Koch-Owned Plant Finds Legal Ways to Pollute

A clean energy company that once operated at Port Arthur's Oxbow plant claims it manipulated SO2 emissions to avoid spending on pollution controls.

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This piece is being published in collaboration with Public Health Watch and the Investigative Reporting Workshop.

Billionaire industrialist William Koch had a problem in 2010.

The U.S. Environmental Protection Agency was tightening regulations for sulfur dioxide, or SO2, a noxious gas that damages the lungs and contributes to acid rain. And one of Koch’s plants — a 1930s-era facility in Port Arthur, Texas — was releasing enormous amounts of SO2 into a low-income community.

Koch’s Oxbow plant was responsible for more than 80% of all the industrial SO2 in Jefferson County, a hub of the state’s petrochemical industry known for its dirty air. Other companies had installed commonly used devices called scrubbers that can remove 95% of the pungent gas. But a loophole in the 1970 Clean Air Act allowed older plants like Oxbow to avoid that multimillion-dollar expense.

Koch needed to satisfy the EPA without spending money on scrubbers. So he found a solution that complied with the new rule while still allowing his plant to continue releasing as much SO2 as it did a half-century ago.

Koch’s solution triggered a chain of events that is still unfolding:

  • A clean energy company that operated at the Oxbow plant for years and had been praised by the EPA — Port Arthur Steam Energy, or PASE — was forced to close.
  • PASE went to court, alleging Oxbow shut it down to avoid buying scrubbers and illegally manipulated the plant’s emissions to comply with the SO2 standard. 
  • Although PASE lost, community groups used information from that yearslong legal battle in a civil-rights complaint they filed with the EPA in August. They accused the Texas Commission on Environmental Quality, or TCEQ, of failing to protect the mostly Black west side of Port Arthur by allowing Oxbow to spew SO2 without scrubbers. 

Scrubbers would reduce Oxbow’s average annual SO2 emissions from 21.6 million pounds to 1.1 million pounds.

“They got the problem to go away without having to fix the issue that they’re releasing a ton of pollution,” said Colin Cox, an attorney with the Environmental Integrity Project, one of the groups leading the effort against Oxbow.

SO2 , which the National Institutes of Health calls “very toxic,” can make breathing difficult. Long-term exposure weakens the lungs and makes them more susceptible to infections. Asthmatics, children and older adults are at particular risk. They face increased hospitalizations and emergency room visits.

An Oxbow spokesperson told Public Health Watch and the Investigative Reporting Workshop that the company is “compliant with all environmental laws and permits.”

‘Little Green Energy Plant’ Is Honored by the EPA

Oxbow turns the bottom-of-the-barrel waste from oil refineries, known as petroleum coke, or petcoke, into calcined coke, a key ingredient for aluminum. It’s an environmentally grungy process that requires heat as high as 2,460 degrees. That heat, along with the SO2, is released into the air through four tall smokestacks.

The plant’s shadow falls on homes on Port Arthur’s west side, a neighborhood dotted with crumbling roads and boarded-up buildings. Foul smells and hazy plumes are common. Ninety-eight percent of the residents within 3 miles of Oxbow are people of color and 62% make $53,000 or less a year for a family of four. They report a 13.4% asthma rate, according to the Centers for Disease Control and Prevention. The national average is 8%.

PASE, the clean energy startup, began operating at the calcining plant in 2005, when the facility was owned by Great Lakes Carbon. Ray Deyoe, a Houston-based chemical engineer, started the company with Ted Boriack. The idea was to capture heat from a plant’s industrial smokestacks and convert it to environmentally friendly steam energy that could be sold to another plant for fuel. 

It would be an economic and environmental symbiosis — everyone would win. 

Ray Deyoe, co-founder of PASE, in Port Arthur. Deyoe’s “little green energy plant” shut down in 2018, leading to a legal dispute with William Koch’s Oxbow plant, a major source of sulfur dioxide pollution in the region. (Julie Dermansky for Public Health Watch and the Investigative Reporting Workshop)

The company that owned the smokestacks would make money by selling its heat to PASE. The company that bought the steam would save money because it wouldn’t have to make its own power by burning coal or natural gas. The environment would get a boost, because the steam heat would replace fossil fuels that release carbon dioxide — the biggest driver of climate change. 

