Local oil recycling businesses are expecting a big boost from a new law that increases a fee on major oil producers and also provides more incentives to people who recycle motor oil.

The law, SB 546 by Sen. Alan Lowenthal, D-Long Beach, is seen as providing a boost to business while reducing environmental harm.

“SB 546 will help save millions of gallons of oil, encourage the re-refining of used oil, and help create green jobs in California – all with no cost to taxpayers or the general fund,” said Gary Colbert, president of Irvine-based oil re-refining company Evergreen Oil Inc., which plans to use incentives in the bill to open at least one oil re-refining plant in the region in addition to its Northern California plant.

Some environmentalists also applauded the law.

“This bill promotes the highest and best use for used lubricating oil,” said Bill Magavern, director of Sierra Club California.

Locally, Compton-based DeMenno/Kerdoon, one of the largest oil recycling companies in the Western United States, stands to be one of the biggest beneficiaries. The company, a subsidiary of South Gate-based World Oil Corp., currently turns used motor oil into products such as asphalt and marine diesel oil. It will be eligible for financial incentives if it adds capacity at its Compton plant to re-refine used motor oil for reuse in vehicles.

DeMenno/Kerdoon declined to comment for this story.

But there are some concerns among waste haulers about testing requirements and among out-of-state oil recyclers who believe the incentives unfairly favor California recycling companies.

Recycling shortfall

Under current law, oil producers in the state – mostly major oil companies such as Chevron Corp. and Exxon-Mobil Corp. – pay a state fee of 16 cents per gallon of motor oil they produce. That money is then used to pay people who change their own oil and turn in the used oil to be recycled. (A typical oil change generates less than 1 gallon of used motor oil.)

According to the California Integrated Waste Management Board, which administers the program, the state collected $16 million in fees from oil manufacturers last year.

About 88 million gallons of used motor oil were collected through recycling last year. That’s about 60 percent of total used motor oil. (Oil-change companies are required to recycle their used oil or show proof it’s been disposed of legally.)

“There’s a tremendous amount of oil that we still need to reuse and re-refine,” Lowenthal said last week.

To boost the percentage of recovered oil, SB 546 increases the reimbursement incentive from the current 16 cents per gallon to 40 cents. This is mostly aimed at people who change the motor oil in their vehicles themselves and who might be tempted to pour the used oil into a storm drain or onto the street.

To help pay for the increased reimbursement, SB 546 hikes the fee paid by oil manufacturers from the current 16 cents per gallon to 26 cents to generate an additional $10 million a year. Some of that money will be used to increase advertising, which would be targeted to people who change their own motor oil.

The Western States Petroleum Association, which represents major oil company producers, initially opposed the legislation, said spokesman Tupper Hull, but withdrew its opposition once the bill was changed to cover use of recycled oil in asphalt and marine diesel oil.

The law also sets out an incentive for used motor oil re-refiners such as Evergreen Oil and DeMenno/Kerdoon to establish or boost their operations in the state.

Re-refining incentives

Burt Wenzel, senior specialist with the waste management board, said only about 10 percent of all used oil is re-refined so that it can be reused as motor oil for vehicles. About one-fourth gets turned into asphalt, while much of the rest is used for other purposes, such as diesel oil for boat engines.

Under SB 546, starting in 2013, a re-refiner of used oil located in California will receive 2 cents for every gallon of used motor oil that’s turned back into motor oil.

That incentive is enough for Evergreen Oil President Colbert to consider opening at least one re-refining facility in Southern California to complement its current facility in Newark, south of Oakland. However, he said the first Southern California plant is not slated to be in Los Angeles County.

But out-of-state re-refiners and the waste haulers who transport the oil to their facilities oppose the incentive and a provision that requires proof of that each truckload of used motor oil that is transported out-of-state has been tested and cleared of toxic substances. They say that the legislation is a form of protectionism for in-state re-refiners.

Phoenix-based Thermo Fluids Inc. said in a statement: “SB 546 violates the commerce clause of the U.S. Constitution because it discriminates against out-of-state used oil transporters and recyclers and acts as an impermissible flow-control measure.”

But Lowenthal said his bill merely requires out-of-state oil recyclers and re-refiners to meet the same standards as in-state companies that already have to test the used oil for toxic substances.

“This has the benefit of leveling the playing field for California businesses,” Lowenthal said.