[Senate Hearing 106-954]
[From the U.S. Government Publishing Office]
. S. Hrg. 106-954
HIGHWAY DIESEL FUEL SULFUR REGULATIONS
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON
CLEAN AIR, WETLANDS, PRIVATE PROPERTY AND NUCLEAR SAFETY
AND THE
COMMITTEE ON
ENVIRONMENT AND PUBLIC WORKS
UNITED STATES SENATE
ONE HUNDRED SIXTH CONGRESS
SECOND SESSION
__________
JUNE 15, 2000
__________
Printed for the use of the Committee on Environment and Public Works
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COMMITTEE ON ENVIRONMENT AND PUBLIC WORKS
one hundred sixth congress
second session
BOB SMITH, New Hampshire, Chairman
JOHN W. WARNER, Virginia MAX BAUCUS, Montana
JAMES M. INHOFE, Oklahoma DANIEL PATRICK MOYNIHAN, New York
CRAIG THOMAS, Wyoming FRANK R. LAUTENBERG, New Jersey
CHRISTOPHER S. BOND, Missouri HARRY REID, Nevada
GEORGE V. VOINOVICH, Ohio BOB GRAHAM, Florida
MICHAEL D. CRAPO, Idaho JOSEPH I. LIEBERMAN, Connecticut
ROBERT F. BENNETT, Utah BARBARA BOXER, California
KAY BAILEY HUTCHISON, Texas RON WYDEN, Oregon
LINCOLN CHAFEE, Rhode Island
Dave Conover, Staff Director
Tom Sliter, Minority Staff Director
------
Subcommittee on Clean Air, Wetlands, Private Property, and
Nuclear Safety
JAMES M. INHOFE, Oklahoma, Chairman
GEORGE V. VOINOVICH, Ohio BOB GRAHAM, Florida
ROBERT F. BENNETT, Utah JOSEPH I. LIEBERMAN, Connecticut
KAY BAILEY HUTCHISON, Texas BARBARA BOXER, California
(ii)
C O N T E N T S
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Page
JUNE 15, 2000
OPENING STATEMENTS
Inhofe, Hon. James M., U.S. Senator from the State of Oklahoma... 1
Articles:
Illinois Seeks Suspension of New EPA Gasoline Rules,
Washington Post........................................ 3
EPA Gouges Consumers, Washington Times................... 4
Lieberman, Hon. Joseph, U.S. Senator from the State of
Connecticut.................................................... 29
WITNESSES
Addington, David S., senior vice president and general counsel,
American Trucking Associations, Inc............................ 18
Prepared statement........................................... 81
Bertelsen, Bruce, executive director, Manufacturers of Emission
Controls Association........................................... 20
Prepared statement........................................... 82
Frank, J. Louis, president, Marathon Ashland Petroleum, LLC, on
behalf of the American Petroleum Institute..................... 13
Prepared statement........................................... 40
Haslam, James A., chief executive officer, Pilot Oil Corporation. 22
Prepared statement........................................... 83
Looney, Robert J., Government Affairs, Cenex Harvest States
Cooperative, on behalf of the National Council of Farmer
Cooperatives................................................... 16
Statement, Curt Eischens, on behalf of the National Council
of Farmers Cooperatives.................................... 75
Perciasepe, Robert, Assistant Administrator, Office of Air and
Radiation, Environmental Protection Agency..................... 5
Prepared statement........................................... 32
Thompson, Jerry, senior vice president, Development and
Technological Excellence, Citgo Petroleum...................... 14
Prepared statement........................................... 36
ADDITIONAL MATERIAL
Food Security Act of 1985, Public Law 99-98--December 23, 1985... 80
Letters:
American Petroleum Institute................................. 44
Several agricultural organizations........................... 79
Statement, Glenn Keller, executive director, Engine Manufacturers
Association.................................................... 85
(iii)
HIGHWAY DIESEL FUEL SULFUR REGULATIONS
----------
THURSDAY, JUNE 15, 2000
U.S. Senate,
Committee on Environment and Public Works,
Subcommittee on Clean Air, Wetlands, Private
Property, and Nuclear Safety,
Washington, DC.
The subcommittee met, pursuant to notice, at 9:30 a.m., in
room 406, Senate Dirksen Building, Hon. James M. Inhofe
(chairman of the subcommittee) presiding.
OPENING STATEMENT OF HON. JAMES M. INHOFE,
U.S. SENATOR FROM THE STATE OF OKLAHOMA
Senator Inhofe. The meeting will come to order.
With today's hearing, we will address the proposed sulfur
and diesel regulations from EPA. Yesterday, I entered my
opening statement by telling a little story which I am not
going to repeat today.
For some reason, the EPA is shocked and surprised that fuel
prices are spiking in the Midwest because of the introduction
of the new RFG Phase II regulations. Incidentally, there are
some articles in today's paper that we'll be talking about in a
few minutes that do relate to the cost of fuel that everyone is
so concerned about today.
The trouble is that EPA continues to roll out new
restrictions in regulations on gasoline and gasoline formulas
without any regard to what the consequences are to the
consumer. I have a chart that shows just a few of the recent
regulations such as the Tier II RFG and the Administration's
ethanol proposal and many others. These regulations are some of
the main reasons for the price spikes that we are seeing in
fuel costs.
I want to make sure Andy shows that one because he spent a
lot of time working on it. Those are price spikes.
Today's sulfur-diesel regulation is a perfect example of
this regulation which will cause price spikes for fuel over the
next 10 years. EPA has done a miserable job in predicting the
consequences of this regulation. I believe there will be severe
shortages of diesel fuel which will lead to higher prices for
truckers, farmers and the home heating market. It is highly
likely that instead of installing the expensive desulfurization
equipment, many companies will choose to export their diesel
instead of selling on the U.S. market and create great
shortages or might even move to other areas such as Mexico.
The real shame in this is that it could be avoided if EPA
were more reasonable in their expectations. Instead of calling
for a 97-percent reduction in sulfur, they could have taken a
90-percent reduction in sulfur which would have produced the
same benefits for particulate matter at half the cost.
While it is true that NOX would only be reduced
by 75 percent instead of 95 percent, I think we need to stop
and look at the 75 percent reduction at half the cost which
could be a bargain and I think it would be. Once again, the EPA
appears bent on chasing pennies of benefits for dollars of
cost.
On a final note, last year during the sulfur and gasoline
debate, the refiners were pretty much split on the issue. The
large companies didn't mind and in fact, they may have seen a
competitive advantage against the smaller companies. Today,
almost without exception, all refiners are telling me that this
proposed rule is just not feasible. I hope the EPA will be
listening and that is the reason for our hearing today.
In addition to today's hearing, over the next few months,
my subcommittee will be looking even more closely at the cost
of EPA's programs on our Nation's fuel supply. I really think
the lasting legacy of Carol Browner might very well end up
being these gasoline price spikes over the next 10 years unless
something is done to restore some sanity to this process.
In today's newspaper, we have seen a lot of concern about
this and people are no longer taking the popular route and
trying to blame the oil companies and the refiners for the
problems. For example, in this morning's Washington Times, an
editorial appears, ``EPA Gouges Consumers'' where the price of
a gallon of unleaded regular has topped the $2 mark. The real
crime is the way the EPA imposes multiple-tiered regulatory
costs invisible to consumers on motor fuels. These costs are
borne by consumers who blame the oil companies but they ought
to be blaming the Federal regulators instead.
It goes on to say, ``EPA, as pointed out on this page last
week, is under no constraint to factor in the cost of the
regulations it promulgates. It issues dictates that let the
marketplace worry about who is going to pay for all this and
how much it is going to cost.'' That is one of the things we
have talked about for a long time, that we need to be looking
at costs. That is what cost-benefit analysis is all about so at
least the public knows what the cost is going to be for some of
these regulations. Then they can make determinations as to
whether or not it is going to be worth that cost.
Governor George Ryan of Illinois yesterday had a news
conference in which he called on the Federal Government to
suspend environmental rules mandating cleaner burning gasoline
which he blames for driving pump prices in parts of the Midwest
above $2 a gallon, the highest in the United States.
[The referenced articles follow:]
[From the Washington Post, June 15, 2000]
Illinois Seeks the Suspension of New EPA Gasoline Rules
governor says standards driving pump prices too high
(By William Claiborne)
CHICAGO, July 14--Illinois Governor George H. Ryan (R) today called
on the Federal Government to suspend environmental rules mandating
cleaner-burning gasoline, which he blamed for driving pump prices in
parts of the Midwest above $2 a gallon, the highest in the United
States. Ryan blamed the high Midwestern pump prices, particularly in
Chicago and Milwaukee, on Environmental Protection Agency gasoline
production rules that went into effect June 1 in scattered locations
across the country. The regulations are aimed at curbing toxic
emissions.
Ryan said that while the EPA's anti-pollution goals were laudatory,
the agency should delay mandating an improved version of so-called
reformulated gasoline until governments in the region can study the
impact on prices.
Under the reformulated gasoline program, the base fuel is mixed
with either ethanol or the chemical agent MTBE, an oil-based substance
that has been found to pollute groundwater supplies. Most Midwestern
States have opted to use ethanol. Ryan said he had talked with the
Governors of Wisconsin, Indiana, Nebraska and Kansas, and that all of
them support the rules suspension proposal.
Ryan said refineries in the Midwest could revert to producing an
earlier version of cleaner-burning reformulated gasoline, which he said
could be sold more cheaply than the new version.
``This current craziness in prices doesn't make any sense,'' Ryan
told a news conference here. ``I can't understand why we should pay 80
cents a gallon more for gas than other parts of the country.''
A Clinton Administration official said the waiver request is before
the EPA and, for now, the White House has no comment.
Last week, the average price of self-serve gasoline in Chicago was
$2.13 a gallon, up from $1.37 a gallon in January. In contrast, prices
averaged $1.56 a gallon in Los Angeles, $1.42 in Atlanta and $1.61 in
Boston.
Some downtown service stations here were charging $2.39 a gallon
for regular gasoline and $2.59 a gallon for self-serve premium, meaning
that filling a 44-gallon tank in a sport utility vehicle costs more
than $114.
Industry officials attributed the rising prices to market and
regulatory forces that they say converged just as the start of the
summer driving season began to put a strain on gasoline inventories.
The officials said the most significant of these was the June 1
implementation of a new Federal requirement for a cleaner-burning
reformulated gasoline--called RFG-2--which in the Midwest entails the
use of corn-based ethanol as an additive and is more difficult to blend
than earlier versions of reformulated fuels. Urvan Sternfels, president
of the National Petrochemical and Refiners Association, today said
refiners had made the ``unpleasant discovery'' that because ethanol
evaporates more quickly than other additives, the blending process
required complicated--and costly--adjustments to a process with which
the refiners had little experience.
However, environmental groups such as the Clean Air Trust have
demanded to know why the oil companies failed to provide for adequate
supplies when they had known for 5 years they would have to make the
cleaner-burning gasoline available to consumers by June 1.
Sternfels also said the rupture of an oil pipeline near Dallas, a
pipeline that Midwest refineries had used to buildup their inventories,
had contributed to the price surge. ``It slowed down the system and put
us behind the curve in terms of supply.'' Sternfels said.
He also said that court decisions upholding patents awarded to
California-based Unocal Corp. on reformulated fuel blending processes
have had a ``chilling effect'' on many refineries, which are worried
about having to pay royalties of as much as 7.5 cents a gallon if their
processes are too similar to Unocal's.
All of these factors have combined to tighten the supply of
reformulated gasoline, making the market nervous and forcing prices
upward, Sternfels said.
However, Energy Department officials said that while stocks of
reformulated gasoline were tight nationally 41.4 million barrels, or
3.3 million barrels fewer than last June--Midwest stocks were at 2
million barrels, slightly more than at this time last year.
Robert Perciasepe, the EPA's assistant administrator for air and
pollution programs, said this week after meeting with officials from
eight major oil refineries that while gasoline supplies are lower than
normal nationally, there is enough fuel to keep prices in check. He
said reformulated gasoline costs only 5 to 8 cents a gallon more to
produce than conventional gasoline.
______
[From the Washington Times, June 15, 2000]
EPA gouges consumers
The Environmental Protection Agency (EPA) is investigating possible
``price gouging'' in the Midwest--where the price of a gallon of
unleaded regular has topped the $2 mark. But the real crime is the way
EPA imposes multitiered regulatory costs--invisible to consumers--on
motor fuels. These costs are borne by consumers--who blame the oil
companies. But they ought to be blaming Federal regulators instead.
The recent spike in gasoline prices is to a great extent
attributable to changes in the regulations governing the refining of
gasoline from crude oil. The new process--by which supposedly
``cleaner,'' ``reformulated'' gasoline is produced--have driven per-
gallon costs up by a dime or more during the past few weeks alone. That
and pre-existing regulations governing the way motor fuels are produced
have added 25-cents or more to the total per-gallon cost of regular
unleaded. Throw in Federal and State taxes--ranging from 40 cents per
gallon to more than 75 cents--and one quickly sees why gasoline is
becoming so expensive. It has little to do with the oil companies--and
a lot to do with government, at all levels.
Ostensibly, we do get improvements to the roads from motor fuels
taxes--so we won't quibble overmuch with them. However, ``environmental
taxes,'' if you want to call them that, are another matter. These are
often of dubious benefit--and frequently very expensive to boot. EPA,
as was pointed out on this page last week, is under no constraint to
factor in the costs of the regulations it promulgates; it simply issues
diktats and lets the marketplace worry about how all this will be paid
for.
Worse, though, are the unforeseen side effects of EPA's regulatory
polices. Until quite recently, for example, EPA required the use of so-
called ``oxygenated'' fuels in many areas, most of them heavily
urbanized, as a means of controlling vehicle exhaust emissions and
thereby improving air quality. However, one of the chief chemicals used
to oxygenate the fuel--a compound called Methyl Tertiary Butyl Ether,
or MTBE--has been identified as a health hazard and contaminant of
drinking water. EPA had been warned of the potential risks of MTBE--
both before and during its introduction as a motor fuels additive. The
warnings were ignored. Result? Motorists paid 5 to 10 cents more per
gallon for oxygenated fuels that not only tainted their water supplies,
but which did next to nothing to improve air quality. Studies found
that MTBE/oxygenated fuels had little or no effect on the emissions
output of late model cars; they simply got worse fuel economy than
before--because the oxygenated fuels had diminished energy content as
compared with non-MTBE/oxygenated fuels.
This object lesson in the sagaciousness of EPA bureaucrats should
be borne in mind as we contemplate rising gas prices and the
introduction of the purportedly miraculous ``reformulated'' gasolines.
The new witches' brew is costing us more at the pump--and may cost us
something else, too. But we may not know about that until a few years
have gone by--as happened with MTBE.
These are things, Mr. Perciasepe, that people are now
taking a little different attitude toward than they were just a
month or two ago, and certainly a couple of years ago.
With that as an opener, we will go ahead and recognize you
for your opening statement. I think we will have a pretty good
turnout. They are just not here yet. If you will go ahead and
start?
STATEMENT OF ROBERT PERCIASEPE, ASSISTANT ADMINISTRATOR, OFFICE
OF AIR AND RADIATION, ENVIRONMENTAL PROTECTION AGENCY
Mr. Perciasepe. Mr. Chairman, first of all, thank you very
much for the invitation to be here today.
May I ask one question of the chair, before I continue?
Senator Inhofe. Yes, of course.
Mr. Perciasepe. Could I have a few extra minutes, like 2 or
3 extra minutes to do a little discussion on some of the points
you made in your opening comments?
Senator Inhofe. We were going to give you 5 minutes, so 8
minutes. I appreciate that because I want you to address these.
Mr. Perciasepe. Thank you, sir. I want to get to the diesel
thing first and then I will address that.
Senator Inhofe. When I talked about these, I recognize we
are not necessarily talking about diesel and diesel is the
subject for today's hearing but when you talk about MTBEs,
sulfur and gasoline, which we have already dealt with in
diesel, it is still all costs and it's all fuel and it's of
equal concern to the public.
Mr. Perciasepe. I understand why you are making that point.
You pointed out one of the points I wanted to start with and
that is that we have been working on automobile and gasoline
regulations for many years. As you already pointed out, last
December we finalized a rule on gasoline, sulfur and automobile
emission standards to be implemented over the next decade. I
felt very good about the process we went through and we worked
very hard with both the automobile industry and the oil
industry.
While I don't think we have made everybody completely happy
in the way that came out, I think we did a job there where we
tried to recognize the majority of the issues that were brought
to us. I want to assure the Chair we want to approach the
diesel rule with that same kind of vigor.
On a numeric level, we are actually starting closer than we
did on gasoline. With gasoline, we started at 150 ppm to 30
ppm, and here we are starting from 50 ppm to 15 ppm, but the
gulf is bigger as you will hear today in terms of the views of
this, and I recognize that.
I need to always give the underlying reasons why we are
doing this. First of all, from a public health perspective, we
have 42 areas in the country with 123 million people that are
at risk of violating the 1-hour ozone standard in 2007 and
after, 10 areas with 27 million at risk of violating the
PM10 standard and diesel exhaust is a likely human
carcinogen at the environmental levels of exposure according to
a draft assessment that is still going through review. Other
organizations have made those findings as well.
On the environmental health side, in the country we have
broad areas in the West and the East that experience visibility
impairment; we have forest and crop damage from air pollutants,
acid rain, and eutrophication of water bodies.
When we look specifically at the heavy duty fleet--and we
talk about diesel and gasoline engines in the heavy duty fleet
but it's well over 90-percent diesel engines--nationwide this
fleet contributes the emissions about 29 percent of the
NOX and about 14 percent of the PM in the local
emissions inventory, but you can see in some cities like
Albuquerque and Washington that it varies either up or down
from the national average depending on the local conditions. In
some cities on very local levels, on bus routes and on truck
routes, you will find even higher levels of exposure.
Before we leave that chart, I want to make a very important
point. I think we try to make this point very clear in our
proposal. When you look at the diesel engine part of the
rulemaking that we are in the process of taking public comment
on, diesel engines are extremely important to the American
economy. These engines are durable and they are fuel efficient.
EPA in no way wants to jeopardize the long term use of that
kind of a power plant for commerce in the United States.
What we want to do is add the term ``clean'' to that
description of these engines and that is within our grasp as I
think you will hear today from some of the witnesses.
What will happen with our proposal? This is a chart that
shows up to 2030, the national emission level in millions of
tons a year of nitrogen oxide with and without the proposed
standards. You have mentioned the 50 ppm and 75 percent instead
of 90 percent. Our analysis shows that if we don't get to the
levels we are talking about and have the kinds of pollution
control equipment similar to what we have been doing to cars
for the last 30 years applied to these kinds of engines, the
technology is only going to get about a 20 percent reduction.
So you are going to have a line that is up here, not almost
down here. It is virtually on and off switch.
So you will hear that a 90-percent reduction in sulfur is
almost as good as a 97-percent reduction. That is not true, it
is going to result in a 20-percent pollution reduction instead
of over 90-percent pollution reduction. It is actually less
cost effective for overall pollution reduction and it has a
bigger fuel economy hit, the technologies that are involved
with that.
