New EPA Gasoline Rule Could Raise Prices and Spark Political Pushback

A man checks gas prices at a Mobil gas station in Chicago, Thursday, Jan. 31, 2013. Gasoline prices are climbing as rising economic growth boosts oil prices and temporary refinery outages crimp gasoline supplies on the East and West Coasts. (AP Photo/Nam Y. Huh)
National Journal
Justice Gilpin-Green and Coral Davenport
March 7, 2013, 2:30 p.m.

The Obama ad­min­is­tra­tion today rolled out a con­tro­ver­sial new reg­u­la­tion for gas­ol­ine that could raise costs at the pump — only slightly, but enough to ig­nite im­me­di­ate push­back from Re­pub­lic­ans and the oil in­dustry.

The reg­u­la­tion will re­quire oil re­finer­ies to in­stall new equip­ment to strip gas­ol­ine blends of sul­fur, which when burned forms a smog-pro­du­cing chem­ic­al that is linked to res­pir­at­ory dis­eases. It’s also ex­pec­ted to raise the cost of gas­ol­ine by 1 to 6 cents per gal­lon, ac­cord­ing to early es­tim­ates.

EPA ac­tu­ally fin­ished writ­ing the reg­u­la­tion over a year ago. But it sat on the rule throughout the 2012 pres­id­en­tial cam­paign. After it came un­der at­tack from Re­pub­lic­an pres­id­en­tial can­did­ates — in­clud­ing former House Speak­er Newt Gin­grich, R-Ga., in an ap­pear­ance on NBC’s Meet the Press — plans to roll out the rule were put on ice un­til after Novem­ber’s elec­tions.

Any new reg­u­la­tion that will raise the price of gas­ol­ine — even by a few pen­nies a gal­lon — will fuel polit­ic­al fires.

The rule’s also likely to be­come a flash point of con­ten­tion in the con­firm­a­tion hear­ing of Gina Mc­Carthy, Pres­id­ent Obama’s pick to lead EPA in his second term. The rank­ing Re­pub­lic­an on the Sen­ate En­vir­on­ment and Pub­lic Works Com­mit­tee, which will hold that hear­ing, is Sen. Dav­id Vit­ter of Louisi­ana, a ma­jor oil-pro­du­cing and re­fin­ing state. Last month, Vit­ter wrote a let­ter to Obama ur­ging him not to move for­ward with the reg­u­la­tion, known as Tier 3. “The price of gas­ol­ine at the pump spiked up­wards in the last few weeks, and EPA’s Tier 3 pro­pos­al — if im­ple­men­ted — could drive prices up even fur­ther without ex­plan­a­tion,” Vit­ter wrote.

Clean-air ad­voc­ates say the new rule will have ma­jor health and en­vir­on­ment­al be­ne­fits for a low cost. Today, reg­u­lar gas­ol­ine con­tains 30 parts per mil­lion of sul­fur, which when burned pro­duces the tox­ic com­pound sul­fur di­ox­ide. The new rule will lim­it sul­fur in gas­ol­ine to 10 ppm, re­du­cing the pro­duc­tion of smog and soot from burn­ing gas­ol­ine.

“When this takes ef­fect, you will lit­er­ally see overnight emis­sions re­duc­tions,” said Wil­li­am Beck­er, ex­ec­ut­ive dir­ect­or of the Na­tion­al As­so­ci­ation of Clean Air Agen­cies. “There is not a single air-pol­lu­tion strategy that we know of that will give you as sub­stan­tial, ex­ped­i­tious, and cheap emis­sions re­duc­tions.”

Stud­ies by Beck­er’s group and the eco­nom­ic con­sult­ing firm Nav­ig­ant es­tim­ate that the sul­fur rules will in­crease the cost of gas­ol­ine at the pump by no more than a penny per gal­lon. However, an oil-in­dustry-fun­ded study by the con­sult­ing firm Baker and O’Bri­en found that the rules could raise prices as much as 6 cents per gal­lon.

Frank O’Don­nell, pres­id­ent of the ad­vocacy group Clean Air Watch, said, “In our view, it’s a vi­tal tool for at­tack­ing smog levels.”

Oil re­finers protest that the new rule will put an un­due bur­den on their in­dustry. Charles Dre­vna, pres­id­ent of the Amer­ic­an Fuel and Pet­ro­chem­ic­al Man­u­fac­tur­ers, which lob­bies for the oil-re­fin­ing in­dustry, said that the new reg­u­la­tion comes on top of a series of ad­di­tion­al bur­den­some reg­u­la­tions. A dec­ade ago, U.S. gas­ol­ine con­tained 300 ppm of sul­fur, but a series of earli­er rules re­quired re­finers to mix clean­er and clean­er blends, re­du­cing the sul­fur con­tent by 90 per­cent. “We’ve seen no evid­ence from EPA that fur­ther sul­fur re­duc­tion is needed,” Dre­vna said.

The new reg­u­la­tion, he said, will re­quire re­finers to in­vest heav­ily in ex­pens­ive equip­ment to re­move the ad­di­tion­al sul­fur from gas­ol­ine blends. The pro­cess re­quires tech­no­logy to heat oil to high tem­per­at­ures un­der high pres­sure and blast it with hy­dro­gen, and then to dis­pose of the sul­fur.

“It’s a very ex­pens­ive pro­cess. It’s really go­ing to have an im­pact on re­finer­ies,” Dre­vna said. “Every time we take a step for­ward to­wards a man­u­fac­tur­ing renais­sance, the EPA comes out with a new reg­u­la­tion.”

The Amer­ic­an Pet­ro­leum In­sti­tute, which lob­bies for the oil in­dustry, has re­leased a study say­ing the rule will force U.S. re­finer­ies to spend $10 bil­lion in or­der to com­ply.

Mean­while, the pro­spect of a new EPA rule from the Obama ad­min­is­tra­tion that will fur­ther boost already-high gas prices has Re­pub­lic­an cam­paign op­er­at­ives lick­ing their chops. “That’s like a Re­pub­lic­an fun­drais­ing e-mail,” said An­drea Bozek, as spokes­wo­man for the Na­tion­al Re­pub­lic­an Con­gres­sion­al Com­mit­tee. “This would be something we can really take ad­vant­age of. Little stuff like this can blow up if they don’t handle it right.”

CLA­RI­FIC­A­TION: It was a study fun­ded by the oil in­dustry, and not by Nav­ig­ant and the Na­tion­al As­so­ci­ation of Clean Air Agen­cies, that es­tim­ated that a forth­com­ing EPA reg­u­la­tion could raise the price of gas­ol­ine as much as 6 cents per gal­lon.