Auto, Oil Industries: Partners in Environmental Progress

Following are remarks by Red Cavaney,
President of the American Petroleum Institute, to the
Society of Automotive Engineers Government/Industry
Conference in Washington, D.C., on April 21, 1998

I'm honored to join you here to participate in this year’s SAE conference. This morning I would like to share with you some observations on our nation’s clean air future, and on how the automobile industry and the oil industry are working together to get us there. I’ll also spend a few minutes describing the fuel industry’s Tier 2 low-sulfur gasoline proposal.

Let me start, however, on this day before Earth Day, by noting one of the first things I learned when I started with API six months ago. You may be familiar with this statistic, but it was an encouraging surprise to me, as I imagine it would be to many Americans. A new car sold in 1998 -- using today’s cleaner gasolines and automotive environmental control technologies -- emits 95 percent fewer harmful tailpipe emissions than a new car sold in 1970. Ninety-five percent fewer -- that’s great progress by anyone’s standards!

As a result of that progress by both the oil and auto industries, today’s motorists account for a much smaller share of total emissions -- which also keep declining steadily -- than on the first Earth Day. In 1970, highway vehicles produced almost half of our nation’s emissions -- but, by 1996, only 36 percent of our nation’s emissions came from mobile sources. Importantly, that’s 36 percent of a smaller total of nationwide emissions -- a basic reason why EPA data show that the air is significantly cleaner now than in 1970. Moreover, this progress was made while the nation’s economy more than doubled in size and while the number of miles driven on our highways has grown even faster.

The oil and auto industries can take great pride in what has been accomplished -- especially in the last decade. Federal reformulated gasoline -- now one-fourth of all the gasoline sold in the United States -- has effectively eliminated the emissions equivalent of eight million vehicles, again according to EPA figures. Additionally, the state of California says that its special, costlier reformulated gasoline has had the effect of eliminating the emissions of another 3.5 million vehicles.

Significant Environmental Progress Since First Earth Day

As a result, since that first Earth Day in 1970, improved fuels in cleaner-running vehicles have reduced highway vehicle emissions by an amount that exceeds reductions in emissions from all other sources. I know many of you have played key roles in this tremendous accomplishment. You deserve much credit!

Our work now in the oil and auto companies, along with EPA and state regulators, is trying to get at that last 5 percent of tailpipe emissions. It won’t be easy. We’ll have to work smarter than ever before. And, we’ll have to work together. Looking forward, I see a continuing and strong partnership between the auto industry and the oil industry to meet the daunting challenges on the horizon. For many years yet to come, the future of the automobile industry and the oil industry is one and the same -- our industries are inextricably linked.

I’m aware some of you may take exception to that statement. Possibly, you are involved in cutting edge R&D searching for alternatives to gasoline. Or, you may be thinking I’m too new in the job to have heard about fuel cells, EVs, PNGVs, and all the other acronyms. I assure you that I’m aware -- and impressed -- by the promise of these technologies for the new generations of vehicles down the line. Many of API’s member companies are investing in joint ventures in these encouraging areas.

Yet, even with the most optimistic application scenario, given the number of automobiles being put on the road each year and their potential serviceable life, it will likely be well beyond the next decade before any new technology begins to lessen the preeminence of the gasoline-fueled internal combustion engine -- as we know it today and as it will be improved upon in coming years.

At times, our industries bicker like some long-married couples. Maybe we know each other all too well -- every wrinkle, every flaw, every limitation. However, the auto and oil industries have stayed and will stay married -- for better, not for worse. We will keep finding ways to make the relationship work. To continue the marriage analogy, you might even say we stay together because of the needs of our extended family -- our common customers.

We each have a responsibility to our shared customers to deliver the best product to meet their needs at the lowest price. Each of us has a responsibility to serve our customers in the best manner possible, while ensuring we honor our fiduciary responsibility to our stakeholders -- our shareholders, our employees, our suppliers and our communities. We take that responsibility seriously.

Auto, Oil Industries Provide Essential Mobility, Freedom

Millions of Americans depend on us to do our very best, to provide the mobility and the freedom they need and enjoy, while improving our environmental and safety performance. We cannot, and should not, fail them. As industries, we will continue to change, evolve, grow -- and work to improve our unique relationship.

As in any partnership, neither party has a right to have everything their way. It’s all a matter of whose shoes you’re standing in. The auto industry asserts its perspective, and we in the oil industry declare our views. Then, we can work together with our partners in government to make sure that the consumer -- our customers in common -- are treated right.

So where does government fit into my marriage analogy? As a society, we have a choice. One approach would be to call in regulators like patrolmen in an episode of "COPS." When the arguing gets too loud, the neighbors call 911, and the police show up while everybody continues shouting until matters get sorted out.

Instead, on behalf of the oil industry, and I would hope the auto industry, I’d like to think of regulators taking on the occasional role of impartial marriage counselor. Government, through both legislation and regulation, sets the goals and establishes the framework for an open and honest discussion on how to get there. Regulators have the crucial job of weighing the evidence, identifying the key issues we need to work on, and keeping us on track. I understand EPA has a study forthcoming that will help frame these issues, and we look forward to more focused discussions in that regard.

However, we in industry know we have to do the heavy lifting, day in and day out, if we are going to make the progress our customers expect of us. We in the fuels industry are committed to the process -- but also to getting results.

Priorities: Cost-Effective, Fair, Science-Based Decisions

To ensure we do get results, we in the oil industry have some principles we suggest should guide our joint efforts.

