Energy Producing States CoalitionDecember 2, 2012Steve HigleyManager, OutreachAmerican Fuel & Petrochemical ManufacturersWashington, DC

Impending Regulations: Costs and Consequences

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Regulatory “Train Wreck”A blizzard of stationary source regulations threatens U.S. refining and petrochemical operations, American jobs, and our nation’s economy. Regulations of major concern include:

• Renewable Fuels Standard (RFS)

• Low-Carbon Fuel Standard (LCFS)

• Tier 3 Gasoline Standards

• 2013 Ozone NAAQS revisions

• Greenhouse Gas Regulations

Some are conflicting; some will be impossible to meet; all will have significant consequences.

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Federal Renewable Fuels Standard (RFS2):

• Requires 36 billions of biofuels to be blended into the fuel supply by 2022

• Mandated volumes divided into 4 major categories:Total renewable fuelsAdvanced biofuels

Biomass-based diesel Cellulosic biofuel

Renewable Fuels Standard

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Two large barriers make it difficult to meet RFS2:

1. The amount of ethanol that can be blended into gasoline

Current law caps ethanol in gasoline at 10%

Addition of greater volumes of ethanol will be difficult without: increasing the blending limit for standard vehicles, or expanding the use of E85 in flex-fuel vehicles

EPA granted “partial waivers” to allow E15 (gasoline with 15% ethanol) use only in vehicles MY2001 and newer Legal challenge lost on standing, but some judges in opinion

concurred EPA action was illegal

Feasibility of the RFS2

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Two large barriers make it difficult to meet RFS2:

2. The types of biofuels required under the standard

Nearly all of the ethanol sold in the U.S. is made from corn

However, RFS requires increasing amounts of “advanced biofuels” (i.e. not made from corn starch)

For 2012, EPA reduced the EISA requirement of 500 million gallons of cellulosic biofuels to about 9 million gallons

Actual 2012 production to date: 20,000 gallons

Feasibility of the RFS2

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• Acts as a cap-and-trade program for fuelsSeeks to reduce carbon intensity (CI) of fuel pool through fuel

switching

Goal of program is to replace traditional fuels (gasoline, diesel) with “low-carbon” fuels (i.e. cellulosic, electricity, hydrogen)

• California implementing LCFS as part of AB3210% CI reduction over 10 years

• Other states pursuing LCFS programs: OR, WA, 11 Northeast/Mid-Atlantic States

• EPA believes it has authority under CAA for national LCFS program through regulation

Low-Carbon Fuel Standard

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CEA report (SAIC modeling) on Northeast regional LCFS:• Increase in consumer gasoline costs of 112%• Loss of 147,000 jobs in Northeast region• $27 billion decline in regional GDP• $28.8 billion decline in disposable household income

Charles River Associates study on national LCFS program:• Increase in consumer gasoline/diesel costs of up to 170%• $1,400 – $2,400 decline in annual household purchasing power• $410 – $750 billion decline in U.S. GDP• Net loss of 2.3 – 4.5 million American jobs

Low-Carbon Fuel Standard

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“Tier 3” Gasoline Regs

• Initiative announced by President Obama in May 2010

EPA proposal expected in 2012 or early 2013

Final rule in 2013

Perhaps effective in 2016, in time for MY 2017

• Will include gasoline sulfur reduction; could also include gasoline RVP reductions

• Under Tier 2, sulfur already reduced 90%

• Independent study: 9 – 25 cent per gallon cost increase, 4 to 6 potential refinery closures

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• January 7, 2010: EPA published proposal to tighten ozone NAAQS

Set primary standard between 60 and 70 parts per billion (ppb) over eight hours

No new science evaluated

• September 2, 2011: President Obama announced Ozone NAAQS reconsideration would be withdrawn

• Regularly scheduled 5-year reconsideration of the ozone standard (mandated by CAA) will occur in 2013

Ozone NAAQS

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Sept. 2010 Manufacturers Alliance (MAPI) study examined impacts of a 60 ppb ozone NAAQS:

• Annual attainment cost of $1 trillion+ from 2020-2030

• Reduction in GDP of $676.8 billion (3.6%) in 2020

• 7.3 million jobs lost by 2020

• “The net result would likely be another inducement for companies to move operations offshore”

Ozone NAAQS

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• EPA issuing GHG regulations for large stationary sources

Title V; PSD permits for sources > 100,000 TPY (new facilities) or > 75,000 TPY (major modifications)

GHG New Source Performance Standards (NSPS) for utilities, refineries

Regulations for refineries anticipated 2013; unsure what they will look like

Regardless of what they look like, will conflict with other regulations already discussed

NSPS will trigger GHG regulation for existing sources

GHG Regulations