You will see the same kind of effect with PM emissions. I
will just point out here that one of the things you will also
hear today is that the equipment to do this isn't really
available. Again, I don't think that is the case. Soot traps
that would be able to achieve this are available, have been
used and they are not used everywhere but with the proper fuel,
they can achieve these standards.
On the NOX numbers we saw earlier, the
technology is now making very good strides in laboratories and
field tests and also is used on stationary diesel sources.
What we have in this proposal is a national program for
heavy duty vehicles. It is a vehicle and fuel regulated as a
system to optimize the cost-effective approach to reducing
pollution from these sources. PM standards would apply in 2007
and the NOX standards would phase in, just like we
did with the cars, between 2007 and 2010. It has a 15 ppm
sulfur cap for high weight diesel fuel by June 2006, with some
implementation flexibilities.
I want to add that we explore in our proposal many specific
options for small refiner and farm co-op flexibility. We are
dedicated to continue working with those groups. We started
dialog. As we are putting the proposal together, we want to
work with them through the comment period and afterward as we
get to the end of the year and we plan to continue to do that
and work on ideas. I can go into those in the questions and
answers.
We also know that now that Europe is looking at between 10
and 15, Germany has already done that. We believe that the
technology is enabled by these levels of fuel. You will hear
that some people think it should be lower as well. Again, we
are taking comment on all these issues.
I would like to close here by simply saying, as I opened,
like Tier II gasoline, sulfur and diesel, we want to work with
all the stakeholders to build a program that is going to be
implemented. We think there are ideas out there for additional
flexibility on how it gets implemented but we want to do it
right. Some of them could be problematic--we know that--and
that is why we have yet to put them in the formal proposal but
we want to work with everybody to work through that.
I am going to stop there on the diesel. That is an outline
of why we are doing it, what we think the effects are. If you
might indulge me for 2 or 3 minutes on the RFG situation, I
would appreciate it.
We too are very concerned about the price of gasoline
related to reformulated gasoline, but I want to give you some
national statistics from the Energy Information Agency as of
Monday of this week. I know prices are changing so fast that
Monday is out of date but I will put it in context back to
November of last year.
Conventional gasoline in the United States in November last
year averaged $1.25. The average across the country of
conventional gasoline regular grade on June 12, Monday of this
week, was $1.61, a 29-percent increase since last November.
RFG was at $1.29 last November and on a national average is
at $1.67 on Monday, a 29 percent increase. The differential
increase in RFG average prices in the United States is no
different than for conventional gasoline. Indeed the $1.67 to
$1.61 is about what we would estimate the cost differential
would be in Phase II, about 4 to 8 cents. This varies in
different areas of the country.
One last thing I want to point out is that if you look at
100 percent of the gasoline in the United States on Monday, 70
percent of it was conventional gasoline. At the regular grade,
the price was between $1.61 and $1.67. If you take Chicago and
Milwaukee, about 3.4 percent of the Nation's gasoline--out of
the averaging system for RFG, RFG in the United States is not
$1.67 but less than that because you take those two markets
out. The average price for RFG comes down between $1.63 and
$1.64 which includes some areas that are using ethanol like St.
Louis and Louisville.
We see the problem in Chicago and Milwaukee. We are trying
to understand more completely why that cost differential
exists. We still do not believe that it is the cost of
producing RFG that is causing that differential. We think it is
more related to other supply issues and preparation in advance
of the rule implementation date to be prepared for the demand.
We are going to continue working with the Department of
Energy on that but I want to make it clear that the prices of
gasoline rising in the United States are not because of the RFG
implementation that started on June 1.
I will stop there.
Senator Inhofe. Mr. Perciasepe, we have a statement from
the Coalition of Sixteen Refiners, led by Gary Williams, which
is located in Oklahoma. I am entering their statement in the
record and I will read part of it to you:
``We worked diligently with the SBRFA panel to outline the
complex range of problems and circumstances facing the small
refiner group and to underline as strongly as possible that
there is no one solution that will enable all small refiners to
survive.
``Although we appreciate EPA's discussion of small refiner
issues in the preamble to the rulemaking, we are extremely
disappointed and concerned that the proposed rule itself
included no accommodations for those companies. It is mentioned
in the preamble but not in the rule itself.
``We must have a menu of options which recognizes small
business refiners' varying circumstances. Most importantly, we
must have help in accessing the capital required to install
this desulfurization equipment through tax credits, loan
guarantees and other incentives.''
They go on to say, ``The extraordinary costs involved will
result in some refinery shutdowns, reduced domestic refining
capability and less competition in the marketplace.''
I guess I would ask what are your ideas within the rules
that you are discussing right now, and what help is there for
these people because what you just said talking about the
effect of price, to me the greatest effect is going to be when
we end up having to shutdown or move refineries elsewhere and
so the supply drops and obviously the demand is still there and
the price is going to go up very dramatically. What is your
thinking?
Mr. Perciasepe. We are as committed to small refinery
flexibility as we were when we did the gasoline sulfur rule. It
obviously is a more difficult challenge with the diesel
desulfurization program.
The rule does include a general hardship provision now
which was something that was discussed in the SBRFA panel and
something we did in the proposed rule and something we did on
the gasoline sulfur rule. As that letter said, it was hard to
coalesce around any set of silver bullets for the appropriate
flexibility for small refiners and I want to throw farm co-ops
into that also because we have had some unique discussions with
them as well.
Senator Inhofe. We will have them represented in the next
panel.
Mr. Perciasepe. So what we have done is we've tried to take
the menu that was developed from that process of ideas and
develop them further through the comment process. We are
obviously going to have to get back and work on that.
There was the general hardship provision that was included
in the proposal but some of the ideas that are in the proposal
include things and every one of these has problems, I don't
want to say any of these are silver bullet, but some include
voluntary phase-in ideas where you don't have to have 100
percent of this fuel on day one.
We didn't put that in the proposal and you are going to
hear people worried about it today, but we didn't put that idea
in the proposal because we think we need to do a lot more work
to figure out how that would work and not create more problems
than it solves.
Senator Inhofe. But wouldn't it be a good idea to extend
the comment period then. If more work needs to be done, you
need to also have more input to assist you with that?
Mr. Perciasepe. I think we have a pretty lengthy comment
period and public hearings all around the country. The comment
period is going to go well into August. We've developed these
ideas pretty extensively in the preamble and laid out how they
might work.
Let me get to one of the other ideas which I think has some
merit. Because of the nature of desulfurization of diesel fuel
and the relationship to the control technologies on the
compression-ignition-type engines, we are talking about the
fuel specifications with respect to the control technologies.
In gasoline, if there is a variability in the fuel, one can
factor in a differential performance of the control
technologies. For diesel, it is an ``on/off switch,'' and it
could cause problems with the operation of the engine. We do
not want to do something that is going to cause a durability or
performance standard problem in the field. These vehicles have
to perform.
One of the ideas we are looking at is for certain
categories of refiners perhaps to provide an additional
flexibility on gasoline where a small volume of that being
delayed even further might be able to provide the ability to
sequence these more appropriately at that individual refinery.
This is an idea we are also taking comment on. I am just trying
to give you some of the ideas.
Senator Inhofe. Yes, you have ideas of things you are
working on right now but I guess my question would be, when you
get all this figured out, why then wouldn't it be a good idea
to go ahead and reissue and allow a comment period then because
they would have a better idea of what to comment on when you
develop this a bit further? You have decisions to make that
aren't made yet.
Mr. Perciasepe. We have made commitments to build
flexibility into the rule. We have outlined the approaches that
we think are worthy of continued work. We think we are going to
get quality comments on those and whether or not there needs to
be any kind of reproposal or supplemental proposal will be
determined by the Administrative Procedures Act.
Senator Inhofe. There are a couple of members that are not
here. One was wanting to talk about the technology review. Let
me kind of shift to that.
In your testimony you mentioned that the
NOX adsorbors ``have not yet developed to the point
where they are being used in demonstration fleets.'' In fact, I
understand you built into the rule a technology review in 2003
to determine if the technology will be available at that time.
Is that correct?
Mr. Perciasepe. It is in the preamble. We don't have it in
the proposed rule. We suggest in the preamble that this is an
option that we might want to hear about in the comment period
and we want to hear from the manufacturers of the equipment on
what they think about this concept.
We did the exact same thing in the desulfurization of
gasoline and the control technologies for Tier II cars. We put
in the preamble the idea of a technology review. We got lots of
comment on it. At the end, there was an agreement that it
wouldn't be worth doing. On this one, we are not at that point
yet. There are good arguments for doing it and there are
arguments for not doing it.
Senator Inhofe. The refiners to manufacture the low sulfur
diesel, they are going to need to start the process by 2003. If
you determine that the technology would not be available for
control devices, what happens to the costs that have already
been incurred by those refiners starting in 2003?
Mr. Perciasepe. You have raised a very important issue that
is involved with the technology review. One of the reasons--not
the only one--we ultimately did not do it in Tier II, is that
when you start doing fuels and vehicles as a system, you sort
of have to keep everybody on a schedule of working together. If
there is to be a technology review, we would have to figure out
how to make sure that the eventuality you raise is avoided.
Senator Inhofe. Why wouldn't it be a good idea to develop
the technology first and do the technology review first and
then decide if the low sulfur regulations are needed? It seems
to me like it's the cart before the horse. We have some
uncertainties here and yet people are going to be preparing for
these. Again, all these things that take place are going to be
passed on to the public, to the consuming public. What is wrong
with that idea, developing the technology first before coming
to the conclusions?
Mr. Perciasepe. We think these technologies are developed
enough today that we are highly confident that they will be
available in 7 years. We wouldn't propose it if we weren't
confident they were. In fact, the Clean Air Act requires that
we make a determination that these technologies will be
available in the year that the implementation takes place.
Senator Inhofe. But they are not now?
Mr. Perciasepe. Will be available. You will hear testimony
and probably have it that the people who make this equipment
are confident as well.
Senator Inhofe. We have written testimony. We have a little
problem in Chicago and I don't have the list of who is not
going to be here, but there are three or four who are not, some
are replacements here but there is a weather problem
apparently.
One of the individuals who will not be here from the Farm
Coops who I think will be represented by someone else has
written testimony on the second panel wherein he said,
It is important to understand that even though the proposal
is for on-highway diesel, the rule also adversely impacts farm
and other off-highway users of diesel fuel. It has been our
experience that much of the petroleum storage system,
particularly in the rural market served by our cooperatives is
generally capable of handling only one grade of diesel, so they
don't have the capacity to do the on-road and off-road diesel.
It goes on to say, ``For these reasons, we strongly urge
that the rule be withdrawn until serious unresolved issues can
be addressed.'' That is a specific issue that he or his
representative is going to be addressing.
Have to ask again, why is there such a rush on this rule?
We have a lot of agricultural concerns and concerns like this
one that may be you have an answer to. How are you going to
handle this? In those parts of the country--certainly we have
probably an inordinate number of those areas in my State of
Oklahoma--what are we going to tell these people?
Mr. Perciasepe. We have spent time and we are going to
spend more time on that specific issue. When the diesel on-road
went from several thousands of parts per million down to 500
ppm in the last decade, exactly what you outlined in that note
occurred at these providers and producers. They took their off-
road and on-road and everything down to 500 ppm just by way of
their product distribution and customer system.
They have raised this issue with us and we have met with
them several times. We have discussed some ideas and we are
going to continue to work with them before we finalize the rule
to try to work out a solution.
Our objective here is not to find a way to reduce the
production of diesel fuel that meets these specifications in
the United States. If anything, we are going to need more of
it. I think you pointed out that in your opening comments.
There are going to be more trucks, more buses. We think these
engines are fuel efficient and want more of them used. We may
see more of them, at least from plans by some of the auto
companies, in the light duty fleets.
We want specifications that are going to enable these
vehicles to be clean but what we don't want is refineries not
making this product. So the demand is going to go up and we
want to be able to make sure that demand is met by cleaner
fuel.
Senator Inhofe. However, you come to a resolution of the
problem like the one we just brought out, don't you think we
ought to then have another notice and comment period because
they are dealing with new ideas and there is no way for them to
anticipate right now what solutions to these problems you will
have and how they might want to comment about these problems.
Mr. Perciasepe. I guess all I can tell you is we don't
anticipate that particular problem at this time.
Senator Inhofe. I can remember when we were talking about
the ambient air issues we discussed for a year-and-a-half, most
of that I think was before you were in this position, but I was
critical of the EPA for not using some of the facilities they
have, some of the resources they have and specifically CASAC of
some 21 scientists that at that time, as I recall, only two of
them agreed with the ambient air proposed rule change. So they
are pretty much ignored in the EPA's last draft of its health
assessment document for diesel emissions dated November 1999.
CASAC wrote,
In a February 4, 2000 letter summarizing its concern with
this assessment, CASAC cited the need for strengthening the
linkages between diesel PM emissions and health hazards.
How has the agency addressed CASAC's concern with this
assessment?
Mr. Perciasepe. We expect our Office of Research and
Development to complete that work by the end of the year with
CASAC.
Senator Inhofe. By the end of the year?
Mr. Perciasepe. I don't know the exact schedule.
Senator Inhofe. I guess all my questions are getting around
to why the rush. I know you are going to have to deal with or
respond to CASAC's concerns.
Mr. Perciasepe. And we will respond. CASAC raised a bunch
of important issues. We are working on those issues, but it is
not going to change the underlying--I have just been told that
by June we expect to get a report to CASAC in June so I guess
it is sooner than I thought. Obviously, they are going to have
to review and there will be some process.
We understand what their issues are and based on everything
I know, I believe they will be addressed in the followup report
that the Office of Research and Development is doing.
I want to point out there are other organizations out there
that are looking at this issue. It is not just EPA.
Senator Inhofe. Right now you are talking about coming out
in December, correct, when you want to get all this done?
Mr. Perciasepe. Yes, that is our current schedule.
Senator Inhofe. As it happens, there is going to be an
election in November and it might very well be that there will
be a change in administration in January. It would seem to me
whoever is the next administration, they might have a different
view on this and I can't see anything wrong with if there is a
month delay, it won't bother me a bit.
Mr. Perciasepe. I will only say I appreciate that thought
but I plan to work full bore until January 20 whatever it is.
Senator Inhofe. There are other questions that will be
asked for the record. I think the committee members are waiting
for this vote to take place before they come here from the
Capitol.
We will go ahead and dismiss the first panel. I appreciate
very much the time you have given us here. I have enjoyed
working with you.
Mr. Perciasepe. Thank you very much for that.
Let me just say to my colleagues in industry here, we plan
to work pretty darned hard with them to try to find a way to do
this. I know we have some bridges to cross.
Senator Inhofe. My concern is it is a tough one to deal
with and in my own mind, I know there are political
considerations, not with you, but with others who are in a
bigger hurry than I am to get some of these things done. So we
will probably get some reaction from the next panel.
If the next panel would come to the table. Panel II
includes: Mr. J. Louis Frank, president, Marathon Ashland
Petroleum; Mr. Jerry Thompson, senior vice-president,
Development & Technological Excellence, CITGO Petroleum; Mr.
Robert I. Looney, Government Affairs, Cenex Harvest States
Cooperative on behalf of the National Council of Farmers
Cooperatives; Mr. David Addington, senior vice-president and
general counsel, American Trucking Association; Mr. Bruce
Bertelsen, executive director, Manufacturers of Emission
Controls Association; and Mr. James A. Haslam III, chief
executive officer, Pilot Oil Corporation. The Engine
Manufacturers could not be here so we have six instead of seven
who are here today.
Mr. Frank, if you would like to go ahead and give your
testimony. Your entire testimony will be entered into the
record as all of you know. Try to confine your remarks to 5
minutes and it would make it much easier.
STATEMENT OF J. LOUIS FRANK, PRESIDENT, MARATHON ASHLAND
PETROLEUM, LLC, ON BEHALF OF THE AMERICAN PETROLEUM INSTITUTE
Mr. Frank. I am J. Louis Frank, president of Marathon
Ashland Petroleum. I am here today to testify on behalf of the
American Petroleum Institute.
The energy industry asks that you carefully consider our
views on the EPA's recently proposed diesel sulfur regulations.
First, understand that we support reducing sulfur content in
diesel fuel. This is an area where fuel producers can make a
positive contribution.
U.S. air quality has benefited because of and in proportion
to the extent that we have formulated fuels to cut tailpipe and
exhaust stack emissions. EPA's statistics prove that nearly
two-thirds of America's air quality improvement is due to clean
fuels and clean engine technology. Moreover, the improvement
has been steady and is ongoing and I am proud of that result.
Please note there was no magic involved, no instant
alchemy. It was a painstaking process of finding what worked
technically, economically and commercially. We do this for a
living. We cannot afford to be wrong. Costs and benefits have
to balance and that goes to the heart of the industry's
contention that pushing beyond a 90-percent reduction in diesel
fuel puts wishful thinking ahead of market reality.
EPA's case is based on the use of fuel technology that
still remains unproven. This is technology which EPA admits has
not advanced from the chalkboard to the field trial stage. In
preliminary tests, the EPA recommended technology that has
failed to hit the target emission levels. Regardless of fuel
sulfur content, industry knows how to hit the 15 ppm standard
but we also know that volumes are cost constrained. Many
refineries will choose not to produce this product.
Any trucker or fleet operator can tell you what that will
do to their business. Our estimate is that EPA's proposal would
add about $2,500 to the cost of a trucker's annual operations
just for the hardware and investment at the refinery alone.
Fuel availability could shrink by as much as 20 percent.
Real world constraints will also affect our ability to
maintain the 15 ppm standard through thousands of miles of
pipeline shipment. Terminal storage and station disposition, 15
ppm is equivalent to less than a tablespoon of water in an
olympic-size swimming pool.
Contamination at the molecular level could endanger this
fragile standard. The reality is that refiners would actually
have to reduce levels below 15 ppm to have a reasonable
assurance that product stayed on spec throughout the entire
logistical system to the truckers fuel tank.
EPA has raised the possibility of phasing in its sulfur
requirements to mitigate their impact. This would necessitate
purchasing additional tanks, piping and pumps to ensure
separation throughout the entire distribution system and that
the standard could be maintained.
To accommodate the sale of these two varieties of diesel
fuel rather than one, the bottom line is less efficiency and
more costs. The question is, can it be justified.
I am saying to you on behalf of America's energy industry,
that we are prepared and have supported a 90-percent reduction
in diesel fuel sulfur level knowing full well what that entails
in terms of production costs, quality maintenance and capital
investment. We support this reduction and we understand its
potential health benefit.
This is not a poker game. We are not arguing over table
stakes. Anyone can demand too much, too soon. Setting an
appropriate regulatory standard however, demands wisdom,
courage, and care.
Thank you very much for your consideration and letting me
testify here today.
Senator Inhofe. Thank you.
Mr. Thompson, nice to have you here from Tulsa.
STATEMENT OF JERRY THOMPSON, SENIOR VICE PRESIDENT, DEVELOPMENT
& TECHNOLOGICAL EXCELLENCE, CITGO PETROLEUM
Mr. Thompson. Thank you.
