The U.S. petroleum industry agrees with the U.S. EPA that lower gasoline sulfur levels are needed to help ensure continued improvements in fuels and air quality. For more than a year, the industry has been meeting with the agency to discuss how to accomplish this while minimizing impacts on gasoline supplies and consumers.

EPA has now proposed a regulation to reduce gasoline sulfur. Adoption of the proposal would result in environmental benefits. But changes should be made to ensure that the requirements eventually adopted are as fair and affordable as possible. The petroleum industry will continue to work with EPA toward a final program of gasoline sulfur reduction that achieves these objectives.

Proposals to reduce gasoline sulfur
Under EPA’s proposal, gasoline sulfur levels would be reduced about 90 percent nationwide to the same levels now required in California, which suffers from the nation’s worst air quality. All consumers would pay for this costlier-to-manufacture fuel—those who live in areas with clean air as well as those who live in areas with serious air pollution problems.

A phased, regional approach makes more sense. Under a plan the petroleum industry presented to EPA last year, cuts in gasoline sulfur would be tailored to regional air quality needs. Greater reductions would be reserved for the East plus Missouri, Louisiana and East Texas, where air quality problems are more serious. On average, under the industry plan, sulfur levels would be reduced nationwide by about 50 percent, with further cuts to the levels EPA has proposed to be considered later. The industry plan would retain most of the benefits of EPA’s plan but at significantly lower cost to refiners and consumers.

The petroleum industry’s proposal: building on progress
The petroleum industry’s proposal to regulate sulfur in gasoline is the latest chapter in 25 years of improvements aimed at making petroleum fuels cleaner.¹ These improvements have contributed to substantial reductions in emissions from highway vehicles. Total emissions from vehicles have been cut by well over half, even though the nation as a whole drives more than twice as many miles annually. In fact, according to EPA statistics, emission reductions from cars and trucks have exceeded emission declines from all other sources combined. New cars today run 95 percent cleaner than those in the 1960s.

Despite this progress, the industry recognizes that more needs to be done to help the nation achieve its air quality goals. Reducing gasoline sulfur would make it easier for cars to reduce tailpipe emissions to extremely low levels. Higher sulfur levels in gasoline tend to impair the ability of catalytic converters to reduce emissions, although some car models on the road today produce only very small amounts of tailpipe pollution even when operating on gasoline with sulfur levels higher than either the petroleum industry or EPA is proposing.

Costs and benefits
With use of the industry’s proposed lower sulfur gasolines, emissions would be reduced in all cars, old and new beginning in 2004. (Further reductions in sulfur would follow in 2010—to the levels EPA is recommending for 2004—provided an EPA study concludes they are merited.) Emissions would be reduced much more in the East, where air pollution is more serious. Manufacturing costs would also be greater for the lower sulfur gasoline sold in the East. In the West, increased per gallon costs would be smaller, resulting in a minimal additional burden on consumers. Total added costs to refiners would be about $3 billion.

EPA’s proposal would reduce emissions more initially. Yet, the difference in impact on ozone levels versus the industry’s proposal would be extremely small—perhaps within measurement error. EPA’s proposal would also cost more than twice as much as the industry’s, raising the cost of making gasoline by more than $7 billion a year. Everyone would have to pay for this new higher cost fuel—even millions of people who live where the air already is cleaner than federal standards. For example, ranchers in Wyoming would have to pay for the same costlier-to-manufacture fuel as stockbrokers in New York, even though air quality in Wyoming and elsewhere in the West is excellent.

Impractical timing
EPA wants its proposed lower sulfur gasoline to be marketed in 2004. The petroleum industry has experience in retooling facilities and employing promising new technology to make cleaner and cleaner fuels—and providing them in the amounts required at competitive prices. However, given EPA’s ambitious schedule, refiners will be challenged to make all of the needed changes to their facilities. Obtaining permits and scheduling contractors to do the work could mean delays that could affect the amount of gasoline produced at least temporarily. The schedule could also prevent refiners from using potentially more cost-effective—but commercially unproven—sulfur reduction technology.

Banking and trading and small refiner preference
EPA has proposed an emissions banking and trading program intended to provide flexibility and to reduce the costs and adverse impacts of its proposal. However, the program is complicated, and the petroleum industry is concerned that it would not significantly reduce costs or meet other objectives. Some companies may not be able to generate credits or may not be able to use credits that are generated.

EPA has also proposed delayed implementation for some smaller refiners. The industry’s proposal provides all refiners with the time they need to raise enormous amounts of capital and complete major engineering changes to their facilities. A small number of refiners are entitled to special consideration under the Small Business Regulatory Enforcement Fairness Act. That law should be applied consistent with congressional intent.

Research backs regional approach
Research shows that the regional variations in sulfur levels under the petroleum industry’s proposal would not block further air quality progress. Cars in the West using the industry’s lower sulfur gasoline tailored to that region would produce lower emissions than today’s vehicles. Moreover, as peer-reviewed research conducted by the oil and auto industries has indicated, the small number of cars that travel to the East and switch to the lower sulfur gasoline required there would produce even lower emissions, nearly matching the performance of vehicles already using the eastern variety of lower sulfur gasoline.