EPA assures industry sulfur gasoline program on schedule

April 26, 2004
The US Environmental Protection Agency is keeping its low-sulfur gasoline credit program on schedule, officials said Apr. 22.

Maureen Lorenzetti
Washington Editor

WASHINGTON, DC, Apr. 26 -- The US Environmental Protection Agency is keeping its low-sulfur gasoline credit program on schedule, officials said Apr. 22.

The EPA announcement follows a recent call by US Sen. Jeff Bingaman (D-NM), ranking member of the Senate Energy and Natural Resources Committee, to have EPA relax the timetable as a way to ease price pressures on consumers (OGJ Online, Apr. 1, 2004).

Over the next 2 years, EPA anticipates sulfur levels in gasoline will drop from the current 120 ppm average to 30 ppm. The rule as it stands rewards companies that achieve early sulfur reductions, but some importers and refiners had expressed quiet concern to EPA last winter that there might not be enough affordable credits before 2005.

Bingaman's request highlighted EPA's own stalled internal discussions over the issue. Some EPA staff and other industry and government sources wanted to consider an emergency rule in order to make it easier for some small independent refiners and gasoline importers to supply fuel to meet market demands during the summer driving season.

Bingaman, in a March letter to the White House, urged EPA to revise the rule so that independent importers could carry a small deficit balance before 2005 in case they were unable to buy enough allotments. He argued that the environmental impact would be minor, and consumers would benefit greatly by a well-supplied fuel market over the summer.

Another reason Bingaman said he wanted EPA to retool the program was that in his view, the existing sulfur allotment market lacks transparency. "No one can obtain information regarding the amount of allotments which have been generated and are available without first paying an expensive fee and joining an exchange, or by calling every producer in the country on a regular basis," he said. "Although EPA does publish an annual report on sulfur allotments, [the data are] not timely enough for gasoline markets, where trades occur in real time, or to help consumers this summer."

Unusual coalitions
EPA in the end soundly rejected the plan after an unusual coalition of environmental groups and industry trade associations banded together to preserve the existing sulfur credit program. Environmentalists argued relaxing the rule's credit portion would exacerbate air pollution; refiners represented by the American Petroleum Institute and the National Petrochemical and Refiners Association said rolling back a portion of the rule would compromise huge industry investments in lower-sulfur diesel and gasoline fuels.

"NPRA is encouraged to learn that EPA will not make changes in the 'Tier II' gasoline sulfur regulations affecting imports. Respecting the established implementation schedule for this rule is extremely important in order to achieve the significant air quality benefits derived from cleaner-burning fuels," said NPRA Pres. Bob Slaughter. "The nation's refiners are investing almost $20 billion to sharply reduce the sulfur content of both gasoline and diesel fuel, and regulatory certainty is crucial to our efforts to comply with those very aggressive and ambitious requirements. EPA's decision today indicates that the agency appreciates the importance of certainty and predictability as implementation of these rules continues," he added.

In its Apr. 22 written statement, EPA said it was rejecting the idea of considering the so-called "deficit carry forward" approach advocated privately by importers. "This approach would allow fuel providers to miss the low-sulfur targets in 2004 in exchange for even tighter reductions in 2005 and 2006," the agency noted. "EPA rejects this idea and reaffirms its commitment to full, on time implementation of the Tier 2 gasoline sulfur program. EPA believes that implementation of the Tier 2 gasoline sulfur program will not significantly impact gasoline supply and pricing in the market," the agency said.

Reactions
Responding to EPA's decision to keep the status quo, Bingaman Apr. 23 alleged that some refiners might have opposed the waiver because it would cut into profits, at a time when many of those companies are posting very robust earnings.

"I am troubled by reporting on EPA's decision that makes it appear that economic impacts on US refiners were an influential consideration. I hope that is not the case. I am pleased that my letter to [US] President [George W.] Bush has called attention to how opaque and uncertain the sulfur allotments market is," Bingaman said.

"As a next step, I will ask the EPA to tell me, and the American public, how many allotments have been generated or earned to date. . .how many have been used. . .how many are available today. . .and how many EPA expects to come to market over the year. I also will ask at what price these allotments are trading, and at what potential cost to American motorists. I hope that EPA monitors this market carefully, to ensure that decisions by refiners do not adversely impact US gasoline markets, or wallets," he said.