Staff Reporter

Unocal Corp. appears to be stockpiling government-issued airborne emissions credits, as the company prepares to sell its Southern California oil refinery facilities to Tosco Corp.

The credits, which Unocal is buying up under the Regional Clean Air Incentive Market (Reclaim) program, would presumably be sold to Tosco as an important piece of the deal.

Under the Reclaim program, which is sponsored by the South Coast Air Quality Management District, 330 Southern California companies receive a fixed number of pollution credits each year, based on the size of their operations. All companies that emit more than four tons of pollutants each year must participate in the program.

Companies that pollute less than their quota can sell off their unused credits to companies that wish to exceed their allotment.

The program was designed to combine environmental protection with market-based incentives, enabling less-polluting companies to cash in, and enabling less-clean companies to pollute beyond their quotas for a price.

In the three years since the program began, El Segundo-based Unocal has spent $13.8 million to stockpile nearly 8,000 tons of emissions credits above and beyond its official allotment in the program.

Unocal spent $3.7 million in 1995, followed by $3.3 million in 1996. In just the first three months of 1997, Unocal has almost doubled its spending on emissions credits, shelling out $6.8 million to buy an additional 2,460 tons worth of credits.

One industry observer said Unocal’s big purchase of Reclaim credits could be linked to the upcoming Tosco sale. He said Tosco probably “did its homework” prior to the deal and realized as did Unocal that the credits could be necessary to run the refinery safely and within environmental guidelines.

Unocal spokesman David Garcia acknowledged that Unocal plans to get out of the oil refining business. But he declined to elaborate on why Unocal has invested so heavily in emissions credits, calling the move a “business decision.”

“We acquired these credits in the event we need them for our refining operations. But that doesn’t mean we’ll be emitting more. We can also sell the credits on the open market,” he said.

Tosco officials were not immediately available for comment last week.

AQMD spokesman Sam Atwood said the Reclaim program was set up as an open market, and thus, companies should be able to freely purchase or sell as many credits as they want.

“Our only concern would be if there was any significant impact on the supply or the price of those credits if a significant supply were to be controlled by a company where they could drive the price up,” he said. Atwood added that no such price run-ups have yet occured, according to AQMD’s latest audits.

After Unocal, Chevron Corp. has been the biggest private-sector buyer of emissions credits since the Reclaim program began in 1994. Chevron has spent $4.8 million to purchase emission credits for 3,800 tons of pollution since the program began. That’s only about one-third the amount Unocal has spent. Other major private-sector buyers of credits include Atlantic Richfield Co., Mobil Corp. and Texaco.

After oil companies, electric and gas utilities have emerged as the other big buyers of Reclaim emissions credits over the past year. In 1996, Southern California Gas Co., Southern California Edison, the Burbank Public Services Department and L.A.’s Department of Water and Power all emerged as major buyers of Reclaim credits.

Uncertainty caused by the upcoming deregulation in the electricity industry is one factor driving consumption of Reclaim credits among utilities, said Scott Van Vuren, air quality engineer at the DWP.

“You try to look ahead about three years as to what your emissions are predicted to be, but right now it’s really uncertain with deregulation,” he said.

Reclaim participants from both the utility and oil industries have been generally positive about the 3-year-old program, saying it allows them more flexibility in their efforts to comply with tightening government pollution standards, compared with the more-rigid regulatory programs of the past.

Under the program, overall industrial emissions in Southern California will drop from 103 tons per day in 1994 to 26 tons per day in 2003, with the market determining which companies contribute how much of those daily emissions.

Utilities and oil companies are buying Reclaim credits as a hedge against future business developments, but many have also begun a longer-term investment in emissions-reducing technology that will ultimately lessen their dependence on credits purchased on the open market.

For example, the DWP has installed equipment over the last three years that has reduced its nitrous oxide emissions from 1,700 tons in 1994 to 600 tons last year. Likewise, Unocal has installed “tens of millions of dollars” worth of emissions-reduction technology at its Southern California oil refineries over the last few years, said spokesman Garcia.

The AQMD is generally satisfied with the program’s success so far, said Pang Mueller, senior manager of Reclaim administration at the agency. “We feel the program is meeting our emission-reduction goals. We’ve also seen that the program has provided economic flexibility (for polluting companies),” she said.

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