Sulfur in Gasoline and the 106th Congress

Sulfur in Gasoline and the 106th Congress

Order Code RS20163
Updated July 12 , 1999
CRS Report for Congress
Received through the CRS Web
Sulfur in Gasoline
Stephen Thompson
Specialist in Transportation
Resources, Science, and Industry Division
James E. McCarthy
Specialist in Environmental Policy
Resources, Science, and Industry Division
Summary
President Clinton announced the proposal of so-called "Tier 2" emission standards
for cars and light trucks under the Clean Air Act on May 1, 1999. If fully implemented
in 2009, the standards would reduce nitrogen oxide emissions 77-95% below current
Tier 1 standards. Included in the proposal were requirements that the average
concentration of sulfur in gasoline be lowered more than 90%, to 30 parts per million,
by 2004. Sulfur in gasoline reduces the effectiveness of catalytic converters and on-
board diagnostic equipment in vehicles, thus increasing tailpipe emissions that adversely
affect human health and the environment.
Auto manufacturers and most states support setting strict national limits on sulfur,
while petroleum refiners seek less stringent and more localized limits. Bills introduced
during the 106 Congress (S. 171 and H.R. 888) would pr
th
ovide statutory limits on sulfur
similar to those in the proposed regulations. While there is some congressional
opposition as well as support for the proposed standard, as of early July, no legislation
had been introduced to scale it back. This report will be updated as developments
warrant.
Background
The performance of catalysts in vehicle emission control systems is adversely affected
by the presence of sulfur in gasoline. Sulfur, a contaminant that is naturally present in
crude oil, competes with other pollutants for “space” on the active surface of the catalyst.
This limits the ability of catalysts to convert pollutants such as nitrogen oxides, carbon
monoxide, and hydrocarbons to less harmful gases.
Nitrogen oxides and hydrocarbons contribute to the formation of ground-level ozone
and fine particles that are considered harmful to people and the environment. Mobile
Congressional Research Service ˜ The Library of Congress

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sources of air pollution contribute 49% of the total nitrogen oxides inventory, 40% of
volatile organic compounds including hydrocarbons, about one-quarter of particulate
matter smaller than 10 microns, and nearly 80% of carbon monoxide.
Sulfur in gasoline in the United States averages about 340 parts per million (ppm)
nationally. The average level varies in different parts of the country, from a low of 30 ppm
in California to a high of 449 ppm in some other areas of the country. Some gasoline
contains as much as 1,000 ppm of sulfur. Reducing the sulfur content of gasoline to 30
ppm, as proposed by the Environmental Protection Agency (EPA) and as required in
California,
1 would improve the effectiveness of vehicle catalytic converters enough to cut
nitrogen oxide emissions in half in new vehicles, and reduce hydrocarbon emissions by
significant amounts as well. The cost of meeting this standard is estimated by refiners at
5-6 cents per gallon of gasoline, and by EPA at less than 2 cents per gallon.2 A February
1999 study for the American Petroleum Institute estimated a cost of about 2 ½ cents per
gallon to meet a less stringent standard of 40 ppm for a section of the country (east of the
Rockies), rather than nationwide as proposed by EPA.3
EPA's Proposed Standards
Building on a 20-year history of progressively more stringent emission standards, the
Clean Air Act Amendments of 1990 (in 42 U.S.C. §7521) required EPA to implement
tighter emission standards for autos and light trucks in 1994-1996 (Tier 1 standards).
Section 202(i) of the Act required that after implementing the standards, EPA was to study
the need for further (Tier 2) reductions in emissions, the availability of technology to
achieve such reductions, and the cost-effectiveness of such technology. The Agency was
required to submit a report to Congress by June 1, 1997, containing the results of the
study, and, if stricter standards were needed, to make that determination by December 31,
1999. On August 4, 1998, EPA submitted its report to Congress.4 In it, the Agency
concluded that further reductions in emissions are needed, that technology exists to make
those reductions, and that the technologies can be applied cost-effectively.
EPA states “the presence of sulfur in gasoline has an impact on the performance of
catalysts and thus on tailpipe emissions” and the sensitivity of catalyst efficiency to sulfur
5
The
1
federal Clean Air Act authorizes California to adopt standards to achieve emission reductions
from vehicular sources in California, provided that they are at least as stringent as the federal
standards. The regulation limiting sulfur in gasoline sold in California, issued by the California
Air Resources Board (CARB), took effect March 1, 1996. The regulation can be downloaded from
[http://www.arb.ca.gov/cbg/ regs1298.pdf] and a description of the sulfur limits in gasoline can
be downloaded from [http://www.arb.ca.gov/cbg/pub/cbgbkgr6.htm].
Lundberg
2
Letter, Vol. XXV, No. 10, May 27, 1998, p. 1. EPA's estimate can be found at 64
Federal Register 26004, May 13, 1999. For additional detail, EPA's Regulatory Impact Analysis
can be found on-line at [http://www.epa.gov/oms/tr2home.htm].
MathPro
3
Inc., Bethesda, Md., Costs of Meeting 40 ppm Sulfur Content Standard for Gasoline
in PADDS 1-3, Via Mobil and CD Tech Desulfurization Processes, February 26, 1999, p. 2.
The study can be downloaded from [http://www.epa.gov/oms/tr2study.htm#Documents].
4
5U.S. EPA, Office of Air and Radiation, Tier 2 Report to Congress, July 31, 1998, Report
(continued...)

