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precedent. I want to disagree with this point. From my point of view, and from the point of view of all who are serious about pollution control, I think this would be a very valuable and desirable precedent. Only partly in jest, I would suggest that the reason the chamber of commerce and other industrial groups have opposed this bill, and every other attempt I have been familiar with, to implement the principle of economic incentives, effluent charges, or emission charges, really they know it will work.

Congressman Rogers, this morning, your first witness, asked if the administration were really serious about using taxes for pollution control, why haven't they proposed tax on any nitrogen oxides, sulfur oxides, and so forth?

I would simply like to repeat the question because, again, as my prepared testimony indicates, the principle of charges could be used or employed in a far wider range of ways to combat pollution than simply the lead tax.

I think the proposed tax is a small step in the right direction but I would certainly hope that appropriate congressional committees would consider using it in other ways as well.

Thank you, Mr. Chairman.

The CHAIRMAN. Thank you, Professor Freeman, for your excellent statement.

We appreciate your coming before the committee today.

Are there any questions of Professor Freeman. If not, we thank you very much for coming before the committee.

The next witness is Mr. J. H. Pittinger. If you will identify yourself for the record, we will be glad to recognize you, sir.

STATEMENT OF J. H. PITTINGER, PRESIDENT, INDEPENDENT REFINERS ASSOCIATION OF AMERICA; ALSO ON BEHALF OF APCO OIL CORP.; ACCOMPANIED BY EDWIN J. DRYER, WASHINGTON REPRESENTATIVE, INDEPENDENT REFINERS ASSOCIATION OF

AMERICA

Mr. PITTINGER. I am James Pittinger and the man to my right is Edwin J. Dryer, Washington representative of the IRAA.

I appear here on behalf of the Independent Refiners Association of America, of which I am president. I am also president and appear on behalf of APCO Oil Corp. of Oklahoma City, Okla., a typical medium size, inland, independent refiner, which, like the other independent refiners for whom we speak will be severely and unnecessarily injured by the proposed tax on lead additives in gasoline.

SUMMARY

1. THERE IS NO JUSTIFICATION FOR THIS TAX AT THIS TIME

While the Commerce Panel on Automotive Fuels and Air Pollution wants to ensure the availability on an unleaded grade of gasoline in the last half of 1974, this does not require a tax in 1970. Other means, with less potential harm to the industry and consumers, can accomplish this objective.

2. ADVERSE IMPACT OF THIS TAX UPON THE INDEPENDENT REFINER Independent refiners require more lead additives per gallon produced than refiners with very large plants-the major companies. A tax on lead additives will

discriminate against independent refiners by assessing them with costs which they cannot fully recover out of product prices; they cannot recover the full amount of the tax on lead because refiners with the lowest requirements for lead-the majors--will set the price which all must match.

To offset this discriminatory effect, some exemption for independent refiners is necessary. The exemption in the proposed legislation can be substantially improved.

3. ADVERSE IMPACT ON CONSUMERS

The long-term adverse effects for consumers are even more serious than the indicated price increase estimated by the government-if the effect of the tax is to drive the independent refiner from the market.

There are serious questions of fairness in the application of the tax to consumers in different areas. Why should consumers in rural areas be assessed the cost of pollution control in congested urban areas?

4. THE SOCIAL WASTE IN THE 3-PUMP SYSTEM

If national policy has the effect of fostering three grades rather than two basic grades of gasoline, it will cause waste of staggering proportions-represented by the investment in additional tanks, pumps, etc., which will not be needed ten years hence. The proposed tax fosters a 3-pump system.

Mr. PITTINGER. I speak for Ashland and Mr. Logan that the tax is not justified at this time.

1. THERE IS NO JUSTIFICATION FOR THIS TAX AT THIS TIME

At the outset, I would like to add our general endorsement to, but avoid duplicating, the testimony which will be recorded with you by other oil companies and oil industry associations in opposition to this proposed tax.

There is one point, however, there, which is so important that I wish to stress it, even at the risk of duplicating the testimony of others. That point is that there has been absolutely no justification advanced, in the testimony of administration officials thus far, for the imposition, at this time, of a tax with such far-reaching implications.

