New study backs up EPA assertions on low cost of tailpipe standards

Source: Jeremy P. Jacobs, E&E reporter • Posted: Friday, June 15, 2012

U.S. EPA’s forthcoming new standards for the amount of sulfur in gasoline will not boost the price at the pump for consumers as industry has claimed, according to an economic study to be released today.

At issue are so-called Tier 3 air pollution standards for tailpipes that the agency is expected to propose this year and finalize in 2013 at the earliest. The agency is expected to lower the sulfur limit in gasoline from 30 parts per million to 10 ppm, a move that will bring it in line with Japan and the European Union and, the agency says, lead to significant health benefits.

The American Petroleum Institute has pushed back strongly on the proposal, arguing that the cost of upgrading refineries for compliance would lead to an increase in their operating costs of 6 to 9 cents per gallon, which could be passed on to consumers (E&ENews PM, March 22).

But a new study from Navigant Economics conducted on behalf of the Emissions Control Technology Association, or ECTA — which represents companies that make products such as catalytic converters and other pollution controls technology — says API is off base and looks at historical precedents.

They argue that API’s study, conducted by Baker and O’Brien, significantly overestimates the cost of the standards. The new study concludes that the price of compliance would be closer to 1 cent per gallon, a finding that EPA and a competing study by MathPro Inc. have also reached.

Further, the report says that Baker and O’Brien “has a history of exaggerating the negative effects of EPA’s sulfur reduction requirements on the refining industry,” noting that the group significantly overestimated the costs of compliance with EPA’s 2007 on-road heavy-duty diesel rule, which lowered the sulfur content in diesel from 500 ppm to 15 ppm.

The economists also looked back at the cost impact of EPA’s Tier 2 standards, issued in 1999. EPA estimated those standards, which cut sulfur in gasoline from 300 ppm to 30 ppm, would result in a 2-cent-per-gallon increase in refinery costs.

“Importantly, Tier 2 had no statistically significant impact on the retail price of gasoline,” the report states.

Hal Singer of Navigant, one of the report’s authors, said that suggests API’s projections are off base.

“If the cost this time is half what it was last time, and there wasn’t any increase to consumers last time, then there won’t be any this time,” Singer said.

The report comes as the Tier 3 standards have been the subject of controversy on Capitol Hill.

Kentucky Rep. Ed Whitfield, a top Republican on the House Energy and Commerce Committee, has introduced legislation that would delay the standards, as well as impending regulations for greenhouse gas emissions from refineries and air quality standards for ground-level ozone. The bill has been rolled into a package of anti-regulatory, pro-exploration bills that could see a vote on the House floor next week (E&E Daily, May 18).

Industry groups questioned the study, noting that it relied on data from companies that sell and install desulfurization equipment and, consequently, would benefit from refineries having to retrofit their facilities.

Further, API spokesman Carlton Carroll said the ECTA analysis used the same “flawed study” cited by EPA with “oversimplified modeling of refineries.”

“Refineries have spent billions of dollars to reduce sulfur in gasoline by 90 percent over 10 years, and EPA has not provided any evidence that a further reduction would provide any environmental benefit,” Carlton said. “We are concerned that adding unnecessary costs and regulatory burdens is bad public policy and would end up burdening consumers.”

Environmentalists contend that the sulfur reduction would result in significant health benefits. A 2011 study by the National Association of Clean Air Agencies said the standards would reduce vehicle emission of nitrogen oxides by 29 percent and other volatile organic compounds associated with health effects by a quarter by 2030. The study contends that those cuts would result in more than 400 avoided premature deaths per year.

Frank O’Donnell, the president of Clean Air Watch, said the new study guts industry’s objections to the standards.

“This new report demolishes the entire premise of their … attack on Tier 3 and low-sulfur gas,” he said