Impending Regulations: Costs and Consequences

1. Impending Regulations: Costs and Consequences Energy Producing States Coalition December 2, 2012 Steve Higley Manager, Outreach American Fuel & Petrochemical Manufacturers Washington, DC

2. 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.

3. Renewable Fuels Standard 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 fuels • Advanced biofuels • Biomass-based diesel • Cellulosic biofuel

4. Feasibility of the RFS2 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

5. Feasibility of the RFS2 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

6. Low-Carbon Fuel Standard • Acts as a cap-and-trade program for fuels • Seeks 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 AB32 • 10% 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

7. Low-Carbon Fuel Standard 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

8. “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

9. Ozone NAAQS • 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

10. Ozone NAAQS 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”

12. GHG Regulations • 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