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seems to increase with advances in catalyst technology. Because of the impact of gasoline
sulfur on emissions, EPA analyzed the issues associated with a gasoline sulfur control
program as part of Tier 2 regulation development. Following a series of studies, the
Agency concluded that limiting the level of sulfur in gasoline would be desirable in order
to protect vehicle catalytic converters and on-board diagnostic systems, and as a way of
facilitating lower vehicle emission standards in the future.
President Clinton announced the proposal of Tier 2 standards on May 1, 1999. (The
formal proposal appeared in the May 13 Federal Register.6) The proposed standards have
three major features:
! first, when fully implemented in 2007, they would reduce new auto emission
standards for the two major categories of pollutants that cause smog (ozone) by 70
- 88%;
! second, for the first time, they would require that light trucks and sport utility
vehicles, which now make up about half of the market for new vehicles, meet the
same standards as cars. When fully implemented in 2009, this step will reduce
emissions from such vehicles by as much as 95%;
! third, by 2004, the standards would set national limits on sulfur in gasoline,
reducing the average sulfur content more than 90%, from 340 ppm to 30 ppm. In
addition to setting average sulfur content requirements, the sulfur standard would
set a maximum per gallon concentration of 80 ppm.7
Like other parts of the Tier 2 proposal, the sulfur proposal contains several provisions
designed to provide flexibility to the regulated community. The controls are generally
applicable in 2004, but refiners who phase in controls before then could use credits gained
in the earlier years to delay full compliance until 2006. Small refiners would be granted
a 4-year extension (until 2008) to comply, with the possibility of a further 2-year
extension. The program would also allow refiners and importers to trade credits generated
by achieving concentrations below the standard, and to use such credits in place of
physical compliance.
Legislative Activity in the 106 Congress
th
The May 13 Federal Register notice begins a public comment period that will run
until August 2, 1999. EPA conducted four public hearings in Philadelphia, Atlanta,
Denver, and Cleveland between June 9 and June 17. After evaluating public comments,
the Agency intends to promulgate final standards before the end of the year.
5(...continued)
EPA420-R-98-008, p. 53.
6 64 Federal Register 26004.
The
7
cap amount is phased in, beginning at 300 ppm on October 1, 2003, declining to 180 ppm on
January 1, 2005, and finally to 80 ppm on January 1, 2006.

