What are the Realistic Costs and Benefits of the New EPA Tier 3 (Reduced) Gasoline Sulfur Regulation?

A new EPA Tier 3 regulation was just completed to reduce current average gasoline sulfur content by up to 67%.  The health benefits by 2030 are estimated to prevent up to 2,000 premature deaths and substantially reduce the respiratory problems for 10’s of 1,000’s of individuals each year.  The EPA estimates that lowering U.S. gasoline sulfur from 30 ppm to 10 ppm will cost less than one cent per gallon.  With this relatively insignificant cost and the significant projected health benefits why would anyone question implementing the new Tier 3 gasoline sulfur regulation without further changes?  However, if the actual costs to upgrade existing Petroleum Oil Refineries to produce 10 ppm gasoline sulfur are significantly higher than the EPA estimates, could this justify further evaluation-modification of the new Tier 3 regulation?  To answer this question we will review some of the more important technical and economic details needed to determine if the EPA’s estimated costs and major benefits are reasonably accurate.

Brief Review of Recent EPA Gasoline Sulfur Regulations â€" Since 1990 the EPA has implemented increasingly cleaner gasoline standards to reduce all types of gasoline major pollutants.  Initial regulations focused primarily on reducing or eliminating lead, VOC, NO_X, and PM.  The next clean gasoline priority was the sulfur content or SO_X emissions.  Gasoline sulfur was reduced to 300 ppm in 2004 and 30 ppm in 2006 by a previous Tier 2 gasoline regulation.  This 90% reduction in gasoline sulfur was estimated to prevent 4,300 premature deaths annually and also reduce respiratory health problems for 10’s of 1,000’s of affected individuals each year.  The EPA estimated the 90% reduction in sulfur would cost less than two cents/gallon.

If a given Refiner had adequate excess gasoline ‘hydrogen desulfurization’ (HDS) processing and hydrogen (H₂) production capacities available, the ‘incremental operating costs’ could have been as low as a few cents/gallon.  However, if inadequate HDS and H₂ capacities were available and new HDS/H₂ capacity had to be built, the increased amortized capital and operating costs would be substantially greater than a few cents/gallon.  The Tier 2 standard costs unfortunately led or contributed to the shutdown of ten U.S. refineries (6% of total refineries) 1999-2006.

Early 2013 the EPA proposed the new Tier 3 gasoline sulfur standards and recently finalized the regulation.  This new regulation will reduce gasoline sulfur by another 67% (30-to-10 ppm) and is projected to cost (EPA estimate) Refiners less than one cent/gallon.

Refining Industry Analysis of Tier 3 Sulfur Compliance Costs â€" the American Petroleum Institute (API), which represents most Oil Companies, completed a detailed analysis of the new Tier 3 gasoline sulfur compliance costs, and determined that Refining incremental operating costs should be 6-9 cents/gallon.  This increased gasoline sulfur reduction processing-production costs vs. EPA estimates has also been reviewed and supported by the American Fuel and Petrochemical Manufactures (AFPM); whose membership includes most Refining Companies.

The EPA disputes the API/AFPM Tier 3 higher compliance costs estimates; since the EPA’s less than one cent per gallon estimate has apparently been ‘peer reviewed’ by a couple Consulting companies.

Author’s Independent Peer Review of Tier 3 Gasoline Desulfurization Costs â€" I spend about 20 years of my career designing, upgrading, and optimizing the operations of all types of Refinery processing units and equipment, including naphtha (gasoline) and gas oil (heavier oils that are cracked/converted to gasoline) HDS units.  Based on my experience I developed a fairly detailed cost estimate to reduce current 30 ppm sulfur reformulated gasoline (RFG) to 10 ppm.  The cost, of course, depends on the level of existing excess Refinery HDS/H₂ capacities, or lack there of, and the available capacity of other associated refining processing units-equipment required to produce the finished 10 ppm sulfur RFG.  Based largely on upgrade-expansion projects completed at several West Coast Refineries, I determined the cost for reducing RFG sulfur by 67% should be in the 5-10 cents/gallon range.  Why is this estimate up to 10-times greater than the EPA’s ‘peer reviewed’ estimate of less than one cent/gallon?  Read further…

