Auto, oil execs open Round 2 of sulfur spat

Carmakers want cleaner fuel, but refiners resist costly changes

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Bainwol: Carmakers want less sulfur

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WASHINGTON -- By calling for cleaner gasoline to help reduce tailpipe emissions, automakers again have put themselves on a collision course with the oil industry.

Regulators at the EPA could propose new national standards next year modeled after California's updated Low Emission Vehicle rules, which are scheduled to phase in from the 2015 through 2025 model years and would require major cuts in air pollution.

Automakers say they are willing to follow California rules across the United States.

That would spare the car companies from having to start selling vehicles with different emission controls in California and the 12 other states, such as New York, plus the District of Columbia that follow California's tailpipe rules. And automakers say it could lighten the current burden of certifying all vehicles twice -- once to satisfy the EPA and again to sell a car in California.

But there's a catch, and it points toward another bitter battle between automakers and the oil industry over the amount of sulfur in fuel. To meet California standards nationwide, automakers say, the sulfur content of gasoline must drop. Refiners balk at the cost and say proponents of the change haven't made their case.

The cost of meeting the tougher standards nationwide would be about $150 per vehicle, according to an analysis commissioned by state regulators.

"We'd like to see lower sulfur. That's important to meeting the goal of cleaner emissions," Mitch Bainwol, president of the Alliance of Automobile Manufacturers, told Automotive News last week. "We're going to be pushing that in Washington."

The alliance wants the Obama administration to lower the cap on sulfur in gasoline to 10 parts per million, down from 30 parts per million now.

But upgrading a refinery can cost hundreds of millions of dollars, and the oil industry, a potent political force in Washington, doesn't want to pay.

The American Petroleum Institute says cleaner fuel would add as much as nine cents to the price of a gallon of gasoline, though studies by the EPA, state regulators and the alliance have put the price tag closer to a penny a gallon.

Oil companies say the EPA hasn't proved cleaner fuel would make new emissions systems in cars more effective.

The agency "has yet to demonstrate any air quality benefits from reducing sulfur by the amount being considered," said Bob Greco, a group director at the American Petroleum Institute, during testimony to a Congressional committee in April.

Bainwol said he considers Jack Gerard, CEO of that oil industry group, a friend. He said he hopes there's a deal that works for refiners as well as automakers.

"You get more done in this town when you operate in a civil way, but it is kind of a complicated mix here," Bainwol said.

Car companies prevailed in late 1999 after lobbying to clean up sulfur, which harms the performance of catalytic converters. Despite opposition from refiners, the EPA set a standard of 30 parts per million for gasoline.

The automakers won again when they asked for low-sulfur diesel fuel. Under rules that took effect in 2006, diesel fuel sold in the United States must contain less than 15 parts per million of sulfur, down from an earlier limit of 500 parts per million.

California has the same type of diesel fuel. But when it comes to gasoline, it requires less sulfur than the rest of the United States, with a standard of 15 parts per million.

Automakers started the lobbying push in response to California, which adopted LEV III, the world's strictest light-vehicle emissions rules, in January.

Regulators at the EPA finished drafting a "Tier 3" proposal in December 2011 that would go beyond the current Tier 2 standards and mirror California's rules, a person familiar with the plan tells Automotive News.

That proposal, which drew criticism from the oil industry before its release, has not surfaced. It has not gone to the White House Office of Management and Budget for review, an online database shows.

That left supporters of the rules wondering whether the Obama administration will go along. A group of Democratic senators sent a letter to EPA Administrator Lisa Jackson last month asking her to move forward.

The rules would "enable automakers and their suppliers to manufacture to scale and minimize the cost of emissions reduction equipment installed in new vehicles," wrote Sen. Kirsten Gillibrand, D-N.Y., and a dozen colleagues.

Automakers say they hope the EPA will release a proposal in 2013.

The rules would help car companies sell a single fleet of gasoline-powered vehicles around the United States rather than catering to California's new rules, said John Cabaniss, environment and energy director at the Association of Global Automakers.

Even if state and federal rules are coordinated, they still will present a puzzle as automakers redesign cars to meet new corporate average fuel economy standards.

"Juggling all those things together is where the real challenges come in," Cabaniss said.

One engineering challenge will be making catalytic converters that work when an engine starts cold because vehicles pollute most before the catalyst warms up. Suppliers have started adding heat pumps and chemical traps to solve that problem.

"If you don't capture that first wave of emissions coming out of the engine after you turn the key, you're dead," at least for the purposes of complying with the new regulations, said Joseph Kubsh, executive director of the Manufacturers of Emission Controls Association. "You're never going to get there."

You can reach Gabe Nelson at gnelson@crain.com.

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