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No matter what standards the Agency ultimately promulgates, significant interests are
likely to be dissatisfied: environmental groups, auto manufacturers, producers of pollution
control equipment, and most states want strict national limits on sulfur in gasoline, while
petroleum refiners and some Western and Midwestern states seek more local and seasonal
limits. Thus, Congress has begun the process of oversight and, depending on the final
form of EPA's regulations, could take action on the issue.
In the 105 Congress, legislation to
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require strict national standards (S. 2377) was
introduced by Senator Moynihan, but not acted on. The bill has been reintroduced in the
106th Congress as S. 171 (Moynihan) and H.R. 888 (Kildee). Beginning 4 years after
enactment, the Moynihan and Kildee bills would set a nationwide, year-round standard of
40 ppm of sulfur in gasoline or, alternatively a limit of 80 ppm so long as the average over
a year is no higher than 30 ppm. This standard (similar to the EPA proposal) would
duplicate the requirement that California has imposed on gasoline sold in that state since
1996. As of early July, no legislative action on these bills had occurred.
In the wake of the President's May 1 announcement, other congressional sources,
including the Chairman of the Senate Environment Subcommittee on Clean Air, Senator
Inhofe, have expressed displeasure with the proposed rule and have suggested that they
might introduce legislation to modify it. Senator Inhofe's subcommittee held two days of
hearings on the proposal May 18 and 20, 1999, but as of early July, legislation to block or
modify the standards had not been introduced.
Selected Policy Issues
National, year-round standards. Whether sulfur causes permanent damage to
catalysts or its effects are reversible once the catalyst is exposed to lower sulfur exhaust
is a key question on which differing views have been expressed. The answer depends on
a number of factors including the catalyst design and location, the richness of the fuel
mixture, engine calibration and load, and the amount of sulfur in the fuel.8 If the damage
is permanent, national year-round reductions in sulfur would appear more desirable. If
not, regional and seasonal controls might achieve the desired effects at lower costs to
gasoline producers and consumers. Similarly, if high sulfur levels substantially interfere
with on-board diagnostic systems, causing illumination of the malfunction indicator light,
then a national sulfur level may be needed to address the problem. If changes in catalyst
design and fuel-control technology can offset the effects of sulfur in vehicles that are highly
sensitive to sulfur, then a national sulfur standard would be less important.
As noted, environmental groups, auto manufacturers, manufacturers of pollution
control equipment, and many states have urged EPA to set strict national limits on sulfur
in gasoline to protect vehicle catalytic converters and on-board diagnostic systems, and as
a way of facilitating lower vehicle emission standards in the future. In the proposed rule,
the Agency agrees with these groups, arguing that damage to emission control systems is
not sufficiently reversible to allow regional and seasonal exemptions.
8For a discussion of these factors, see Manufacturers of Emission Controls Association, The
Impact of Gasoline Sulfur on Catalytic Emission Control Systems, September 1998. The report
is available on-line at [http://www.meca.org/].

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Petroleum refiners have sought less stringent and more localized limits in order to
hold down costs to consumers, and to minimize the economic hardship on smaller and
older petroleum refineries. The petroleum industry proposal, which calls for an average
9
sulfur content of 150 ppm beginning in 2004 in states east of the Mississippi River plus
Missouri, Louisiana, and East Texas, and 300 ppm elsewhere, would cost about half what
the EPA proposal would cost. The industry envisions future reductions in the eastern
region to a 30 ppm standard in 2010.
Refinery compliance problems. Some refineries would be more adversely affected
than others by lower limits on sulfur in gasoline. Some gasoline feedstocks contain more
sulfur than others, so that more sulfur must be reduced in order to meet the prescribed
standard. In general, smaller, older refineries claim they could not afford to meet
significantly lower sulfur standards because more investment would be required per gallon
of gasoline produced and because getting the necessary funds would be more difficult than
for larger, more profitable refineries.
Industry has raised particular concerns about refineries located in the Rocky
Mountain region, an area referred to as PADD IV. According to industry, PADD IV is
10
almost entirely supplied by small refineries, which would face the largest challenge meeting
fuel sulfur standards.
For some refiners, EPA's proposed regulation will be the straw that breaks the camel's
back. Facilities will close and jobs will be lost. Since the phase-in of identical sulfur-
lowering requirements in California's gasoline in 1996, 11 percent of that state's
refineries have shut down.11
EPA concedes that the cost of compliance would be double in PADD IV (3.5 cents
per gallon vs. the 1.8 cent national average), but believes that exemptions for smal
12
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refiners provided in the proposed rule and trading and credit provisions would ease
compliance. EPA's proposal would allow small refiners — defined as those with no more
than 1,500 employees -- an additional 4 years beyond 2004 to come into compliance.
Small refiners that can demonstrate a severe economic hardship could apply for an
additional extension to 2010. In addition to meeting the standard by investing in sulfur
removal technology, refiners would be allowed to comply by purchasing credits from
others who reduce sulfur beyond the requirements of the standard.
EPA's definition of small refiner is an area of contention, however. The Agency
defines as small any refining company that employed 1,500 or fewer employees as of
January 1, 1999. In calculating the number of employees, the business must include all
9A summary of the proposal is available at www.api.org/newsroom.cgi.
PADD
10
stands for Petroleum Administrative District for Defense. PADD IV includes the states
of Wyoming, Idaho, Montana, Colorado, and Utah.
Statement
11
of J. Louis Frank, President, Marathon Ashland Petroleum, before the Subcommittee
on Clean Air, Wetlands, Private Property and Nuclear Safety, Committee on Environment and
Public Works, U.S. Senate, May 18, 1999, p. 4. See also statement of Clint W. Ensign, Vice
President, Government Relations, Sinclair Oil Corporation, pp. 4-5.
EPA, Regulatory Impact Analysis, p. V-47.
12

