Standards for Low-sulfur Gasoline

Background

This issue involves the reduction of sulfur content in gasoline. Following the Clean Air Act of 1990 the EPA began to investigate the effects of sulfur on the environment. Sulfur is a precursor of acid rain, it produces large molecules in the air that trigger asthma, and it reduces visibility. All crude oil contains sulfur. A technical consensus developed concerning the importance of sulfur in gasoline. Much of this stems from a 5-year, $40 million joint Auto-Oil research project. The effort tested various fuel recipes and engine improvements and it became clear that sulfur reduction was the most effective way to attain cleaner emissions. Since this was an industry-sponsored study, and because of the scope of the project, these results were especially important in establishing a technical consensus on the potential importance of sulfur in reducing emissions. However, as a relatively arcane technical report, the findings were not widely publicized and many even in the air pollution community were not aware of it. (Later, when the study gained more publicity as it was used by environmentalists and by the auto companies to generate support for the idea of reducing sulfur content, it was invaluable because even the oil companies could not deny the validity of the technical evidence.)

In early 1998 the EPA began reviewing Tier 2 standards, which refers to national standards for cleaner gasoline, but at this time even EPA did not have a particular focus on low sulfur standards as opposed to other means for reducing emissions. A focus on sulfur was politically risky since it involved a direct attack on the oil industry, which could be expected to resist the proposal. For example, oil companies could charge that the real issue is the size of automobiles, or the number of cars, or the clean-burning capacities of automobile engines, thus shifting some of the burden from oil to the car companies. In any case, the EPA initially proposed a reduction from 300 parts per million (ppm) of sulfur in gasoline to half that level, 150 ppm. After this initial proposal a number of groups began to mobilize and from March to May 1998 the issue began to draw increasing attention. Various conferences and panel debates were held among experts but the issue remained esoteric to the general public. However, in the technical communities and among environmentalists and air pollution control officials at the local level, attention increasingly focused on the sulfur issue. On May 12, 1998 the EPA submitted a Tier 2 Report to Congress, providing a compilation of data relevant to the technological feasibility of refining low sulfur gasoline and suggesting possible standards. The national average amount of sulfur in gasoline is 340 ppm with a range from 200 to 600 ppm. The EPA was proposing to reduce sulfur levels to 30 ppm by 2004. The effects of these regulations were clarified by a study released May 12, 1998. A state-by-state analysis showed that 54 million cars would have to be taken off the road in order to achieve the same level of emissions reductions as reducing sulfur to the level of 30. This second study, with its pithy and easy-to-understand conclusion that the reduction would be equivalent to removing over 50 million cars from the road, was especially compelling to the public and received considerable attention.

In November 1998 California adapted the second phase of its low emission standards, and this quickly became the marker for the EPA. Senator Daniel Moynahan (D-NY) introduced a bill in the Senate in 1998 and again in 1999 that called for the same measures by legislation as the EPA regulations. Supporters of the regulation were also able to enlist support of Henry Waxman (D-CA) and John Dingall (D-MI). With Waxman, known and one of the staunchest air pollution control advocates in Congress, and Dingall, equally well known as a consistent champion of the automobile industry, both publicly on record in favor of tougher sulfur standards, EPA was put on notice that its own regulatory efforts would be met with support rather than hostility in Congress. Congressional activity through legislation was not expected—the bills that Moynahan and others introduced were not expected to pass but rather stood as a signal to the EPA that the agency would have powerful supporters in Congress and need not fear congressional interference. In December of 1999 President Clinton announced the final standard, of 30 ppm, that was to be adopted.

Environmental groups, companies producing technology for removing sulfur and auto and engine manufactures are in support of stronger EPA regulations. The opposition comes from the oil refineries. The oil industry has acknowledged the need for regulations but advocated regional standards instead of national standards and argued for a longer time span for implementation of the regulations. Smaller refineries in particular were opposed to these regulations, as they argued they could increase their costs and potentially put them out of business. The large refining companies were not so mobilized; in fact some argued that they would be just as happy if these smaller competitors were placed at a disadvantage. Since the smaller refineries were predominantly located in the Western states, the Western Governor’s Association was also active in advocating different regional standards (e.g., higher allowable sulfur content in the West), and for a longer phase-in period. Different regional standards were eventually dropped when automobile and engine manufacturers, with the support of the environmental community, argued that burning “dirty fuel” in an engine designed to take advantage of “clean fuel” would permanently damage the engine, resulting in greater emissions even after the automobile returned to burning the cleaner fuel.