The people who lived near the plant would also benefit.

PASE’s equipment wouldn’t reduce the amount of SO2 the plant emitted, but it would eliminate some of the tiny particles the plant released through its stacks, allowing residents to breathe cleaner air. EPA scientists had been urging the agency to tighten its standard for such particles, which can lodge deep in the lungs and enter the bloodstream, leading to respiratory problems and premature death from heart disease.

Under its contract with PASE, the calcining plant rerouted emissions from three of its kilns into PASE’s boilers, where the heat was turned into steam. The SO2 and the remaining heat were released into the air through three smokestacks. They were called “cold stacks” because the process reduced the heat to a “cool” 400 degrees. The plant’s single remaining “hot stack” continued to emit gases at 2,000 degrees.

It took roughly $40 million, 400 workers and more than a year of construction to set up the operation. But the “little green energy plant,” as Deyoe likes to call it, fulfilled its promise.

Five years into production, the EPA even gave PASE an award for pollution reduction and energy efficiency, noting that it removed more than 159,000 tons of planet-warming carbon dioxide each year. That’s the equivalent of the CO2 emissions from 27,000 cars, or about one-eighth of the cars in Jefferson County. 

“It was stellar,” Deyoe recalled of PASE’s early days. “The project came in on time and under budget.”

Koch Refuses to Install Scrubbers

But by 2007 PASE’s perfect picture was beginning to fade. 

That was the year William Koch bought Great Lakes Carbon and made its Texas calcining plant a pillar of his growing petcoke empire. Today Florida-based Oxbow Carbon operates in at least  13 countries and produces as much as 2.34 million tons of calcined coke a year. Its estimated annual revenue is $2 billion

That same year the EPA began tightening its SO2 standards, based on new science showing that the pollutant damaged people’s health at even lower levels than previously thought. The goal was to protect asthmatics from severe attacks, which can happen with as little as five minutes of exposure to high concentrations of SO2.

When the new rule was released in 2010, it required plants that produced more than 4 million pounds of SO2 a year to meet hourly emission standards, rather than the daily and annual limits set by the Clean Air Act. Oxbow is by far Jefferson County’s biggest SO2 polluter — so if Oxbow didn’t meet the new standard, the county would be out of compliance, too. 

The easiest solution would have been for Oxbow to install scrubbers. But the company made it clear it  wasn’t willing to spend $56 million to buy them and $10 million a year to maintain them.

Scrubbers would have “no payback potential except environmental compliance,” Oxbow’s executive vice president, Roy Schorsch, once testified in court. They “just will not economically pencil out.” 

Koch was able to legally avoid the expense because the Clean Air Act allows facilities built before 1970 to delay installing modern pollution controls until they upgrade or expand. But Ranajit Sahu, an environmental and mechanical engineer with more than 30 years of experience in the petrochemical industry, said the law allows state regulators to create their own, tighter regulations.

“The regulator that would want to act is not prohibited from doing so,” Sahu said. “But whether they choose to exercise that authority is a discretionary act, and many people actually don’t do it.”

Public Health Watch and the Investigative Reporting Workshop asked the Texas environmental commission, the TCEQ, why it hasn’t moved on its own to force Oxbow to install scrubbers.

According to an agency spokesperson, the 87-year-old-facility has made no improvements over the last 52 years that would “trigger review for potential emissions controls” under the Clean Air Act.

Monitor Pings, PASE Shuts Down

With scrubbers off the table, Koch still had to find a way to meet the new hourly SO2 standard. 

The EPA gave big polluters two ways to show they were in compliance. They could submit mathematical models, or they could monitor their emissions for three years and submit the findings as proof.

Oxbow tried to create models to prove it could comply. When the models didn’t come up with the answers the company needed, it turned to air monitoring, court documents show. 