My name is Jerry Thompson, senior vice president CITGO
Petroleum Corporation, a major refiner and marketer of
petroleum products in the United States. I am also chairman of
the National Petrochemical Refiners Association, a trade
association of virtually all large and small refiners and
petrochemical producers.
NPRA is deeply concerned about the impact of EPA's new
diesel sulfur proposals. We do not believe it is possible to
consistently maintain needed supplies of highway diesel with
the 15 ppm sulfur cap. Although some refiners may be able to
produce some amount of this diesel, many would be forced by its
high cost to limit or forego participation in the highway
diesel market. This would reduce supplies well below those
available under a more realistic sulfur cap.
In addition, it would be extremely difficult to deliver
highway diesel with a 15 ppm sulfur cap to consumers. This
highway diesel must share a distribution system with other
products that have significantly higher sulfur levels.
At the 15 ppm sulfur cap, there will be a significant
amount of highway diesel that will have to be downgraded to a
higher sulfur product due to product contamination at the
interfaces. With the enforcement at retail as opposed to the
refinery gate, refiners will be forced to target their
production to 7 to 9 ppm sulfur to account for test tolerances
and reproducibility.
In short, NPRA views EPA's proposal as a blueprint for fuel
shortages and severe economic impacts. It threatens to leave
American consumers a legacy of scarce and unnecessarily costly
energy supplies.
Throughout protracted discussions with EPA, the refining
industry suggested a more reasonable way to reduce diesel
emissions. We favor lowering the current 500 ppm diesel sulfur
cap to 50 ppm, a 90-percent reduction. This would enable diesel
engines to meet the particulate matter standards sought by EPA
and also achieve significant NOX reductions.
Our plan is still expensive. We estimate it will cost the
industry roughly $4 billion to implement, but unlike EPA's
extreme and much more costly proposal, this level of sulfur
reduction is sustainable. Most refiners would choose to make
the more affordable investments needed to make a 50 ppm diesel.
EPA's program offers sharp contrast. Some refiners would
invest in the expensive new equipment necessary to produce 15
ppm diesel. Many others would be unable to make these large
investments necessary to produce this product. They would find
other uses or markets for their current diesel output which
will significantly reduce the supply of highway diesel fuel
available and will create price volatility.
Up to 30 percent of the current supply of highway diesel
could be lost until additional investments are made and
desulfurization capacity is built. This could take as long as 4
years. Some refiners could likely go out of business.
EPA's diesel proposal is estimated to cost somewhere
between $8 and $10 billion. This amount comes on top of the $8
million in cost the industry is already incurring to implement
EPA's gasoline sulfur program in the very same timeframe.
A study to be released next week by the National Petroleum
Council concludes the industry will not have the capability to
make these investments within this timeframe and that
additional time is required for the low sulfur diesel
investments.
The industry's warnings about this rule are well founded.
We, at CITGO, have some relevant real world experience. In the
EPA's proposed rule, our facilities at the Lyondell CITGO
Refinery are referenced as having a diesel desulfurization
technology capable of producing the 15 ppm diesel fuel. We find
based on our actual operating experience with the referenced
technology, the capital and operating costs are much higher at
the 15 ppm sulfur cap than has been implied in the proposal and
the ability of this technology to consistently produce below 15
ppm diesel is problematical.
The feedstocks of this revamped facility are 30-percent
straight run stocks from crude distillation and 70-percent
crack stocks from conversion units. These crack stocks are
significantly more difficult to treat to the 15 ppm level. Our
operating data shows that to consistently desulfurize to 15 ppm
or below, a significant portion of crack material must be
removed from the feed thereby reducing our diesel production by
this amount.
We spent $86 million to revamp this existing 50,000-barrel-
a-day unit. This is significantly higher than the $30-million
revamp cost that is in the EPA proposal for a typical refinery
processing light cycle oil. The unit meets the 15 ppm sulfur
cap at initial conditions at start of run, however, at the
proposed 15 ppm sulfur cap with 70-percent crack material, the
cycle life of the catalyst is greatly reduced from current
operation of 24 months to 8 months.
This significantly raises the operating cost by more
frequent catalyst replacement and more frequent shutdown. It
also results in a loss of diesel production. The more frequent
catalyst change-outs to meet 15 ppm sulfur cap raises the cost
of diesel production by as much as 7 cents per gallon on our
existing unit. So you see, that which looks simple in theory
doesn't always work in practice.
EPA argues that its extreme proposal is needed to enable
heavy duty engines to meet the stringent
NOX standards in the 2007 timeframe. Of course that
NOX standard was arbitrarily selected by EPA. It is
considerably lower than NOX standards for the same
period in Europe or Japan and is probably unrealistic. Still
EPA's $10 billion plan for 15 ppm diesel is largely based upon
this arbitrary and unobtainable target.
NPRA is strongly urging EPA and this subcommittee to reject
that approach and favor the more practical and sustainable 50
ppm diesel sulfur cap which the refining industry advocates.
Thank you for the opportunity to appear and I look forward
to answering your questions.
Senator Inhofe. Thank you, Mr. Thompson.
Mr. Looney.
STATEMENT OF ROBERT J. LOONEY, GOVERNMENT AFFAIRS, CENEX
HARVEST STATES COOPERATIVE, ON BEHALF OF THE NATIONAL COUNCIL
OF FARMER COOPERATIVES
Mr. Looney. Thank you.
I am going to be speaking on behalf of Mr. Eischens who was
unable to make it due to cancellation of his flights.
Mr. Eischens is a fourth generation farmer from Mineota,
MN, and he was going to be here today to speak on behalf of the
National Council of Farmer Cooperatives but more importantly,
he was going to speak as an elected director of Cenex Harvest
States Cooperatives which is a regional cooperative in about 18
States. He is also a member of a local cooperative and also a
farmer. I would like to read his statement.
Cenex Harvest States Cooperative is one of only four
cooperatives in petroleum refining. We have a small refinery in
Montana and majority ownership of a refinery in Kansas.
Cooperatives are uniquely accountable in the petroleum business
in that the customer is also the owner. Farmers have invested
heavily in cooperative petroleum operations to help assure
reliable and affordable fuel supplies. Cooperatives supply
about 40 percent of on-farm fuel use and are the only remaining
suppliers in many rural communities.
Curt is also a local co-op member, one of our thousand co-
ops that own petroleum tankage that will have to bear the cost
of any new tankage requirements. Curt is also a family farmer,
one of 325,000 member owners in Cenex Harvest States
Cooperatives who could bear the bulk of the costs imposed on
our regional and local co-operatives and personal costs if
increased tankage is required on the farm.
One might wonder why a farmer was to be here today to
express concerns with EPA's proposed rule for on-road diesel.
Many, including key people in the Federal agencies, believed
until recently that agriculture would not be affected by this
on-road standard. The fact of the matter is, this on-road
proposal adversely impacts agriculture in a number of ways.
First, we are concerned that an ultra-low standard for
sulfur and diesel fuel will increase the threat of supply
disruptions in rural America. Agriculture's fuel supply cannot
be placed at risk.
Second, most of the off-highway diesel fuel in rural
America will be forced to the new highway standard because much
of the diesel storage system, particularly in rural markets
served by our co-operatives, is capable of adequately handling
only one sulfur level per grade of diesel fuel which will be
determined by the new standard for highway diesel.
Any mandate or option for two on-highway low sulfur diesel
fuels could impose major and unacceptable costs on local co-
operatives or force local co-operatives to choose which
customers to lose.
Third, these distribution limitations mean that our farmer-
owned refineries will be forced to go to the ultra-low on-road
standard even though most of our market is off-road for farm
uses.
Fourth, diesel fuel costs for farmers in rural America will
increase 10 cents or more per gallon with higher price spikes
in the event of tight supplies or disruptions.
Fifth, co-operative investments involve farmers' money. We
don't know how we will be able to afford it especially during
difficult times like farmers are now experiencing. Any costs
incurred by co-ops, especially regulatory requirements, are
borne by the farmers as a heavy penalty. How? There are three.
First, it is extremely difficult for us to generate the
necessary capital for large expenditures like this rule would
require. Co-ops are prohibited from issuing stock in the equity
markets and during these difficult economic times, it is
particularly difficult for us to borrow these funds.
Second, farmers get no return on this investment and it
consumes scarce funds desperately needed for investment in
projects to improve farm income.
Third, in the end, farmers bear the burden both through
higher diesel fuel costs as customers and reduced patronage
from their co-ops as owners.
Agriculture's concern is widespread and growing as
demonstrated by the Ag Coalition letter which is in the packet
with the written testimony containing nearly 30 organizations
representing many facets of agriculture that has been submitted
for the record.
Farmer co-operative representatives have been working with
EPA quite extensively and we appreciate the agency's
recognition of the unique structure and challenges for farmer-
owned co-operative refiners as well as possible compliance
flexibility options.
However, we believe that the proposal goes too far, too
fast, and has failed to consider the major real world impacts
on agriculture and rural America. This is why the National
Council of Farmer Cooperatives recommends that the rule be
withdrawn and reconsidered.
We urge that Congress direct EPA and USDA to study and
address the potential impacts of EPA's proposal on the
availability and cost of diesel fuel for farmers in rural
America as well as the effects on the performance of
agricultural equipment. In 1985, Congress took similar action
on unleaded gasoline. I have a copy of the section of the law
that was passed by Congress in 1985, and would hope that
Congress would do something similar in the next legislation for
this rule.
In closing, the National Council of Farmer Cooperatives
recommends that any final rule include the following basic
elements. We would like a sulfur cap of 50 ppm; no phase-in or
requirement to low-sulfur diesel fuels and maximum compliance
flexibility for co-operative refiners.
Just as farmers need and want cleaner air, we also require
reliable and affordable fuel supplies. On behalf of farmer co-
operatives, Curt Eischens' family farm in Minnesota and other
farm families across rural America, I urge Congress to help
ensure that EPA doesn't move too far too fast.
Senator Inhofe. Thank you, Mr. Looney.
You mentioned some 30 farm organizations and you made a
recommendation. Are you speaking for any other than yours or
are you speaking for all these organizations?
Mr. Looney. The recommendations reference the study on
agricultural machinery which is from the National Council of
Farmer Cooperatives and its members. It is not necessarily from
the list of 30 organizations.
Senator Inhofe. Thank you.
Mr. Addington.
STATEMENT OF DAVID S. ADDINGTON, SENIOR VICE-PRESIDENT AND
GENERAL COUNSEL, AMERICAN TRUCKING ASSOCIATIONS, INC.
Mr. Addington. Thank you.
We appreciate the opportunity to appear before the
subcommittee today to express our serious concerns with the new
regulations on diesel engines and fuel proposed by the EPA on
June 2, 2000. The membership of ATA, like other Americans,
supports the objective of clean air.
We believe the Government should base its efforts to
achieve clean air on sound science, public safety and the needs
of the American economy. I will describe the trucking industry
and some key problems the EPA rule poses for our industry and
for the American economy.
The American Trucking Associations is the national trade
association for the trucking industry with more than 2,500
motor carrier companies who are our members and who operate in
every State in the Union.
Trucking is vital to the Nation's economy. Trucks move the
majority of the freight that moves in America. Seventy percent
of America's communities depend exclusively on trucks to
receive freight. EPA regulations affecting trucking operations
therefore have a direct impact on a huge segment of the
American economy.
Although some trucking companies are multibillion dollar
companies whose names you know, most of the trucking industry
is small business. According to the Department of
Transportation, almost 50 percent of motor carriers have only
one truck and a full 95 percent of motor carriers, almost
395,000 of them, have 20 or fewer trucks.
The EPA proposal has three major problems. It discriminates
against on-road sources of diesel, that is vehicles on
highways, in favor of off-road sources. It bets our future on
unproven technologies. It forces substantial costs on the
trucking industry and the economy as a whole.
Regarding discrimination, the off-road sources of diesel
emissions, such as locomotives, boats, utilities, and
generators produce, emit more of the troublesome emissions than
on-road sources. Yet, EPA has singled out with this rule the
diesel fuel truck for tighter restrictions.
EPA's decision to single out on-road diesel emission
sources is unjustified. Indeed, EPA did not even try to justify
it. EPA simply said they ``plan to initiate action in the
future to formulate thoughtful proposals covering both non-road
diesel fuel and engines.'' The EPA should initiate a thoughtful
proposal now and cover non-road diesel emission sources.
The trucking industry has contributed substantially to air
quality improvements in the United States in the past decade.
It is time for others to do as much as we have already done.
On technology, EPA wants trucks to employ after-treatment
methods to reduce emissions that employ technology that is not
field tested and proven. EPA is placing a risky bet that 5
years from now the technology will be ready to go. EPA should
not impose radical changes in diesel engine and diesel fuel
standards unless and until it knows the necessary technology
works.
On costs, the EPA's own estimates say the proposed rule
will add $2,768 to the cost of a new heavy duty truck and over
the life cycle of that truck, another $3,362, for a total of
more than $6,000 per truck. EPA also says its rule will add
about 4 cents to the cost of a gallon of highway diesel fuel.
Even these EPA estimates of the increased truck costs and
increased fuel costs would be difficult for many in the
trucking industry to bear. The refining industry tells us that
EPA actually has grossly under-estimated the increase in the
price of diesel fuel that will result from this rule.
Finally, the refining and distribution industries have told
us that it will be extremely difficult to maintain the purity
and distribution of the new on-road diesel fuel and that they
cannot guarantee uniform, nationwide availability of the
product. If the new fuel is not available everywhere like the
old fuel, it will be a disaster for the trucking industry and
the economy.
The subcommittee asked me to address the EPA rules on
diesel engines and fuels, and I am pleased we had that
opportunity. But I would be remiss if I did not draw to the
subcommittee's attention that this rule is only one front of
the current three-front regulatory war that this Administration
is waging on the trucking industry. Like the diesel rule, the
rules on the other two fronts, the Department of
Transportation's proposed rule on truck driver hours of service
and OSHA's proposed rule on ergonomics, also are based on
flawed science, flawed economics and unfair government
favoritism toward our industry's competitors.
On all three fronts, hours of service, ergonomics and
diesel, the trucking industry faces extraordinary costs as a
result of government mandates. I would point out they are the
functional equivalent of taxes and nobody in Congress has voted
on them; they are being imposed through the three
bureaucracies.
Because the economy has been so good to so many Americans
in the past decade, and we are all thankful for that, many
people overlook the fact that margins in the trucking industry
have been extremely low. Trucking companies that already have a
tough time meeting the payroll and making any money simply
cannot bear the cost of new regulations that the Administration
wants to impose, in its closing days, on our industry.
We appreciate the opportunity to appear before you and
would be pleased to answer questions.
Senator Inhofe. Thank you.
Mr. Bertelsen, you are kind of alone here and if this goes
through, you may be the only beneficiary at this table. Since
Mr. Keller, the engine manufacturer's witness could not come,
feel free to take his time also if you need additional time.
STATEMENT OF BRUCE BERTELSEN, EXECUTIVE DIRECTOR, MANUFACTURERS
OF EMISSION CONTROLS ASSOCIATION
Mr. Bertelsen. Thank you, Mr. Chairman.
I think if the rule goes through, the real beneficiaries
are going to be the American public.
My name is Bruce Bertelsen and I am the executive director
of the Manufacturers of Emission Controls Association. We are
very pleased to have the opportunity to participate in today's
hearings on the proposed sulfur diesel requirement and how it
relates to the important issue of reducing emissions from
diesel powered engines and vehicles.
We believe an important opportunity exists to significantly
further reduce emissions from highway, heavy duty diesel
engines by using an engineered systems approach which
incorporates and combines advanced engine designs, advanced
emission control technology and very low sulfur diesel fuel.
EPA's recently proposed regulatory initiative recognizes
the importance of promoting the systems type approach and if it
is finalized, we believe it will bring about the age of the
truly clean diesel. That is my reference with regard to the
benefit to the public because I think that is the objective
that we all would like to achieve. We may disagree on what is
necessary to be done but I think we all agree sitting at this
table that it is important to achieve the goal of the truly
clean diesel engine.
I think achieving that goal fairly presents significant
challenges to the engine manufacturers, to the emission control
manufacturers and certainly to the oil industry. We believe if
we work together these challenges can and will be met.
MECA is a nonprofit association made up of the world's
leading manufacturers of motor vehicle emission controls. Our
membership has over 30 years of experience and a proven track
record in developing and commercializing exhaust control
technologies for motor vehicles.
Our comments today are based on work being performed by our
members, their extensive experience in the field of motor
vehicle catalysis and a growing body of technical data that is
beginning to emerge. We believe the emission standards of a .2
NOX and 0.01 particulate matter or PM standard
proposed for highway diesel powered, heavy duty engines can be
achieved in a cost-effective manner within the lead time
provided, if fuel with sulfur capped at 15 ppm is available.
Sulfur in fuel adversely affects the performance of all
catalyst-based emission control technologies. The impacts range
from reducing the effectiveness of these controls to rendering
certain catalyst-based controls ineffective.
While we continue to recommend that EPA establish a sulfur
cap of 5 ppm, our members believe that with a sulfur cap of 15
ppm, emission control strategies can be developed to meet the
proposed emission limits. Specifically, with a 15 ppm cap, our
members are extremely confident that all catalyst-based filter
technologies can be designed to help meet the 0.01 PM standard
and that NOX adsorbor technology will be optimized
to help meet the 0.2 NOX standard.
To give a little background on the status of the technology
because this is something that has been raised by several of
the speakers and discussed, with regard to diesel particulate
filters, they are commercially available today. The only
remaining engineering effort is to optimize the filter system
for the specific engine to which it will be applied. Worldwide,
there are over 20,000 PM filters that have been equipped on
diesel engines.
The difficulty with sulfur is that it reduces the PM
control efficiency of the filter because sulfur in the fuel is
converted to SO3 over the catalyst and becomes a
sulfate which is measured as a particulate. In addition to the
increase in sulfate, the level of sulfur in diesel fuel
adversely affects the temperature at which regeneration of the
filter occurs. Regeneration is basically when the particulate
which has been trapped in the filter is combusted or destroyed.
Failure to achieve this proper regeneration can adversely
affect the performance and durability of the filter system.
Therefore, the impact of sulfur in raising the regeneration
temperature is a significant issue.
Operating experience with filter technology in Europe with
less than a 10-ppm sulfur diesel fuel demonstrates that proper
filter regeneration will occur even when these vehicles are
operated in areas such as Sweden where there are low ambient
temperatures. Some of these vehicles have achieved hundreds of
thousands of miles equipped with filters and are getting very,
very effective PM control.
With regard to NOX adsorbor technology, the
development and optimization work with NOX adsorbor
technology is progressing at a rapid rate and our members
believe that with the availability of very low sulfur diesel
fuel, this technology will be commercialized in the 2007
timeframe for diesel engines. While sulfur levels above 5 ppm
present additional design challenges for
NOX adsorbor technology, companies developing this
technology believe that with the considerable R&D efforts
already underway, NOX adsorbor technology will be
optimized to operate with a cap of no higher than 15 ppm
sulfur.
Another NOX control technology is selective
catalytic reduction for NOX control. This is another
technology that is being developed and we expect that it will
be commercialized in the near future.
