NEW YORK (Dow Jones)

The largest crude-oil refiner in the U.S. has weighed in on the debate over climate change legislation.

Valero Energy Corp. (VLO) wants the federal government to take charge.

The San Antonio, Texas-based refiner, which has long questioned the link between rising greenhouse gas emissions and climate change, is taking a pragmatic approach as it seeks a voice in the development of U.S. policies. Valero's shift signals the growing role refiners are preparing to play in the debate over how to handle global warming.

"We are definitely evolving in our approach to things," said Kim Bowers, a senior vice president and general counsel. "For awhile, I think everyone was debating the science, now the debate has really moved into the policy."

The refining sector is the second-largest producer of heat-trapping greenhouse-gas emissions, releasing 5% of the total, among stationary sources in the U.S., following fossil fuel-powered electric utilities, according to the Sierra Club, an environmental organization. This calculation doesn't consider cars and trucks.

Valero is lobbying for federal legislation that encompasses all industries, Bowers said. Laws should also take into account the emissions produced by foreign refiners who ship oil products to the U.S. The failure to develop such a policy could leave American refiners at a disadvantage to their global competitors, she said.

"Clearly, climate change is a global issue, and it should be addressed at a national level," Bowers said. "Our focus is to make sure that happens."

Other independent refiners have been less vocal on the topic, partly because they lack Valero's scale and clout. No other refiner offers a detailed carbon policy on its Web site, though most have general statements of their broader environmental policy. Valero's policy standards are also far more comprehensive than those of the refiners' trade group. As a result, Valero may become a leading champion of particular attributes of climate change policy for the industry.

Larger integrated oil companies like ConocoPhillips (COP) and Royal Dutch Shell PLC (RDSA), which also have large U.S. refining portfolios, have been more active in promoting the idea of climate change policy as a social issue. Exxon Mobil Corp. (XOM) is still expressing qualms about the science on carbon emissions, but has joined the policy debate.

Refiners with facilities all over the U.S. worry that initiatives already implemented by states will prove costly to manage. This comes at a time when the industry is facing pressure on margins from skyrocketing crude-oil prices.

That's why Valero would like to see a comprehensive national policy, which may include a tax on carbon emissions, Bowers said.

'A Serious Look'

Valero wasn't always so eager to take a stand. In 2004, the company's board recommended against a shareholder resolution that would've created a committee to evaluate Valero's response to climate change. The board said the science behind the issues was "uncertain," and the resolution failed.

Two years later, though, without prompting from the shareholder group that sponsored the resolution, Valero formed a greenhouse-gas committee that periodically reports to the board.

"We really felt that the company had taken a serious look at the issue, and was starting to provide disclosure," said Laura Shaffer, director of shareholder activities for the Nathan Cummings Foundation, a sponsor of the resolution. The private foundation has a $550 million endowment, which is invested broadly and holds Valero shares.

At Valero's shareholder meeting last week, Chief Executive Bill Klesse said climate change was a "huge" concern.

However, earlier this year, Valero removed data from its Web site that showed historical emissions at its refineries, giving shareholders such as the Cummings Foundation pause. The company says the statistics were removed because they didn't reflect the company's current assets. Since 2004, when the data was collected, Valero has bought four refineries and sold two, expanded its existing assets and implemented policies to cut carbon dioxide emissions by 1.8 million tons annually.

Valero doesn't disclose a current number for its emissions. Data for 2006 is under review by a third party, and may be released once that review is complete.

As Valero came around to the idea of addressing climate-change issues head-on, the first pieces of carbon legislation began to emerge across the U.S, most notably, in California and the Northeast.

The Gulf Coast, where the bulk of Valero's refineries are concentrated, hasn't adopted any regulations.

But carbon legislation supporters say there is value to these regional efforts.

"In the absence of climate change legislation, we are continuing to push for efforts in a variety of states," said Josh Dorner, spokesman for the Sierra Club in Washington, D.C. While Dorner said the Sierra Club seeks federal legislation, the organization says allowing states to move forward is "essential."

Pushing For A National Policy

Valero doesn't favor a specific mechanism to control carbon emissions, be it an outright tax or a cap-and-trade policy, which would limit the amount of carbon that can be emitted and offer companies the opportunity to swap carbon allowances beneath this ceiling. It does, however, want national regulations to supercede nascent state and regional programs, Bowers said.

A national policy has the potential to set requirements for imports, which could otherwise come into the country at an unfair advantage, Bowers said. The U.S. imported 2.3 million barrels of gasoline and blendstock from Venezuela in February, the latest month for which federal data is available. Because Venezuela lacks a carbon regime, refiners there could potentially operate at a lower cost, and export their products to the U.S., providing a cheaper alternative to domestic gasoline.

Additionally, she said, in order to meet existing specifications, Valero has to conduct additional processing to further refine fuel, which results in higher carbon-dioxide emissions. Such competing demands from different environmental laws need to be taken into consideration when setting policy, she said.

For a policy to be appealing to Valero, it must involve all of the economic sectors, and be affordable to consumers, Bowers said. The Lieberman-Warner Bill, due for a vote in the U.S. Senate in June, is problematic for Valero due to its omission of certain sectors and its high cost, estimated at $1.2 trillion.

"As policy starts to develop, we're not going to be afraid to have our voices be heard, either," Bowers said.

(Jessica Resnick-Ault covers ethanol and biofuels in addition to traditional crude-oil refining for Dow Jones Newswires.)

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