We urge, therefore, as a very minimum, that steps to impose such a tax be deferred until the earliest date at which such a tax may be necessary 4 years from now. In the interim, it is entirely possible, a possiblity which is conceded by the administration witnesses, that means will be developed to meet 1975 auto emission standards without a lead-free gasoline and without a tax on lead as an offset to the higher price for lead-free gasolines.

If such means are not developed, and a tax proves necessary, the tax need not be effective before the fall of 1974, the time when the devices requiring a lead-free gasoline first become generally available.

This is so important and so overlooked in the composite of administration testimony that I wish to be specific. I recognize that Secretary of the Treasury Kennedy said: "The need for this tax is immediate."

He said that the tax is immediately needed because "The presence of these compounds in the environment is dangerous, both for the present as well as the future."

Such a sweeping conclusion would be a formidable argument for immediate action, if demonstrably true, but this argument for immediate action is not supported by the special panel of experts, which the President assembled to review this problem, the Commerce Technical Advisory Panel on Automotive Fuels and Air Pollution, headed by Dr. Ragone.

One finds no such final and conclusive statement in the Panel's interim report published in June 1970. Were there any doubt, Dr. Ragone made it clear in his responses to your committee's questions last week. After emphasizing that he was not an administration spokesman, he said that his Panel did not say that lead additives were bad. What did Dr. Ragone's Panel say on this subject?

First, they said that emission control devices necessary to meet 1975 standards may require an unleaded gasoline at that time and, in order to permit the development of such devices, the Federal Government should "declare its intention to require the general availability of an unleaded grade of gasoline by July 1, 1974" (pp. 7, 30).

This recommendation offers no support for a tax in 1970 unless a tax is the only means by which the Government can declare its intention. When Secretary Kennedy says that enactment of this tax is necessary to adequately signal our intentions, he ignores the arsenal of more simple and direct and less wanton and reckless means by which the Government can reveal its intention.

Second, the Panel did say that the early availability of low-lead, lowoctane fuel should be advisable specifically to permit field experience with prototypes of emission control systems.1

Here, again, there is no support for the imposition of a tax, inasmuch as a number of oil companies, mostly majors, have announced, for reasons of their own individual marketing strategy, that they will be marketing some low lead or no-lead gasoline in the near future.

Since the gasoline will be available in the quantities needed for the limited number of these test vehicles-for examples Government drivers to use the proper gasoline can certainly be found instead of a tax affecting the price of fuel, across the board, for 100 million motorists.

Third, while the Commerce Panel endorsed the idea of a Federal tax or subsidy to provide price incentives for the purchase of unleaded and low leaded fuels (p. 31), it did not, and this is significant, specify

when.

As to when, we think the following qualification on the Panel's total report is particularly relevant :

In the time available for this interim report, the panel was unable to establish or define an optimum regulatory strategy for the control of lead additives. Nor was it able to evaluate the full economic impact of the few strategies considered (p. 26).

With these reservations of this expert Panel in mind, we submit that the imposition of this extraordinary tax, at this time, would be premature, in terms of the time of its actual need, and reckless, in terms of the drastic industrial restructuring which it would precipitate, with much of the restructuring actually unnecessary in the long run.

2. ADVERSE IMPACT OF THIS TAX UPON THE INDEPENDENT REFINER

I would like, now, to develop for you the special harm which this tax would have upon the independent refining segment of this industry. Fortunately, there has been, within government, a growing recognition of the independent refiner and the impact, for better or worse, of

1 While there was also reference to some advantages in low lead proportions-e.g., high lead concentrations in fuel contribute to increased hydrocarbon emissions from existing cars there was not a word to support Secretary Kennedy's conclusion that lead additives are dangerous, thus warranting extraordinary steps immediately.

government action, such as in oil import controls, upon the independent refiner.

We are glad to note that this has carried forward into the interim report of the Commerce Panel with its specific recognition of the impact upon the independent refiner in the specific design of the proposed legislation, with its exemption from tax of the first million pounds of lead additives used by any refining company in the initial year declining to zero over a 5-year period.

But the steps suggested in the proposed legislation are not fully responsive to the independent refiner's problems with such a tax.

To explain why, I should start by pointing out certain characteristics of the independent refiner which account for the specially adverse impact upon him of the tax on lead additives.