SCR technology that uses an oxidation catalyst to
facilitate the NOX reduction component of the
technology to achieve very, very high NOX control
levels requires the same low sulfur levels as the
NOX adsorbor. There are other SCR technology designs
that are less sensitive to sulfur but even these technologies
with the availability of very low sulfur fuel, are able to
optimize these technologies to achieve the highest
NOX reductions and allows for full optimization of
the engine and exhaust control technology.
In conclusion, again, we believe that working together in a
true partnership, the objective of the truly clean diesel can
be achieved. Our industry is prepared to make the necessary
investments to help ensure that the desired emission reductions
are achieved.
Thank you and I would be happy to answer any questions.
Senator Inhofe. Thank you.
Mr. Haslam.
STATEMENT OF JAMES A. HASLAM, CHIEF EXECUTIVE OFFICER, PILOT
OIL CORPORATION
Mr. Haslam. Thank you.
I am CEO of Pilot Corporation, a family owned, private
company headquartered in Knoxville, TN. Pilot does not make
diesel fuel, we strictly sell diesel fuel. Our company owns and
operates 180 travel centers and convenience stores in 37 States
stretching from Connecticut to California, from Wisconsin,
south to Florida and Texas.
We sold, last year, approximately 10 percent of all diesel
fuel, over the road diesel fuel in the United States. Pilot is
the largest independent retailer of diesel fuel in the United
States.
I appear before this subcommittee today on behalf of the
Society of Independent Gasoline Marketers of America. SIGMA is
an association of 260 motor fuel marketers operating in all 50
States. Collectively, SIGMA members sold over 13 billion
gallons of on-road diesel fuel last year.
My personal experience with Pilot and my representation of
all SIGMA members at this hearing today combine to make me well
qualified to speak about the EPA's diesel sulfur proposal, not
just from the diesel marketers perspective but from the
perspective of diesel fuel consumers as well. From this point
of view, diesel fuel marketers and our customers, EPA's
proposal will have dire consequences on not only our business
but our customers and we believe on our national economy.
SIGMA strongly opposes the proposal for one fundamental
reason, it will reduce, perhaps substantially, the supplies of
on-road diesel fuel. Diverse and plentiful sources of supply
are the life blood of independent petroleum marketers like
Pilot. Without adequate supplies of diesel fuel, independent
marketers, the most competitive segment of the motor fuels
marketing industry, will cease to exist as a force in diesel
fuel retailing.
EPA's diesel sulfur proposal will result in a substantial
decrease in the overall supplies of on-road diesel fuel in this
country. As EPA admits in its proposal, some refiners will not
be able to make the capital investments necessary to produce
ultra-low sulfur diesel fuel resulting in reduced diesel
supplies. EPA also admits that desulfurization technology
currently does not exist to remove sufficient sulfur from
certain diesel fuel blend stocks further reducing supply.
EPA further admits that our Nation's diesel fuel
distribution system will be forced to downgrade an unspecified
portion of our Nation's diesel fuel production because it will
become contaminated with higher sulfur products during
distribution, again reducing overall supply.
EPA highlights the fact that under the proposal, domestic
diesel fuel will have a substantially lower sulfur level than
diesel fuel produced in most other industrialized countries
which will prevent foreign supplies of diesel fuel from
alleviating any shortage in domestic production.
Independent marketers of diesel fuel will not be the only
ones to suffer under EPA's proposal. Consumers of diesel fuel,
including our Nation's trucking and agricultural industries,
will pay for EPA's program at the pump. EPA predicts in its
proposal that diesel sulfur reductions will cost approximately
4.5 cents per gallon. That number is woefully low.
As we witnessed last winter and this spring in the
northeast and are now witnessing currently in the Midwest, even
small supply shortages of motor fuels can cause dramatic
increases in retail prices. If overall diesel fuel supplies are
reduced by 10 percent as a result of EPA's proposal which I
believe is not an unreasonable number and which you have heard
some predict today it will reduce it by 20 percent, then the $2
per gallon diesel fuel prices we saw in the northeast last
winter will become the norm if not a bargain in the eyes of
consumers.
SIGMA would bring this subcommittee's attention to an issue
contained in the preamble to EPA's proposal that is not
currently a formal part of its draft regulations. In the
preamble, EPA requests comments on adopting a regulatory scheme
that would permit two on-road diesel fuels to exist for a short
period of time. As the Nation's largest independent retailer of
on-road diesel fuel, I must tell you this proposal would be
disastrous for our industry and the Nation's motor fuel
distribution system. It is simply not practical.
At the vast majority of our companies' 180 locations, we
have very limited storage for our diesel fuel. At most sites,
our tanks hold less than 24 hours of supply. In many instances,
we would not have room at our sites to install additional
tankage even if we could get the permits to do so.
As a result, I urge the members of this subcommittee to
communicate to EPA your opposition to the agency's dual fuel
approach. SIGMA would support a diesel desulfurization program
that accomplishes three things.
No. 1, takes effect in 2010 or later to permit adequate
time for proposed, experimental emissions control and diesel
desulfurization technologies to mature and develop and gives
refiners additional time to install these new technologies.
No. 2, sets a diesel cap 50 ppm rather than 15 ppm that
EPA's proposal would mandate.
No. 3, establishes a uniform transition to the new lower
sulfur diesel fuel without a dual fuel approach.
An EPA regulation that adheres to these three principles
would have only a minimal impact on overall diesel fuel
supplies while reducing diesel sulfur levels by 90 percent and
achieving substantial reductions in emissions from heavy duty
diesel engines. In addition, the longer implementation
timeframe would permit the manufacturers of emissions control
devices to develop their technology to a level at which a 50
ppm sulfur level would not have a negative impact on emissions.
I appreciate the opportunity to appear before you.
Senator Inhofe. Thank you.
I have a number of things I would like to go through,
starting with Mr. Frank. First of all, you heard Mr.
Perciasepe's statement and responses, do you believe there
could be diesel supply problems if this rule went into effect
in the anticipated time schedule of the EPA because of
refineries closing or choosing to export or even moving? I am
more concerned about the supply problem than I am the amount of
money that can be calculated and expressed in an increased cost
of diesel.
Mr. Frank, in terms of the supply problem, do you think a
supply problem would exist if this rule went into effect?
Mr. Frank. Yes, I do. As I testified, I think the
transportation fuel segment itself could see a 20-percent
reduction in supply and could be larger and diesel fuel in
general, by those elected not to manufacture the low-sulfur
diesel, could be exported. That situation could exist, that
there would be overcapacity in the high-sulfur diesel market.
Mr. Thompson. Yes, I definitely do. Currently, 30 percent
of the Nation's diesel pool is comprised of cracked material
from the refining process. These cracked stocks are extremely
difficult to desulfurize to these very low levels of 15 ppm.
That is why I testified that up to 30 percent of the Nation's
current diesel supply is at risk of going to other markets
because of this rule.
Mr. Looney. Yes, Mr. Chairman. Supply difficulties would
occur in rural America and to many of the farm operations. Many
of those areas are supplied by small refiners who will not only
have to make those critical decisions of when to change but if
they are going to change. That has an effect not only on the
on-road but the off-road supplies. So there would be some
supply problems probably in both categories.
Mr. Addington. Yes, as I testified, the refining industry
has told us that will occur. That is why I emphasized that 70
percent of America's communities depend exclusively on truck
for freight. You need to have that diesel fuel everywhere you
need it, not just in the large cities that get better refinery
service.
Mr. Bertelsen. That is really outside our area of expertise
but I think obviously any rule such as this needs to take into
consideration possible impacts on fuel supplies.
Mr. Haslam. Yes, I think we have seen the supply system in
our country is extremely fragile. Even the smallest of
interruptions like we have had this spring in gasoline in the
Midwest causes tremendous price spikes. I think we would be
much more subjected to those under EPA's current proposals than
we are now.
Senator Inhofe. Two or three of you referred to what you
thought specifically would be the effect in terms of a price at
the pump. I suspect in calculating that you are somehow
prorating the cost of upgrading and buying new equipment and
all that, as opposed to the supply and demand. I think the
supply and demand effect on the price would be far greater than
just upgrading equipment.
Mr. Frank, we talked about this a year ago when you
testified.
Mr. Frank. Yes, sir.
Senator Inhofe. I would like to go down the row and again
particularly for those who gave the 4 cent figure, was that
just in equipment upgrades or was that taking into
consideration it would have to be a pretty in-depth study to
look at the supply and demand and what effect that would have
on the price?
Mr. Frank.
Mr. Frank. It is a bit more complicated than a yes or no
answer.
Senator Inhofe. I know that and I don't want people to feel
uneasy because I certainly couldn't answer it. There is no way
to anticipate what the supply and demand effect of this rule
would be so you would have to make a judgment.
Mr. Frank. I think the effect of cost would be in the 4 to
11 cents a gallon range for the hardware at the refinery
itself, depending on whether facilities can be modified or new
facilities have to be built and I think that does not include
the infrastructure adjustment if additional pipelines have to
be made to keep the diesel fuel separated and additional
tankage has to be installed at both the terminals in the
service station level. It could be two and a half to three
times that much.
The real question I think you're asking is that impact on
the supply situation, the cost will not be the determining
factor at least for the first few years of what it cost to do
it. It will be that there will be a shortage in the market and
there will be a price response as the bids go up for supply to
be able to keep truck fleets running or SUVs supplied or
whatever the situation is because a 20-percent shortfall in the
diesel fuel market will be much the same situation that we are
seeing in the Midwest today. It is not the cost that is the
factor, it is that there is a shortage of supply.
Senator Inhofe. I think that is what the Governor of
Illinois was saying in his press conference yesterday?
Mr. Frank. Yes, sir.
Senator Inhofe. Mr. Thompson.
Mr. Thompson. You are correct, the figures we quote are the
cost to manufacture figures. In an ideal world where supply
equals demand, then that cost will translate into a price at
the pump but in a situation where you do have a supply
shortage, now supply is less than demand, prices have to
increase to bring those two back into equilibrium. In a
shortage situation, the price at the pump does not bear a
direct relation to the cost to the manufacturer but it does
have to increase to equalize the balance between supply and
demand.
So when we say the cost will be $4 billion or 6 to 11 cents
per gallon with the industry's proposal of 50 ppm cap, that
assumes a steady state situation where supply and demand are in
balance. If we do have disruptions, then price spikes will
necessarily follow.
Because of this concern, as much as 30 percent of the pool
could go to other markets, prices will increase and present an
opportunity for other people to invest to take advantage of
that opportunity. Because of the lead time required, we are
talking as much as 4 years for the investment and construction
of the desulfurization equipment. So we are not looking at a 2
to 3 month phenomenon here, we could be looking at a shortage
of up to 30 percent for as long as 4 years.
Mr. Looney. I mentioned 10 cents and that is an estimate of
refinery costs. One issue I would like to point out to farmers
is the availability and very limited periods of time during the
year, the seasonal aspect of the production of agricultural
supplies, early spring and harvesting, needs availability of
fuel and the right type of fuel for farmers and the machinery.
It is very, very important. We have not been able to make any
cost estimates on that. That is a very critical thing for
agriculture. We must have it then.
Mr. Addington. I cited three figures with regard to cost,
all of which came directly from EPA's own estimates: the
additional cost of buying a truck, the additional cost in the
life cycle operation of the truck and the price of the diesel
fuel.
Senator Inhofe. You are prorating capital expenses.
Mr. Addington. They broke them out separately. In any
event, we consider the EPA's estimates underestimates which we
only use because that is what they produce. The oil industry
has told us the estimates on fuel are way too low on EPA's
part.
Senator Inhofe. Mr. Bertelsen.
Mr. Bertelsen. I am not qualified to comment on that.
Senator Inhofe. Two of you have said you would support the
50 ppm sulfur level if it also met a 75-percent reduction. Do
all of you agree with that?
Mr. Frank. Yes, sir.
Mr. Thompson. Yes.
Mr. Addington. We would be very interested in that if, and
it is an important if, the Federal Government set a standard
that preempted the 50 States so that there was a single
national diesel fuel standard rather than having a situation,
as we do now, where California has a different standard and now
parts of Arizona may adopt them and parts of Texas have adopted
different standards.
Mr. Frank. Between the industry's proposal of 50 ppm and 15
ppm that doesn't sound like a lot but the costs go up
exponentially. There is no basis for the 15 ppm level. Mr.
Bertelsen testified that he thinks the NOX adsorbors
could develop the technology to be effective at 15 ppm but the
truth today is that they really have to have 0 ppm sulfur to be
effective. The technology doesn't exist today for 15 ppm
performance.
What the EPA is asking the refining industry to do as well
as the rest of the downstream industry is to invest billions of
dollars based on the belief that the technology can be
developed. We got in trouble before on the belief that
something can be done. I know the oil industry takes a lot of
heat because people criticize saying you told us it couldn't be
done before but yet you did it. For instance, removing lead
from gasoline, I think the industry has always taken a
conservative approach to trying to guard the fuel supply for
the American consumer so that they can be supplied fuel
consistent with cost-benefit analysis.
The place where that wasn't true was in the Clean Air Act
where we made a mistake with the oxygenates requirements of
putting MTBE in gasoline. That was done as a technology driver.
It turns out that has created a lot of problems.
Because things weren't tested to see that they could
operate effectively before the regulations were implemented
that required their use, this could turn out to be the same
kind of disaster.
Senator Inhofe. Prior to coming to the House, I spent over
30 years in the real world going through exactly what the
people you represent are going through today. That is one
reason I ran for this office.
I have one question. Mr. Haslam, you talked about having a
dual fuel standard because of the distribution shortage
problems. Expand on that a little bit and tell us if there are
any particular regions of the country that would impose greater
hardships on.
Mr. Haslam. No, sir, it is no regions, it is site specific.
For example, our typical travel center have two 20,000 gallon
tanks, a total of 40,000 gallons of storage. The reality is
that we turn our inventory in the diesel business which is such
a high volume, low margin business that from a practical
standpoint, we would have to spend substantial amounts of
capital for only a minimal time period to be able to sell two
different kinds of diesel. It is totally unpractical today.
Senator Inhofe. Mr. Looney, from a co-op's perspective,
were you satisfied with Mr. Perciasepe's answer to my question
concerning the problems that would be created by dual fuel
standards?
Mr. Looney. I can speak personally to the fact that EPA has
at least four levels been very active pursuing all aspects of
the impact this rule will have on agriculture. We have talked
to them on four different levels but that has been very
recently in the last couple of weeks. I know they are very
energized about making sure they understand the whole process.
I think we are just beginning to raise the right questions and
provide the right answers. I would say they have started the
process to address those issues.
Mr. Frank. From the refiner, transportation industry's
perspective, the logistical system today within the confines of
the way our system of pipelines and terminals are structured,
we know how to transport and handle those fuels and keep the
ultra low-sulfur level from getting contaminated in the
pipeline or in the tankage. I think that is going to require
substantial investment in pipelines and tanks to keep a clean
fuel separated from higher sulfur fuels. For instance in the
same pipeline, we ship various kinds of fuels all the time.
Some have high sulfur, some have low sulfur. This would be an
ultra low sulfur. The molecular transfer of sulfur just from
what hangs onto the wall of the pipe would contaminate the low-
sulfur diesel fuel.
In the transmix, the interface mixing between the two fuels
and it would have to be rejected for ultra low-sulfur fuel,
would have to go back to the refinery or else be downgraded to
high-sulfur diesel. That is part of the shrinkage that would
occur.
Senator Inhofe. I am going to conclude this. I have some
thoughts that concern me. One is, and I don't want this to be
misunderstood, but we do have an election coming up and we're
going to have a different administration. To me it is very
disturbing when all of a sudden we have this December deadline
and everything is going to have to be in place.
The only encouraging thing I get out of that from the EPA
is they must be concerned it is going to be a more dramatic
change in the White House than they want. For that reason, I
think it is all going to happen and regardless of where
technology is, regardless of the concerns that are not
answered.
Mr. Addington, you gave me an idea during your testimony
and reminded me of something I had forgotten. Four or 5 years
ago, right after I came over from the House in 1995, I was
instrumental with my partner, Don Nichols from the State of
Oklahoma, in passing a bill that addresses the problem I know
concerns you and you articulated. That is that you have a bunch
of unelected bureaucrats not just in EPA but in other
bureaucracies also who make decisions with no regard for how
the public is going to be affected by them.
I have said many times in the event we make that dramatic
change in this Administration and this committee--and I speak
for Bob Smith when I say this also--we are going to have sound
science, we are going to use CASAC for the design purpose, we
are going to have cost-benefit analysis and everything,
including endangered species and how it affects what the cost
is. Let the public be involved in this.
Since the rush is on to make this happen in December, and
since the objections that I raised have not yet been answered,
I am going to supply the EPA with a list of my concerns I think
should be met by the time this rule goes into effect. If not, I
am going to take advantage of that law we passed in 1995,
called the congressional Review Act. That addresses the very
thing you bring up.
In the event there is something that we, who are the
elected officials who have to respond to an electorate, the
people of America, believe that something is onerous and is not
properly addressing the concerns that should be addressed, then
we can effectively veto it with a simple vote by bringing this
congressional Review action to this committee as well as the
committee in the House, have it go directly there to the floor
and by a simple vote, overturning this.
If these objections I have to this rule are not met, I am
going to put the EPA on notice that I will invoke the
provisions of the congressional Review Act on this rule.
With that, we have run out of time. We have a vote in
progress, so we are adjourned.
[Whereupon, at 11:06 a.m., the subcommittee was adjourned,
to reconvene at the call of the chair.]
[Additional statements submitted for the record follow:]
Statement of Hon. Joseph Lieberman, U.S. Senator from the State of
Connecticut
Thank you, Mr. Chairman, for holding this hearing on a regulation
that so directly affects the quality of our air. I would just like to
make a few comments highlighting the reasons for my support of the
action on diesel fuel sulfur that is proposed by the Environmental
Protection Agency.
My home State of Connecticut faces serious air quality challenges,
as do many of the States in New England. Some Northeastern States need
to make drastic reductions in both nitrogen oxides and volatile organic
compounds in addition to those anticipated from current and planned
stationary source and motor vehicle emission control programs in order
to fulfill the requirements of their State implementation plans. There
are also significant challenges for some northeastern States in
attaining EPAs National Ambient Air Quality Standards for ozone.
Ambient toxic pollutant concentrations are a further concern: measured
annual average concentrations of benzene, formaldehyde, and other
toxics have been shown to exceed cancer risk thresholds in all
monitoring locations in this region.
With challenges of this nature, the Northeast appreciates EPAs
action on diesel sulfur. The proposed regulation on diesel sulfur will
significantly reduce the cap on sulfur in diesel fuel. It is sorely
needed, for heavy-duty vehicles are significant contributors to
elevated levels of ozone, fine particulate matter (PM), and the primary
emissions of several key toxic air pollutants of concern in the region.
Together, highway and non-road heavy-duty engines are responsible for
roughly 33 percent of all nitrogen oxide (NOX) emissions, 75
percent of motor vehicle related PM, and 60 percent of aldehyde
emissions in the northeast corridor. Diesel exhaust has also been
classified as a probable human carcinogen by the National Institute for
Occupational Safety and Health (NIOSH) in 1988, the International
Agency for Research of Cancer (IARC, 1989) and the U.S. EPA (U.S. EPA
draft, 1994).
