Navigant Research Blog

New EPA Proposal: An Environmental Victory?

Lisa Jerram — March 29, 2013

The U.S. Environmental Protection Agency (EPA) today announced a proposal to lower tailpipe emissions levels from passenger cars and trucks.  To be phased in from 2017 to 2025, the proposed rule also calls for average sulfur content in gasoline to drop to 10 parts per million by 2017.  Meanwhile, the Obama Administration appears to be giving up on a carbon tax and there are warning signs that the EPA will retreat on its power plant greenhouse regulations.  This new announcement thus seems like a return to the EPA’s comfort zone – regulating criteria pollutant emissions from passenger cars.

However, the proposed regulation does in fact support the EPA’s efforts to limit carbon emissions.  The timing for these proposed standards is clearly aligned with Corporate Average Fuel Economy (CAFE) standards, which will begin to ramp up from 35.5 mpg in 2017 to 54.5 mpg by 2025.  The automotive original equipment manufacturers (OEMs) are going for an “all of the above” approach to complying with the 2025 regulations.  They know they cannot get there just with alternative fuels, so they need to squeeze everything they can out of conventional gas cars.  Low-sulfur fuel allows them to do that by using technologies like direct injection engines.

Indeed, it is clear from the auto industry’s response to today’s announcement just how on board they are with the proposed regulation.  The Association of Global Automakers and Alliance of Automobile Manufacturers both expressed support, citing the benefits of a single, national low-sulfur fuel standard.  Automakers will not only be able to improve fuel economy, they will also be able to sell the same cars in all 50 states – since the EPA rule harmonizes with California’s more stringent standards.

It’s good that the Administration has Big Auto in its camp, because Big Oil is not happy with this proposal.  In fact, the rule will force major investments in refinery upgrades in the United States.  Petroleum refineries are already engaged in a battle with the EPA over its cellulosic ethanol blending mandates, so this new ruling will add more fuel to their argument that the EPA is placing an undue burden on the oil industry.

Another aspect of the proposed requirements that may cause controversy is that the EPA is in favor of changing the emissions “test fuel” from gasoline with no ethanol to an E15 blend.  While most gasoline in the United States is close to an E10 blend (i.e., with 10% ethanol), the new test fuel will actually leapfrog over this level to the more aspirational E15 target.  As such, this proposal could face blowback from both automakers and refiners.

If I had to make a prediction, the broad rule on emissions and fuel sulfur will stand, though some details such as the E15 test fuel may be tweaked, since automakers can more easily meet stricter CAFE standards with the new rule in place.  If the proposal does stand, the White House would gain an early environmental victory in its second term.  Such a victory would also buttress the ambitious fuel economy goals set in the Obama Administration’s first term by giving OEMs more options for compliance and thus holding off potential challenges to the regulation.

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