Refiners rebuff Obama’s concessions on sulfur limits in gasoline

Refiners say concessions offered by the U.S. Environmental Protection Agency in an order issued today to reduce smog-producing sulfur in gasoline (NYMEX:RBJ14) aren’t enough and the rule will still result in higher prices for consumers.

Known at Tier 3, the rule requires a two-thirds cut in sulfur in the fuel to 10 parts per million by 2017 from a cap of 30 parts today. Refiners has fought the long-delayed plan, saying it would be expensive to implement and set too tight a timeline. The agency gave smaller refiners three additional years to comply and offered larger companies a way to trade credits to ease the sting of implementation.

“We focused a lot on the flexibilities we could provide,” Janet McCabe, the head of the EPA’s air pollution office, said today on a conference call with reporters.

The new regulations sparked years of conflict between automakers, which support cleaner fuels that lower their costs, and the oil industry, which will bear billions of dollars in extra costs. Automakers back the rule because individual states are starting to mandate changes and low-sulfur gasoline will help them meet higher fuel-economy standards. Sulfur occurs naturally in crude oil and can build up on a vehicle’s catalytic converter, making the device less effective over time.

Representatives of refiners such as Exxon Mobil Corp. say complying with the EPA’s rules will cost them billions of dollars and won’t provide significant health benefits.

Higher Costs

“This rule’s biggest impact is to increase the cost of delivering energy to Americans, making it a threat to consumers, jobs, and the economy,” said Bob Greco, head of the downstream group at the American Petroleum Institute. “But it will provide negligible, if any, environmental benefits. In fact, air quality would continue to improve with the existing standard and without additional costs.”

The EPA estimates that the rules, once phased in, would raise the cost of a gallon of gasoline by 0.65 cents and the price of a new vehicle by $72. The total cost in 2017 will be $1.1 billion, which will be dwarfed by an economic accounting of health benefits, according to the EPA.

Supporters of the rules, including the American Lung Association and state clean-air agencies, say limits on sulfur emissions may be one of President Barack Obama’s most significant environmental initiatives by cutting smog, which has been linked to asthma, lung cancer and heart disease. It will help states and localities meet federal ozone and other standards, while cutting sicknesses and preventing 2,000 deaths a year, according to the agency.

Effective Step

“We know of no other strategy that will clean the air as cost effectively as Tier 3,” said George S. Aburn, director of the Maryland Department of the Environment.

The rules were also backed by automakers such as General Motors Co., which says it will help them meet fuel-economy standards and matches federal rules to those already in place in California and 12 other states, allowing them to use one type of technology nationwide.

“The benefit from our standpoint is that we get to do it once, rather than several times,” Mike Robinson, vice president of GM, said on a conference call arranged by the EPA.

The EPA said its estimates of the costs of the rules were cut since it first proposed the standards last year. It extended the deadline for small refineries and the new credit trading and banking system will let refineries focus investments initially and phase-in their costs.

Also, with California and other states setting a standard for sulfur at 10 parts per million, the additional costs for refineries is less than previously estimated, according to the EPA’s analysis.

Refineries weren’t convinced by the EPA’s olive branch.

“We still don’t have any assurance that the supply of credits into the system will be sufficient for refiners that could delay compliance,” Carlton Carroll, a spokesman for API, said in an e-mail. “EPA is essentially saying ‘trust us’ there there will be enough credits.”

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