In the face of technical studies demonstrating the importance of sulfur content, with a well orchestrated campaign by environmental groups (supported by the automobile industry and local emissions control officials), and with some highly visible studies demonstrating the value of the new regulation, EPA Administrator Browner was encouraged to tighten the regulations significantly even though the Administration’s own initial proposal had been much weaker. In the end, President Clinton announced the final standard, a 90 percent reduction in sulfur content, a move that stands as one of his bolder environmental accomplishments. (This regulation dealt only with gasoline. Several participants in this debate, in interviews in 1999, indicated that the oil industry would fight any similar move for diesel fuel, which they argued would be much more difficult and expensive to attain. However, in one of many last-minute executive orders enhancing his environmental legacy, President Clinton adopted stringent sulfur-content regulations on diesel fuel, just before leaving office in January 2001. This was done without significant public debate.)

It is estimated that the regulations will cost the oil industry $4 billion resulting in a rise in gasoline prices from 5 to 8 cents per gallon. There is a hope that new developments in technologies will reduce the cost of removing sulfur from gasoline in the future.

Participants

Major advocates include:

Clean Air Trust
STAPPA/ALAPCO - State and Territorial Air Pollution Program Administrators / Association of Local Air Pollution Control Officials (a group of state and local pollution control officials across the country)
Environmental Defense Fund
American Lung Association
Environmental Protection Agency

Other supporters of the regulations include:

Alliance of Auto Manufacturers
Sierra Club
W.R. Grace & Co. (one of several manufacturers of the equipment that oil companies will have to purchase in order to reduce sulfur content. In fact, since different commercial processes promoted by different producers have the ability to reduce sulfur content to different levels at different costs, these various producers also argued for different sulfur-content regulations. Different technologies were able to reduce the level to 150ppm, for example, than were able to reduce it to the final standard of 30.)
U.S. Public Interest Research Group
Union of Concerned Scientists
Manufacturers of Emission Controls Association
Engine Manufacturers of America
Association of International Automobile Manufacturers

The core of the opposition is composed of the oil companies and western interests, specifically:

American Petroleum Institute
National Petroleum Refiners Association
Western Interstate Energy Board
Western Governors Association

Since the issue was focused on a regulatory procedure rather than on legislation, only a few Members of Congress played important roles: Moynahan, Waxman, and Dingall. Even those were less important than EPA, however.

Arguments/ Impediments

Proponents:

Advocates of low sulfur regulations in gasoline are a surprisingly mixed group, including environmentalists, auto and engine manufacturers, and producers of technology that would be utilized to reduce the sulfur in gasoline if the regulations were implemented.

The environmentalist’s chief argument is the significant improvement this would have on air quality, the reduction of acid rain and the environment generally. The 54 million cars study really crystallized the massive impact these regulations would have on improving emissions. Lower-sulfur gasoline would mean cleaner air and therefore fewer respiratory problems. In California, cleaner gasoline has been cited as the single most effective pollution reduction measure since the introduction of the catalytic converter in the 1970s. Advocates also suggest that lower-sulfur gasoline could make a big improvement in global warming because it would permit introduction of more efficient new technologies, including "direct injection" gasoline engines and hybrids, which would mean less carbon dioxide.

They argued against the opposition’s call for regional or state standards. An environmental advocate explained it as, "You start out with clean gas here in DC but at a certain point you fill your tank with dirty gas. When you get clean gas again, the question is does your engine revert back to the previous level of efficiency, or is there a loss from ever burning the dirty gas in your car? There was a lot of technical work done on this issue, and there was a particular scientist from Johnson Mathy Corp who showed that an engine can’t run using both kinds of fuel."

There is also a consumer protection / product liability aspect to this argument. Problems would arise if a car is sold that is designed for clean gas but dirty gas is easily available in certain parts of the country and using that dirty gas can ruin the car, or cause a costly repair or replacement of the catalytic converter. The car companies were very concerned about suits for ruined catalytic converters. Once this was accepted it became clear that a national standard was the only feasible option.

