March 26, 2012 Environmental Regulations Should Pass Cost-Benefit Test

Volume 15 | Issue 1

Fossil fuel opponents never tire of denouncing and demonizing companies that produce oil and natural gas and manufacture petroleum fuels and

But faulted organizations, he indicates, actually recognize their role as environmental stewards – as well as their position as a catalyst to economic health and growth. AFPM, and its constituents, don’t place profits above social responsibility.

Producers of oil and gas, and the manufacturers of petroleum fuels and petrochemicals are vilified as polluters that destroy the environment, and that have no interest in protecting clean air and water. That characterization couldn’t be further from the truth. We recognize our environmental responsibility, and we take that role very seriously.

Companies in the oil/gas sector – which support more than nine million American jobs – favor sound and sensible environmental regulations. We are strongly committed to clean air and water, demonstrated by our outstanding record of compliance (with U.S. Environmental Protection Agency [EPA] and other regulatory agencies). Also, we have invested hundreds of billions of dollars to dramatically reduce emissions, as measured by the EPA.

The truth is, America’s air today is cleaner than it has been in generations. That results from emission reductions by members of the organization that I represent – the American Fuel & Petrochemical Manufacturers (AFPM), formerly called the National Petrochemical & Refiners Association.

Consider: Since 2004, refiners have cut sulfur levels in gasoline by 90 percent. They’ve also reduced sulfur in diesel fuel by more than 90 percent since 2005 and reduced benzene in conventional gasoline by 45 percent since 2010.

EPA data shows that total emissions of the six principal air pollutants in the United States have dropped by 57 percent since 1980; further, ozone levels have decreased by 30 percent. These reductions occurred even as industrial output and the number of vehicles on the road increased. EPA data indicates there will be continued reductions in the upcoming years, due to regulations put in place.

REFINERS REINVEST – BUT FACE OVERREGULATION
Refiners have spent nearly $50 billion just to remove sulfur from gasoline and diesel fuel and to manufacture reformulated gasoline. AFPM members have additionally addressed requirements for low Reid Vapor Pressure gasoline, including specially blended fuels required by state implementation plans under the Clean Air Act – the result: reduced hydrocarbon emissions (an ozone precursor).

We have made great progress under the Clean Air Act and other laws. At the same time, we’re concerned that the EPA and other agencies are over regulating – making unreasonable and often conflicting demands on our members, forcing them to spend enormous sums to make changes in their manufacturing processes that bring little or no significant environmental benefit.

CONSEQUENCES OF OVERREGULATION
The demands of environmental overregulation – often impossible to achieve without coming in conflict with other regulations – raise energy costs for every American consumer. In addition, these demands can strengthen foreign competitors eager to replace American manufacturers and workers, weaken the US economy, make America more reliant on nations in unstable parts of the world for vital fuels and petrochemicals, and endanger our national security. These are not alarmist statements; rather, they are simply facts about the consequences of overregulation.

Financially, the refining industry has historically been very cyclical and volatile. A Department of Energy report issued in March found that refining margins have been continuously decreasing over the past four years. The report also concluded that the compounded burden of federal regulations was a significant factor in the closure of 66 petroleum refineries in the United States. These closures occurred in just the past 20 years.

Since 2008, the recession and refinery closures have led to 3,000 lost jobs at American refineries. A handful of refineries are threatened with closure in the next few months, if they cannot be sold.

FORESTALLING JOB LOSS
In recent decades, we’ve witnessed how much of the American textile, steel, auto, appliance and other manufacturing industries have moved to foreign nations, with the tragic loss of millions of American jobs. We don’t want the same thing to happen to our members and their workers.

The AFPM fear is that overregulation will force much of the refining industry to move from the United States to other nations, at a time of high unemployment and a poorly performing national economy. The last thing America needs to do is worsen conditions for another important US manufacturing sector.

A MORE DETAILED EXAMINATION
Looking in more detail at just one of the regulations facing refiners illustrates the problem of conflicting regulations: Since 2004, refiners have reduced sulfur levels in gasoline by 90 percent, from an average of 300 parts per million to an average of 30 parts per million today. We have seen no evidence that further sulfur reductions – to enable future vehicle technologies – are needed.

Nevertheless, EPA is proceeding with what is known as a Tier 3 rulemaking as part of its general authority to regulate fuels under the Clean Air Act. The rule would impose a high-cost, minimal-benefit regulatory requirement on America’s already heavily regulated fuel supply.

The rule could lead to significant domestic fuel supply reductions, higher petroleum product imports, as well as potentially increased consumer costs, increased refinery emissions, closed US refineries and reduced energy security.

A process called hydro-treating is the principal technology used to reduce sulfur in petroleum products, including motor fuels such as gasoline and diesel. This and other such technologies require energy consumption that results in increased greenhouse gas emissions and will also increase emission of other criteria pollutants.

As a result, a regulation requiring a reduction of sulfur in petroleum fuel increases emissions that refiners are being told they must reduce under other Clean Air Act regulations. Although refiners have already slashed sulfur levels in gasoline by 90 percent in the past seven years, EPA’s Tier 3 rulemaking could require further reductions in sulfur levels in gasoline to an average of 10 parts per million – a 70-percent change from today’s already low levels, while also reducing the gasoline volatility. EPA expects to issue a final rule in 2012. But there is no reason to regulate sulfur levels further; sulfur emissions from cars are minimal.

SCIENCE LEADS TO BETTER ENVIRONMENT
AFPM members want a clean environment and have worked hard and invested heavily to achieve that goal – at tremendous cost. We have made big reductions in emissions. More reductions will continue under existing regulations. But we want to see sound science and cost-benefit analyses – which take in a broad criteria range – used to examine which environmental regulations are in the best interests of the American people.

Even when excessive regulations are imposed (and we realize that this is done with the best of intentions) they can have harmful, unintended consequences. Sometimes, the negative consequences – like a rise in consumer energy costs – are welcomed by opponents of fossil fuels, because these higher costs tilt the playing field to make other energy sources more competitive in the marketplace.

The EPA should not have unchecked power to take any action it wants (without specific authorization by Congress) in the single-minded pursuit of unrealistic and harmful overregulation. It’s time for higher consumer costs, lost jobs, and damage to America’s economic and national security to be considered as relevant factors in weighing whether ever-more stringent regulations do more harm than good.

AFPM is ready to participate in an intellectually honest dialogue about how to build a stronger economy, a brighter energy future and a more prosperous America.

American Fuel & Petrochemical Manufacturers (AFPM) represents high-tech American manufacturers – specifically those engaged in the supply of gasoline, diesel, jet fuel and other fuels that provide the integral elements of product development and economic growth. Article author Charles T. Drevna, prior to his election as AFPM president, garnered more than 37 years experience in the energy industry, in areas that included legislative, regulatory, public policy and commercial.

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