Rather than focus on the apparent lack of technical refining knowledge of the two Consulting companies (Mathpro and ECTA)   hired by the EPA to peer review their cost estimate, let’s summarize some of the most important refining processing factors all three of these organizations apparently missed.  First, the amount of increased heat, power, H₂ consumption and associated costs required to desulfurize gasoline feedstocks 30-to-10 ppm is not linear as the EPA/Consultants have apparently assumed, but is increasingly expediential the lower the finished gasoline sulfur content.  Second, chemically separating sulfur from naphtha/gas oil requires breaking down heavier hydrocarbons (HC’s) to lighter HC’s.  Reducing sulfur levels 30-to-10 ppm increases generation of lighter HC’s (lower value, non-gasoline suitable co-products), which reduces the volume yield of higher value gasoline.  And third, increasing HDS reactor severities (higher temperatures and increased H₂ consumption) also reduces the octane of the 10 ppm gasoline blend components.  This lost octane must be restored by further processing in units commonly called ‘Reformers’; which further increases overall heat/power consumption and associated costs.

I know this is probably a lot of technical information for some individuals, but the bottom line is that multiple refining processing units, systems, yields and overall costs are impacted by reducing finished gasoline sulfur from 30 ppm to 10 ppm.  These factors lead to substantially increased operating costs in the range of 5-10 cent/gallon; including increased upgrade/capacity capital costs, increased fuel & power consumption, increased H₂ production-consumption, and added operating cost impacts on many other refining processes/systems not covered in the above details.

Current Example for Reduced Gasoline Sulfur Costs â€" based on my earlier career experience I supported/managed many of the modifications and upgrades required to enable a major California Refinery to transition from producing ‘conventional leaded’ gasoline to the cleanest gasoline motor fuel produced within the U.S. today: CARB gasoline.  CARB gasoline currently has an average sulfur content of 20 ppm vs. average U.S. of 30 ppm.  By comparing the costs of CARB to average U.S. gasoline should yield a reasonably transparent estimate of the actual cost to reduce gasoline sulfur by about 33% (or half the Tier 3 reduction requirement).

Over the past few years lower sulfur CARB gasoline retail cost averaged about 35 cents/gallon more than U.S. gasoline.  Part of this increased cost is due to the difference in state gasoline taxes.  On average, California gasoline state taxes are about 15 cents/gallon greater than average U.S. state’s gasoline taxes, which makes the difference in CARB 20 ppm sulfur vs. U.S. 30 ppm sulfur gasoline equal to 20 cents/gallon.  Yes, there are other factors that make CARB gasoline more expensive, such as increased cost of Refining operations within California and other more restrictive CARB specifications (aromatics, olefins, RVP, etc.).  But, when you make adjustments for these and other cost differences, the cost of CARB 20 ppm sulfur gasoline vs. EPA 30 ppm gasoline is about 5-6 cents/gallon.  These data indicate the cost for Tier 3 10 ppm sulfur gasoline could possibly be slightly greater than 10 cents/gallon.

Tier 2 vs. Tier 3 Health Benefits Comparison â€" U.S. gasoline sulfur has been substantially reduced over the past 20+ years.  Since 1990 many cleaner gasoline regulations have been developed-implemented; with the Tier 2 and 3 lower sulfur gasoline regulations being the most recent.  To summarize the improvements or reductions in gasoline sulfur since 1990, refer to the following Table.

U.S. Gasoline Sulfur Content and Associated Emissions

Data Sources: EIA ‘Petroleum Consumption: Transportation Sector’ and ‘Transportation Sector Delivered Energy Consumption’.  Notes: [1]300 ppm sulfur gasoline was mandated under Tier 2 in 2004 and 30 ppm in 2006, and, [2] Reduction towards10 ppm begins in 2017 under Tier 3.

