The Sulfur Solution

Peter writes:

Julian Sanchez has the full takedown here, and it’s well worth reading, but the gist is that it’s extremely unlikely that any politically feasible efforts to expand long-term energy supply will result in substantial, short-term drops in pump prices.

There is something we could that would result in substantial, medium-term drop in pump prices — I’m not sure how we’re defining short-term, so I’ll play it safe: we can scrap the ethanol requirement and, to go further, we could temporarily lift regulations mandating the use of ultra-low-sulfur diesel. The energy economist Phil Verleger has been talking about this for some time now, and I think he makes a pretty strong case.

Lower-sulfur crude is easier to refine into ultra-low-sulfur diesel than heavier, higher-sulfur oils, said Verleger, who, in 2005, predicted oil would rise to $100 a barrel. The diesel was introduced to the U.S. in 2006 to cut air pollution.

Converting higher-sulfur crude into diesel requires hydrogen, which is in short supply, Verleger said. The element is a byproduct from making gasoline. Refiners are making less of the motor fuel than in the past because of increased ethanol use, and therefore less hydrogen, Verleger said.

There’s more. The refining process is pretty complicated — I certainly don’t understand it — and it has uneven effects. Jet fuel, for example, is very hard to process from heavier crudes, like the kind found in Iran. This is one reason the airlines are struggling. The same goes for diesel fuel, which has experienced a sharp increase in demand, particularly in Europe. All of this has ripple effects on gasoline. My understanding is that we’ll have the refining capacity we need by 2012 or 2013. For now, though, we’re stuck.

This is part of what I have in mind when I criticize corvée economics. Sulfur emissions are really, really bad for our health. Yet moving from 500 parts per million to 15 parts per million in our diesel fuel is not costless. This is why it’s funny when the Obama and McCain camps attack each other for subsidizing Big Oil — I mean, if you’re putting this kind of mandate into place and you want results before 2012, subsidies are sometimes appropriate. We’re going to pay for cleaner air one way or another. It’s not obvious that we’re going about it in the smartest, most growth-friendly way.

Here’s the hard choice: sulfur emissions are bad. But we lived with the weaker standard for a long time. Can we afford the tougher standard now? Maybe we can. Maybe we should start kicking the oil habit now, and suck up the pain at the pump. There’s no obvious answer. But we should have some sense of what the trade-offs are. (I am, by the way, baldly restating something I wrote here.)