3

Economics · Environment/Energy

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 off 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…)

Tags:

Rich Trzupek

— Rich Trzupek

Richard J. Trzupek is a chemist who has been employed as an environmental consultant to industry for more than 25 years. He specializes in air quality issues, has worked for several Fortune 500 companies, has participated in the development of environmental legislation and regulation and is currently principal consultant at Trinity Consultants based in Oakbrook Terrace, Illinois.

  • Anonymous

    A foolish argument. Attacking the new propsed lower standard because the cost per ton eliminated is too much is just absurd. Why not look at it like this instead. The harmful effects of even a small amount of SO2 are documented. In areas where traffic congestions and heavily concentrated burning of fuel occur the combined amount of SO2 (air pollution) can reach dangerous levels for at risk groups. This is why the standards needs to be revised down, not because they satisfy some cost analysis. Since the right won’t allow us to limit fossil fuel burning by mandating more efficient vehicles or funding more mass transit then the EPA must attack the problem at the source and reduce the amount present in fuel to the lowest amount possible. Why not add the untold costs associated with related health care and environmental damage caused by SO2 to determine the cost effectiveness?
     
    Health Effects: High concentrations of sulfur dioxide (SO2) can result in breathing problems with asthmatic children and adults who are active outdoors. Short-term exposure has been linked to wheezing, chest tightness and shortness of breath. Other effects associated with longer-term exposure to sulfur dioxide, in conjunction with high levels of particulate soot, include respiratory illness, alterations in the lungs’ defenses and aggravation of existing cardiovascular disease.

    Environmental Effects: Sulfur dioxide and nitrogen oxides are the major precursors of acid rain, which has acidified soils, lakes and streams, accelerated corrosion of buildings and monuments, and reduced visibility. Sulfur dioxide also is a major precursor of fine particulate soot, which poses a significant health threat.

  • Brian G Valentine

    Instead of deliberating ad nauseam about these “problems” the EPA wants to solve, the EPA should just be given authority to use machine guns to annihilate anything it doesn’t happen to like.  This simple cost-cutting regulatory measure will save millions.  

    heh – just joking – I don’t want to put ideas into anybody’s head … assuming they aren’t already contemplating it …

  • http://profile.yahoo.com/O65CE5LXDMRBVKSEJZOHXYGQ3I Richard

    Rich,

    Most of your arguments are sound and make sense. The hard part is getting past your obvious anger at anyone who is not relentlessly conservative. Declaring that, “Lisa Jackson’s anti-fossil-fuel, anti-reality USEPA” is the reason why a new sulfur standard is being created is disingenuous at best. She is “anti-fossil-fuel” in the same way that you are pro-pollution. I think that both of your positions are so deeply entrenched that neither of you can see out of your own trench. You both hurl insults, like they are grenades, at the other’s trench and then wonder why the “other” side isn’t reasonable.

    If you had put started with your financial calculations before you ranted about Lisa Jackson, you would have had column space to offer some sensible alternatives that were much more cost effective and benefited our entire country.

    You noted that coal-fired power plants are the largest contributor of sulfur-dioxide at 85% of total emissions, yet focused on how angry you are at Ms. Jackson. I’ve yet to see where conservatives are willing to clean up coal-plant emissions because it is the most cost effective way to reduce not only sulfur-dioxide but other contaminants like mercury vapor along with soot particulates.

    Perhaps a compromise would be the subsidies that the oil companies receive from the US gov’t, which are increasing our nation’s debt, could be ended in lieu of mandating expensive changes to gasoline processing?  I’m sure you saw the FoxNews report on how the oil companies had a surplus of gasoline that they chose to sell in other countries rather than let the increased supply lower gasoline prices here in America. Given the billions in oil company profits, why are taxpayers borrowing money to give extra profit to the oil companies?

    Why shouldn’t deficit-funded subsidies do something useful for our nation? If taxpayers are going to borrow money to give away, why can’t that money go towards helping American manufactures and the American environment? Is it possible that the billions in oil company (deficit-funded) subsidies could be re-directed to coal-fired power plants that buy American equipment and American technology upgrades that clean their emissions? What does a cost/benefit analysis of re-directing those (deficit-funded) oil company subsidies towards cleaning up coal-fired plants show?

    Billions of American taxpayer dollars spent on American companies and American technology. Protects or adds American jobs while possibly enabling American companies to sell the cleaning technology to countries who derive a greater percentage of their electricity from coal, like China. Citizens living near coal-fired plants could (literally) breathe easier knowing that our nation’s growing need for cheap electricity won’t impact their family’s health (if you lived near a coal-fired power plant you would worry about your children’s health so don’t lie about it). Democrats get to enjoy cleaning up the environment a little bit while helping the middle class enjoy a better life. Republicans get to enjoy the financial rewards of continued coal mining, coal burning AND the economic benefits of the billions spent here in America because that too helps the middle class enjoy a better life. Let’s not forget the American shareholders of those American clean-burning technology companies.

    Both sides could claim victory and share a rare moment of bi-partisanship. Consumers benefit, businesses grow, children grow up in a cleaner environment and the possibility now exists that the next major crisis can be solved by working together. Or both sides can stay deeply entrenched and call each other names.