The Environmental Protection Agency (EPA) recently released new rules that require oil refineries to reduce the amount of sulfur in the gasoline they produce to no more than 10 parts per million by 2017. This is the limit that’s already been set in California, Japan, South Korea and Europe. The purpose of the reduction is to improve the respiratory health of Americans through cleaner air.
In addition to public health professionals, the new rules were welcomed by automakers. Carmakers were pleased because they will no longer have to build one type of a vehicle for those places where the limits are already in effect, plus another type that can use the dirtier gas that’s sold elsewhere. The cleaner gas would also make it easier for them to produce cars with fewer overall emissions.
The American Petroleum Institute, of course, complained about the new regulations. They claimed that the rules will result in an increase of six to nine cents per gallon of gasoline, and that they weren’t given enough time to implement them.
The EPA, however, said that the new standards would add less than a penny to the price of a gallon of gas, and California officials pointed out that it added less than a penny to the price when they implemented this stricter standard in their state 11 years ago.
But even if the new rules would really add nine more cents per gallon to the price of gas at the pump, is that truly an increase in the price of gasoline? The EPA estimates the rules will help avoid up to 2,000 premature deaths and 50,000 cases of respiratory ailments in children per year, saving $6.7 billion to $19 billion annually in health care costs. The overall economic effect of the new rules would be to internalize these costs into the retail price of gas. Including these costs in the price of gasoline doesn’t increase its real price; it makes the retail price of gas a truer price.
These new regulations, like most environmental regulations, make the market more efficient by requiring that the total costs of production be included in a product’s retail price.
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