Gasoline Prices Could Jump

Brian Hicks

Written By Brian Hicks

Posted April 2, 2013

In a move that could boost gasoline prices by six to nine cents, the EPA announced a proposal that would force refineries to lower sulfur levels in gasoline. The proposal would also call for vehicles to meet higher emission standards – possibly adding $130 to vehicle price tags by 2025.

From the EPA’s standpoint, the new regulations would “avoid 2,400 premature deaths per year and prevent 23,000 cases of respiratory ailments in children,” according to USA Today.

At a time of rising gas prices and a fragile economy, many are concerned the plans would place an undue burden on people struggling to get by. Six to nine cents may not seem like much, but it makes a difference in week-to-week family budgets. An increase of six to nine cents would only add more fuel to the fire.

According to USA Today, the new regulations would require sulfur levels in gasoline to be reduced by over 60 percent starting in 2017. There would also be a required 80 percent draw-down in nitrogen oxide and a 70 percent reduction in soot particles.

Vapors from vehicles would need to be cut drastically to almost zero. Other pollutants, such as benzene, have been targeted for elimination as well.

ethanolThe EPA also wants oil companies to increase the ethanol ratio in gasoline to 15 percent. This is higher than California’s 10 percent requirement, and it has drawn a fair amount of criticism from auto makers and refiners.

The ethanol portion of the plan is a contentious one – considering some environmental groups oppose an increase in ethanol due to the higher energy and water consumption needed to raise more corn for ethanol, according to NPR. Oil companies have already vowed resistance to the E15 proposal.

Increased ethanol use may rekindle old debates over government subsidies to farmers, the price of corn feed to cattle, and rising food prices.

There is also a debate between oil companies and the EPA about the E15 impact on cars. The EPA has stated that E15 will be compatible with cars built after 2001, but oil insiders dispute this claim. This is bound to cause some confusion among the public, which may result in damaged engines.

Oil companies fear class action lawsuits if there are consumer engine problems stemming from greater amounts of ethanol.

Ethanol can yield cheaper gas, but many consumers avoid it because of bad gas mileage results. Because of low demand in many areas of the country, many gas stations may continue to order gasoline with the lowest amount of ethanol, which defeats the entire purpose of E15.

Ethanol may be the most controversial part of the EPA’s plans, but the real target is sulfur.

Why Sulfur?

For the most part, emissions concerns have largely placed a focus on CO2. So why is sulfur being targeted?

The proposals in question are focused on a vehicle’s catalytic converter – a component that does its part in filtering out smog emissions, carbon monoxide, and nitrogen oxide, as reported by the New York Times. The EPA contends that a build-up of sulfur levels in the converter hampers the component from doing its job.

Some auto makers like the plan because the over-sweeping legislation would allow them to sell vehicles in all fifty states.

Gasoline refiners, on the other hand, are mostly in opposition to the proposal. Charles Drevna of the American Fuel and Petrochemical Manufacturers said companies had already spent $10 billion in reducing sulfur levels by 90 percent, and the new proposals would cost another $10 billion, the New York Times reports.

The industry also maintains that such a plan would raise pollution emissions by 1 to 2 percent, according to the Associated Press, through machinery and higher energy output.

However, the EPA contends that gasoline prices may only heighten up to a penny or less, and only 16 refineries in the United States would need to make major adjustments to the proposed laws.

A total of 29 refineries are in the process of meeting the new standards through their dealings with California, and another 66 refineries would need to make modest modifications.

Who is right, and who is wrong?

No one knows for sure, but it is more likely that higher investments in reducing sulfur levels will contribute to greater costs at the pump.

The additional $130 added to the market value of vehicles is not simply conjecture from oil companies and refiners. The EPA proposals are open about the price increase, and the plan does not include possible price hikes in other unforeseen areas.

The EPA and the oil industry are approaching this issue from two different angles. While the EPA is trying to minimize the potential costs associated with these changes, idealism is the root of its agenda. For instance, the EPA requires a mandate of greater ethanol per year, according to NPR, despite limited demand and potential vehicle damage to the consumer.

The EPA places more emphasis on less fossil fuels and more renewable energy sources, regardless of the cost. Oil companies and refineries are dealing with real-world situations: markets, business costs, and the economy. Though the EPA does not wish to dump burdensome costs on the consumers and the oil industry, they believe it necessary to focus on renewable energy, saving the environment, and preserving public health.

And there is the health care factor.

I would wager that the Affordable Health Care Act will also play a role in future EPA plans. As the government will become increasingly involved in the health care system, you can also expect more stringent measures of environmental regulations to save on health care costs.

Since Obama won his second term, he has little to lose, and he may very well get most of what he wants, whether it is through congressional approval or executive order. Since Congress is so divided, it stands to reason that the EPA’s suggestions may be absorbed in a potential executive action if the EPA fails to get these proposals implemented.

There is a chance that these new plans will be struck down by the courts, according to the New York Times.

The EPA plans come during post-election season, since Republican opponents would have had more than enough fodder to go after Obama if these details came out during the campaign season – something that could have tipped the balance in Mitt Romney’s favor, since gas prices were a hot-button issue during the primaries.

Oil companies should be watchful, since environmental legislation is one the President’s top priorities. And it is one legacy that he hopes to leave behind when he exits the White House in 2016.


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