The Environmental Protection Agency is preparing to implement a new regulation for gasoline that is expected to increase the price consumers pay at the pump.
If the rule is passed, the regulation will require refineries to install new equipment to reduce the sulfur content in gasoline from 30 parts per million of sulfur to 10 ppm. The prior standard of 300 ppm was reduced just a decade ago.
Advocates of the rule argue that the new Tier 3 standards proposal will provide major health and environmental benefits for a relatively low cost.
However, in a letter addressed to EPA Administrator Lisa Jackson, both Senator Democrats and Republicans warned that the proposed regulation would impose billions in additional refinery costs, and could add up to 25 cents to every gallon of gasoline.
The concerned senators explained that it would be “expensive” for companies to meet the sulfur standards, citing a study that determined the rule could add up to $17 billion in industry-wide, up-front expenses, in addition to another $13 billion in annual operating expenses.
How Gas Prices are Affecting Americans
Gas prices have already increased by roughly 15 percent this year, up from a nationwide average of $3.34 for a gallon of regular unleaded recorded in the last week of 2012 to the $3.86 price level reached this week.
Despite the fact that gas consumption has been declining in recent years, pump prices in 2012 accounted for the largest share of U.S. household income in over 30 years.
Furthermore, the Energy Information Administration (EIA) found that the average U.S. household spent $2,912 on gasoline last year – roughly 4 percent of American’s pre-tax income.
Both drivers and businesses are already dealing with the financial pains caused by the spiraling gas prices and the economic difficulties caused by the recession.
Economic Effects of Climbing Gas Prices
Evidence suggests that when gas prices climb, the economy also suffers greatly. For instance, when gas prices increase, consumers have less discretionary income to redistribute into the economy. For households with multiple drivers, the financial burdens are compounded.
Stocks for airlines, freight carriers and other companies that rely on gasoline are also adversely affected because they lack sufficient pricing power to offset the increased fuel costs.
Therefore, when gas prices climb, the result is a weakened stock market performance, which adversely affects both the market and individuals’ portfolios.
Combined data from the EIA and the U.S. Department of Labor also reveals a strong correlation between gas prices and the unemployment rate. As gas prices climb, the unemployment rate also rises sharply.
Implementing the Regulations
If the EPA issues the proposal, it would likely take the agency more than a year to review public comments and finalize any plan.
The agency has the authority to tighten the sulfur standards under the Clean Air Act. Whether or not the standards are imposed is at the discretion of the EPA.
Because the standard sulfur content of gasoline was reduced by 90 percent just years a few years ago, many argue that the environmental benefits of the new proposal are not enough to justify the additional refinery expenses.
Considering the dire economic effects the proposed regulation will likely cause American drivers and businesses, energy proponents are lobbying against the rule to help prevent the anticipated pump pains from hindering our nation’s growth.
Landon Arnold is the Vice President of Information Technology for TAP Management, Inc. He is the founder of Landon Arnold Photography and has an extensive background in audio and video production.