Policy Documents

Research & Commentary: Tier 3 Standards for Gasoline

April 22, 2013

The U.S. Environmental Protection Agency (EPA) has proposed a new rule requiring gasoline refiners to reduce the sulfur content of their gasoline from 30 parts per million to 10 parts per million on an annual average basis by January 1, 2017. This rule is a further reduction from the previous Tier 2 standards, which lowered allowable sulfur levels from 300 parts per million to 30 parts per million, a 90 percent reduction at the time. The rule is intended to reduce air pollution and cut smog.

EPA expects the regulation to impose significant costs on refineries. According to the American Action Forum, the total cost for the industry will be more than $13 billion. With nearly half the country’s 50 largest refineries being in Texas and Louisiana, local economies in those states will absorb a disproportionate amount of the costs. Pennsylvania, Oklahoma, and Illinois also have many large refineries and will be hit significantly as well.

EPA contends every $1 in costs will be offset by up to $7 in health benefits created from the cleaner air the new rule aims to achieve. However, a study from ENVIRON International Corporation notes the change in emissions from Tier 2 to Tier 3 is relatively small when compared with the previous change from Tier 1 to Tier 2 and will have a “very small” environmental benefit.

The costs to refineries may also be more than EPA projects. According to consulting firm Baker & O’Brien, compliance with Tier 3 standards will increase the manufacturing costs of gasoline by six to nine cents a gallon, much higher than the one cent increase estimated by EPA in its proposal.

Gasoline is already a heavily taxed, heavily regulated product that is essential to everyday life and business. Lawmakers should avoid adding costly new regulations to gasoline, especially for negligible environmental and health benefits, given the significant economic impacts of high gasoline prices. 

The following documents provide additional information about Tier 3 standards for gasoline.

 

Ten Principles of Energy Policy
http://heartland.org/policy-documents/ten-principles-energy-policy
Heartland Institute President Joseph Bast outlines the ten most important principles for policymakers confronting energy issues, providing guidance to help withstand ongoing changes in markets, technology, and policies adopted in other states, supported by a thorough bibliography. 

Tier 3 Vehicle Emission and Fuel Standards Program
http://www.epa.gov/otaq/tier3.htm
The U.S. Environmental Protection Agency (EPA) describes its Tier 3 program mandating lower sulfur content of gasoline beginning in 2017. EPA projects the new fuel standard to cost on average less than one cent per gallon of gasoline. 

EPA Releases New Regulation Increasing the Price of Gasoline
http://www.detroitnews.com/article/20130402/OPINION03/304020310
Detroit News columnist Henry Payne reports California is the only state already imposing the Tier 3 standards and perhaps not coincidentally has gas prices 40 cents higher than in other states. 

EPA’s Tier 3 Will Increase Gasoline Prices and Reduce Fuel Economy
http://www.instituteforenergyresearch.org/2013/04/05/epa-will-increase-gasoline-prices-and-reduce-fuel-economy-in-bid-to-further-reduce-sulfur-in-gasoline/
The Institute for Energy Research offers a primer on EPA’s Tier 3 standards and explains why they will provide little if any environmental benefit at a steep economic cost. 

Ten Actions Congress Can Take to Lower Gas Prices
http://heartland.org/policy-documents/ten-actions-congress-can-take-lower-gas-prices
Heritage Foundation Fellow Nicolas Loris suggests there are at least ten actions Congress can take to remove barriers to oil production and supply and thereby stimulate economic growth, one of which is to reject the Tier 3 gasoline regulations. 

Effects of Light-duty Vehicle Emissions Standards and Gasoline Sulfur Level on Ambient Ozone
http://www.api.org/~/media/Files/News/2013/13-April/ENVIRON-Sep2012-Effects-of-LDV-Emiss-Stds-Gasoline-Sulfur-level-on-Ozone.pdf
A report by ENVIRON International Corporation finds a switch from Tier 2 to Tier 3 gasoline standards would have a “very small” additional environmental benefit in lowering sulfur content in gasoline compared with the change between Tier 1 and Tier 2 standards. 

Addendum to Potential Supply and Cost Impacts of Lower Sulfur, Lower RVP Gasoline
http://www.api.org/news-and-media/news/newsitems/2012/mar-2012/~/media/Files/News/2012/12-March/Addendum-Potential-Impacts-of-Lower-Sulfur-Lower-RVP-Gasoline-Report.ashx
Consulting firm Baker & O’Brien finds Tier 3 gasoline standards could increase the manufacturing cost of gasoline by $0.06 to $0.09 a gallon in most markets. 

Fueling Our Future
http://blog.epa.gov/blog/2013/04/fueling-our-future/?utm_source=rss&utm_medium=rss&utm_campaign=fueling-our-future
Bob Perciasepe, acting administrator of the U.S. Environmental Protection Agency, argues meeting the proposed gasoline sulfur content standards will provide up to $7 in health benefits for every $1 spent on compliance. 

EPA’s Gasoline Proposal Seeks Pollution Reductions, Higher Costs
http://americanactionforum.org/topic/epa%E2%80%99s-gasoline-proposal-seeks-pollution-reductions-higher-costs
The American Action Forum tracks the nation’s 50 largest refineries and calculates the total costs for the industry in each of the top five states if EPA’s proposed gasoline sulfur content standard is adopted.

 

Nothing in this Research & Commentary is intended to influence the passage of legislation, and it does not necessarily represent the views of The Heartland Institute. For further information on this and other topics, visit the Environment & Climate News Web site at http://news.heartland.org/energy-and-environment, The Heartland Institute’s Web site at http://www.heartland.org, and PolicyBot, Heartland’s free online research database, at www.policybot.org.

If you have any questions about this issue or The Heartland Institute, contact Heartland Institute Policy Analyst Taylor Smith at tsmith@heartland.org or 312/377-4000.