For these reasons, I feel that this proposed regulation is a
beneficial one. I realize, however, that there are concerns about the
implementation of the regulation, and I am interested in finding out
more about these concerns. I look forward to hearing from the
witnesses.
Statement of Robert Perciasepe, Assistant Administrator, Office of Air
and Radiation, Environmental Protection Agency
Thank you, Mr. Chairman and members of the subcommittee, for the
invitation to appear here today to discuss our proposed program that
addresses emission standards for heavy-duty trucks and buses and the
accompanying low sulfur requirement for diesel fuel.
As you know, last year we established a new program to dramatically
reduce emissions from cars and light-duty trucks. That program, often
called the ``Tier 2'' program, will help to improve the nation's air
quality by phasing in both cleaner engines and cleaner burning gasoline
over the next decade, using flexible, market-driven mechanisms that
minimize consumer costs while preserving vehicle choice.
We are now focusing much-needed attention on heavy-duty highway
vehicles, applying the same general principles of addressing the
vehicles and the fuel as a single system, and incorporating flexible
compliance mechanisms for the affected industries.
This proposed program would protect the public health and the
environment of all Americans by reducing the sulfur content in highway
diesel fuel by 97 percent to provide for dramatically cleaner heavy-
duty trucks and buses. By addressing diesel fuel and vehicles together
as a single system, harmful emissions from heavy trucks and buses would
be reduced up to 95 percent from today's levels--the clean-air
equivalent of eliminating the air pollution from 13 million of today's
trucks.
justification for action
Heavy-duty trucks and buses are largely powered by diesel engines,
and the importance of diesel continues to grow with the steady increase
in truck traffic on our roads, the continuing trend toward replacing
heavy-duty gasoline-powered trucks with diesels, and the prospects for
a resurgence in light-duty diesel vehicle sales, as evidenced by auto
manufacturers' ambitious plans and investments in this area. Diesel
engines are more durable and get higher fuel economy than gasoline
engines, but they also pollute significantly more. Harmful emissions
from these engines contribute greatly to a number of serious air
pollution problems, and will continue to do so into the future absent
further controls to reduce these emissions. The program we proposed
would finally bring diesel emissions on par with those of new, cleaner
cars.
In our proposal, published on June 2, we assessed the need for
further reductions in emissions from heavy-duty trucks and buses beyond
the reductions that will result from new diesel standards set to take
effect in 2004. We based this assessment on projections of air quality
trends in the U.S. and on the expected contribution of heavy-duty
vehicles to these trends. Our conclusion is that if we do not act soon,
despite several years of progress in reducing diesel emissions,
pollution from heavy-duty trucks and buses will rise in the next 15
years, with serious repercussions for the nation's air quality.
Heavy-duty vehicles contribute to the health and welfare effects of
ozone, as well as particulate matter (or ``PM''), oxides of nitrogen
(or ``NOX''), oxides of sulfur, and volatile organic
compounds that include toxic compounds such as formaldehyde. These
adverse effects include premature mortality, aggravation of respiratory
and cardiovascular disease, chronic bronchitis, and decreased lung
function. Pollutants from these vehicles also contribute to crop and
forestry losses; they contribute to visibility impairment in many parts
of the U.S.; and to the acidification, nutrification and eutrophication
of bodies of water.
Millions of Americans live in areas with unhealthy air quality that
endangers public health and welfare. Forty-two metropolitan areas with
a total population of 123 million people have recently violated or are
close to violating the 1-hour ozone national ambient air quality
standard (or ``NAAQS''), and have ozone modeling or other factors which
indicate a risk of future NAAQS violations. The emission reductions
that would come from the proposed standards will reduce the number of
future violations of the ozone NAAQS in these areas. Furthermore, our
analysis shows that PM-10 concentrations in 10 areas with a
combined population of 27 million people face a significant risk of
exceeding the PM-10 NAAQS without significant additional
controls in 2007 or thereafter. PM-10 is particulate matter
that is 10 microns or less in size. Under the mandates of the Clean Air
Act, government agencies at the Federal, State, and local levels are
working to bring pollutant levels into compliance with the 1-hour ozone
and PM-10 NAAQS through their State Implementation Plans,
and to ensure that future air quality continues to maintain these
health-based standards. The reductions proposed in this rulemaking
would play a critical part in these important efforts.
In addition to its contribution to PM-10 inventories,
diesel exhaust particulate matter is of special concern because it has
been implicated in increasing the risk of lung cancer and respiratory
disease in human studies. The current EPA position is that diesel
exhaust is a likely human carcinogen and that this cancer hazard
applies to environmental levels of exposure.
Emissions from heavy-duty vehicles account for substantial portions
of the country's ambient PM and NOX levels.
NOX is a key precursor to ozone formation. By 2007, we
estimate that heavy-duty vehicles will account for 29 percent of mobile
source NOX emissions and 14 percent of mobile source PM
emissions. These proportions are even higher in some urban areas, such
as in Albuquerque, where heavy-duty vehicles contribute 38 percent of
the mobile source NOX emissions and 21 percent of the mobile
source PM emissions. A number of urban areas have begun to examine the
potential for even greater emission ``hot spots'' caused by such
factors as frequent bus and truck routes.
The proposed program would have a substantial impact on these
emissions. By 2030, NOX emissions from heavy-duty vehicles
under the proposed program would be reduced by 2.8 million tons, and PM
emissions would decline by about 110,000 tons, dramatically reducing
this source of NOX and PM emissions. Urban areas, which
include many poorer neighborhoods, can be disproportionately impacted
by diesel emissions, and these neighborhoods would thus receive a
relatively larger portion of the benefits expected from new emissions
controls.
process
Our proposal is the culmination of a year-and-half long
deliberative process during which we worked closely with a wide range
of stakeholders. Following a number of meetings with the manufacturers
of engines and emissions controls, the oil refining industry, States,
public health and environmental organizations, we published an advance
notice of our intent to propose this program in May of last year. That
notice defined the challenges and opportunities involved, and yielded
further helpful information and discussion during a public comment
period that in turn informed a new round of stakeholder meetings over
the past year. These meetings included extensive discussions with small
refiners and small businesses that market and distribute diesel fuel,
under the process created by the Small Business Regulatory Enforcement
Fairness Act (SBREFA). EPA has spent many hours in meetings with
individual companies, trade associations, State organizations,
environmental groups, and other parts of the Federal Government, to
understand their issues and ensure that they are fairly addressed in
the proposal.
In the end, we believe we developed a proposal that addresses the
many issues people raised with us, and that can achieve dramatic
emission reductions in a cost effective manner, without placing large
burdens on small businesses and consumers. On the few issues for which
a clear answer did not emerge at this stage, the proposal contains
detailed discussion of viable solutions that have been put forward and
asks for comment to help us determine the best approach.
principles
There are a number of overarching principles reflected in the
proposal that we feel will make this an effective program:
First, address the heavy-duty vehicle and its fuel as a
single system to achieve cost-effective emissions control that is
dramatically better than what we could get with separate fuel and
vehicle programs;
Second, set consistent standards for vehicles and fuel
that apply nationwide;
Third, set performance standards and provide flexible
provisions for engine designers and diesel fuel refiners, including
small refiners, to demonstrate compliance;
Fourth, minimize costly requirements for people who sell
and distribute diesel fuel; and
Fifth, design the clean highway diesel fuel program to
also enable the use of advanced emission controls for all on-highway
diesel vehicles.
vehicle program
In the past, diesel manufacturers primarily controlled emissions
through the design of the engine itself, rather than relying on exhaust
emission control devices like the catalytic converter used in
automobiles. However, new advanced technologies for diesel exhaust
treatment are now being developed and tested and they are proving to be
extremely effective. Particulate matter traps, or ``soot filters,''
that replace a truck's muffler, are already used in several thousand
heavy-duty vehicles in Europe where the right fuel is available, and
they work very well, achieving reductions in soot and toxic
hydrocarbons of 95 percent and better.
Emissions of the other major diesel pollutant, NOX, can
be dramatically reduced by putting devices called
NOX adsorbers in the exhaust system.
NOX adsorbers have proven effective in stationary source
applications in making dramatic reductions in emissions. Although, in
mobile sources adsorbers have not yet developed to the point where they
are being used in demonstration fleets, NOX adsorbers have
proven control efficiencies of 90 percent and better in laboratory
testing, and rapid progress continues to be made in improving this
technology.
These soot filters and NOX adsorbers can be designed
into a new diesel vehicle at a total projected cost of $1,000 to $1,600
in the long term, depending on the size of the engine. For comparison,
new vehicle prices today can range up to $250,000 for larger heavy duty
vehicles. With the use of these new technologies, and by optimizing
existing engine controls, these standards can be met without increasing
fuel consumption beyond today's levels.
Our proposed emission standards envision the use of these or
similar technologies beginning in the 2007 model year, although we are
proposing to phase in the NOX standard over 4 years, from
2007 to 2010, to provide flexibility in introducing the newly developed
NOX adsorbers. We are not proposing to retrofit older
engines.
Specifically, the standards we are proposing are 0.2 grams per
brake horsepower-hour for NOX, and 0.01 grams per brake
horsepower-hour for particulate matter. These levels are an order of
magnitude lower than the standards set to take effect in 2004, which
are based only on engine technologies. In addition, because soot
filters are extremely effective at removing emissions of toxic
hydrocarbons, these emissions will be likewise reduced to a tiny
fraction of current levels.
Heavy-duty gasoline vehicles would also be required to meet
stringent standards, and would likely meet these standards through use
of control technologies similar to those being developed for cars and
light-duty trucks under the Tier 2 standards. We are also proposing to
cut evaporative emissions from gasoline-powered trucks by half through
improvements in vehicle design.
diesel fuel program
There is one major technical barrier to the introduction of the new
diesel exhaust emission control technologies, which brings me to why we
are proposing to address diesel engines and diesel fuel as a single
system. Soot filters and NOX adsorbers are very sensitive to
sulfur in the fuel, even more so than gasoline engine catalytic
converters. Sulfur ruins these devices by poisoning catalyst sites
within them; it also causes the devices to emit harmful sulfate
emissions; further, it causes greater fuel consumption. This situation
is not unlike the move to catalytic converters on cars in the 1970's.
Those were also revolutionary technologies that required a change in
the fuel, in that case taking the lead out of gasoline, to achieve
their remarkable emissions reduction potential. To make the new diesel
technologies work we are proposing to take most of the sulfur out of
highway diesel fuel, by mid-2006 when the cleaner, model year 2007
trucks will begin showing up on our nation's roadways.
Specifically, we are proposing that sulfur levels in diesel fuel
produced and sold for use in highway vehicles be limited to 15 parts
per million. This is a 97 percent cut from the current highway diesel
fuel sulfur limit of 500 parts per million, set by EPA 10 years ago.
Our analyses show that the 15 parts per million level is sufficiently
low to enable the high-efficiency exhaust emissions control
technologies, and still feasible to produce with existing refinery
technologies.
In our proposal, we also analyze the cost and feasibility of
requiring a larger sulfur reduction of 99 percent, sought by some
engine manufacturers, and a smaller reduction of 90 percent sought by
some refiners. Our analysis results show that a larger sulfur reduction
would cost significantly more and does not appear to be needed to make
the exhaust emissions control technologies work, and that smaller
reductions in sulfur, although cheaper, would likely cause these
devices to fail on the road, thus enabling only ``next best''
technologies with 20 percent reduction efficiencies and sizable fuel
economy losses. Although we believe that we have proposed the right
sulfur level, we have asked for comment on these higher and lower
levels, and also on levels in between.
It is interesting to note that diesel fuel with sulfur levels below
this level has been in widespread production in Sweden for many years,
and ARCO is producing diesel fuel in California with sulfur levels well
below the proposed level.
The investments that the oil industry will need to make to support
this proposed program, and the resulting costs to consumers, have been,
and will continue to be, a major focus of the rulemaking process. We
estimated that the cost to produce and distribute the low sulfur diesel
fuel would typically be about four and a half cents per gallon. We
estimate that this cost would be offset by a penny or so per gallon
savings because the cleaner fuel makes a diesel engine run better,
reducing oil change intervals and the like. This maintenance benefit
would occur not just for the new model trucks and buses equipped with
the new technology emissions controls, but for the existing fleet as
well.
We designed this proposed program to include significant lead time
for the introduction of new cleaner fuel into the marketplace. The
proposal also discusses various flexible phase-in approaches for the
diesel fuel industry to facilitate the complete transition to new clean
diesel fuel and to reduce costs further. We explored a number of
concepts aimed at providing voluntary compliance flexibility for
refiners while still meeting our primary goal of widespread
availability of low-sulfur diesel fuel when needed by the new
technology trucks. These concepts recognize the fact that many older
trucks that do not need the lower sulfur fuel will be on the road for
several years into the proposed program. One such concept would allow
each refiner to produce some highway diesel fuel at the current 500
parts per million sulfur limit, with provisions to bank and trade these
allowances for greater flexibility.
The ability of small refiners and farmers' cooperative refiners to
comply with the proposed program has been of special concern through
the process to develop this proposal, and several added flexibility
concepts that were developed by the SBREFA Small Business Advocacy
Review Panel are discussed in the proposal, with the goal of designing
a workable program for them in the final regulation.
public hearings
To gather reaction to our proposal, we are holding five public
hearings over the next 2 weeks: In New York, Chicago, Atlanta, Los
Angeles, and Denver. We expect that all of the hearings will be well-
attended and many people and groups representing a variety of
viewpoints have already told us that they plan to testify. We will be
accepting written comments through August 14th. We are also continuing
to meet with stakeholders on an individual basis to better understand
their concerns and suggested solutions. Our plan is to complete this
process and issue final requirements by the end of this year.
conclusion
In conclusion, I would like to say that this historic proposal
would be a major milestone in our nation's drive toward clean air,
comparable to the advent of catalytic converters on cars in the 70's.
Diesel trucks would be 95 percent cleaner than today's cleanest models,
cleaner even than today's natural gas vehicles. This proposal has
received support across the country from people in various sectors
affected by it. This support has given us confidence that we are on the
right track in developing a nationwide program that is sensible,
balanced, and cost-effective.
Thank you again for giving me this opportunity to discuss our
program with you. I would be happy to answer any questions that you may
have.
__________
Statement of Jerry Thompson, Citgo Petroleum Company, on Behalf of the
National Petrochemical & Refiners Association, Tulsa, OK
overview
The National Petrochemical & Refiners Association (NPRA) represents
almost all of the refining industry including large, independent and
small refiners as well as petrochemical producers. NPRA supports a 90-
percent reduction in the sulfur content of highway diesel fuel to a 50-
ppm sulfur cap. In contrast, we are deeply concerned about the impact
EPA's new diesel sulfur program will have on the industry's ability to
provide a steady and reliable source of diesel fuel to its customers.
NPRA does not believe that it is possible to consistently maintain
needed supplies of highway diesel within the 15 ppm sulfur cap level
sought by EPA. Although refineries may be able to produce some amount
of this diesel, many would be forced by its high costs to limit or
forego participation in the highway diesel market. This would reduce
supplies well below those available under a more realistic sulfur cap.
In addition, with the current logistics infrastructure, it will be
extremely difficult to deliver highway diesel with a 15 ppm sulfur cap
to consumers and maintain the integrity of the sulfur level of the
product. This highway diesel must share a distribution system with
other products that have significantly higher sulfur levels. At the
EPA's proposed sulfur levels, a significant amount of highway diesel
will have to be downgraded to a higher sulfur product due to product
contamination in the pipeline.
The diesel plan announced on May 17th by the EPA is extreme, a
blueprint for fuel shortages and future supply problems, and will pose
severe economic impacts. It threatens to leave American consumers a
legacy of scarce and costly energy supplies.
role of diesel in u.s. economy
The trucking industry, America's motoring public, farm communities,
commercial vehicle operators and others must all be assured a
consistent and reliable source of supply. These vital industries may be
severely impacted by reduced supplies and increased costs resulting
from this rulemaking, and the consequent effect on the economy will be
widespread.
Vehicles powered by heavy duty diesel are an essential element in
the commercial distribution of goods and services in the United States.
The EPA regulators must assess the decisions they are making and weigh
the risks which new, costly and unrealistic standards could have on the
country's ability to move goods and services. A reliable source of
diesel supply for these customers could be threatened if the EPA
proposal becomes final.
refiners offered a reasonable plan to reduce sulfur
The refining industry agrees that the sulfur levels in diesel must
be reduced, but the program must be reasonable. The industry proposed a
plan to EPA that would lower the current limit of 500 ppm of sulfur in
diesel fuel to a limit of 50 ppm--a 90 percent reduction. This is a
very significant step. It will enable diesel engines to meet the
particulate matter standards sought by EPA and also achieve significant
NOX reductions. Our plan can yield a 90 percent reduction in
particulate matter and a 75 percent reduction in
NOX emissions from new heavy-duty diesel engines. Industry's
plan is still expensive--we estimate it will cost the industry roughly
$4 billion to implement. But, unlike EPA's extreme and much more costly
proposal, the level of sulfur reduction proposed by industry is
attainable and sustainable. Most refiners would choose to make the
investments needed to meet a 50 ppm sulfur limit. Most refineries will
be able to comply with this 90 percent reduction by making capital
investments to upgrade existing facilities or by building new capacity.
The industry has shared this proposal with regulators. NPRA and its
members have had protracted discussions with EPA and have tried to
suggest reasonable ways to reduce diesel emissions. Unfortunately,
industry's plan has been rejected and ignored by EPA.
overlapping fuel standards
Implementing gasoline and highway diesel sulfur reduction and MTBE
reduction concurrently will tax resources of the engineering and
construction industries, as well as State permitting agencies.
Implementation of a new 50 ppm low sulfur cap diesel program in a more
reasonable timeframe (after gasoline sulfur reductions) would reduce
the peak demands on the engineering and construction industry or State
permitting agencies. EPA's proposed overlap--with gasoline sulfur
reduction phased-in between 2004 and 2007 and extreme highway diesel
sulfur reduction completed in 2006--jeopardizes both programs.
This subcommittee may recall that the refining industry is already
implementing an $8 billion (6-7 cents per gallon) program to reduce
sulfur in gasoline in the same timeframe. There are few synergies in
the gasoline and diesel sulfur reduction strategies so there is no
justification for doing both concurrently.
epa's plan will jeopardize diesel supplies
EPA's plan will not maintain adequate diesel supplies. NPRA does
not believe that it is possible to produce needed supplies of highway
diesel nationwide within the 15 ppm sulfur cap level. Although refiners
may be able to produce some amount of this diesel, many would be forced
by its high costs to limit or forego participation in the highway
diesel market. EPA's plan would reduce supplies well below those
available under a more realistic sulfur cap.