In the fall of 2016, the TCEQ installed a monitor 1 mile north of the plant, the documents show. Every time SO2 levels went above the hourly limit, the monitor would register an exceedance.

The monitor “pinged” six times by the end of the year. In the first three months of 2017, it pinged four times. 

“As soon as they put up that monitor, they started having problems,” said Cox, the Environmental Integrity Project lawyer. “And Oxbow got really creative in how they decided that they were going to solve those problems.”

Oxbow formed a special team to find a way to stop the pinging, according to court documents.

Using real-time monitoring data from the TCEQ, team members created a system that alerted the plant whenever the monitor approached the SO2 limit. Then they experimented with the calcining process, to see how each step affected the monitor readings.

One variable was the number of cold stacks and hot stacks. 

Because heat rises, the SO2 going through Oxbow’s one hot stack was shot high into the atmosphere, where it was dispersed and diluted. The SO2 from PASE’s three cold stacks settled closer to the ground and the monitor. 

All the stacks emitted the same amount of SO2. But if the SO2 from the hot stacks hit the monitor, it would be less concentrated than what came from the cold stacks. While scrubbers remove pollutants, dispersion simply spreads them more thinly over a larger area. 

On March 16, 2017, Oxbow changed two of PASE’s cold stacks to hot stacks. But the pinging continued.

In April, the TCEQ warned Oxbow that if it didn’t meet the new EPA standard by the end of the three-year monitoring period it could face “stringent” permitting requirements, including a possible requirement to install scrubbers. 

Meanwhile, PASE was running at one-third of its capacity because of the loss of its two cold stacks. For the first time, Deyoe’s “little green energy plant” was losing money. 

“We were kind of limping along,” Deyoe said, “just trying to run, trying to stay alive, stay in business, keep all these lights going.”

In September, Deyoe met with some officials at the TCEQ’s Austin headquarters and asked for help. He complained that Oxbow was damaging his business so its SO2 would evade the monitor. He showed off PASE’s EPA award. He told them that the steam heat PASE was selling to a nearby Valero plant helped the environment by reducing the burning of fossil fuels. He described how PASE’s equipment removed dangerous particles from Oxbow’s emissions. 

But Deyoe said the staff shrugged off his concerns. They told him the agency doesn’t interfere in commercial disputes and said their main goal was making sure Jefferson County complied with the SO2 regulation. 

“These are the environmental watchdogs for the state,” Deyoe said. “I mean, that’s their job, right? And so in this instance, it just struck me that they didn’t really seem to care.”

The TCEQ spokesperson said the agency had “no comment on this allegation.”

In June 2018, PASE took Oxbow to court. 

Two weeks later, Oxbow shut down PASE’s last cold stack. 

The pinging stopped.

“They just killed this green-air process,” Deyoe said. “Just because Bill Koch didn’t want to go sell one Picasso or one of his Billy the Kid statues or whatever to pay for his scrubbers in Port Arthur.” 

Oxbow Lawyers Up

A fabled energy law powerhouse defended Oxbow against PASE’s lawsuit.

Houston-based Baker Botts employs about 700 attorneys around the world and traces its roots to 1840. James A. Baker III, who served in the Cabinets of Presidents Ronald Reagan and George H.W. Bush, is a partner.

The firm PASE hired — Dunn and Neal, LLP — had two lawyers. To save money, Deyoe and his business partner acted as paralegals, digging up files and running errands. 

PASE argued that Oxbow had shut down the clean-energy company so it could shoot its SO2 emissions high into the air and away from the monitor, without actually reducing the amount of SO2 it released. PASE contended this was a dispersion technique that was illegal under the Clean Air Act. 

Oxbow argued that it was just doing what was needed to comply with the law. To help make that point, the company produced a letter that quickly became a flash point in the case.

The letter was from Jefferson County Judge Jeff Branick, who said in a deposition that he sent it at the suggestion of one of his friends, who also happened to be one of Oxbow’s local counsels. The letter said the county would take legal action against the company if it didn’t stop violating the SO2 standard and demanded to know how Oxbow planned to solve the problem.

