* New rules set up clash with oil industry, Republicans
* Proposals backed by automakers, health and environmental groups
* Rules subject to public comment and hearings
President Barack Obama pitched the first major environmental effort of his second term on Friday in a bid to slash smog-forming emissions from gasoline that have been linked to lung and heart ailments, setting up a fight with Republicans and the oil industry.
The Environmental Protection Agency (EPA) proposed the so-called Tier 3 rules that would require refiners to cut the sulfur content of gasoline to 10 parts per million (ppm) by 2017 from the current standard of 30 ppm.
Reducing sulfur in fuel helps car engines burn cleaner and reduces emissions of tiny particles, volatile organic compounds, and nitrogen oxides that can cause lung and heart illnesses.
Oil industry groups and several Republican lawmakers blasted the rules and said they would drive up refiners' costs and provide little environmental benefit.
"Consumers care about the price of fuel, and our government should not be adding unnecessary regulations that raise manufacturing costs, especially when there are no proven environmental benefits," said Bob Greco, head of the American Petroleum Institute (API), the main oil industry group's lobby.
The auto industry, which will have to take steps to meet the new regulations, backed them.
The Auto Alliance, a group of 12 manufacturers, has said cutting sulfur content in gasoline has benefits including improving fuel efficiency and reducing emissions of greenhouse gases linked to global warming.
Health advocacy and environmental groups also praised the move. The proposal will harmonize federal regulations with those in California, the strictest rules in the states, allowing automakers to sell the same cars in all 50 states.
The proposal, which is subject to public comment and hearings before being finalized, comes as Obama attempts to win Senate approval for his nominee to head the EPA, Gina McCarthy.
Republican Senator Roy Blunt of Missouri is trying to block her nomination until the agency moves forward with a project to repair a levee on the Mississippi River.
API contends the proposed rules could increase refinery operating costs by up to 9 cents per gallon, while the EPA says it will cost less than a penny.
Industry analysts attempted to parse the 938-page proposal and balance assertions from the EPA that the compliance costs would be modest with oil refiners' claims that they would be on the hook for costly fixes.
"It is a political argument," said Kevin Book, a managing director at Clearview Energy Partners. He said the differing cost estimates stem from the different kinds of equipment needed to remove the sulfur.
John Kilduff, a partner at Again Capital LLC, said sulfur is one of the most difficult elements to remove from crude oil.
"This will impact gasoline prices episodically," he said.
White House spokesman Josh Earnest told reporters on Air Force One the detailed analysis by the EPA refutes the industry's cost claims.
He said it is believed the impact on prices "is pretty small, the impact on the industry is limited, but the health benefits that would be enjoyed if a rule like this were put in place are significant."
Health groups say the rules will cut billions in doctors' bills. A study released by Navigant Consulting last year said the rules could cut healthcare costs for lung and heart diseases by $5 billion to $6 billion a year by 2020 and by double that amount by 2030.
The EPA estimates total health savings from the proposed rules would be between $8 billion and $23 billion annually by 2030. It estimates some 2,400 premature deaths would be prevented by 2030.
Republican lawmakers have tried to stop the push. Representative Ed Whitfield of Kentucky, the chairman of the House Energy and Power subcommittee, introduced a bill last year to stop the EPA from issuing the Tier 3 measures.