While some refiners would invest in the expensive new equipment
necessary to meet the 15 ppm limit, many others may not make the large
investments necessary to produce it, especially at the same time that
sulfur levels in gasoline must be greatly reduced. Since highway diesel
is only about 10 percent of the average refinery's output, refiners
could find other uses or markets for their current diesel output. More
than 30 percent of the current supply of highway diesel could be lost
until additional investments are made and new desulfurization capacity
is built. This could take as long as 4 years. Also, some refineries
will probably go out of business. When a refinery closes, we lose its
entire output--gasoline, diesel, jet fuel, home heating oil. With the
demand for petroleum products projected to increase, we cannot afford
to lose any refineries. This is a very strong argument for a more
reasonable program.
It will be extremely difficult to deliver highway diesel with a 15
ppm sulfur cap to consumers and almost impossible to maintain the
integrity of the sulfur level of the product. These products must be
delivered though common carrier pipelines. Recent studies concluded
that it would probably not be feasible for the distribution system to
maintain low sulfur diesel fuel supplies in all areas. Spot outages
will probably occur and there will be reduced flexibility to deal with
unusual market conditions.
technical decisions refiners face
Today's highway diesel is produced from blendstocks containing
several thousand ppm sulfur. Currently, sulfur is reduced by
hydrotreating. The typical existing diesel hydrotreater at a refinery
can be modified to produce a product meeting industry's proposed 50 ppm
sulfur limit.
Some existing units that are more constrained than average may not
be suitable for modification to produce this lower sulfur product. The
existing hydrotreater may have a lower than average operating pressure
or hydrogen recycle rate, or the refinery may use a mix of blendstocks
that may be harder to desulfurize. A new hydrotreater would be required
at some refineries because retrofitting an existing hydrotreater alone
would not be an option for every refinery. Even with industry's
proposed 50 ppm sulfur cap, there could be more limited supply impacts
if necessary investments are not made. Most refiners, though, would
choose to make the more affordable retrofit investments needed for a 50
ppm sulfur cap.
A diesel sulfur standard at a 15 ppm sulfur cap would make
modification of a typical, existing unit uneconomical. It would require
such a large increase in reactor volume that a new, high pressure unit
would make more sense. This new hydrotreater would require additional
hydrogen compression and a thick-walled pressure vessel. The worldwide
manufacturing capability for high pressure vessels is limited to a
handful of suppliers and could be a significant constraint on providing
adequate supplies of ultra low sulfur diesel in the proposed timeframe.
Thus, a 15 ppm sulfur limit would require a decision to invest in
an expensive new high pressure desulfurization unit or retrofit an
existing unit to process only the lower sulfur blendstocks. If several
refineries choose the latter option, supplies of highway diesel would
decline from current levels. It would take some time to correct this
supply/demand imbalance.
Even with investment in a new hydrotreater, compliance with a 15
ppm sulfur limit would not be guaranteed at today's highway diesel
production volumes. Currently, vendors do not have commercial
experience treating feeds containing a significant amount of cracked
material to meet a 15 ppm sulfur cap. Therefore, the capital-intensive
option will not necessarily satisfy domestic demand because some of the
current feedstocks are very difficult to desulfurize at the greater
than 99 percent reduction levels required by a 15 ppm sulfur limit. In
summary, although it is possible to produce some highway diesel under
15 ppm sulfur, it is not technically possible to produce 15 ppm sulfur
highway diesel at current volumes on a continuous basis.
distribution of ultra low sulfur highway diesel is not feasible
The distribution system will not be able to provide ultra low
sulfur highway diesel supplies at all times. It will be very difficult
to maintain the integrity of a 15 ppm sulfur cap when diesel is
distributed in pipelines, barges and trucks which also carry gasoline
with a cap of 80 ppm sulfur in 2006 and high (greater than 2,000 ppm)
sulfur jet fuel, home heating oil and off-highway diesel.
Spot outages will occur if a product terminal discovers that the
ultra low sulfur diesel is out of compliance for whatever reason.
Nearly all or all of the non-compliant product would have to be removed
(and perhaps the terminal tank cleaned) before new product could be
brought in. In the past, a product at was slightly out of compliance
could be blended with complying product; however, at ultra low sulfur
levels, this will not be an option.
npra supports only one grade of highway diesel
EPA is considering a phase-in program with two types of highway
diesel available for a few years: current diesel (500 ppm cap) and
ultra low sulfur diesel (15 ppm cap). Phase-in would create its own
distribution and enforcement problems with significant potential of
misfueling by new trucks. This alternative would not effectively
address NPRA's concerns about technical producibility and maintaining
product quality. The short period while two products would be in the
marketplace guarantees that investments to distribute and segregate
them will be stranded when the temporary program expires. The market
may not be stable and balanced throughout the program as the existing
fleet of trucks tries to chase dwindling supplies of the higher sulfur,
lower cost highway diesel.
lyondell/citgo experience
Industry's repeated warnings about this rule are well-founded. Our
company, CITGO, has some relevant real-world experience: in the EPA's
proposed rule, our facilities at the Lyondell-CITGO Refinery (Houston)
were referenced as having a diesel desulfurization technology capable
of producing the 15 ppm sulfur cap diesel fuel. Based on our actual
operating experience with this referenced technology, we find the
capital and operating costs are much higher at the 15 ppm sulfur cap.
The ability of the technology to consistently produce below 15 ppm
diesel is problematic. The feedstocks to this revamped facility are 30
percent straight run stocks from the crude distillation unit and 70
percent heavy cracked stocks from conversion units. These heavy cracked
stocks are significantly more difficult to treat to the 15 ppm level.
Our operating data shows that to consistently desulfurize to 15 ppm or
below, a significant portion of the cracked material must be removed
from the feed, thereby reducing our diesel production by this amount.
Our first cost consideration is the use of capital. The Lyondell-
CITGO project to improve our diesel quality was completed in late 1996
and included the installation of the world's largest free-standing
reactor. We increased catalyst volume in the unit from 40 thousand
pounds to 1.7 million pounds. The capital cost for conversion of this
existing 50,000 BPSD Unit was $86 million dollars. This includes $69
million dollars for the process unit and $17 million dollars for
supporting facilities. This is much higher than the $30 million revamp
cost for a typical refinery processing light cycle oil as stated by the
EPA. Also, a simple retrofit is not possible on many units because most
older, smaller units do not have sufficient reactor design pressures,
the requisite high purity hydrogen supply, a suitable fractionation
system, or other hardware.
The second cost consideration is operating costs. The diesel sulfur
level produced in the unit meets the 15 ppm sulfur cap at initial
conditions at start of run. However, as the desulfurization catalyst
ages, the reactor temperatures must be raised to achieve targeted
sulfur levels. There are limits to raising temperature--equipment and
product quality limits--such as color. These limits establish the cycle
life of the catalyst.
At the proposed 15 ppm sulfur cap with 70 percent heavy cracked
diesel stocks, the cycle life will be greatly reduced from current
operation. This significantly raises the operating cost because of more
frequent catalyst replacement and more frequent shutdowns. This also
results in a loss of diesel production. Under the current mode of
operation, the frequency of catalyst change-out is managed by reducing
the cracked stocks in the feed to this unit. More frequent catalyst
change-out to meet a 15 ppm sulfur cap raises the cost of diesel
production by as much 7 cents/gallon on our existing unit.
What looks simple in theory doesn't always work in practice. I hope
that the entire refining industry doesn't have to spend billions of
dollars just to prove that our concerns about this rule are valid. This
will happen, however, if we ignore the warning signs of an already
stressed supply system, and rush to implement a plan based upon little
more than wishful thinking. We can't make enough diesel at the 15 ppm
level and what we can produce will cost much more than EPA represented.
availability of aftertreatment technologies
The proposed heavy-duty diesel engine emissions standards for
particulate matter (PM) and nitrogen oxides (NOX) will
require the use of advanced aftertreatment equipment on new trucks. The
PM control technology is more developed than the
NOX technology, and it can meet the proposed 90 percent
reduction in the emissions standard using a diesel fuel that is limited
to 50 ppm sulfur. The PM standard chosen by EPA appears to be
technically feasible with refining and emissions control technologies
that are ready for commercialization. So EPA's PM standard is
achievable using the industry's recommended 50 ppm fuel.
However, the various NOX control technologies being
considered by vehicle manufacturers are much less developed. EPA's
decision to reduce the NOX standard by 90 percent is likely
to focus development efforts on an emerging technology that is the most
delicate of those being considered. EPA's choice of this
NOX standard is purely arbitrary. It is unrealistic and
considerably more stringent than the NOX standard for the
same period in Europe and Japan. Even with a sulfur limit of 15 ppm,
this technology may not meet the durability requirements of the
proposed standard. NPRA recommends that EPA set a more realistic
NOX emissions standard, one that would rely on more
developed and more robust emissions control technologies and a
technically feasible diesel fuel with a sulfur limit of 50 ppm.
fuels transportation systems can become severely stressed
The ``regulatory blizzard'' chart attached to our testimony shows
14 major regulatory actions which the refining industry will be
required to comply with over the next 10 years. The cost of these
programs, which are largely uncoordinated, is astronomical. Gasoline
sulfur reduction, diesel sulfur reduction and MTBE reduction alone will
probably cost the industry a combined total of $20 billion.
During the 1990's the refining industry was also called on to make
massive environmentally related investments, totaling more than the
actual book value of the entire industry, according to one study. At
the same time, the average rate of return on capital in the industry
was just 2 percent, which is less than banks pay on a passbook savings
account.
As a result of this crushing burden on refiners and fuel
distributors, we are starting to see signs of stress in the system.
Increasing stringency of fuel specifications makes them more difficult
to produce and harder to distribute. And the impact of unforeseen
situations, such as a refinery outage, a pipeline malfunction or even
the weather, is magnified under such conditions.
We experienced disruptions in the supply of home heating oil and
diesel in the Northeast just last winter. Currently, logistical and
supply problems in the Midwest, especially in the RFG markets of St.
Louis, Chicago and Milwaukee, have resulted in increased gasoline
costs. This situation occurs just as the industry is implementing
changes to a new grade of reformulated gasoline, with more stringent
requirements. These occurrences are usually temporary, but they will
probably occur with increasing frequency as we produce ever-cleaner
fuels. Policymakers can help to reduce the frequency of these
situations by insisting that environmental programs be both reasonable
and well-coordinated. The proposed diesel sulfur regulation fails on
both counts. This is another reason why it should be rejected in favor
of a more reasonable and timely approach, such as the industry has
recommended.
conclusions
EPA should not adopt a regulation that puts the nation's energy
supply at risk. Fuel and engine emissions standards must be based on
developed technologies and cost-effectiveness. An adequate supply of 15
ppm sulfur diesel cannot be assured and distribution of 15 ppm sulfur
fuel is probably also not feasible. There has been no demonstration--
technological or otherwise--that the 15 ppm sulfur level advocated by
EPA is achievable or sustainable across the current diesel pool for
most refineries.
NPRA hopes that the entire refining industry does not have to spend
billions of dollars just to prove that our concerns about this rule are
valid. This will happen, however, if we ignore the warning signs of an
already stressed supply system and rush to implement a plan based upon
little more than wishful thinking. EPA argues its extreme proposal is
needed to enable heavy-duty engines to meet stringent
NOX standards in the 2007-10 timeframe. Of course, that
NOX standard was arbitrarily selected by EPA. It is
considerably lower than NOX standards for the same period in
Europe and Japan, and is probably unrealistic. Thus, EPA's $10 billion
plan for 15 ppm diesel is largely based upon an arbitrary and
unattainable target.
NPRA wants to work with other stakeholders to achieve reasonable,
cost-effective reductions in highway diesel emissions. Our industry
wants to maintain the right balance between environmental goals and
energy supply so we can implement fuel and emissions standards. This
way, both the fuel and engine industries can comply with costs that
consumers can afford.
__________
Statement of J. Louis Frank, Marathon Ashland Petroleum
The American Petroleum Institute (API) is pleased to have the
opportunity to present written testimony on the U.S. Environmental
Protection Agency's (EPA's) Highway Diesel Sulfur Proposal. API
represents nearly 500 companies engaged in all aspects of the U.S. oil
and natural gas industry, including exploration, production, refining,
distribution and marketing.
Background
EPA has proposed a rule to reduce highway sulfur in diesel fuel to
unnecessarily low levels beginning in 2006. API supports the clean air
benefits of lower sulfur levels and proposes a 90-percent reduction.
Lower sulfur means cleaner air. However, EPA's proposal goes beyond
what is practical, necessary or affordable--and would not produce
significantly greater air quality improvements than API's proposal (see
Attachment I). It could depress diesel fuel production and
unnecessarily harm those who rely on diesel fuels: truckers,
distributors of goods and services and farmers as well as those in the
fuel industry: refiners, fuel distributors and fuel retailers. Because
diesel fuel and the trucks and buses that use it are the lifeblood of
American commerce, the new rule could also harm consumers, jobs and the
economy.
What the proposal says
EPA's proposal would require that highway diesel fuel sulfur
content be reduced from the current level of 500 parts per million
(ppm) maximum to a 15 ppm maximum in 2006. API has recommended a 90-
percent reduction to a cap of 50 ppm (approximately what EPA also
recommended more than a year ago). A reduction to this level would
reduce diesel emissions nearly as much as EPA's proposal at a more
reasonable cost and would enable vehicle emission reduction equipment
that is tested and proven.
EPA also suggested that the new fuel might be phased in. Under a
phase-in, two highway diesel fuels would have to be made and provided
to retail outlets.
Additional air quality benefits minimal
The additional air quality benefits produced by EPA's proposal
compared with API's proposal would be very small. That's because the
industry's proposal would cut sulfur nearly as much.
In fact, EPA's proposal may not reduce emissions any more. EPA
assumes its fuel will work with a new kind of vehicle emission
reduction technology, but it has presented no evidence that this
unproven technology will cut emissions to the desired level no matter
how low sulfur content is set.
EPA's lack of confidence in its own technical assessment is
unmasked by its proposal to phase in the new nitrogen oxide tailpipe
standard over a period of time. The agency wanted to give engine
manufacturers an opportunity to "gain valuable experience" with the new
technology, which EPA acknowledges has not advanced to the "field trial
stage." However, this approach is unfair to truckers and other diesel
fuel users who should not have to pay for changes in the fuels they use
when there is no promise that the vehicles they drive will perform as
intended.
Not a solution to diesel smoke
While EPA's proposal will reduce vehicle emissions, it is not a
solution to the diesel smoke problem. A reduction in sulfur in any
amount will have little impact on this. Modern diesel engines are
virtually smokeless even on current fuels. The vast majority of smoking
trucks on the road today are older and poorly maintained. Improved
vehicle maintenance is the key to solving the smoke problem.
Costs of the EPA proposal would be excessive
As a result of EPA's proposal, diesel manufacturing costs would
increase about 12 cents per gallon ($8 billion in capital investments
to modify refineries). These costs would far exceed the capital
investments needed for API's proposal of a 90-percent reduction. A 90-
percent reduction would add about 6 cents per gallon ($4 billion in
capital investments).
These added manufacturing costs do not include higher costs for
distribution, stemming from the need for companies to avoid or address
contamination problems resulting from moving ultra-low sulfur diesel
fuel through common pipelines and storage facilities with other
products. The added distribution costs for a 15 ppm fuel would increase
costs by about 2 cents per gallon.
According to a February 2000 study by Turner, Mason & Company
titled Costs/Impacts of Distributing Potential Ultra Low Sulfur Diesel"
(see Attachment II for Executive Summary), a phase-in of ultra-low
sulfur diesel could increase costs by about four cents per gallon, or
as high as 13 cents per gallon, depending on how the phase-in works. A
phase-in would require companies to manufacture, handle and segregate
two separate varieties of highway diesel in addition to off-road diesel
fuel. This would require installation of additional underground tanks,
piping and pumps. Some distributors may not be able to make the
required investments--or may not have space to accommodate the changes
at some of their retail stations.
Proposal could affect supplies
Some refiners may be unable to make the huge investments needed to
make 15 ppm sulfur diesel, especially in light of other investments
necessary to reduce sulfur in gasoline and to address oxygenates. As a
result, some, including small farmer-owned refineries, may not be able
to stay in business. They would join more than 25 other U.S. refineries
that have closed over the past decade, owing in part to the high costs
of regulations and rates of return averaging about three percent, less
than a passbook savings account.
Among refineries that stay in business, some could reduce the
amount of highway diesel fuel they manufacture. Ultimately, less diesel
fuel would be produced in the United States, which would tend to push
up prices. It is questionable whether shortfalls could be made up with
imports given the stringency of EPA's 15 ppm proposal compared to the
rest of the world.
The Turner Mason study also concluded that it would probably not be
feasible for the distribution system to maintain continuously available
supplies of extremely low sulfur diesel in all areas. Spot outages
could occur for up to a week or longer in some less populated regions
that are remote from source refineries.
Diesel users and consumers would be harmed
EPA's proposal could add about $2,500 to the cost of a trucker's
annual operations in higher diesel fuel costs and reduced fuel economy
(see Figure 1). A phase-in could drive those additional costs even
higher. This assumes a truck is driven 100,000 miles annually at six
miles per gallon. These new cost burdens do not include the higher cost
of new trucks with required emission reduction equipment, which would
be several thousand dollars more ($4,000 to $8,000 according to some
automotive engineering experts).
All owners of truck fleets, including small businesses, could see
their cost of doing business increase substantially as a result of
higher fuel costs. The higher costs would also adversely impact
businesses such as bakeries, nurseries and others that operate small
fleets of diesel vehicles. Since the cost of moving goods would
increase, consumers would pay more for food, clothing, and other
products.
If there are fewer refiners and suppliers of fuels, this could
increase the potential for supply disruptions, particularly to more
remote rural markets that serve the farm sector, thus affecting
supplies of highway and off-road diesel fuel. EPA claims that new
diesel trucks and buses could be permanently damaged if any fuel other
than EPA's 15 ppm is used. Thus, owners and operators of new trucks
would have to shut down their operations if 15 ppm fuel supplies were
disrupted for any reason, including natural disasters or unexpected
physical interruptions.
Since this proposal, in combination with all the other EPA controls
on transportation fuels and refineries, could reduce the number of
suppliers of fuels, it could impact the home heating oil and other
specialty fuels markets, including aviation fuels. The U.S. Department
of Defense has raised concerns about possible impacts on military
fuels.
Other groups have expressed concerns about EPA's proposal
The negative impacts of EPA's proposal are not just an issue for
API and the refining industry. Many groups, including farmer
cooperatives, fuel distributors, truckers, and others have expressed
serious concerns about EPA's proposal in public forums and directly to
EPA and the U.S. Department of Energy (see Attachments III, IV and V).
API appreciates the opportunity to provide testimony on this
important issue, and we look forward to working closely with the
federal government to address the nation's air quality and energy
needs.
Statement of Curt Eischens, on Behalf of the National Council of
Farmers Cooperatives
introduction
Good morning, Mr. Chairman, my name is Curt Eischens, and I am a
fourth generation farmer from Minneota, Minnesota.
I am here today as a representative of the National Council of
Farmer Cooperatives (NCFC) to speak to you about EPA's proposed rule to
reduce the sulfur levels in on-road diesel fuel. But more importantly,
I will speak as (1) a director of a regional co-op, Cenex Harvest
States Cooperatives; (2) a member of a local co-op; and (3) a family
farmer and citizen of rural America.
