An expensive solution in search of a problem

The EPA is currently working on new regulations that will likely reduce the amount of sulfur in gasoline from what we scientist-types refer to as “itty-bitty” to “teensy-weensy” levels instead. If taken, this action will be hugely expensive and raise gas prices by as much as 25 cents per gallon, with virtually no environmental benefit to offset the expenditures.

Gasoline used to contain up to 300 part per million (ppm) of sulfur. New regulations promulgated under the Clinton administration reduced that to 30 ppm, the current standard that went into full effect in 2007. Now, Lisa Jackson’s anti-fossil-fuel, anti-reality USEPA is considering reducing the standard to as low as 10 ppm.  If implemented, this new standard would require refineries to retrofit with new technology at an estimated initial capital cost of $17 billion and would lead to an increase in annual operating costs of $13 billion. That would translate into increased gas prices of around 15 to 25 cents per gallon for consumers.

Why in the world would anyone consider taking an action that would drive the cost of $3.50+ per gallon gas up even further, particularly in this economy? The answer, according to Margo Oge, director of EPA’s Office of Transportation and Air Quality, is that “motor vehicles and their fuel are an important source of compounds that form air pollution.” While that’s true in some instances, it’s not even close to the case when it comes to sulfur dioxide – the air pollutant formed when sulfur is burned.

According to USEPA data:

• Nationwide, all sources of sulfur dioxide emit about 10.7 million tons per year of the pollutant.
• Most of that (85%) comes from burning coal.
• Sulfur dioxide emissions from burning gasoline amount to about 36,000 tons per year, or about 0.3% of the total.

When you’re starting out with a number like 0.3%, any further reduction isn’t going to make a whole lot of difference to anybody. This is especially the case when other EPA rules are forcing scores of coal-fired power plants to shut down over the next five to ten years. Against the backdrop of all the coal coming on line, the paltry reduction one would realize by cutting the sulfur in gasoline even further would be little more than the third derivative of background noise.

It’s an especially stupid move when one considers that there are a grand total of eight counties in the United States (out of over 3,000 in total) that don’t meet EPA standards for the amount of sulfur dioxide in the air we breathe – and two of those are in Guam!

When regulating industry, the USEPA usually looks at the cost-effectiveness of proposed standards. This is a way of prioritizing efforts to find the most reductions for the least amount of money. Since we don’t actually have a sulfur dioxide problem in the United States, it’s silly to look for reductions at all anymore, but let’s assume – for the sake of argument – that further reducing sulfur dioxide emissions was desirable. Would it be cost effective to go after gasoline?

The EPA has a particular methodology for determining cost effectiveness. I’ll take you through a simplified version of the process, assuming we drop the sulfur standard in gasoline from 30 ppm to 10 ppm.

Step 1: Determine the annual emissions reduction.

Annual sulfur dioxide emissions associated with gasoline use are 35,723 tons/year. Going to a 10 ppm standard would reduce this by 2/3, or by 23,816 tons/year.

Step 2: Determine the annual cost of the requirement.

Initial capital costs are $17 billion. Annual operating costs are $13 billion/year. We generally average costs over ten years, so the average annual cost would be: [$17 B + (10 x $13 B)]/10, or $14.7 B/year. (Note that I did not add in the cost of money, nor adjust for inflation, both of which would be done in a full analysis. But we’re dealing with a simple case here and any adjustments would simply raise costs even further).

Step 3: Determine the cost effectiveness of the requirement.

New rules are generally considered cost effective if the cost of control is less than about $2,000 per ton of pollutant controlled. When the cost is greater than $10,000 per ton, the rule is generally deemed not to be cost effective. (In between is a lot of gray). The cost effectiveness of this rule would be $14.7 billion divided by 23, 816 tons, or over $600,000/ton of reduction.

Pretty much speaks for itself.

(Not that the cost of anything seems to matter to this administration…)