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Tier 3 and the Energy Regulatory Wave

Mark Green's picture
Mark Green 2131
American Petroleum Institute

Mark Green joined API after 16 years as national editorial writer in the Washington bureau of The Oklahoman newspaper, capping a 30-year career in print journalism. At API he is responsible for...

  • Member since 2018
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  • Apr 8, 2013

regulationsReasons why the oil and natural gas industry talks about a regulatory “tsunami” coming down from EPA:

  • A newly proposed Tier 3 rule to further lower sulfur content in gasoline – that would have “very small” additional environmental benefit, according to a recent study. At the same time, it could increase the manufacturing cost of gasoline by up to 9 cents per gallon. (More on Tier 3 below.)
  • Increases in the federal ethanol mandate under the Renewable Fuel Standard – which could add to the manufacturing cost of gasoline by about 30 percent by 2015, according to a study by NERA Economic Consulting. (Posts on that here, here, here and here.)
  • A potential vapor pressure reduction requirement that could increase refinery costs.
  • An expected Refinery Sector Rule, new ozone requirements and greenhouse gas controls for refineries.

API’s Bob Greco, group director for downstream and industry operations:

“There is a tsunami of federal regulations coming out of the EPA that could put upward pressure on gasoline prices. EPA’s proposed fuel regulations are the latest example. Consumers care about the price of fuel, and our government should not be adding unnecessary regulations that raise manufacturing costs, especially when there are no proven environmental benefits.  We should not pile on new regulations when existing regulations are working.”

Part of an all-of-the-above approach to energy is a regulatory posture that’s transparent, based on sound analysis, accounts for the cumulative effects of multiple regulations and avoids duplicative, unnecessary layers – all of which contribute to regulatory stability and certainty, fostering energy investment. EPA’s “tsunami” would head in the wrong direction.

Take transparency. In a conference call with reporters, Greco said there’s been little from EPA on its analysis to justify the Tier 3 proposal to continue lowering sulfur levels in gasoline. “I can’t tell you what’s in EPA’s analysis because they haven’t released it yet,” he said. “I’m kind of shooting at a ghost here in talking about EPA’s analysis.”

On the Tier 3 proposal, a study by ENVIRON International Corporation hits at the heart of industry’s concern for EPA’s current path – a new rule that would result in little environmental benefit while imposing significant costs on the manufacture of gasoline. The study says that while large benefits have and will continue to result from the earlier Tier 2 rule cutting the amount of sulfur in gasoline about 90 percent over the past decade, further reducing it under Tier 3 won’t make ozone concentrations that much better. The study:

“… nationwide implementation of more stringent (light-duty vehicle) emissions standards … along with further reductions in gasoline sulfur content would yield only very small additional improvements in 2022 summertime ozone concentrations, even when considering the in-use fleet emissions impact of the lower gasoline sulfur content.”

Greco pointed out that industry invested about $10 billion in environmental mitigation equipment to get that 90 percent sulfur reduction. He said ENVIRON’s analysis shows that taking out the last bit of sulfur in gasoline, requiring massive costs, would not lead to measurable ozone reductions. Ironically, the additional energy needed to refine gasoline to meet the Tier 3 standard would actually increase greenhouse gas emissions from refineries, he said. Greco:

“EPA’s new Tier 3 gasoline proposal is a prime example of what happens when regulators ignore facts and hard science. … On the ozone side, even EPA says that the ozone benefit will be 1 to 1½ parts per billion at best. We’re saying it’s going to be a half-part per billion. … Neither one of these should be portrayed as significant ozone benefits, particularly in contrast to what we’re accomplishing now. We have a Tier 2 requirement that’s still being implemented. Only about 40 percent of the vehicles on the road are meeting that. That will continue to increase. You’re going to continue to see ozone benefits from the 90 percent sulfur reduction. … Let’s take advantage of that benefit before we start tightening the screws to get that last bit of sulfur out for marginal if any benefit.”

The larger issue, again, is the cumulative impact of where EPA appears to be heading. As Greco told reporters, there seems to be a disconnect between the agency’s agenda and Americans’ everyday energy reality:

“While few would dispute the benefits of fact-based, scientifically valid environmental regulations, EPA should always take care to avoid imposing ineffective and excessively costly rules that pose a serious threat to the industry’s ability to produce the fuels that are essential to America’s economy. Because, in aggregate, these unwarranted regulatory burdens are a threat to our nation’s reemergence as a global energy leader and could dampen one of the few economic bright spots in our economy. These regulations will only increase fuel (manufacturing) costs, produce little if any environmental benefit and potentially could cost thousands of Americans good-paying jobs.”

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J Elliott's picture
J Elliott on Apr 8, 2013

Why are you surprised by this latest EPA Tier III regulatory action?  Doesn’t the EPA have a history of exaggerating the health benefits by at least a magnitude (10X) and grossly underestimating the compliance costs?  After all, the Agency is run by politicians that have alternative motives such as global warming and plans of eliminating all fossil fuels regardless of the costs/benefits.  These same politicians rarely let the lack of scientific evidence or facts and lack of sound economic costs-benefits get in the way of reducing fossil fuels consumption and associated horrible pollution (regardless of the concentrations and actual-feasible health impacts).  The Tier III fuel standards claimed benefits of saving children’s lives and health read nearly identical as Tier I regulations did 30+ years ago when actual vehicle tailpipe emissions (pre-1974) were a 100+ times greater and smog was a real risk in many large cities.  Diminishing benefits and excessive costs mean nothing to many political bureaucrats.

Bob Meinetz's picture
Bob Meinetz on Apr 9, 2013

Mark, 71% of Americans support the EPA in their efforts to require reductions in carbon emissions, despite the blizzard of industry propaganda you continue to present from your organization and paid public relations firms masquerading as “consultants”. This data comes from polling by the Republican firm Public Opinion Strategies, which also noted that:

“Americans across the country — including Republican voters — trust the EPA to limit global warming pollution,” said League of Conservation Voters Senior Vice President of Campaigns Navin Nayak.”

Here’s the chart on different levels of support for EPA global warming pollution standards for viewers of different networks:

These results are consistent with over a dozen polls taken in the last two years.

Bob Meinetz's picture
Bob Meinetz on Apr 9, 2013

J Elliot, what alternative motives are there in global warming? Investments in suntan lotion and timeshares?

Seem the fuel oil industry, which brought in $100 billion dollars last year, would create a much more lucrative source from which dishonest politicians might profit.

Bobbi O's picture
Bobbi O on Apr 9, 2013

 J . Elliott,

  You may not remember ,but I do , industry made the same arguments 30 years ago for Tier I that they make today ; it cost too much for the benefit produced.

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