The auto and engine manufacturers argue that they cannot make emissions any cleaner without cleaner fuel. Since 1966, there have been reductions of about 96% in engine emissions. The vast bulk of these have been made with little change in the fuel. The joint auto-oil industry study indicating the importance of reducing sulfur content was powerful ammunition to the auto and engine companies in their efforts to shift some of the burden to the oil companies.

Opponents:

One of the opposition’s major arguments concerns the cost to refineries. If the standard were set too low and the cost too high, many small refineries would not remain profitable and would go out of business. Those companies large enough to sustain the costs would have to pass it along to consumers resulting in higher gas prices. The closure of refineries may result in price spikes and market fluctuations.

The oil industry feels that reducing sulfur nationwide to the level of the proposed regulations is drastic; they believe it is unnecessary to achieve or maintain good air quality and could result in consumers in some areas paying more for gasoline than necessary.

Industry advocates have estimated that national regulations would cost $4 billion while a regional focus, as they advocate, would cost only $2 billion. The idea was essentially to divide the country into east and west, and have a standard of 150 ppm in the east and 300 ppm in the west. This they felt, would be low enough, and it would target the reductions to where they are needed the most while corresponding to existing distribution networks.

The opposition is also concerned about the issue of supply and the possibility of fuel shortages. They caution that the proposal in its current form will not allow refiners to deal with necessary maintenance and other repairs and outages which occur during routine operation of the refining system. As one industry advocate pointed out "The current high utilization rate of U.S. refineries leaves little room for error, and the new restrictions on sulfur content could stretch the industry beyond the breaking point." They feel the wrong agency is involved in this debate, as another advocate put it, "we’ve got energy policy being made by an environmental agency, but they don’t seem to be concerned about issues such as national availability and supplies and making sure the distribution system in this country works."

In fact at one point during the process the refiners were able to get the Department of Energy involved in the issue. Their focus was completely different. Though this regulation was finalized in December 1999, oil company officials noted in the summer of 2000 how the spike in gasoline prices, reaching above $2.00 per gallon across the Midwest, demonstrated a serious problem in the national supply and distribution system. They argued vociferously that the DOE, not the EPA, should be making energy policy. The argument here is on energy supply and the inflationary effects of higher fuel costs.

Impediments:

Proponents faced no notable impediments once they were able to gain attention to the issue. However, this was not so simple in the early part of the process. The real issue was to get a wide range of environmental groups to agree to focus on sulfur content, as opposed to any other means, for reducing emissions. Convincing Administrator Browner that the issue was a political winner was also an important hurdle.

The opposition, on the other hand, had more significant problems in spite of their economic muscle. Most important, there were technical studies supporting the other side. Further, there was a question of unified outlook: The large refineries, which were able to handle the cost of implementing the regulations, were not very concerned if the smaller refineries disappeared. While the oil industry as a whole opposed the regulations, because of the differential impact on the large and small producers, there was not as much of an industry-wide mobilization as one might have seen otherwise.

Venues

This issue’s primary venue is the Environmental Protection Agency.

Lobbying Activities and Tactics

Proponents:

Advocates of the EPA regulations did a large amount of media activity. They held a media event with state regulators the day the EPA released its report. The environmental groups worked with the Lung Association generating inside-the-beltway support and letters to the EPA, encouraging them to focus on this issue and assuring them that they would have support on low sulfur standards. A small coalition of advocates met with officials at the Department of Energy following DoE statements that were hostile to the regulations. They met with the OMB and explained the reasons that a single federal regulation was necessary. The sulfur removal industry submitted comments to the EPA docket on the Tier 2 proposal.

Opponents:

Opposition to the regulations worked with the Department of Energy, which supports the industry’s concerns of fuel shortages. The oil industry is seeking a formal role for the DoE in the future, as of now it does not have one. They were also involved in some Congressional Hearings. Because of disunity among members they did not devote a large amount of resources to this issue. The Western Governors’ Association and the Western Refiners were active in mobilizing their congressional allies and in portraying the issue as a regional question through various public statements. However, the EPA was armed with more technical information and rejected these arguments.