American agriculture is vitally dependent upon a reliable and
affordable supply of diesel fuel in carrying out its food, natural
fiber, renewable energy, conservation and other missions. Through their
cooperatives, farmers have invested heavily in a petroleum refining and
distribution system to help assure a reliable and affordable supply of
this vital input. Though less than 2 percent of the petroleum refining
industry, farmer cooperatives account for about 40 percent of all the
on-farm fuel use in the United States and are unique in that the
customer is also the owner. Farmer cooperatives also supply much of the
highway diesel and home heating oil needs in rural America.
First, let me say that farmer cooperative representatives have been
working with EPA, and we appreciate the agency's recognition of the
unique structure and challenges of farmer-owned cooperative refiners,
as well as possible compliance flexibility options identified in the
proposed rule. However, we remain deeply concerned that the proposed
sulfur diesel standard is overly stringent and could have adverse
unintended consequences for American agriculture and rural America,
particularly during a time of continuing economic hardship that
threatens the survival of many farmers and ranchers.
executive summary
If implemented as currently drafted, the EPA proposal could: (1)
increase the threat of supply disruptions, particularly in rural
America, by effectively reducing diesel production capacity; (2) force
cooperative and other refiners to produce more costly ultra-low sulfur
diesel fuel for farm and other off-highway uses due to distribution
limitations, especially in the agricultural heartland; (3) jeopardize
the economic viability of farmer-owned refineries, leading to further
concentration in the petroleum industry serving rural America; and (4)
impose major costs on farmers directly, with no return on investment,
and take away scarce resources desperately needed for investments in
projects to improve farm income. Diesel fuel costs for farmers and
other rural consumers could be 10 cents or more at 15 ppm, with much
higher price spikes in the event of supply disruptions.
It is important to understand that even though the EPA proposal is
for on-highway diesel, the rule will also adversely impact farm and
other off-highway uses of diesel fuel. It has been our experience that
much of the petroleum storage system, particularly in the rural markets
served by our cooperatives, is generally capable of handling only one
grade of diesel fuel. This was certainly the case when the existing 500
ppm standard for highway diesel was implemented. Thus, our farmer-owned
refineries will be forced to go to the ultra-low standard even though
much of our market is for farm uses.
We are deeply concerned about several key elements of EPA's
proposed rule. For example, we have great concerns about going lower
than a 50 ppm cap. We believe a level as low as 15 ppm at the pump puts
diesel fuel supplies at risk, particularly in rural America. We know
that any phase-in with a fuel requirement for two on-road diesels would
be extremely costly.
For these reasons, we strongly urge that the rule be withdrawn
until serious unresolved issues can be addressed. We further recommend
that any final rule should include the following: (1) set an on-road
diesel fuel sulfur cap of about 50 ppm, which would be a 90 percent
reduction from the current level; (2) provide refiners maximum
flexibility to meet the new standards, including the ability to choose
which fuel standard to meet first, by 2010--the new gasoline rule or
any on-road diesel rule; and (3) not require a phase-in or two low
sulfur diesel fuels.
farmer cooperative system
But before I address these concerns and recommendations more
specifically, I believe it is important that you understand and
appreciate the farmer cooperative system from the bottom up, so you can
better understand the adverse impacts this rule could have on
agriculture and rural America. There are approximately 1.8 million farm
families in the United States today. There are over 3,500 farmer-owned
local co-ops, and many of these locals belong to larger regional co-ops
such as mine--Cenex Harvest States Cooperatives. At the national level,
we are represented by the National Council of Farmer Cooperatives.
In rural America, bulk fuel terminals and service stations are
often many miles apart. These 3,500 local co-ops sell farmers all the
inputs necessary for their production needs, including fuels for
powering their equipment and vehicles, drying their crops, heating
their livestock enclosures, and heating their homes. Many of these
local co-ops depend heavily on petroleum sales to farmers for the
majority of their sales income and their livelihood. To properly supply
farmers, local co-ops maintain fuel tanks and pumps, and in turn,
farmers maintain their own fuel tanks on their farms.
Adequate and affordable fuel supplies have always been very
important to agriculture and rural America. Because of the special
needs of agriculture and problems with relying on existing petroleum
refiners, farmers in the early 1900's chose to pool their resources and
invest in refineries. In 1979, there were eight refiner co-ops. Today
there are only four refiner co-ops that supply much of the needs of
Midwest farmers. They are (1) Cenex Harvest States Cooperatives'
refinery in Laurel, Montana; (2) Farmland Industries' refinery in
Coffeyville, Kansas; (3) the National Cooperative Refiners Association
in McPherson, Kansas; and (4) Countrymark Cooperative's refinery in Mt.
Vernon, Indiana. These cooperatives are owned by approximately one
million farm families--over half of all the farmers in the United
States--in some 28 States.
My regional cooperative, on which I am an elected Board Director,
is Cenex Harvest States. We are headquartered in St. Paul, Minnesota
and are comprised of over 1,000 local co-ops, in 18 States. We are
owned by over 325,000 farmers, or nearly 20 percent of all farmers in
the United States.
concerns
Why am I as a farmer and cooperative leader concerned about the
proposed rule?
First, As a representative of NCFC, I stress the need to consider
all of agriculture, not just the four farmer-owned cooperative
refineries. Agriculture is the backbone of the United States economy
from the ``Back 40 on the farm to Aisle 40 in the grocery store'' and
contributes approximately 16 percent of the Gross National Product. In
performing this vital role, we are heavily dependent upon diesel fuel.
We believe EPA is moving ``too far, too fast,'' with a rule that will
directly cost the farmer money, with no return on investment and taking
away scarce resources desperately needed for investments in projects to
improve farm income. I have a letter for the record to EPA
Administrator Browner with signatures of nearly 30 organizations
representing all aspects of agriculture. The letter raises serious
concerns about EPA's proposal.
Second, As an elected Director of Cenex Harvest States Cooperatives
and one who will have to vote to approve spending farmers' money to
make these expenditures, I have to look at the costs of this rule. We
own refineries, pipelines, terminals, tankage, truck stops, local town
convenience stores, and fuel delivery trucks--all will be adversely
affected by the rule.
For example, the rule will directly affect our refineries. How will
we finance the capital expenditures? There are many air quality rules
going into effect in the near future with which we will have to comply
as well, such as--ozone, PM2.5, regional haze, maximum
achievable control technology, new gasoline specifications by 2003, and
now, proposed on-road diesel fuel specifications by 2006. We also
expect new EPA rules on off-road diesel fuel and green house gas
emissions in the near future. These rules have a costly cumulative
effect. How will we pay for them all? It will be extremely difficult at
best.
Co-ops do not have the same access to equity markets as other
businesses. For example, unlike our competitors, we cannot issue stock
to raise capital. We cannot turn inward to our member owners for
funds--our current farmer-owners do not have the money. Over the past 3
years, Congress has had to approve about $20 billion in emergency
funding to help farmers survive hard economic times. Our owners are
farmers, many of whom have limited means.
Third, As a member of a local cooperative, it is even more
challenging. We'll have to address many of the same issues as our
regional co-ops, but with even less flexibility. Consider EPA's phase-
in and two diesel fuel proposals. Regional co-ops will be of little
help to local co-ops because they are extremely stretched for cash and
have little working capital. The co-op system is heavily dependent on
and limited by fuel tankage. If a dual low sulfur diesel system is
mandated, how would we pay for the additional tanks and pumps? The
answer is--most of these local co-ops and Mom and Pop convenience
stores cannot. We will be forced to decide which diesel fuel to carry
and therefore lose those customers that need the other type of diesel.
What happens if EPA requires a phase-in? Again who pays? Farmers,
local co-ops, small town fueling stations, co-op terminals and the
regional co-ops will pay. Why? Because many of us will have to put in
additional fuel tanks for only a few years. There are 1.8 million
farmers, 3,500 local co-ops and 1,500 farmer-owned convenience stores
and fuel pumps in rural America that might have to comply with
increased tank and pump requirements for a 4-to 5-year phase-in. This
is certainly not cost-effective for American agriculture.
Fourth, I speak as a farmer, especially on behalf of my farm
family. If our recommendations are not adopted, my farm family will be
heavily penalized. How? First, who will pay for these hundreds of
millions of dollars of upgrades? Well, farmers will have to pay through
reduced patronage. I will lose patronage because my regional co-op will
have to finance the refinery upgrades, thereby reducing any returns
normally distributed from the regional co-op back to the local co-ops
and on to farmers. I will lose patronage from my local cooperative if
the local co-op has to pay for increased tankage or loses sales.
Second, to whom will these additional fuel costs for ultra-low sulfur
fuel be passed, at rates estimated to be from 10 to 15 cents a gallon?
The answer again is to farmers.
Our livelihood depends on the success of our farm and the viability
of our rural community. Local co-ops are an important part of these
rural communities. We are very concerned about the environment. We
believe in clean water and clean air and think a 90 percent reduction
in diesel sulfur levels goes a long way in achieving clean air goals.
What EPA is proposing--a 97 percent reduction--goes too far,
particularly for rural parts of the country that do not have these
clean air problems.
recommendations
What can be done to help the farmer cooperative petroleum system
and farm families?
CONGRESS can help the farm family and U.S. agriculture by urging
that the proposed rule be withdrawn and reconsidered. Now that everyone
has recently become aware that the on-road diesel rule can have major
agricultural impacts, and is not just a refiner issue, Congress should
direct EPA to retook the proposed rule's impacts on agriculture and
rural America through the Small Business Regulatory Enforcement Relief
Act process. It is important to understand the impacts on farmers and
local co-ops as small businesses. Congress can also require for
proposed new diesel sulfur specifications what it did for unleaded
gasoline in 1985.
What happened in 1985? Uncertain about the impact of reducing lead
in gasoline, Congress passed legislation directing EPA and USDA to
conduct a 2-year study and joint report. The relevant section from PL
99-198 is attached for the record. EPA and USDA completed their study
in 1987, entitled ``Effects of Using Unleaded and Low Leaded Gasoline,
and Non-lead Additives Designed for Leaded Gasoline.'' This study
revealed serious problems that had to be mitigated during the lead
phaseout. We believe a study is also needed on EPA's ultra low sulfur
diesel proposal and its potential impacts on the availability and costs
of diesel fuel for farmers and rural America as well as any effects on
agricultural equipment before the rule is finalized.
ALTERNATIVELY, if the rule is not reconsidered, we recommend that
Congress support the following:
Set a petroleum industry cap of 50 ppm for sulfur in
highway diesel fuel, in order to achieve major environmental benefits
and avoid extreme costs.
Provide maximum compliance flexibility. For example, EPA
has suggested some potential flexibility by (1) recognizing that
refiner co-ops have the same difficulties as small refiners and asking
for comment on eligibility for compliance flexibility mechanisms that
may be available to small refiners; and (2) permitting a refiner co-op
to apply for a compliance extension as a hardship case. NCFC supports
these compliance flexibility options, in combination with the 50 ppm
standard.
Should EPA move to an ultra-low standard for sulfur, such
as 15 ppm, while compliance flexibility may help during the transition
implementation costs will still be excessive. That is why we have
argued for the permanence and affordability of the 90? percent
reduction in diesel sulfur levels.
Because the fuel rules for gasoline and on-road diesel are
interconnected, and expected to overlap in a narrow timeframe, refiners
also need the flexibility to comply with these two rules in the order
best achievable for them. Under some circumstances in the gasoline
rule, some refiners may not have to fully comply until 2010. We also
suggest that we be given until 2010 to comply with both rules.
Do not require a phase-in or two low sulfur diesel fuels.
Local co-ops and farmers cannot afford to add more tanks and pumps.
If the final rule contains these basic elements, we'll work to get
the job done.
We look forward to working with the Congress, EPA and other
stakeholders to achieve a final rule that is compatible with continued
economic viability in American agriculture and environmental progress.
Just as farmers need and want cleaner air, we also require reliable and
affordable fuel supplies. I urge Congress, on behalf of farmer
cooperatives, my Minnesota farm family, and other farm families across
rural America, not to let EPA move ``too far too fast.''
______
[Exhibit, NCFC]
May 9, 2000.
Hon. Carol Browner,
Administrator, U.S. Environmental Protection Agency,
Washington, DC.
Dear Administrator Browner: The undersigned agricultural
organizations and others that serve agriculture are deeply concerned
that the Environmental Protection Agency's (EPA) proposal to reduce the
sulfur levels in diesel fuel could have adverse unintended consequences
for American agriculture and rural America. These could come in the
form of fuel supply disruptions and excessively higher prices for
farmers, for both on-farm and highway fuels, if the proposed rule is
implemented as currently drafted.
The EPA draft proposal could (1) increase the threat of supply
disruptions, particularly in rural America, by effectively reducing
refinery capacity; (2) force many refiners to produce more costly
ultra-low sulfur diesel fuel for farm and other off-highway uses due to
distribution limitations, particularly in the agricultural heartland;
and (3) jeopardize the economic viability of farmer-owned refineries,
leading to further concentration in the petroleum industry serving
rural America. Costs for farmers and other rural consumers could range
from a 5 cents per gallon increase if sulfur levels are set at 50 parts
per million (ppm) to 10 cents or more at 15 ppm.
In order to mitigate these potential problems, we strongly urge the
agency to (1) set an onroad diesel fuel sulfur cap of about 50 ppm,
which would be a 90 percent reduction from the current level; (2) delay
and phase in any implementation of a diesel rule until the final
gasoline rule has been implemented; and (3) maintain a higher off-
highway diesel fuel standard in order to minimize costs to farmers and
provide refiners with maximum flexibility to produce diesel fuel.
We support the Administration's clean air accomplishments, but we
are concerned that an overly stringent diesel sulfur proposal could
unnecessarily harm U.S. agriculture and rural America, particularly
during a time of continuing economic hardship that threatens the
survival of many farmers and ranchers.
We look forward to working with the Agency to achieve a final rule
that is compatible with continued economic viability in American
agriculture and environmental progress. Just as our constituents need
and want cleaner air, they also require reliable and affordable fuel
supplies. We are available to meet with you at any time on this
important matter.
Sincerely,\1\
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\1\ Contains additional organization signatures after May 9 through
June 14, 2000.
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Agricultural Retailers Association
American Crop Protection Association
American Farm Bureau Federation
American Feed Industry Association
American Soybean Association
Agrilink Foods
Cenex Harvest States Cooperatives
Cooperative Refining
Country Energy, LLC
Countrymark Cooperative, Inc.
Farm Credit Bank of Wichita
Farmland Industries, Inc.
GROWMARK, Inc.
Institute of Shortening and Edible Oils
National Association of Wheat Growers
National Corn Growers Association
National Council of Farmer Cooperatives
National Farmers Union
National Grain and Feed Association
National Grange
National Private Truck Council
North American Equipment Dealers Association
Pacific Northwest Grain and Feed Association
Society of American Florists
Southern States Cooperative, Inc.
Tennessee Farmers Cooperative
The Fertilizer Institute
U.S. Custom Harvesters, Inc.
__________
Food Security Act of 1985
Public Law 99-198--December 23, 1985
study of unleaded fuel in agricultural machinery
Sec. 1765. (a)(1) The Administrator of the Environmental Protection
Agency and the Secretary of Agriculture shall jointly conduct a study
of the use of fuel containing lead additives, and alternative
lubricating additives, in gasoline engines that are----
(A) used in agricultural machinery; and
(B) designed to combust fuel containing such additives.
(2) The study shall analyze the potential for mechanical problems
(including but not limited to valve recession) that may be associated
with the use of other fuels in such engines.
(b)(1) For purposes of the study required under this section, the
Administrator of the Environmental Protection Agency and the Secretary
of Agriculture are authorized to enter into such contracts and other
arrangements as may be appropriate to obtain the necessary technical
information.
(2) The Secretary of Agriculture shall specify the types and items
of agricultural machinery to be included in the study required under
this section. Such types and items shall be representative of the types
and items of agricultural machinery used on farms in the United States.
(3) All testing of engines carried out for purposes of such study
shall reflect actual agricultural conditions to the extent practicable,
including revolutions per minute and payloads.
(c) Not later than January 1, 1987----
(1) the Administrator of the Environmental Protection Agency
and the Secretary of Agriculture shall publish the results of
the study required under this section; and
(2) the Administrator shall publish in the Federal Register
notice of the publication of such study and a summary thereof.
(d)(1) After notice and opportunity for hearing, but not later than
6 months after publication of the study, the Administrator shall----
(A) make findings and recommendations on the need for lead
additives in gasoline to be used on a farm for farming
purposes, including a determination of whether a modification
of the regulations limiting lead content of gasoline would be
appropriate in the case of gasoline used on a farm for farming
purposes; and
(B) submit to the President and Congress a report
containing----
(i) the study;
(ii) a summary of the comments received during the
public hearing (including the comments of the
Secretary); and
(iii) the findings and recommendations of the
Administrator made in accordance with clause (1).
(2) The report shall be transmitted to----
(A) the Committee on Energy and Commerce of the House of
Representatives;
(B) the Committee on Environment and Public Works of the
Senate;
(C) the Committee on Agriculture of the House of
Representatives; and
(D) the Committee on Agriculture, Nutrition, and
Forestry of the Senate.
(e)(1) Between January 1, 1986, and December 31, 1987, the
Administrator shall monitor the actual lead content of leaded gasoline
sold in the United States.
(2) The Administrator shall determine the average lead content of
such gasoline for each 3-month period, between January 1, 1986, and
December 31, 1987.
(3) If the actual lead content falls below an average of 0.2 of a
gram of lead per gallon in any such 3-month period, the Administrator
shall----
(A) report to Congress; and
(B) publish a notice thereof in the Federal Register.
(f) Until January 1, 1988, no regulation of the Administrator
issued under section 211 of the Clean Air Act (42 U.S.C. 7545)
regarding the control of prohibition of lead additives in gasoline may
require an average lead content per gallon that is less than 0.1 of a
gram per gallon.
(g) To carry out this section, there is authorized to be
appropriated $1,000,000, to be available without fiscal year
limitation.
Statement of David S. Addington, Senior Vice President for Law &
Regulatory Affairs, American Trucking Associations, Inc.
Mr. Chairman and members of the subcommittee: We appreciate the
opportunity to appear before you today to express our serious concerns
with the new regulations on diesel engines and fuel proposed by the EPA
on June 2, 2000. \1\
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\1\ ``Control of Air Pollution from New Motor Vehicles; Proposed
Heavy-Duty Engine and Vehicle Standards and Highway Diesel Fuel Sulfur
Control Requirements,'' 65 Fed. Reg. 35430 (June 2, 2000).
---------------------------------------------------------------------------
The membership of ATA, like other Americans, supports the objective
of clean air. We believe the Government should base its clean air
efforts on sound science, public safety, and the needs of the American
economy.
I will describe the trucking industry, and some key problems that
the EPA rule poses for the industry and the American economy.
ata and the trucking industry
The American Trucking Associations is the national trade
association for the trucking industry, with more than 2500 motor
carrier company members who operate in every State in the Union.