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subsidiaries, including all refining, distribution, and marketing activities worldwide.13
Apparently, it is not the size of the specific refinery, but a measure of the corporate
resources available to be drawn upon that EPA has chosen. In choosing this definition,
EPA relied on the Small Business Administration's definition of what constituted a small
petroleum refining business. About 17 refineries, out of a national total of 160, qualify for
special treatment under this definition. The Agency notes that 9 of the 17 already produce
gasoline with a sulfur content below 90 ppm.14
Industry representatives want a much larger number of refiners to be exempt, relying
on a definition of small diesel refiners that was inserted into the Clean Air Act's acid rain
program in the 1990 amendments to the Act (Section 410(h) of the Clean Air Act). In this
definition, small refiners are those with a crude oil throughput of less than 18,250,000
barrels per year, provided that they are owned or controlled by a refiner with a total
combined throughput of less than 50,187,500 barrels per year. About one-third of U.S.
refineries are believed to qualify for exemption under this definition.
Cost-effectiveness of alternatives to reducing sulfur. Whether improved vehicle
engines and catalysts would be more cost effective than reducing sulfur in gasoline is not
an issue that has received much attention. EPA argues, and to some degree most of the
interested parties seem to agree, that reducing emissions will require both better engines
and catalysts and lower sulfur gasoline.
Cost-effectiveness of controls is an issue, however, as industry considers how it
would comply with EPA's proposed standard: the petroleum industry disagrees strongly
with EPA's conclusions regarding the technologies that will be used to remove sulfur from
gasoline. The Agency has concluded that new technologies will reduce the cost of
removing sulfur to an average of 1.8 cents per gallon. Refiners argue that the technologies
touted by EPA have not been demonstrated on anything more than a pilot scale. Given
the short time the industry would have to achieve compliance, refiners say they are unlikely
to use unproven technologies. Rather, they would install already proven technologies,
which would cost substantially more.15
Conclusion
EPA's proposal to limit sulfur in gasoline is open to public comment until August 2,
1999. EPA appears committed to year-round national standards, with flexibility limited
to the provisions for averaging sulfur content and the exemption and trading provisions
available to small refiners. The Agency's position is supported by a broad range of
interests, including auto manufacturers, environmental groups, and many states. Others,
including refiners and some Western and Midwestern states, are opposed. Congressional
oversight hearings have occurred, legislation similar to EPA's position has been
introduced, and bills opposing or modifying the rule may be introduced.
64 Federal Register 26054.
13
For
14
EPA's discussion of the small business impacts, see Chapter VIII of the Agency's Regulatory
Impact Analysis, available on-line at [http://www.epa.gov/oms/tr2home.htm].
15Ensign testimony, pp. 7-8. The same issue was raised in the testimony of J. Louis Frank,
previously cited, pp. 4-6, and that of William Nasser, CEO, Energy BioSystems, pp. 2-3.