land to Exxon and never received compensation. Says Anderson, the Houston activist, “It’s a company-owned town in the most literal sense.”

It’s likely that few residents of Baytown even knew that for 13 years Exxon had flouted clean air laws and polluted Baytown and the Houston region more than the law allowed. But in 2001, the federal government finally seemed poised to enforce the law and punish ExxonMobil for its actions. Under the Clean Air Act, the government can fine a polluter $25,000 each day it’s out of compliance. Exxon had allegedly broken the law for 13 years. Its punishment could cost the company as much as $100 million.

On January 20, 2001, however—the day after it received the notice of violation from the EPA—ExxonMobil’s fortunes changed, with George W. Bush’s inauguration. The energy industry had donated lavishly to Bush’s campaign. And ExxonMobil did its part. Though it contributed only $5,285 directly to the Bush-Cheney campaign, ExxonMobil gave $1.2 million to Republican candidates in the 2000 election cycle, according to federal campaign finance records. That ranked ExxonMobil as the Republican Party’s second biggest benefactor among energy companies (Enron was No. 1).

Electricity providers and power plant owners began lobbying the new administration to loosen new source review regulations almost immediately, according to various news accounts. In April 2001, ExxonMobil executive Don Daigle testified to a Senate energy committee that the EPA’s new source review crackdown was misguided, and that it would stifle efforts to ramp up oil production. As the Houston Chronicle reported at the time, Daigle neglected to mention that his company faced stiff fines under the very crackdown that prompted his objections.

Thompson, the ExxonMobil spokesperson in Baytown, labeled EPA’s crackdown a “retroactive reinterpretation of regulations” under new source review that created “regulatory uncertainty.” She said that Exxon’s expansions in 1988 and 1989 had not violated clean air laws as interpreted at the time.

Energy executives also argued before Congress that the government had never defined what exactly constitutes a “significant” upgrade to trigger the new source review rules, and that the EPA arbitrarily applied it. In fact, agency documents show, the EPA long ago defined the exact amounts of emissions increases that would subject a plant to new source review.

Nevertheless, when the National Energy Task Force, headed by Vice President Dick Cheney, convened in May 2001, possible reform of new source review was on the agenda. Numerous executives from the energy industry met with Cheney and the task force about weakening new source review and ending the EPA crackdown, according to task force documents obtained by public interest groups Public Citizen and Judicial Watch through their ongoing open records lawsuit. ExxonMobil chief executive Lee Raymond talked with White House adviser Karl Rove in early 2001, according to documents obtained by the National Resource Defense Council. It’s not clear what Raymond was after; ExxonMobil had several items on its lobbying wish list at the time. But when the Cheney energy task force issued its report in June 2001, it ordered the EPA to study and overhaul new source review.

The argument that new source review should be curtailed is a difficult sell. The EPA’s own documents illustrate how successful the program has been. In a 2001 study, the agency estimated that new source review prevents 822,000 tons of nitrogen oxide nationwide from entering the air each year. Halting that pollution, the EPA calculates, saves roughly $1,300 per ton in health expenses for Americans (that’s more than a $1 billion annually from nitrogen oxide alone). It’s tough to argue with that kind of improved public health.

Undeterred, however, Bush political appointees at the EPA reviewed the agency’s studies and reached a predictable conclusion: New source review needed reform. They concluded that new source review had been too taxing on industry and prevented innovation and modernization. A report by the General Accounting Office, the investigatory arm of Congress, concluded last fall that the EPA had no evidence that new source review inhibited plant modernization. Instead, the GAO found, the EPA had relied on “anecdotal evidence from industry” in concluding that new source review was too burdensome.

The man tasked with rewriting the new source review rules was Jeffrey Holmstead, the EPA’s assistant administrator for air and radiation. In recent months, Holmstead has become a poster boy for the Bush administration’s corruption of government regulatory agencies. Before joining the EPA, Holmstead worked for Latham & Watkins, a law firm representing two industry trade associations that have long fought new source review, according to a report by Public Citizen. Conveniently, he was charged with rewriting the very rules he had once worked to undo.

What Holmstead came up with is a loophole so large, it essentially renders new source review meaningless. His new rule allows plant owners to upgrade as much as 20 percent of their facility before a new source review permit would be required. Environmentalists have been referring to this as the “idiot” rule, since executives would have to be idiots to expand their plant and trigger such a gutted new source review standard. Such a high limit allows plants to upgrade their operations—and emit more pollutants—almost with impunity. EPA finalized the revised regulations last August. “We wish we had better data, but we’re confident this rule will not have an emissions impact,” Holmstead told reporters at the time.

Environmentalists and some members of Congress, however, feared the new lenient standards would not only permit hundreds of thousands of pounds more pollution into the air each year, but would undermine the EPA’s enforcement on past new source review violations. In ExxonMobil’s case, had the rewritten regulations been in place in 1988, the Baytown refinery upgrade wouldn’t have needed a new source review permit. Exxon could argue in court that, judging by the new standards, it hadn’t broken the law at all. Career EPA enforcement officials seem to agree. They have said in numerous news accounts that the new rule’s definition of “significant” upgrades as 20 percent or more of the plant’s value likely undercuts the legal foundation for most prosecutions.

Bush political appointees at the EPA dismissed these concerns at the time. Testifying before two Senate committees, Holmstead assured lawmakers that prosecutions already underway would continue.

But last fall, the EPA and the Justice Department reversed that stance. The agencies announced that at least 50 new source review prosecutions would, in fact, be dropped in light of the new regulations, including the ExxonMobil Baytown case. (The man charged with overseeing the cases, Assistant Attorney General for Environmental and Natural Resources Thomas Sansonetti, is a former lobbyist for three of the nation’s largest coal producers.)

In October, attorneys general from 12 states, led by New York’s Eliot Spitzer, sued the EPA in federal court to prevent the decapitation of new source review. The states won a temporary injunction that prevented the Bush administration from implementing the new rule. The case currently sits before the U.S. Circuit Court of Appeals in Washington, D.C. A Justice Department spokesperson said the Exxon prosecution lies in
imbo awaiting resolution of the federal case. He refus
d to comment further.

If the EPA wins the federal lawsuit, and the gutted version of new source review goes into effect, ExxonMobil will likely save tens of millions of dollars. And the Baytown refinery will be free to further pollute Baytown’s air.