Industry Market Trends
Tougher EPA Gas Standards Draw Polarized Responses
April 9, 2013
New emissions and fuel standards introduced by the EPA could reduce air pollution and boost vehicle efficiency. While some industry groups claim the economic impact of these rules makes them impractical, others (including many automakers) support the regulations. On March 29, the U.S. Environmental Protection Agency (EPA) released a new set of proposed standards for automobiles and fuel aimed at reducing emissions of key pollutants, including volatile organic compounds, nitrogen oxides, particulate matter, fuel vapor emissions, benzene, and 1,3-butadiene. The EPA's announcement calls these emissions "harmful pollutants that can cause premature death and respiratory illnesses," and says the new rules "will help avoid up to 2,400 premature deaths per year and 23,000 cases of respiratory ailments in children." The new standards, scheduled to go into effect in 2017, also require reduction in sulfur levels in gasoline, which will enable vehicle emission control technologies to perform better and allow cars to run cleaner. Burning gasoline containing sulfur requires extra energy, which reduces fuel economy and inhibits the functioning of catalytic converters, making them less effective at emissions control. The standards were developed with "extensive input from auto manufacturers, refiners, and states." But some legislators and industry groups are critical of the new rules. The American Fuel & Petrochemical Manufacturers (AFPM) group published a statement in response to the new standards, contending that the agency's proposal "will require further reductions in sulfur levels in gasoline to an average of 10 parts per million (ppm), a 70 percent drop from today's very low levels without significant benefits." The association points out that since 2004, refiners have reduced sulfur levels in gasoline from an average of 300 ppm to an average of 30 ppm today. This 90 percent reduction in sulfur levels has already cost refiners billions of dollars in technical changes, and the new standards will impose another $10 billion in new infrastructure and an additional $2.4 billion per year in operating costs "on an industry already burdened by questionable regulations." AFPM president Charles T. Drevna said that the new program is "without merit," and that targeting "trace amounts of sulfur in gasoline is not worth the direct threat to our domestic fuel supply, consumer cost at the pump, and American jobs." Senator David Vittner (R-La.), along with four other senators from both sides of the aisle, sent a letter to President Barack Obama urging him to hold back the new proposal. In a statement issued from Vitter's office, he accused the EPA of seeking to advance a political agenda, disregarding the facts and potential economic costs. The Tier 3 standards as formulated could drive up gas prices and result in "importing more foreign energy, increasing our trade deficit, and reducing our energy security." In their joint letter, the senators argued that the refining industry supports roughly 540,000 jobs and represents nearly 2 percent of U.S. GDP. The refining industry is already heavily regulated, and any additional regulations must be "smart, practical, and necessary." They said the White House should not let the EPA move these new regulations forward "without first providing a scientific demonstration of health benefits along with a thorough analysis of the economic and supply impacts." The EPA claims that the new standards would have very little impact on gas prices, but industry researchers disagree, claiming prices could be driven up by as much as 9 cents per gallon. However, statements by auto manufacturing groups indicate that automakers are generally in favor of the new rules. A joint presentation by representatives from the Alliance of Automobile Manufacturers and Global Automakers argues that reducing sulfur content in gasoline will yield "immediate and future public benefits." The groups argued that vehicles and fuels constitute a system and should be compatible. Implementing a nationwide standard will bring the entire country up to California's advanced standards and allow automakers to design vehicles to perform more efficiently based on predictable fuel composition. Costs for implementing the program nationwide are "overstated," the automakers assert. Currently, gasoline sold in California has 10 ppm sulfur content, whereas the rest of the country averages about 25 ppm. Reducing sulfur to 10 ppm would increase the lifetime of a catalytic converter by 25 percent. Japan and the European Union already conform to the 10 ppm standard. The arguments from the automakers' groups underline EPA's assertion that the new Tier 3 program "is a comprehensive approach, considering the vehicle and its fuel as an integrated system, aimed at addressing the impacts of motor vehicles on air quality and public health." Public hearings for the Tier 3 proposed rulemaking will be held in late April, and the public comment period will be open through June 13.