The above Table shows the huge reductions in gasoline sulfur content and associated SO₂ (equivalent) emissions that occurred 1990-2006.  The 2017-2030 reduction in gasoline sulfur from 30 ppm to 10 ppm will only reduce U.S. total SO₂ emissions from the consumption of gasoline by about 2% compared to pre-2007 low sulfur gasoline regulations emission reductions.

In Conclusion â€" the actual costs for reducing average U.S. gasoline sulfur by 67% from current 30 ppm levels is much more likely to be on the order of up to 10 cents per gallon or about 10-times the EPA’s estimate.  This means that U.S. Consumers will pay additional annual gasoline costs of up to $10 Billion by 2030 (AEO 2013 basis).

The EPA estimated that up to 4,300 premature deaths/yr. would be prevented by the Tier 2 gasoline sulfur reduction of 300 ppm to 30 ppm.  Based on the reduction of associated SO₂ emissions of 235,000 tons/yr. (refer to the above Table), this equates to (235,000/4,300=) one avoided premature death per 55 tons/yr. SO₂ emission reduction.  The EPA now estimates Tier 3 gasoline sulfur reduction of 30 ppm to 10 ppm will reduce up to 2,000 premature deaths/yr.  This equates to (14,000/2,000=) one avoided premature death per 7 tons/yr. SO₂ reduction or almost an 8-fold increase in the estimated ‘unit’ health benefits of future reduce gasoline SO₂ emissions.

To summarize, the EPA has apparently underestimated the refining processing costs to reduce gasoline sulfur 30-to-10 ppm by up to a factor of 10 and has potentially inflated the avoided premature death benefits by up to a factor of 8.  These data make understanding or accepting the EPA’s Tier 3 cost:benefit analysis significantly questionable.  When Government regulations appear to be possibly based more on factors (political?) other sound science/technical analyses it’s difficult not to question the validity of the EPA’s regulatory development process and claimed cost:benefit analysis. 

Cost Effective Alternatives to Tier 3 Gasoline Sulfur Reduction â€" Protecting the lives and health of U.S. Residents should always be the top priority of the Federal Government.  However, since the Country’s financial resources are limited, we should address the largest sources of the most harmful pollutants first.   In the case of petroleum, other higher sulfur fuels such as jet fuels and residual fuel oil contain and emit 4-12 times more SO_X than gasoline.  Refer to the Data Table of past TEC Post.  It could be far more cost effective and beneficial health-wise to reduce the sulfur content of these other petroleum fuels first, then reducing the relatively small levels of current gasoline sulfur at a cost of $10 Billion per year.  Addressing other sources of pollution such as possible lead poisoning from aviation gasoline could be another much more cost effective and beneficial regulatory action then the health risks of current gasoline sulfur.  Even addressing the large respiratory risk to numerous Residents from burning wood, a recognized renewable heating fuel, could be more beneficial and cost effective environmental solution compared to a relatively small reduction in gasoline sulfur.

The argument that current gasoline sulfur presents a larger health risk in a city’s region that experiences the greatest level of traffic congestion definitely has merit.  But, the most cost effective solutions might be to address the greatest sources of on-road pollution first: older-smoking diesel and gasoline vehicles and those vehicles whose emission control systems have not been properly maintained.  The EPA could require new exhaust filters be installed on all diesel vehicles similar to the California ARB regulations.  Poorly maintained and highly polluting vehicles can be much more effectively addressed by enforcing annual vehicle emission systems inspection-tests Country-wide and requiring corrective maintenance actions be performed immediately or the vehicle must be removed from operation.

What do you think are the most cost effective and beneficial solutions to better controlling the largest and most harmful sources of current U.S. Transportation and Residential Sectors’ pollution?