The oil industry has launched a major offensive against a new Environmental Protection Agency plan aimed at cleaning up gasoline and auto tailpipes. Sure, they’re waving scientific studies and all that, but are the oil giants really looking to preserve their windfall profits? That's the claim of the Natural Resources Defense Council.
In March, the EPA announced that it would seek to tighten auto emissions and cut sulfur in gasoline as much as 90 percent. Think that’s some techie thing you don’t need to worry about?
Wrong! If approved, the Tier III plan would dramatically cut a lot of the bad actors that make up air pollution. The low-sulfur rules alone could save 2,300 lives per year, EPA says. I could start talking about NOX, SOX, VOC and PM 2.5, but forget about all that—the feds say you’ll breathe better under Tier III, and that spells relief for the 158 million Americans taking in “non-complying” air now. If you want to know what happens when there's no EPA to clean up the air, just read this New York Times story about how awful it is to have a set of lungs (and be a kid) in Beijing.
It’s the sulfur reductions that have gotten the oil companies and their allies all riled up. They claim it will raise the price of gas six to nine cents per gallon, a big difference between the EPA’s claim of less than a penny a gallon. And they say that gas was already sufficiently cleaned up by Tier II of the federal regulations (which took sulfur in fuel from 300 to 30 parts per million).
“EPA’s new gasoline regulations are a prime example of what happens when regulators ignore facts and hard science,” the American Petroleum Institute’s Bob Greco told reporters. “Refiners have made massive investments in cleaner gasoline over the last decade and air quality will continue to improve under existing standards. . . .The additional energy needed to refine gasoline to meet EPA’s new proposal would actually increase greenhouse gas emissions from refineries.” Greco pointed to API’s own study that it said proved the new rules “would not provide measurable ozone air quality benefits.”
A bipartisan group of senators, mostly from oil states, agreed, claiming that Tier III’s evils include “importing more foreign energy, increasing our trade deficit, and reducing our energy security.”
The oil industry is somewhat isolated here. It's fascinating that the auto industry, often friendly to Big Oil, is on the same side as the environmentalists in this fight. Just as they supported President Obama's plan to get the car fleet to 54.5 mpg by 2025, they're supporting Tier III--in part because clean cars run better on clean gasoline. Says the Auto Alliance trade group, "Automakers have already reduced vehicle emissions by 99 percent, and we’re working to go further while also delivering high-quality, affordable vehicles to our customers . . . . Our advanced emission-control technologies that are necessary to meet the challenging 2017 to 2025 greenhouse gas and fuel economy standards will require cleaner, low-sulfur fuels similar to those available today in Europe and Asia."
Making its case, NRDC is testifying this week at Philadelphia hearings on the EPA plan. The group’s point is that this is really all about profits. Roland Hwang, the transportation policy director, told me, “I’m pretty jaded, but even I was stunned with what we found when our financial expert, Andy Stevenson, dug into the disparity between the industry and EPA claims about how much low-sulfur gas will cost.”
Stevenson says, “A closer look at API’s study reveals that the overwhelming majority of its ‘costs’ are not actually costs at all but windfall profits for the refining industry …. In its Draft Regulatory Impact Analysis, the EPA found that the main difference between these two cost studies was that the API study assumes a profit margin of four to seven cents per gallon for installing the new equipment.” In other words, NRDC said, it wants a 180- to 340-percent return on investment to meet Tier III.
Hwang is outraged. “An industry that made almost $120 billion in profits in 2012, and still takes $8 billion in federal tax subsidies every year, has the chutzpah to claim it wants to make $4 to $8 billion annually in windfall profits for the privilege of having cleaner air.”
Some refiners appear to be backing away from their big claims of gas price hikes if the standards become law. Valero Energy, the biggest American independent, says it will cost the company $300 to $400 million to meet the EPA rules, and NRDC translated that to just 0.63 cents a gallon.
I ran NRDC’s math past API, and spokesman Carlton Carroll responded. “I haven’t gone through this claim but the bottom line that these rules could hurt consumers by adding unnecessary manufacturing costs to gasoline,” he said. “This is government at its worst and completely out of touch with American consumers. EPA’s proposed Tier III rule would add nearly $10 billion in upfront capital costs; annual compliance costs are $2.4 billion—or six to nine cents per gallon produced, according to a study by Baker & O’Brien. The regulations would not provide measurable ozone air quality benefits, according to a study by ENVIRON.”
Carroll didn’t directly address the windfall profits claim. But it’s fairly safe to say that no matter how this works out, the oil industry isn’t going to end up slipping into penury.