New sulfur regulations to increase gas and automobile prices

From the New York Times, the EPA will soon force oil refiners to remove all sulfur from gasoline.

 The Environmental Protection Agency plans to unveil a major new regulation on Monday that forces oil refiners to strip out sulfur, a smog-forming pollutant linked to respiratory disease, from American gasoline blends, according to people familiar with the agency’s plans.

When burned in gasoline, sulfur blocks pollution-control equipment in vehicle engines, which increases tailpipe emissions linked to lung disease, asthma, emphysema, chronic bronchitis, aggravated heart disease and premature births and deaths.

The respiratory diseases and other health effects of pollution from automobile tailpipes are known as negative externalities in economics – bad (hence ‘negative’) effects on people who neither produced nor purchased the gasoline that’s being consumed (hence ‘externalities’ because the effects are on people external to the market transaction). The purpose of the regulation is obviously to try to decrease the negative externalities so that there are fewer negative effects on human health. The story continues…

The E.P.A. estimates that the new rule will drastically reduce soot and smog in the United States, and thus rates of diseases associated with those pollutants, while slightly raising the price of both gasoline and cars.

E.P.A. officials estimate that the new regulation will raise the cost of gasoline by about two-thirds of one cent per gallon and add about $75 to the sticker price of cars. But oil refiners say that it will cost their industry $10 billion and raise gasoline costs by up to 9 cents per gallon.

The E.P.A.’s studies conclude that by 2030, the cleaner-burning gasoline will yield between $6.7 billion and $19 billion annually in economic benefits by saving lives and preventing missed work and school days due to illness.

The new rule will have a significant impact on the health of low-income Americans who live near major highways…

But oil refiners say that the new rule will hurt their industry.

There are tradeoffs associated with this policy. It should reduce costs on human health, but will decrease consumer and producer surplus in the automobile and gasoline industries. This policy is said to pass the

One last tidbit from the article:

Mr. Drevna said it was easier to comply with the earlier regulations because removing the first 90 percent of sulfur molecules from gasoline can be done without difficulty. Wringing the last 10 percent of those molecules is harder.

“They’re tough little buggers that don’t want to come out,” Mr. Drevna said. “It’s like getting the last little bit of red wine stain out of a white blouse.”

In environmental economic theory, we learn that marginal cost of reducing pollution increases. That is, it’s relatively cheap to cut back on the first units of pollution but, as you cut back more and more, each additional unit becomes more costly to eliminate. Mr. Drevna’s statement here is consistent with the theory we propagate to our students!