The first and basic characteristic of the independent refiner is that he must purchase most of his crude oil supply, usually the leftovers, low gravity and high sulfur. This means that the independent refiner must cover the costs of his raw material and his refining operation out of the refining operation itself.

The impact of the proposed tax, increasing by about 1,000 percent of the cost of one of the independent refiner's raw materials, will obviously be greater than for a company engaged in several different aspects of the oil business in many different markets worldwide.

The second significant characteristic of the independent refiner is his relatively small size and the small size of his refining plants compared with the integrated major.

Most independent refiners have throughput capacities below 100,000 barrels per day as distinct from the integrated majors with capacities ranging to 1 million barrels per day. The larger independent refiners may be many times the size of the smallest independent refiners, but all independents are small by oil industry dimensions.

This factor of relative size within the industry is illustrated by one figure: All refining companies with capacities under 100,000 barrels per day-some 112 in number-account for only 18 percent of total domestic refining capacity. In addition to overall company size, there is a further size difference-plant size.

Even the independent refiner in the middle or upper range of the independent refiner class has usually small refining plants, the larger company capacity being an aggregate of several small plants at different locations.

In the case of my own company, for example, the 32,000 barrels per day overall capacity is divided between two small plants at Arkansas City, Kans., and Cyril, Okla.

The significance of the size factor in terms of the proposed tax on lead additives is that the typical independent refiner's smaller refining plant requires more lead per gallon than is true for the larger refining plants of the major companies.

The clear unleaded octane rating of all gasoline pools nationally is reported at about 88 to 89 percent, octane.

For the typical independent refiner, however, the clear octane rating of his gasoline pool is substantially less than that ranging between 83 and 88, and in some instances below 83. More lead must be added to bring the independent refiner's clear gasoline to the octane level required to prevent engine damage.

The third basic characteristic of the independent refiner is his dependency on domestic crude oil for his raw material because of his inland location.

For purposes of the presently proposed tax, this has two consequences. Since the supply of domestic crude available to the independent refiner is limited, he cannot expand his plant size to obtain some of the technical advantages, such as a lesser need for lead additives, which are possible in larger plants.

In addition, the type of domestic crude oil available to the typical inland independent refiner requires more lead than is required by refiners on the gulf coast.

A most important corollary of this difference, this differing dependence on lead additives, for the independent refiners, compared with the majors, is that the cost thereof will not be fully passed through to consumers and recovered out of product prices.

The refiners with the lowest requirements for lead-the majors with large refining plants-will set the price which all must match.

Refiners with large lead requirements will have to absorb a large part of the tax or quit the marketplace. We submit to you that this is rank discrimination, and a financial discrimination against the group least able to bear it.

With these factors in mind, let me advance the following conclusions:

1. Clearly then, as the Commerce Panel found, a tax on lead additives will have a serious adverse impact upon independent refiners. Because independent refiners with 133 plants use more lead per gallon produced, a tax on lead discriminates against them-they will not be able to recover out of product prices the extra cost of the extra lead they must use. This discrimination, and the difficulty of creating proper offsets to it, is itself a very strong argument against the impression of any such tax at all.

2. Also clearly, as the Commerce Panel found, if a tax on lead additives is deemed ultimately to be necessary, there must be provisions to offset their discriminatory impact upon independent refiners or many will close. The provisions in the present proposal should be improved in the following respects:

(a) There should be no annual reduction in the basic exemption for independent refiners. As long as the tax exists, its adverse impact upon independent refiners will also exist, and the exemption designed to offset this adverse impact should continue in effect.

(b) The basic exemption for an independent refiner should not be limited to the use of lead in a prior base year, since that will straitjacket normal growth.

(c) The amount of the independent refiner's basic exemption should be increased. It was the administration's stated objective to exempt from tax a quantity representing the requirements of a typical independent refinery"; to accomplish this objective a higher figure will be needed. Apparently the proposed figure of 1 million pounds annually resulted from confusion by the newly

1

1 Secretary Kennedy's letter of July 30, 1970, transmitting the proposed legislation said: "The figure of 1 million pounds is based upon the average amount of lead in additives that is believed to be used by a typical independent refinery."

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