Bloomberg News

Automakers Side With Advocates on Smog After Seeing Fight Lost

March 04, 2014

The U.S. Environmental Protection Agency drew up its rules limiting sulfur content in gasoline with automakers’ backing, reflecting a new way of doing business for an industry that’s often fought regulators.

A General Motors Co. (GM:US) executive joined EPA Administrator Gina McCarthy in announcing the rule yesterday. Five car companies, five trade groups and the United Auto Workers union supplied statements of support distributed by the government.

The support by automakers puts them on the same side as the American Lung Association, environmental groups and state clean-air agencies that described the limits on sulfur emissions as one of President Barack Obama’s most significant environmental initiatives.

“The paradigm has changed to where we’re trying to work much better with the regulators and build relationships and build trust, so we can get a satisfactory outcome,” Michael Stanton, president and chief executive officer of the Association of Global Automakers, said in an interview.

It’s a change that took hold gradually after the U.S. bailouts of GM and Chrysler, following the recession that reduced car sales by 39 percent between 2005 and 2009. Ford Motor Co. and Nissan Motor Co. took billions in U.S. government aid to develop alternative-fuel vehicles and improve gasoline-engine efficiency while the industry challenged court decisions that empowered states to limit emissions.

Automakers decided to work with regulators following a June 2012 U.S. Supreme Court decision that backed California’s attempt to regulate carbon dioxide as a pollutant, said Stanton, whose Washington-based trade group represents Toyota Motor Corp. Honda Motor Co., Nissan and 10 other automakers.

Fuel Efficiency

That ruling, by empowering California to set its own rules, allowed a bloc of Northeast states including Massachusetts, Connecticut, New York and Maryland to follow.

A few months later, automakers struck a deal with Obama’s administration to raise the average fuel economy for cars and light trucks to 54.5 miles per gallon by 2025. The industry negotiated simultaneously with the EPA, California and the National Highway Traffic Safety Administration.

Automakers sought to bring the two sets of rules together. By allying with the EPA to make so-called Tier 3 mandates consistent with what the California Air Resources Board had already announced, the industry could ensure it could make a single set of cars and light trucks for the national market.

Reducing industry emissions to near zero will cost the automakers $15 billion over the next 10 years, according to the EPA. Still, the industry saw that as a better option than having to make separate vehicles for California and other states that follow more stringent rules.

Just Once

“The benefit from our standpoint is you get to do this once rather than several times, which has a great deal of efficiency associated with it,” said Mike Robinson, General Motors’ vice president of sustainability and global regulatory affairs. “That’s the real breakthrough here.”

The cleaner gasoline will allow catalytic converters to work more efficiently and help in the quest for better fuel economy, Robinson said.

The auto industry’s influence on the rules proved more powerful than opposition from oil companies including Exxon Mobil Corp. (XOM:US) and BP Plc. (BP:US) They said in written comments to EPA that the deadline for compliance was too short and the agency hadn’t shown significant health benefits from cutting sulfur limits in gasoline by two-thirds.

The EPA estimates the fully phased-in rules will raise the cost of gasoline by $0.0065 a gallon and the price of a new car or light truck by $72.

Economic Threat

The American Petroleum Institute, the industry’s Washington-based trade group, has projected the regulations could increase gasoline prices by as much as 9 cents a gallon. It’s “a threat to consumers, jobs and the economy,” API said.

The U.S. is matching sulfur levels of gasoline already sold in Europe, Japan and South Korea, an RBC Capital Markets LLC analyst, Joseph Spak, said in a research note yesterday. Costs to manufacturers may exceed EPA estimates, based on conversations with the industry, he said.

Oil companies will have to pay an estimated $10 billion in capital costs and $2.4 billion in annual compliance costs, American Petroleum Institute President and Chief Executive Officer Jack Gerard wrote in a Feb. 26 letter to supporters about the pending announcement.

The oil industry is standing alone, said Meghan Higgins, senior Washington representative of the Union of Concerned Scientists’ Clean Vehicles Program.

“The oil industry seems intent on blocking progress instead of investing in a cleaner-fuel future,” Higgins said.

To contact the reporter on this story: Jeff Plungis in Washington at jplungis@bloomberg.net

To contact the editor responsible for this story: Bernard Kohn at bkohn2@bloomberg.net


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