EPA Should Do “Impact Assessment” of Tier 3 Regulations

Those familiar with federal regulations know that when an owner seeks to do develop his or her property—perhaps by clearing a marsh in order to build a shopping mall—there must often be an “impact” assessments (relating to the local environment, economy, etc.), which can cost a pretty penny. In addition to the direct burden of taxes, such regulations stifle innovation and job creation.

In an interesting twist, in late March Rep. Ed Whitfield (R-Ky.) proposed that the EPA get a taste of its own medicine. Whitfield introduced

new legislation that would require a presidential commission to investigate the impact of Environmental Protection Agency regulations on consumer gas prices. A discussion draft of the bill would also clamp down on any new regulations until six months after the commission issues a report to Congress.

…

The bill would specifically stop the agency from issuing so-called Tier 3 regulations to reduce sulfur in gasoline, new source performance standards for petroleum refiners, renewable fuel standards, ozone standards and some greenhouse gas regulations. [Bold added.]

As explained in this post, the EPA is moving ahead with its efforts to impose a “Tier 3” tightening of standards that would reduce the permissible levels of sulfur in refined gasoline. According to a study by Baker & O’Brien, Tier 3 standards would impose upfront costs on refiners of just under $10 billion, and cause a permanent increase in refining costs of 6 to 9 cents per gallon of gasoline. These economic harms would come with only a relatively small reduction in sulfur content, because previous regulations have already greatly reduced the sulfur content in gasoline.

Regardless of the specifics in the bill, the concept behind Whitfield’s proposal is refreshing because it underscores the fact that there are always tradeoffs. The reason refiners don’t currently meet the stringent new Tier 3 guidelines (which technically haven’t been formally announced yet, making it even harder for industry to plan) is that it is more expensive to produce gasoline with such low concentrations of sulfur.

Government officials have the power to issue new edicts, and to levy fines on private-sector producers who are caught violating the regulations. Yet not even the federal government has the power to repeal economic law. Imposing an artificial constraint on refiners—by forcing them to produce gasoline with lower sulfur concentrations than they otherwise would have chosen—necessarily raises costs of production. Since refiners are in business to make money, ultimately motorists will see higher prices at the pump.

Just because a policy is costly, doesn’t mean it’s a bad idea; we have to compare the costs with the benefits. Yet since sulfur concentrations have already come down more than 90 percent since the late 1990s, the marginal benefits become ever more elusive. Particularly when Americans are groaning under high gas prices, EPA needs to offer a much stronger case for the tighter Tier 3 standards.