Lester A. Amidei Jr.
General Manager
Corporate Planning and Economics
Texaco Inc.
Harrison, N. Y.
From remarks made to Cambridge Energy Research Associates' executive conference, Houston.
The topic of our panel discussion is "The California Story: Harbinger of the Energy Future."
While this title carries an air of authority, I'd like to present a contrarian view. Indeed, there are compelling reasons why California should not be the forerunner for the rest of the country in addressing clean air issues.
The benefits of increasingly stringent environmental regulation have received much attention, but the associated costs to the economy of implementing these regulations have not.
The Environmental Protection Agency says environmental costs across all sectors of the U.S. economy amounted to about 2.1% of gross national product in 1990. EPA estimates these costs will reach almost 3% of GNP by 2000. That's almost a 50% rise in just 10 years.
Its cost estimates were based on the president's clean air bill, which did not include California or federal fuel reformulation and more advanced vehicle emission control design.
Yet a safe, clean environment is of utmost importance to all Americans, and we fully support strong environmental protection.
But we cannot afford to waste our finite dollars. Therefore, society must balance economic and environmental priorities and weigh its options carefully.
BALANCING PRIORITIES
In his State of the Union message of Jan. 28, 1992, President Bush announced a 90 day moratorium at major departments and agencies on "any new federal regulations that could hinder growth." The moratorium requires that each agency determine whether each of its regulations or programs meets five standards:
- Benefits must outweigh costs.
- Regulations should maximize net benefits.
- Regulations should use performance standards rather than command-and-control mechanisms.
- Regulations should incorporate market mechanisms to the maximum extent possible.
- Regulations must avoid needless litigation.
Prof. Robert Stavins of the Kennedy School of Government at Harvard University, said, "In the context of environmental policy, the clear theme behind this review process is a renewed call for balancing environmental protection and economic growth.
"The challenge is to promulgate environmental regulations that achieve their objectives in the least costly way possible."
Texaco believes this is a sensible challenge issued by the president and supports this regulatory reform effort.
We also are pleased to see that in California the South Coast Air Quality Management District has proposed a market-based emissions trading program for stationary sources. We applaud its initiative and hope this is the type of leadership California will provide. Balancing environmental and economic priorities must be a goal at all levels of government.
CALIFORNIA'S OPTIONS
In the area of auto emissions, we don't believe California has achieved a balance of priorities. For example, let's look at one way-cost effectiveness-of measuring how well California chose among its options.
We made a comparison of the incremental cost of two alternative control strategies and their expected emissions reductions (see chart). Emissions reductions in tons per day are compared to the cost effectiveness in thousands of dollars per ton.
The bars on the left represent elements of the program we believe California should adopt first, The bars on the right indicate the program California selected.
As you can see, a high tech car inspection and maintenance program, coupled with a program to scrap old cars, provides significant air quality benefits at a relatively low cost.
On the other hand, California fuel reformulation provides little air quality improvement. But it costs the motorist a lot more!
Certainly in the area of auto emissions, California's new fuel regulations are the best choice for California, rather the less for the rest of the country where the ozone problem is an order of magnitude less severe.
Other parts of the country deserve their own solutions.
INEFFECTIVE PRACTICES
Ineffective environmental management practices are nothing new and certainly are not confined to California.
A study was conducted by the National Research Council, an arm of the National Academy of Sciences, entitled, "Rethinking the Ozone Problem in Urban and Regional Air Pollution."
It concluded that national strategies to control ozone may have been scientifically flawed and as a result have been misdirected during the past 20 years. In many parts of the country, NOx reductions may be more effective than volatile organic compound (VOC) controls in improving ozone levels.
Yet we are seeing support in some of those areas for oxygenated fuels, which may increase NOx and thereby worsen ozone levels. This only emphasizes the need to better understand regional air chemistry and emissions when developing a comprehensive ozone control strategy.
The National Research Council's conclusion that we may have been making costly mistakes does not engender confidence in our planned course of action. This is particularly distressing because implementation of the new Clean Air Act Amendments will prove to be the most costly air emissions control strategy yet.
Ineffective controls are costly enough, but we're now dealing with the last few percentage points of potential reductions in exhaust emissions. A mistake that increases emissions by what would have been considered a small amount in 1975 would be an unacceptable backslide in air quality now.
The severe nonattainment areas will work toward attainment by implementing provisions of the CAA that require fuel reformulation. However, much of the rest of the country, particularly the Northeast, is debating opting in to either the California or the federal program as a part of their strategy for coming into compliance with the CAA.
Given the cost ineffectiveness of the California program and the National Research Council's findings, we believe state officials in the potential optin areas should be interested in discussing more cost effective alternatives.
TEXACO PROGRAM
I propose an environmental program that we at Texaco believe will support the goal of the greatest environmental protection for the least cost. And most important, this program could be implemented quickly and would achieve significant air quality improvements in the near term.
Our program consists of these components:
- Phase I federal reformulated gasoline.
- An enhanced vehicle inspection and maintenance program.
- An old vehicle scrappage program.
- Refueling and evaporative controls.
- Conservation.
- Research and development.
Regarding the first point, we support Phase I federal reformulated gasoline as a cost effective response. Reduced vapor pressure, the main feature of Phase I federal reformulated gasoline, is one of the most cost effective approaches available.
Because some areas of the country are particularly NOx sensitive, addition of oxygenates should be evaluated carefully and used judiciously to ensure they do not increase NOx emission levels.
At Texaco, we strongly support enhanced vehicle inspection and maintenance programs.
In addition, we recognize the need for development of advanced monitoring and enforcement technology. These techniques are necessary to maintain the clean air benefits derived from reformulated fuels and improved vehicle emissions control system design.
But, of course, we can't begin to realize the full benefits from new automobile and fuel technologies unless we can get some of the older, dirtier cars off the road. We believe a vehicle scrappage program is required.
As an added benefit, it will make an enhanced inspection and maintenance pro,ram more palatable to the motoring public. A high incentive scrappage program would offer an option to expensive repair work on older cars that fail emissions tests.
Fifteen years ago, air quality officials believed the old car, high emitter issue would disappear as the vehicle fleet turned over.
For example, in 1976 Tom Quinn, who was then chairman of the California Air Resources Board, said, "In the future, and, major strides in cleaning up the atmosphere will have to be made elsewhere because 1977 model cars sold in California will emit only 10% of the pollution of 1968 vehicles, leaving relatively little room for further improvement."
In hindsight, his foresight was wrong.
Even though we are now down to new vehicles that emit only 3% of the pollution of those 1968 vehicles, emissions of the old cars as well as newer, noncomplying cars are still a problem. In 1990, vehicle emissions from these vehicles accounted for about 50% of the HC and CO and 33% of the NOx emitted from passenger cars in California's South Coast Air Basin.
It's time we face up to the fact that machines need maintenance and eventually become obsolete. The further we move toward hi-tech routes to lower and lower emissions, the more we need effective inspection and maintenance and scrappage of obsolete vehicles.
At Texaco, we believe controlling refueling and evaporative emissions is important and can be done cost effectively. We support appropriate control mechanisms to do so.
Conservation, including efforts to alleviate traffic congestion and promote car pooling and mass transit, will continue to be a centerpiece of our message. A scrappage program also aids conservation in that it will take relatively fuel inefficient cars off the road.
We also believe further research is necessary. We need to understand the science before we make the decisions.
The Auto/Oil Task Force is an innovative step to better define the emissions problem. If we have not adequately defined the air pollution problem through good research, we cannot hope to achieve our national goals for clean air.
Copyright 1992 Oil & Gas Journal. All Rights Reserved.