At first blush, Branick’s letter seemed to reflect a public servant doing his job, trying to protect the county’s residents. But PASE argued in court documents that it was a ruse. The letter’s real purpose, PASE said, was to trigger a clause in its contract with Oxbow. The clause said Oxbow could shut down PASE’s clean  energy operation if Oxbow were threatened with legal action. 

Oxbow called PASE’s characterization of the letter a “conspiracy theory.”

Branick, who didn’t respond to requests for comment, said in the deposition later requested by PASE that Oxbow played him “like a cheap harmonica.”

PASE Scores a Short-Lived Victory

In September 2018, PASE scored what would become its only victory against Oxbow.

Jefferson County District Court Judge Donald Floyd ruled that there was “uncontroverted, clear evidence that Oxbow engaged in dispersion techniques to avoid SO2 detection at the TCEQ monitor.” 

Floyd ordered Oxbow to pay $5 million, which it owed PASE from a previous lawsuit. He also appointed a receiver to make sure Oxbow allowed PASE to resume operations. 

But Oxbow filed an appeal before the receiver could start work and Floyd’s decision was reversed. 

The two companies were sent to arbitration, with three private arbitrators — all former judges — the companies chose to decide the case. 

This time, PASE introduced a report by David Keen, an emission-dispersion analyst it hired to create models of Oxbow’s SO2 emissions. 

Keen said that even with all PASE’s cold stacks shut off, the models showed that “the facility is not compliant with the one-hour standard.” 

One possible reason for the discrepancy between Keen’s models and the monitor readings is that the site of the TCEQ monitor isn’t ideal for capturing the hot stack emissions. In documents filed with the EPA, the TCEQ appeared to acknowledge the problem. The agency said it had to rule out the 10 best locations to capture emissions because they were inaccessible. Some sites didn’t have electrical power available, the TCEQ said; others were on private property.

Oxbow’s lawyers argued that there were technical problems with Keen’s models and that he included calculations from sites where monitors couldn’t be installed. Real-time data from the TCEQ’s monitor — not hypothetical models — determined compliance, they said.

PASE’s lawyers offered another explanation for why the monitor readings showed Oxbow was complying with the standard.

They said Oxbow slowed production when the wind blew toward the monitor, a dispersion technique that they argued is illegal. 

Oxbow knew, through its own experiments, that its emissions hit the monitor only when the wind was blowing north in a narrow cone of about 30 degrees, a witness for the company testified.  According to TCEQ records, all Oxbow’s SO2 violations in 2017 happened when the wind was blowing north.

To make its point, PASE cited data from Oxbow’s own experiments that Oxbow submitted to the court. It showed that after PASE was shut down, the plant sometimes reduced production when wind conditions were “unfavorable” and the monitor readings were high.

On March 8, 2019, for example, Oxbow was operating with just two stacks, both of them running at reduced capacity. When the wind started blowing north, Oxbow reduced production even more. Although the monitor reading climbed above the standard, it fell quickly enough to prevent Oxbow from violating the hourly average. 

“Oxbow has continued exceeding [the standard] at the SO2 monitor since shutting down PASE,” PASE’s lawyers said in their closing brief, “but avoided hourly exceedances by adjusting operations based upon wind data and predictions.”

Oxbow enlisted a high-profile witness to testify in its favor. 

John Sadlier, a former deputy director for the TCEQ’s Office of Compliance and Enforcement, said the agency expects companies to use dispersion techniques if they are having pollution exceedances.

“I wouldn’t characterize [dispersion] as a manipulation,” he testified. “It’s something that we would expect you to do, especially in the case of Oxbow, where you see you’ve got a problem, and you absolutely are heading towards non-attainment.”

PASE also called on a former TCEQ official.

Jeff Saitas, the agency’s executive director from 1998 to 2002, said that, had he been advising Oxbow, he would have recommended that the company operate as usual. Then, if it had violations, he said it probably would have to install scrubbers. By doing that, Oxbow would have been able to keep PASE running.