First, policies -- particularly those in the environmental arena -- should be shaped by the best possible science. Policymakers should target their efforts where they can make a real difference in public health or environmental quality.

Second, environmental benefits should be achieved at the lowest possible cost to our customers.

And third, policies should strive to hit a fair and equitable balance between the complexity of needs and problems across this vast nation and industry’s understandable desire for straightforward, simple regulations that can be implemented cost-effectively.

With those principles in mind, let me now turn to the oil industry’s proposal to produce a new generation of lower-sulfur gasolines.

As most of you know, sulfur is a natural component of crude oil, from which we make gasoline and other products. Sulfur in gasoline diminishes the efficiency of an automobile’s catalytic converter, producing an increase in nitrogen oxide -- NOx -- and other polluting tailpipe emissions. Currently, standards for gasoline established by ASTM include a cap of 1000 parts-per-million of sulfur, intended to prevent engine wear and corrosion of vehicle exhaust systems. The level of sulfur in today’s conventional gasoline is generally much lower, averaging 347 parts-per-million. Still, however, almost one-fourth of conventional gasoline has a sulfur level above 500 parts-per-million.

Now, as required by the 1990 Clean Air Act Amendments, EPA is evaluating whether more stringent tailpipe emission standards will be needed to help the nation achieve its air quality goals. If EPA decides to impose these so-called "Tier 2" standards, as expected, regulations are likely to be proposed by the end of 1998, finalized the next year, and implemented possibly beginning in 2004.

Assuming EPA chooses to go ahead, the auto and oil industries are advancing different proposals to try to achieve these air quality goals. Not surprisingly, the auto industry has made a proposal recommending very low sulfur levels. Also not surprisingly, the oil industry has a different proposal. Let me briefly explain why, with all due respect, we think ours is better.

Oil Industry’s Cleaner, Low-Sulfur Gasoline Proposal

With the principles of cost-effectiveness, fairness and science-based decisions in mind, the oil industry has come together to propose that it be allowed to make two new conventional gasolines. A cleaner, lower-sulfur gasoline averaging 150 parts per million of sulfur in the summer would be provided to help meet air quality needs in 22 Ozone Transport Assessment Group (OTAG) states and in the District of Columbia. Other states could opt-in to use this gasoline, if they demonstrate a need under the Clean Air Act.

For parts or all of the remaining 27 states -- states where air quality problems, in many cases, are minimal or nonexistent -- the industry would make a second lower-sulfur gasoline with a sulfur average of about 300 parts per million. The 50th state, California, would continue to use the special reformulated, low-sulfur gasoline it now requires. And, some areas outside California would use a federal reformulated gasoline which would also average 150 parts-per-million of sulfur.

We believe this proposal strikes the right balance. It would prevent the proliferation of local, boutique gasoline specifications that would wreak havoc with our nation’s fuel distribution system. A major advantage of the oil industry’s proposal is cost-effectiveness. It would match the emission benefits of lower-sulfur gasoline with the air quality needs of particular areas. Since reducing sulfur is costly, consumers would not be faced with paying for a higher cost gasoline than their region’s air quality requires. People in Wyoming, Nebraska and other states without air pollution problems wouldn’t have to pay a premium for California-style gasoline they don’t need or want.

Goal: Environmental Gains Where Needed at Least Cost

All of us know from experience that the cost of a gallon of gasoline is an issue of tremendous sensitivity among consumers. Yet, we also know our customers want improved air quality in regions where there are still gains to be made. The oil industry’s proposal, which we estimate would cost about $3 billion in capital investments for sulfur reduction processing equipment, would translate to a few cents per gallon -- probably two to three -- in areas where it is sold.

However, were EPA to set lower sulfur levels, at 80 parts per million for example, costs would be much higher per gallon, we believe unnecessarily. We absolutely do not believe our customers want to pay higher costs in areas like the Rocky Mountains where they would observe only minimal -- if any -- gains in air quality.

But, where improvements are needed, the oil industry’s proposal would deliver. When the 150 parts-per-million sulfur gasoline is introduced in the designated OTAG states, the environmental impact of using it in the fleet of existing vehicles would be like removing the NOx emissions equivalent of nearly 16 million cars. Or in other words, like taking one out of every six cars off the road. Even more important, emissions would be further cut when used in new Tier 2 vehicles.

Further, we believe that the Tier 2 vehicles of the future should be able to be certified, using the fuels the industry is proposing. A joint auto-oil study by the Coordinating Research Council of Atlanta found that some current-technology vehicles produce very low emissions, even when running on gasoline whose sulfur level is higher than the current average. A Toyota Camry, designed to run on very low-sulfur California gasoline, produced emissions that met federal Tier 2 tailpipe standards even when operating on conventional gasoline with sulfur levels between 500 and 600 parts-per-million.

In closing, I think it’s significant that 98 percent of the American refining industry’s capacity came together, developed and supports our proposal. If the EPA were to recommend new Tier 2 tailpipe standards, and adopt the oil industry’s proposal for low-sulfur gasoline, the next generation of vehicles would cut the tailpipe emissions of current cars by more than half. That’s a sizable reduction on top of an already impressive record of reductions.

We in the oil industry are ready, willing and able to take that step. I stand here before you today on behalf of our industry, pledging to meet anywhere, to spend any time, to do whatever it takes to work together with our auto and government partners to ensure that by year-end we have a proposal that will keep clean air progress significantly moving forward. It’s what our customers want. It’s what we want.