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Updated ozone standard in final review likely to have negative impact on retail fuels market.

September 02, 2015

WASHINGTON – The U.S. Environmental Protection Agency (EPA) moved closer to finalizing more stringent air quality standards for ground-level ozone last week, a move that will likely have a significant negative impact on the retail motor fuels market once finalized.

Last week, the EPA sent its final rule updating the ozone National Ambient Air Quality Standards (NAAQS) to the Office of Management and Budget (OMB). Review and approval by OMB is generally the last step in the regulatory process before rules are published in their final form, and the EPA is under a court deadline to finalize the rule by October 1 of this year.

Ground-level ozone, often referred to as smog, is regulated by the EPA under the Clean Air Act (CAA). The CAA requires the EPA to periodically review and establish NAAQS for six air pollutants, including ground-level ozone, in order to protect public health and welfare. The current ozone NAAQS was established in 2008 and is set at 75 parts per billion (ppb).

Last December, the EPA proposed to lower the standard to a range between 65 and 70 ppb. It also solicited comments on setting the standard as low as 60 ppb. Under the cost-benefit analysis developed by the EPA, the proposed standard is expected to cost $3.9 billion in 2025 at a standard of 70 ppb, and $15 billion at a standard at 65 ppb nationwide, excluding California. The EPA estimates that the more stringent standard would result in health benefits valued at $6.4 to $13 billion annually in 2025 for a standard of 70 ppb, and $19 to $38 billion annually in 2025 for a standard of 65 ppb, nationwide, excluding California.

NACS submitted comments on the proposed standard in March 2015. In its comments, NACS highlighted the potential negative consequences that would result from a more stringent ozone NAAQS. Under a lower standard, more areas of the country would be designated as “nonattainment” areas, triggering federal and state regulations directly affecting the retail fuel marketing industry.

Specifically, NACS stated in the submitted comments that the proposal would result in:

1) the introduction of reformulated gasoline (RFG) in what are now conventional gasoline areas;
2) more states and/or localities imposing lower Reid Vapor Pressure (RVP) requirements; and
3) certain states retaining costly and unnecessary “Stage II” vapor recovery requirements. The combination of these actions would lead to a balkanized fuels market and higher retail fuel prices for consumers.

After the rule is finalized, the EPA will make attainment/nonattainment designations under the updated standard, by October 2017. A state or area designated as nonattainment under the standard would be required to develop a State Implementation Plan to demonstrate the steps it will take to attain the updated standard. The nonattainment areas have between three and 20 years to reach attainment, depending on the severity of the nonattainment designation.

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