If a company is producing a very profitable product that is known to cause harm to the environment and to your health, should they make the product less harmful if they can do so and still earn a profit? Should they do this because they are able to make the product less damaging to your health and it is the right thing to do? Or should they refuse, even fighting proposed government regulations, in order to try to preserve the highest profits possible?
The United States Environmental Protection Agency (EPA) has proposed new standards for the sulfur content in gasoline, a move designed to cut harmful smog produced by cars and trucks. The EPA wants fossil fuel companies to reduce the amount of sulfur in gasoline to a maximum of 10 parts per million, down from the current standard of 30 parts per million. The State of California already has such a standard, so in a sense this is the rest of the country catching up to California’s standard. The gasoline with lower sulfur content is called “ultra low sulfur” gasoline and is currently available in Europe, South Korea, and Japan, in addition to California. The global auto industry supports the EPA’s move, "We have been anxiously awaiting this rulemaking because it is good for the environment and will help harmonize the federal and California programs for both vehicles and fuels," said Michael J. Stanton, president and CEO of Global Automakers, as reported by PR Newswire. The EPA estimates that the reduction in smog from lowering the sulfur content nationwide would be the equivalent of taking 33 million cars off the road.
However, the U.S. fossil fuel industry is fighting the EPA’s proposal through its trade association, the American Petroleum Institute (API), as well as efforts by Republican politicians. Responding to the EPA’s proposal, the API said in its press release: “There is a tsunami of federal regulations coming out of the EPA that could put upward pressure on gasoline prices.” They go on to say that gasoline prices could be increased by up to nine cents per gallon because of the increased costs to produce lower sulfur content gasoline.
The U.S. fossil fuel industry is producing ultra low sulfur gasoline for the California market now, but they are selling the higher sulfur gasoline to the rest of the country. They seem to be putting their profits above considerations of your health. They do not want to upgrade their refineries to produce cleaner burning fuel. And their response to the EPA proposal is closer to a lie than a half truth. They are basing their argument to delay or avoid the new regulations on the concept that this would cause the price of gasoline to rise. In reality, they have a choice: increase the price of gasoline or earn a slightly lower profit.
This is a great but tragic example of an “externality,” where a company or industry produces a product that causes harm but is able to lay the cost of the damage off onto society at large. I am somewhat amazed that the fossil fuel industry is so brazen in their position.
Smog contributes to thousands of premature deaths each year and makes respiratory ailments more severe for tens of thousands of people. The fossil fuel industry can improve their product and reduce these health problems, but they prefer the higher profits over your health. And of course you do not have to be a consumer of gasoline to suffer these ill effects; people who do not own a vehicle have to breathe the same air as drivers.
The EPA states that over 158 million Americans are currently experiencing unhealthy levels of air pollution, which are linked with adverse health impacts such as hospital admissions, emergency room visits, and premature mortality. Motor vehicle emissions are a particularly significant source of air pollution, especially in urban areas. Further, the EPA states that if implemented, the new standards would prevent by 2030 annually: between 820 and 2400 premature deaths; 3200 hospital admissions and asthma related emergency room visits; 22,000 asthma exacerbations; 23,000 upper and lower respiratory symptoms in children, and 1.8 million lost school and work days.
The EPA also provides a cost benefit analysis of implementing the regulation and suggests that in 2030 the annual cost of the program would be about $3.4 billion, or $130 per vehicle and 1 penny per gallon of gasoline. The economic benefit is between $8 billion and $23 billion in monetized health benefits to the country.
The fossil fuel industry views this expense as detrimental to its profits and against the interests of its corporate shareholders. It prefers the higher profits of the existing higher sulfur gasoline to the health benefits of the country.
Portfolio 21 does not invest in the stocks of fossil fuel exploration and production companies. The fossil fuel industry’s response to the EPA’s proposed new standards on sulfur content for gasoline is just another of many, many reasons for our fossil fuel free position.
John Streur is President of Portfolio 21 Investments. He has 25 years of experience in the field of investment management.