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A Senate bill to cut U.S. greenhouse gas emissions would raise energy prices and also reduce American economic output by more than half a trillion dollars over two decades, according to a government report released on Monday.

Congress is expected to consider climate legislation this fall that would fight global warming. Many businesses worry the U.S. economy would suffer under a measure to impose tough mandatory cuts in emissions.

One proposal, introduced by Sens. Joseph Lieberman and John McCain, would gradually reduce total U.S. emissions by the year 2050 to 60 percent below 1990 levels.

The bill would require companies to report their yearly greenhouse gas emissions and submit a matching number of government-issued allowances to equal the emissions spewed. Companies that emit more would have to buy allowances from cleaner companies that produce fewer emissions.

However, the proposal would cut into the U.S. economy and raise gasoline and other energy prices paid by consumers, according to an analysis of the legislation by the Energy Information Administration.

The legislation “increases the cost of using energy, which reduces real economic output, reduces purchasing power, and lowers aggregate demand for goods and services,” the EIA said.

With companies trying to meet the shrinking emissions levels, U.S. economic output would be $533 billion lower over the 2009 to 2030 time period, the agency said.

In the transportation sector, gasoline and other petroleum products would cost more as oil refiners buy allowances to cover the emissions spewed by their facilities.

“The cost of the allowances will be included in the prices of the fuels,” the EIA said.

Gasoline prices are forecast to be 23 cents a gallon higher in 2020 and 41 cents more in 2030 because of the required emission cuts, the agency said.

The EIA said the fuel price increases would not be large enough “to create dramatic shifts in consumer behavior,” but there would be more demand for fuel efficient vehicles.

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Oil prices retreated after jumping to a new record Wednesday on the government’s report of a steep drop in crude inventories and surge in refinery activity.
Crude prices initially rose after the Energy Department’s Energy Information Administration reported that oil inventories fell by 6.5 million barrels last week, far more than expected. But gas futures fell on word that refiners ramped up their operations much quicker than expected. As the slide in gas futures prices accelerated, oil prices had little choice but to follow, said Phil Flynn, an analyst at Alaron Trading Corp. in Chicago.

“The refineries have finally gotten their act together,” Flynn said. “They’re back to normal, almost.”

As the industry rebounds from a spring and early summer in which refiners experienced an unusual number of outages, it is drawing down crude inventories that had hit 9-year highs. Some investors see that draw as a sign crude inventories are tightening.

“That’s going to keep the (crude) market underpinned for now,” Flynn said.

But traders also remember last summer, when oil prices plummeted by almost $20 in a little over a month after hitting record highs.

“Oil does have a tendency to peak in late summer,” Flynn said. “Seasonally-speaking, this bull market’s on borrowed time.”

Light, sweet crude for September delivery fell $1.30 to $76.91 a barrel on the New York Mercantile Exchange after rising as high as $78.77 earlier. That surpasses the previous intraday record of $78.40, set in July 2006.

On the other side of the petroleum supply chain, refineries are producing more gasoline. That news sent September gasoline futures down 7.97 cents to $2.0262 a gallon on the Nymex.

Retail prices typically lag the futures market, and prices at the pump fell by 0.9 cent overnight to a national average of $2.867 a gallon, according to AAA and the Oil Price Information Service. Gas prices peaked at $3.227 a gallon in late May. Gas futures have fallen steeply in recent weeks as refineries have ramped up operations.

Refineries are also churning out more distillates, including heating oil. Nymex heating oil futures fell by 5.01cents to $2.0731 a gallon.

Nymex natural gas futures gained 21.5 cents to $6.406 per 1,000 cubic feet. In London, September Brent crude fell $1.51 to $75.54 a barrel on the ICE Futures exchange.

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The price of oil jumped to an 11-month high yesterday, moving even closer to record levels hit last summer as fears mounted over shortages in supply.
Speculation in the world’s most actively traded commodity, rapidly rising demand and reports that production would slow over the next five years pushed Brent crude up to $77.07 briefly during early-afternoon trading, within $2 of the all-time high of $78.65 set last August.

Investors said hedge funds and pension funds were key drivers behind the latest rally. “This rally is very much fund driven,” said Graham Sharp, director at Trafigura, a commodities trading group. “The entry of long-only hedge funds into the market is a major factor this time around. We wouldn’t rule out Brent hitting $80 this summer.”

Maintenance work on oilfields in the North Sea has tightened supplies and helped push Brent, seen as the best indicator of the global market, significantly higher.
The unexpected closure of a North Sea pipeline this month cut oil output from at least one group of fields, operator ConocoPhillips said. Chevron’s Erskine field, which produced an average of 10,705 barrels a day in March, has also been affected by the shutdown.

The market has been jittery all week after the release of the International Energy Agency’s medium-term oil market report warning that demand would increase faster than expected over the next five years while production would struggle to keep up. Traders are nervously awaiting the IEA’s latest monthly report out today, which will give an updated snapshot of global oil demand and stocks.

Data from the US Energy Information Administration showed gasoline stocks in the world’s largest consuming country remained 8.2m barrels lower than a year ago, and the summer driving season there is expected to last at least another month.

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