A plan to slash the amount of sulfur emissions allowed from gasoline would hike prices at the pump about a cent per gallon, according to a study released today.
The findings in the Navigant Economics analysis, commissioned by manufacturers of emission control and sulfur-reducing systems, bucks a previous report for the oil industry that puts the potential cost at an extra 6 to 9 cents per gallon.
At issue is the Environmental Protection Agency’s proposal to cut sulfur emissions allowed from gasoline from 30 parts per million to 10 parts per million. The 30 parts per million limit was imposed in 2004, down from 300 parts per million before.
Reducing the sulfur content of gasoline allows catalytic converters to work more effectively, ultimately causing cars to emit fewer smog-forming emissions. For automakers, the change would allow the construction and use of cleaner combustion engines — giving them new ways to meet other environmental mandates.
But oil refiners say they would bear the brunt of such a change — with some of the extra costs passed on to consumers. A study by Baker & O’Brien Inc., completed for the American Petroleum Institute, said refiners would see their manufacturing costs rise by up to 9 cents per gallon (a smaller jump than the up to 35 cent per gallon hike the same analysts predicted in a different review a year earlier).
Navigant economists George Schink and Hal Singer said the proposal would offer big benefits for public health at a low cost for refiners.
“Naturally, the oil refineries are resistant to any regulation that increases their private costs, but as we demonstrate the societal economic benefits associated with (this proposal) are much larger than the private costs,” Schink and Singer said in their analysis.
The pair concluded by reducing respiratory illnesses, the emissions rule would generate an estimated $5.2 billion to $5.9 billion in annual health benefits by 2020. At the same time, the change would require refiners to install new equipment and make other upgrades with a pricetag of $4 billion over three years, Schink and Singer said.
The Navigant analysts cast doubt on the earlier Baker & O’Brien study, which they say unreasonably focuses on the potential cost increase for refineries that face bigger hurdles complying with the sulfur emissions rule.
“There is no basis for assuming that the refinery with the highest cost of compliance will be the marginal supplier of gasoline,” the Navigant study says. And there is no reason to believe, the study says, that the retail price of gasoline would increase by the marginal cost of compliance.
The price motorists pay at the pump is influenced by a host of factors, chiefly the global cost of crude oil, with refining costs playing a much smaller role, Schink and Singer note. “There is no certainty that even the small increase in average U.S. refining costs associated with reducing the sulfur content of gasoline to 10 parts per million would be passed on to consumers,” the pair concluded.
API said the new Navigant study misses the mark.
“Refineries have spent billions of dollars to reduce sulfur in gasoline by 90 percent over 10 years, and EPA has not provided any evidence that a further reduction would provide any environmental benefit,” said Bob Greco, API’s downstream group director. “We are concerned that adding unnecessary costs and regulatory burdens is bad public policy and could end up burdening consumers.”
API officials have said the new requirements could actually boost greenhouse gas emissions from refineries that would need to install new energy-intensive equipment to strip out sulfur.
“The only way to remove sulfur from gasoline is the installation of hydrotreaters, which are extremely expensive and extremely energy intensive, and they also increase your greenhouse gas emissions,” said Stephen Brown, a vice president for Tesoro, during an interview earlier this year.
