Posted May 3, 2012
American refineries are closing and more closures are likely, often because of overly-burdensome regulation as well as lower gasoline demand. Several refineries in Pennsylvania are idle and possibly closing if no buyers come forward. The refining industry is one of the most highly regulated in the country and has been struggling for years to maintain minimal profit margins. In the face of even more regulations from the Environmental Protection Agency (EPA), who are, imposing carbon-emission regulations as well as proposing overly-strict ozone regulations and other regulations, more closures are likely. Not only do EPA’s federal standards impose burdens on the industry, but state and local regulators are also part of the problem.[i]
Regulations Affecting Refinery Operations
The Clean Air Act of 1970 was the first regulation to significantly change the refinery industry by prohibiting lead additives in gasoline. Later amendments were added that created oxygenated and reformulated gasoline bringing about the “boutique fuel” issue. Each of these fuels are available in 3 grades (regular, mid, and super) and are adjusted for winter/summer and northern/southern driving conditions.[ii] When refineries must switch over from winter grade to summer grade gasoline in the spring, motorists have historically seen gasoline prices rise.
Reformulated gasoline was the result of Amendments to the Clean Air Act in 1990 and mandated gasoline that burned more cleanly than conventional gasoline. Areas of the country that did not meet the EPA’s ozone regulations were required to use reformulated gasoline. Reformulated gasoline burns cleaner by reducing smog-forming and toxic pollutants, is less prone to evaporation, and uses an oxygenate to improve combustion.
There are currently 15 distinct boutique fuels required in portions of 12 states by federal regulation. But, in addition to the federal standards for reformulated gasoline, State Implementation Plans (SIPs) require low-Reid Pressure conventional gasoline. California, whose gasoline prices are higher than the rest of the nation, requires a cleaner fuel than the federal reformulated gasoline and the Midwestern states require an ethanol-blended reformulated gasoline.