NEW YORK -- President Clinton Tuesday unveiled an effort by the Environmental Protection Agency to improve air quality by reducing levels of nitrogen oxide in auto emissions and sulfur in gasoline.
For the first time, light trucks, sport-utility vehicles and minivans will be subject to the same standards as passenger cars. David Healy, an auto analyst with Burnham Securities, said most of the cost of complying with the regulations will be borne by the oil companies, which will be required to reduce sulfur content in fuel by 90%.
Although new cars today are "95% less polluting than a typical new car in 1970," there are more than twice as many cars on the road today as then, and the number of miles driven each year has grown even faster, Clinton said. Sport-utility vehicles, minivans and other heavy vehicles now make up nearly half of new-vehicle sales in the U.S., he noted.
The EPA plan would reduce allowable levels of sulfur in gasoline by 90%, from nearly 300 parts per million to an average 30 parts per million.
The new standards would begin in 2004. When fully implemented in 2030, the White House says, they will reduce auto emissions of nitrogen oxide - a key component of smog - by 74%, and soot by 80%. That would have the same effect as removing 164 million cars from the road. The measures will annually prevent 4,300 premature deaths, 260,000 asthma attacks among children and 173,000 cases of childhood respiratory illness, the administration says.
According to the EPA, the projected cost per vehicle will be less than $100 for a new car, less than $200 for a new light-duty truck, and two cents per gallon of gasoline.
Auto analyst David Garrity of Dresdner Kleinwort Benson expects the tougher regulations to add about 15% to research-and-development costs for vehicle manufacturers. "But there's an offset to this," Garrity added," in that there are, in effect, engine technology consortia being formed in order to better spread the burden created by these new regulatory developments."
Garrity said the drive-train technology joint venture that was announced late Monday by General Motors Corp. (GM) and Honda Motor Co. (HMC) was driven partly by a desire to spread the cost of developing cleaner engines over more vehicles.
Analysts see Ford Motor Co. (F) as being least affected by the new rules, mainly because many of its light trucks and smaller sport-utility vehicles already meet standards for tailpipe emissions from passenger cars.
Indeed, Ford said it is prepared to meet or exceed the tougher standards. "Our current low-emission truck programs have given us a head start towards meeting these requirements while still providing a wide range of innovative and highly desirable cars and trucks to consumers," the auto maker said.
Ford also said it wished the EPA had pushed for even lower sulfur content in fuel, calling the new rules an "encouraging first step" that it hoped "is followed shortly by further improvements to fuel quality that will enable the technologies of the future."
GM is seen as the auto maker that faces the biggest hurdles in complying. "GM is behind the curve on new-engine development," said Healy. "They're clearly trying to short-circuit the system by getting into this joint venture with Honda," which has a reputation for producing clean-burning engines.
Analysts are less certain how DaimlerChrysler AG (DCX) is prepared to meet the new standards. "But given their track record with the Smart Car, they'll come up with an intelligent solution," Garrity said. "We don't know now how to meet the regulations," said Nicole Solomon, a spokeswoman for the German-American auto maker in Washington. "We believe we'll know how, but until we figure that out we can't put a price on it."
Auto makers have said the the lower sulfur levels are an improvement over current standards, but that the new standards will make it difficult for them to introduce new diesel-engine technology, which they were hoping would help them meet more stringent fuel-economy standards.
The auto and oil industries have reservations about the new rule, which the EPA projects will cost them a combined $3.4 billion to $4.4 billion annually.
Automakers say it doesn't go far enough to clean up fuels. They have been lobbying for sulfur-free fuel to make it easier to simultaneously achieve air-quality improvements and higher fuel efficiency.
"EPA did not finalize a rule with the sulfur-free fuel essential for our cleaner vehicles, even though California and Europe are now moving toward sulfur-free fuel," said Josephine Cooper, president of the Alliance of Automobile Manufacturers.
But the oil industry says the investment burden of the rule could drive smaller companies or refineries out of business.
For gasoline, the rule essentially extends current California standards to the whole country. Contrary to the EPA, refiners project their investments could total $3 billion to $5 billion under the program, or roughly 3-5 cents a gallon on average.
"We are concerned that extending these sulfur limits to the whole country could lead to supply and price instability nationwide, similar to that which California experienced earlier this year," said Urvan Sernfels, president of the National Petrochemical and Refiners Association.
EPA made some changes to the proposed rule to address refiners concerns. While most refiners will have to meet the new standards by 2006, those in Rocky Mountain states and Alaska can use interim standards a year longer.
In addition, small refiners meeting the right criteria can have a two-year extension, and credits gained for early compliance can be traded with refiners unable to comply by the deadline.
A similar credit trading provision has been made for automakers on the NOx limit. For automakers the new NOx emissions standard will be a fleet average of 0.07 grams per mile, a 77% cut for cars and a 95% cut for for trucks and SUVs. Vehicles under 6,000 pounds will be phased in between 2004 and 2007. Passenger vehicles weighing from 6,000 to 10,000 pounds will have until 2009.
Enviornmentalists and health advocates widely embraced the new rule. Frank O'Donnell, head of the Clean Air Trust, described it as "the crown jewel in the clean-air legacy of the Clinton-Gore administration."