Proposed Tier 3 Rule: Unnecessary, Unjustified

Mark Green
Posted October 11, 2013

Key points from a Tier 3 conference call featuring Patrick Kelly, API’s senior fuels policy advisor:

• EPA’s proposal to require additional reduction of sulfur levels in gasoline could mean $10 billion in capital costs for U.S. refiners and annual compliance costs of $2.4 billion, according to a Baker & O’Brien study – potentially resulting in an increase of between 6 cents and 9 cents per gallon in the cost of making gasoline.
• Going from sulfur levels of 30 parts per million (ppm) to 10 ppm – after Tier II reduced content from 300 ppm to 30 ppm – would produce negligible improvements in air quality, according to an ENVIRON study.

We’ve discussed the impacts and potential impacts of EPA regulation on U.S. refining before, but Tier 3 is worth revisiting with EPA expected to issue a final rule early next year. The cost-to-benefit analysis on Tier 3 is striking and argues for scrapping the rule. Kelly:

“No one disputes the need for regulations that protect the public’s health or the nation’s environment. But the EPA should consider the negative economic impacts of this rule. And due to the lack of sound science and economic analysis to support this new standard, we believe EPA should withdraw the rule entirely.”

Progress under Tier 2 sulfur reductions argues that Tier 3 is unnecessary. Our air is cleaner and will keep getting cleaner under the existing rule – without imposing significant new costs on refiners. Kelly:

“Today’s gasoline contains one-tenth the sulfur of just 10 years ago, which enables vehicles to emit lower tailpipe emissions. As more new cars and trucks come into the market that can take advantage of today’s advanced, cleaner burning fuel and older vehicles are retired, tailpipe emissions from our nation’s vehicle fleet will continue to drop.  As a result, we will continue to see air quality improvements under the existing fuel standards.”

Kelly rebutted claims that the Tier 3 proposal would be cost-effective:

“ENVIRON looked at both ozone and particulate matter and found that the difference between the current Tier 2 standards and the improvement that we will see … will only yield negligible improvements in both ozone and PM. … On the cost side, they’re also using a flawed cost estimate. They always cite this penny a gallon (estimated cost), which focuses on the wrong statistic of average cost to refiners versus marginal cost to refiners. Economics 101 tells you that in commodity markets the marginal cost is much more relevant when determining what the impact to the market is.”

And he said EPA’s plan to require compliance by Jan. 1, 2017, would neutralize the phase-in aspects of the Tier 3 program.

“The EPA has proposed that refiners create this new fuel in less than three years. The rushed timeframe leaves little opportunity for refiners to design, engineer, permit, construct, start up and integrate the new machinery required. This accelerated implementation only adds costs and potentially limits our industry’s ability to supply gasoline to consumers.” 

The Tier 3 proposal is unjustified by science and could saddle refiners with major new costs. Government shouldn’t be adding unnecessary regulation that raise manufacturing costs and could impact consumers – when there’s no proven environmental benefit and when existing regulations are working.