Study: EPA’s Tier III Proposal Would Increase Fuel-Making Costs

Mark Green
Posted March 26, 2012

At a time when just everyone is understandably concerned about fuel prices, EPA apparently didn’t get the memo. Its latest thinking on a Tier III refinery rulemaking would add significant costs to the making of gasoline, according to a new analysis by Baker & O’Brien, Inc.

During a recent conference call with reporters, API’s Bob Greco, group director for downstream and industry operations, talked about the impacts on refiners of the proposed rule to further reduce sulfur levels in gasoline:

• Nearly $10 billion in new capital costs to industry.
• Increase of between 6 cents and 9 cents per gallon to the cost of manufacturing gasoline, according to Baker & O’Brien.
• Increase of as much as 25 cents per gallon if a vapor pressure reduction requirement, which EPA considered, is included.

Greco:

“With the pump price of gasoline already above $4 a gallon in some parts of the country, this added burden clearly makes Tier III the wrong regulation at the wrong time. More importantly, EPA has yet to demonstrate any air quality benefits from reducing sulfur in the amount proposed. And, as the Baker & O’Brien analysis also shows, implementing the new requirements would increase refinery greenhouse gas emissions because of the use of energy‐intensive hydrotreating equipment to remove sulfur from the gasoline.”

EPA claims the new rule wouldn’t be a hardship. But Greco said the agency cites a “low-ball cost estimate” that uses flawed modeling about what U.S. refineries would have to do to be in compliance. Although EPA has dropped the gasoline vapor pressure requirement, industry doesn’t believe the provision is off the table.

The Baker & O’Brien analysis found that while the sulfur requirement alone probably wouldn’t lead to refinery closures, Tier III in tandem with other potential EPA requirements could cause some refineries to close, resulting in diminished fuel manufacturing capacity and increased reliance on imported fuels – all for what Baker & O’Brien said would be modest environmental benefits. Greco:

“Refinery regulations clearly contribute to a cleaner environment and safer workplace, but, unnecessary, inefficient, and excessively costly requirements hamper our ability to provide and distribute fuels to America, while also employing hundreds of thousands of people and enhancing our national security. We have already seen some refineries close, at least in part due to the cumulative impact of environmental controls. We urge the administration to take a step back on Tier III and its other proposed rules. We must be sure that new regulatory proposals are necessary, properly crafted, practical, and fair to allow US refiners to remain competitive, preserve good paying refinery jobs, and ensure our energy security.”