![[logo] US EPA](https://webarchive.library.unt.edu/eot2008/20081028090523im_/http://www.epa.gov/epafiles/images/logo_epaseal.gif){kind=logo}
Basic Information
Gasoline Supply and Prices:
Why are gas prices rising?
For the past 20 years, the United States has benefitted from declining energy prices. With cheaper gasoline readily available, Americans renewed their enthusiasm for larger, less fuel efficient vehicles. Consequently, today the fuel economy of the vehicle fleet is the lowest in 20 years. Refiners have made business decisions not to build new refineries in the U.S. Instead, demand was met over the past 20 years by expanding capacity of existing refineries. As refineries reach maximum capacity, refiners and marketers often choose to import gasoline and other refined products. Today, Americans now confront a situation where supply and demand are in a delicate balance.
The following major factors contribute to rising fuel prices:
- During the summer of 2004, worldwide crude oil prices have been at their highest level in more than 20 years. Excluding taxes, crude oil costs are the single largest component of gasoline costs and gasoline prices reflect those costs. Crude oil costs account for nearly half of the cost of a gallon of gasoline.
- Fuel demand continues to increase. The fuel economy of US fleet is the lowest in 20 years and Americans continue to travel more. Vehicle Miles Traveled (VMT) is up. Over the past 20 years onroad VMT has increased by 114% while population has only grown by 27%. Also, the worldwide demand has increased, especially from China, India, and other countries with rapidly growing economies.
- Tight supply. Refiners are shutting down for longer intervals for maintenance leading to draw down of inventories to low levels and little flexibility to respond to increases in demand.
Bottom line: the above factors have caused all gas prices -conventional as well as RFG- to increase in every region of the country.
EPA's Tier 2 gasoline standard is the only new federal clean fuel regulation affecting gasoline prices this year (2004). EPA estimates that the costs to refiners for this program is only about a penny a gallon today, and will still cost less than 2 cents per gallon when the program is fully phased in, in 2006. Additional clean fuel programs have also been implemented by EPA, and State and local governments, with minimal impacts on retail prices.
Prices are rising in areas that do not use clean fuels as well as those that do. While federal, state and local environmental requirements are secondary factors in the supply/price equation, they provide important improvements in public health and ecosystem protection.
What are the benefits of clean fuel programs?
Federal Reformulated Gasoline Program
To promote cleaner motor vehicles and cleaner fuels, the 1990 Clean Air Act Amendments established the Federal Reformulated Gasoline (RFG) program. In 1995, this program introduced cleaner fuels meeting more stringent emission performance requirements. The 1990 Clean Air Act Amendments also required that RFG contain at least 2 percent oxygen by weight. The addition of oxygenates causes gasoline to burn cleaner and more efficiently, thereby reducing toxic air pollutants, carbon monoxide, and smog-forming emissions.
The RFG program initially was mandated only for the nine ‘severe' metropolitan areas in the country with the worst smog: Los Angeles, San Diego, Chicago, Houston, Milwaukee, Baltimore, Philadelphia, Hartford, and New York City. Since then, five other areas have been classified with ‘severe' air quality: Baton Rouge, Atlanta, Sacramento, San Joaquin Valley, and Washington, DC. Seventeen states and the District of Columbia currently use RFG, either because of Clean Air Act requirements, or on a voluntary basis to achieve air quality standards.
- Use of RFG Has Led to Cleaner Air:
The RFG program has produced substantial environmental benefits, reducing toxic pollutants by about 24,000 tons per year in RFG areas, the equivalent of eliminating the toxic emissions from over 13 million vehicles. Roughly 75 million Americans are breathing cleaner air because of RFG.
Under the Clean Air Act, the RFG Program was designed to serve multiple national goals, including improving air quality, enhancing energy security by extending the gasoline supply through the use of oxygenates, and encouraging the use of domestically-produced, renewable energy sources.
EPA estimates are that RFG costs about 4 to 8 cents per gallon more than conventional gas; this differential, and often even less, is generally reflected in retail prices.
- Tier 2 Sulfur Programs:
Using its authority under the Clean Air Act, EPA promulgated comprehensive regulations which will reduce sulfur levels in gasoline and diesel fuel. These are Federal programs which are national in scope. Vehicles meeting the Tier 2 emission standards are much cleaner - 77% to 95% cleaner, depending on the size of the vehicle-compared with model year 2003 and earlier. The new standards also reduce sulfur content of gasoline by up to 90%. The public health and environmental benefits of this program (more than $25 billion) far exceed the costs to consumers (2 cents/gallon and $70 to $250 per vehicle). EPA estimates that this program will prevent as many as 4,300 deaths, more than 10,000 cases of chronic and acute bronchitis, and tens of thousands of respiratory problems a year. As newer, cleaner cars enter the national fleet, the new tailpipe standards will significantly reduce emissions of nitrogen oxides from vehicles by about 74 percent-nearly 3 million tons- by 2030. In addition, the program will reduce the contribution of vehicles to other serious public health and environmental problems, including volatile organic compounds, particulate matter, regional visibility problems, toxic air pollutants, and acid rain.