“Had Oxbow, like any other entity, been concerned about the impact of 22 million pounds of SO2 every year on a community of 400,000 people,” Saitas testified, “if they were concerned about that, they could have at any time volunteered” to go to the TCEQ and “submitted a permit amendment application to the agency to install a scrubber.” 

In March 2020 the arbitrators ruled in Oxbow’s favor. PASE was ordered to pay administrative fees and owed Oxbow $500,000 plus interest — money PASE was supposed to have put into an escrow account. PASE appealed the decision to Harris County District Court, but lost again.

Later that year, the TCEQ and the EPA renewed Oxbow’s operating permit through 2025.

Complaint Filed Over High SO2 Emissions — And TCEQ Inaction

Oxbow still emits almost as much SO2 as it did before the TCEQ started monitoring for the new standard — or even more — according to a Public Health Watch and Investigative Reporting Workshop analysis of the most recent available data. In 2015, before the new rules went into effect, Oxbow released 19.9 million pounds of SO2. In 2018, under the new standard, it emitted 23 million pounds. In 2020, the first year of the COVID-19 pandemic, emissions dipped to 18.5 million pounds.

To try to understand how Oxbow could legally emit so much SO2 under the new rules, Public Health Watch and the Investigative Reporting Workshop turned to three scientists who served on the federal advisory committee that reviewed the standard more than a decade ago. They said that because the standard’s main priority was to protect asthmatics from severe attacks, the standard measured the concentration — not the amount — of SO2 in the air. As long as high concentrations of SO2 aren’t hitting a monitor, the region and its industries are in compliance, they said. 

“If the region is in compliance … then, unfortunately, that plant can continue to emit that amount,” said Dr. John Balmes, a professor emeritus at the University of California, Berkeley, who served on the committee. “They can emit a steady amount of sulfur oxide so long as they don’t have peaks that trigger non-compliance with the short-term standard.”

Jennah Durant, a spokesperson for the EPA, said that the agency prefers that companies not use dispersion techniques and that dilution “does not reduce the total amount of pollution.” But because Oxbow’s use of hot stacks was authorized before PASE’s existence and continues to be authorized by the TCEQ, she said, its return to hot stacks doesn’t violate Clean Air Act dispersion restrictions. 

Durant said the EPA would not approve of dispersion techniques like “varying emission rates or control with atmospheric conditions, like wind speed or wind direction.” But if the plant met the TCEQ’s permitting requirements, the EPA would not step in unless the county as a whole fell out of compliance. 

“TCEQ has the primary responsibility for enforcing Clean Air requirements in Texas,” Durant said.

The TCEQ spokesperson told Public Health Watch and the Investigative Reporting Workshop that the agency “reviews each air permit application to ensure all regulations are met, including the prohibition on the use of dispersion techniques.” 

When asked if the TCEQ had investigated allegations that Oxbow uses prohibited dispersion techniques to bypass the monitor, the spokesperson said, “No.”

In February 2019, the TCEQ rewarded Oxbow for its handling of its SO2 problem. It reduced the fine it had levied for the plant’s eight SO2 violations in 2017 by almost half, from $60,000 to $31,200.That included a $15,000 “good faith effort” reduction for shutting down PASE’s cold stacks to comply with the new SO2 standard.

The TCEQ hasn’t fined Oxbow for the plant’s three SO2 violations in 2018. The spokesperson said the agency may choose not to pursue penalties for violations if a similar violation is pending or the company is already addressing the problem.

Last year a coalition of nonprofits turned to the EPA for help in reining in Oxbow’s pollution. The complaint they filed with the agency argues that the TCEQ is violating the civil rights of the majority-Black community that suffers most from the bad air. Texas, they said, allows “dangerous amounts of air pollution to pour from an industrial plant for years, without any modern pollution controls.” 

In October, the EPA accepted the complaint and opened an investigation. 

Oxbow declined to answer questions about its refusal to install scrubbers. 

“Oxbow Calcining has no desire to re-litigate our PASE lawsuit. The case is now closed,” the Oxbow spokesperson said. “TCEQ, the arbitration panel, and the Harris County Court have all determined our current operation is in compliance with all existing environmental regulations.”