Trucking is vital to the Nation's economy. Trucks move the majority
of the freight that moves in America. Seventy percent of America's
communities depend exclusively on trucks for freight service. EPA
regulations affecting trucking operations have a direct impact on a
huge segment of the American economy.
Although some trucking companies are multi-billion dollar companies
whose names you know, most of the trucking industry is small business.
According to the Department of Transportation, almost 50 percent of
motor carriers have only one truck, and a full 95 percent of motor
carriers, almost 395,000 of them, have 20 or fewer trucks. \2\
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\2\ Federal Motor Carrier Safety Administration, Docket Item FMCSA
1997-2350-954, Preliminary Regulatory Evaluation (Truck Driver Hours of
Service), page 60, paragraph 3.
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epa proposal: discriminatory--unproven--costly
The EPA proposal has 3 major problems. It discriminates against on-
road sources of diesel in favor of off-road; it bets our future on
unproven technologies; and it forces substantial costs on the trucking
industry and the economy.
Regarding discrimination, off-road sources of diesel emissions--
such as locomotives, boats, utilities, and generators--produce much
more of the troublesome emissions than on-road sources. Yet, EPA has
singled out the diesel-fueled truck for tighter restrictions. EPA's
decision to single out on-road diesel emissions sources is
unjustified--indeed, EPA did not even try to justify it. EPA simply
said they ``plan to initiate action in the future to formulate
thoughtful proposals covering both nonroad diesel fuel and engines.''
\3\ The EPA should initiate a thoughtful proposal now and cover non-
road diesel emissions sources.
---------------------------------------------------------------------------
\3\ 65 Fed. Reg. 35430, 35438.
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The trucking industry has contributed substantially to air quality
improvements in the U.S. in the past decade. It is time for others to
do as much as we have already done.
On technology, EPA wants trucks to employ after-treatment methods
to reduce emissions, employing technology that is not field-tested and
proven. EPA is placing a risky bet that 5 years from now the technology
will be ready to go. EPA should not impose radical changes in diesel
engine and diesel fuel standards unless and until it knows that the
necessary technology works.
On cost, the EPA's own estimates say the proposed rule will add
$2,768 to the cost of a new heavy-duty truck and, over the life-cycle
of the truck, another $3,362 dollars--for a total of more than $6,000
per truck. \4\ EPA also says its rule will add about 4 cents to the
cost of a gallon of highway diesel fuel. \5\ Even these EPA estimates
of the increased truck cost and increased fuel cost would be difficult
for many in the trucking industry to bear, but the refining industry
tells us that EPA actually has grossly underestimated the increase in
the price of the fuel.
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\4\ 65 Fed. Reg. at 35490, Table V.A-1.
\5\ 65 Fed. Reg. at 35493.
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Finally, the refining and distribution industries have told us that
it will be extremely difficult to maintain the purity in distribution
of the new on-road diesel fuel, and that they cannot guarantee uniform,
nationwide availability of the product. If the new fuel is not
available everywhere like the old fuel, it will be a disaster for the
trucking industry and the economy as a whole.
conclusion
Mr. Chairman, the subcommittee asked me to address the EPA rules on
diesel engines and fuel, and I am pleased that we had that opportunity.
But I would be remiss if I did not draw to your attention that this
rule is only one front of the current three-front regulatory war that
the Administration is waging on the trucking industry. Like the diesel
rule, the rules on the other two fronts--the Department of
Transportation's proposed rule on truck driver hours of service and
OSHA's proposed rule on ergonomics--also are based on flawed science,
flawed economics, and unfair Government favoritism toward our
industry's competitors.
On all three fronts--hours of service, ergonomics, and diesel--the
trucking industry faces extraordinary costs as a result of Government
mandates. Because the economy has been so good, to so many Americans,
in the past decade, many people overlook the fact that margins in the
trucking industry have been extremely low. Trucking companies that
already have a tough time meeting the payroll and making any money
simply cannot bear the cost of new regulations that the Administration
wants to impose in its closing days on our industry.
We appreciate the opportunity to appear before you and would be
pleased to answer questions.
__________
Statement of Bruce Bertelson, Manufacturers of Emission
Controls Association
Good morning. My name is Bruce Bertelsen and I am the Executive
Director of the Manufacturers of Emission Controls Association. MECA is
pleased to have the opportunity to participate in today's hearing on
the proposed highway sulfur diesel requirement and how it relates to
the important issue of reducing emissions from diesel-powered engines
and vehicles. We believe an important opportunity exists to
significantly further reduce emissions from highway heavy-duty diesel
engines by utilizing an engineered systems approach which incorporates
and combines advanced engine designs, advanced emission control
technology, and very low sulfur diesel fuel. EPA's recently proposed
regulatory initiative recognizes the importance of promoting this
systems-type approach and we believe the Agency's proposal constitutes
a carefully crafted program that, if finalized, will bring about the
era of the truly clean diesel engine. Achieving the goal of the clean
diesel engine presents significant challenges to the engine
manufacturers, the emission control manufacturers and the oil industry,
but we believe that, by working together, these challenges can and will
be met.
MECA is a non-profit association made up of the world's leading
manufacturers of motor vehicle emission controls. MECA's member
companies have over 30 years of experience and a proven track record in
developing and commercializing exhaust control technologies for motor
vehicles. A number of our members have extensive experience in the
development, manufacture, and commercial application of emission
control technologies for diesel heavy-duty engines.
Our comments today are based on work being performed by our
members, their extensive experience in the field of motor vehicle
catalysis, and a growing body of technical data that is beginning to
emerge from such programs as the joint government/industry DECSE
Program.
technological feasibility of meeting the proposed diesel hde standard
We believe the emission standards of 0.2 g/bhp-hr
NOX and 0.01 g/bhp-hr particulate (PM) proposed for highway
diesel-powered heavy-duty engines can be achieved in a cost-effective
manner within the lead-time provided, if very low sulfur diesel fuel is
available. EPA, in its proposal, identified two candidate technologies
for meeting the proposed emission limits--catalyst-based diesel
particulate filters for particulate (PM) control and
NOX adsorber technology for oxides of nitrogen
(NOX) control. EPA also cites SCR as a
NOX control option.
the need for very low sulfur diesel fuel
Sulfur in fuel adversely affects the performance of all catalyst-
based emission control technologies. The impacts range from reducing
the effectiveness of these controls to rendering certain catalyst-based
controls ineffective. While we continue to recommend that EPA establish
a sulfur cap of 5 ppm, our members believe that with a sulfur cap of 15
ppm emission control strategies can be developed to meet the proposed
emission limits. Specifically, with a 15 ppm cap our members are
extremely confident that all catalyst-based filter technologies can be
designed to help meet levels of 0.01 g/bhp-hr PM over the full
regulatory useful life (435,000 miles) of the engine and that
NOX adsorber technology will be optimized to meet the 0.2 g/
bhp-hr NOX standard.
Catalyst-Based Diesel Particulate Filters.--Diesel particulate
filters are commercially available today; the only remaining
engineering effort is to optimize the filter systems for the specific
engine to which they will be applied. Worldwide, over 20,000 PM filters
have been equipped on diesel engines. With a sulfur cap of 15 ppm, our
members are extremely confident all catalyst-based filter technologies
can be designed to meet levels of 0.01 g/bhp-hr PM control over the
full regulatory useful life of the engine.
In addition to an increase in sulfate, the level of sulfur in
diesel fuel adversely affects the temperature level at which
regeneration of the filter occurs. Achieving the exhaust temperatures
needed to bring about filter regeneration is an engineering challenge,
even for a fully optimized engine/filter system depending on the engine
design, engine application, and ambient temperatures. Failure to
achieve proper regeneration can adversely affect performance and the
durability of the filter system. Therefore, the impact of sulfur in
raising the regeneration temperature can be very problematic. Operating
experience with filter technology in Europe with <10 ppm sulfur diesel
fuel demonstrates that proper filter regeneration will occur, even when
vehicles are operated in areas such as Sweden, where low seasonal
ambient temperatures do occur.
NOX Adsorber Technologies.--Development and optimization
work with NOX adsorber technology is progressing at a rapid
rate, and our members believe that with the availability of very low
sulfur diesel fuel, this technology will be commercialized in the 2007
timeframe for diesel engines. While sulfur levels above 5 ppm present
additional design challenges for NOX adsorber technology,
companies that are developing this technology believe that with the
considerable R&D efforts already underway, NOX adsorber
technology will be optimized to operate with a cap of no higher than 15
ppm.
SCR Technology [continuing]. SCR technology is being developed for
commercial application on motor vehicles in the very near future. The
technology is achieving significant NOX reductions and is
also capable of reducing HC emissions and PM. SCR technology, which
utilizes an oxidation catalyst to facilitate NOX reduction
to achieve high control efficiencies, requires the same low sulfur
levels as the NOX adsorber technology. Other SCR technology
designs are less sensitive to sulfur, but even for these technologies,
very low sulfur fuel allows the technologies to achieve the highest
NOX reductions and allows for the full optimization of the
engine/exhaust control technology system.
conclusion
We believe, working together, the objective of the truly clean
diesel engine can be achieved. Our industry is prepared to make the
necessary investments to help insure that the desired emission
reduction are achieved.
I would be happy to answer any questions. Thank you.
__________
Statement of James A. Haslam III, Pilot Oil Corporation, on Behalf of
the Society of Independent Gasoline Marketers of America
Good morning Mr. Chairman and members of the subcommittee. My name
is Jimmy Haslam. I am Chief Executive Officer of Pilot Oil Corporation,
a family owned private company headquartered in Knoxville, TN. Thank
you, Mr. Chairman, for inviting me to testify today on the
Environmental Protection Agency's proposed regulations to reduce on-
road diesel fuel sulfur levels.
Pilot was started by my father in 1958. We do not make diesel
fuel--we sell it. Our company currently owns and operates 180 travel
centers and convenience stores in 37 States stretching from Connecticut
to California, northward to Wisconsin, and south to Florida and Texas.
We employ over 7,000 people nationwide and sold approximately 10
percent of all the on-road diesel fuel in the United States last year.
As a result, Pilot is the largest independent retailer of on-road
diesel fuel in the Nation.
I appear before this subcommittee today on behalf of the Society of
Independent Gasoline Marketers of America. SIGMA is an association of
approximately 260 motor fuels marketers operating in all 50 States.
Together, SIGMA members supply over 28,000 motor fuel outlets and sell
over 48 billion gallons of gasoline and diesel fuel annually--or
approximately 30 percent of all motor fuels sold in the Nation last
year. Collectively, SIGMA members sold over 13 billion gallons of on-
road diesel fuel last year, and 89 percent of our members sell diesel
fuel.
My personal experience with Pilot and my representation of all
SIGMA members at this hearing today combine to make me well qualified
to speak about the EPA's diesel sulfur proposal--not just from the
diesel fuel marketers' perspective, but from the perspective of diesel
fuel consumers as well. From the point of view of diesel fuel marketers
and our customers, EPA's proposal will have dire consequences on our
business, on our customers, and, potentially, on our national economy.
SIGMA urges the members of this subcommittee, as well your Senate
colleagues, to join in strong condemnation of EPA's proposal. SIGMA
strongly opposes the proposal for one fundamental reason: it will
reduce--perhaps substantially--the supplies of on-road diesel fuel.
Diverse and plentiful sources of supply are the life's blood of
independent petroleum marketers like Pilot. Without adequate supplies
of diesel fuel, independent marketers--the most competitive segment of
the motor fuels marketing industry--will cease to exist as a force in
diesel fuel retailing. Currently, independent marketers have been able
to rely consistently on numerous independent and integrated refiners to
assure our sources of supply. However, if the sources of supply or the
numbers of suppliers are restricted, independent marketers are forced
to look toward integrated refiners--in many cases our strongest
competitors--for diesel fuel supplies. When integrated refiners are
aware that an independent marketer has many other sources of supply,
then the integrated refiners are forced to be competitive. When sources
of supply narrow, however, there are no such forces acting on the
integrated refiners.
EPA's diesel sulfur proposal will result in a substantial decrease
in the overall supplies of on-road diesel fuel in this country. As EPA
admits in its proposal, some refiners will not be able to make the
capital investments necessary to produce ultra-low sulfur diesel fuel--
resulting in reduced diesel fuel supplies. EPA also admits that
desulfurization technology currently does not exist to remove
sufficient sulfur from certain diesel fuel blendstocks--reducing
supply. EPA further admits that our nation's diesel fuel distribution
system will be forced to ``downgrade'' an unspecified portion of our
nation's diesel fuel production because it will become contaminated
with higher sulfur products during distribution--again, reducing
overall supplies. And EPA highlights the fact that, under the proposal,
domestic diesel fuel will have a substantially lower sulfur level than
diesel fuel produced in most other industrialized countries--which will
prevent foreign supplies of diesel fuel from alleviating any shortage
in domestic production.
Independent marketers of diesel fuel will not be the only ones to
suffer under EPA's proposal. Consumers of diesel fuel, including our
nation's trucking and agricultural industries, will pay for EPA's
program at the pump. EPA predicts in its proposal that diesel sulfur
reductions will cost approximately four and one half cents per gallon.
That number is woefully low. As we witnessed this past winter and
spring in the Northeast, even small supply shortages of diesel fuel and
heating oil can cause dramatic increases in retail prices. If overall
diesel fuel supplies are reduced by 10 percent as a result of EPA's
proposal--which I believe is not an unreasonable prediction given the
refiners I have talked with--then the $2 per gallon diesel fuel prices
we saw in the Northeast last winter will become the norm, if not a
bargain in the eyes of consumers.
Given the extent to which our nation relies on diesel fuel to power
our on-road commercial transportation network, the ultimate impact of
these price increases and diesel fuel shortages will be felt by the
economy as a whole through increased transportation costs and
inflation. While the current staff at EPA may not care about this
impact of their proposal on the future of our economy because these
impacts will occur long after this Administration has left office, I
suspect that many of the members of this subcommittee plan to be
serving their constituents in Congress in 2006 and will be present when
the repercussions from this ill-considered proposal are felt by
consumers and our economy.
SIGMA would bring this subcommittee's attention to an issue
contained in the preamble to EPA's proposal that is not currently a
formal part of its draft regulations. In the preamble, EPA requests
comments on adopting a regulatory scheme that would permit two on-road
diesel fuels to exist for a short period of time. EPA envisions that
refiners would make some ultra-low sulfur diesel fuel for several years
and continue also to supply the current low sulfur on-road diesel fuel
during this transition period.
This EPA proposal should be roundly criticized and discarded. EPA,
in its attempt to make its drastic proposal on diesel sulfur reductions
seem reasonable, has floated this idea of dual on-road diesel fuels. As
the nation's largest independent retailer of on-road diesel fuel, I
must tell you that this proposal would be disastrous for our industry
and the nation's motor fuel distribution system. This dual fuel
proposal would force Pilot and other diesel fuel marketers into one of
the following scenarios: (1) add an additional underground or
aboveground storage tank and dispenser system to hold and pump the
second grade of on-road diesel; or, (2) retail only ultra-low sulfur
diesel fuel at a time when only a small percentage of our customers
would require it and risk losing customers to competitors that choose
to sell the cheaper, low sulfur diesel fuel.
At the vast majority of our company's 180 locations, we have very
limited storage for diesel fuel--at most sites, our tanks hold less
than 24 hours of supply. In many instances, we would not have room at
our sites to install additional tankage, even if we could get the
permits to do so. Even if we could install the additional tanks, it
appears from EPA's proposal that a second on-road diesel fuel would be
phased out within 5 years, making our investment in that additional
tank unnecessary and a wasted investment. While Pilot does not own or
operate bulk storage terminals, I would assume that such a dual fuel
approach would tax storage and distribution assets at the terminal
level of distribution as well.
As a result, I urge the members of the subcommittee to communicate
to EPA your opposition to the Agency's dual fuel approach. While EPA
has attempted to portray this idea as a means of easing the burdens of
the program on refiners and marketers, it in fact will greatly increase
the costs of the proposed program if it is implemented.
SIGMA would support a diesel desulfurization program that: (1)
takes effect in 2010 or later to permit adequate time for the proposed
experimental emissions control and diesel desulfurization technologies
to mature and develop, and gives refiners additional time to install
these new technologies; (2) sets a diesel sulfur cap at 50 ppm, rather
than the 15 ppm cap that EPA's proposal would mandate; and, (3)
establishes a uniform transition to the new lower sulfur diesel fuel
without a dual fuel approach. An EPA regulation that adheres to these
three principles would have only a minimal impact on overall diesel
fuel supplies while reducing diesel sulfur levels by 90 percent and
achieving substantial reductions in emissions from heavy duty diesel
engines. In addition, the longer implementation timeframe would permit
the manufacturers of emissions control devices to develop their
technologies to a level at which a 50 ppm sulfur level would not have a
negative impact on emissions.
I appreciate the opportunity to present SIGMA's views to this
subcommittee. I would be pleased to answer any questions raised by my
testimony.
__________
Statement Glenn Keller of the Engine Manufacturers Association
Good Morning. My name is Glenn Keller and I am the Executive
Director of the Engine Manufacturers Association. The Association,
headquartered in Chicago, Illinois, represents the worldwide
manufacturers of internal combustion engines used in all applications
except passenger cars and aircraft. Among EMA's members are the
principal manufacturers of truck and bus engines covered by EPA's
proposed 2007 rulemaking imposing additional regulatory controls on
heavy-duty engines while limiting the sulfur content of diesel fuel
used in these engines.
The diesel-fueled engine is the backbone of our nation's
transportation system, from delivering produce to our local groceries
to powering our mass transit systems in our nation's cities and towns.
The diesel engine can be as clean, if not cleaner, than any other power
source. It is capable of meeting emission standards more than 90
percent below today's levels. And emissions from today's engines have
already been reduced by over 90 percent. We recognize that more, much
more in fact, can and should be done * * * and we are poised to meet
that challenge by the end of this decade.
The key to achieving these future stringent emissions reductions is
to reduce the sulfur content of diesel fuel. As the Environmental
Protection Agency acknowledged in its proposed rule, future emissions
reductions require a systems approach involving the engine,
aftertreatment and fuel. Fuel quality, one leg of this three-legged
emissions reduction strategy, enables the technologies necessary to
make the other two stand.
Without removing essentially all the sulfur from diesel fuel,
advanced NOX aftertreatment devices will not be feasible;
advanced PM aftertreatment will be poisoned; and engines will be
exposed to excessive wear, increased maintenance costs, and impaired
durability. I cannot emphasize enough the critical importance of ultra-
low sulfur fuel: it enables substantial NOX emission
reductions; it provides direct PM emission reductions for every
vehicle; and it provides benefits not just from new engines, but from
the entire fleet of diesel-fueled vehicles.
Improved diesel fuel also has a role in responding to concerns over
potential health effects. Ultra-low sulfur fuel lowers the total mass
of particulate from the entire fleet and enables the use of known
aftertreatment technologies, such as oxidation catalysts, which can
reduce the organic fraction of PM emissions. A rule that calls for
ultra-low sulfur fuel also enables the application of catalyst-based
technologies to reduce NOX that, in turn, will reduce the
secondary formation of fine particles of concern in our urban air.
We applaud EPA for recognizing the critical role of fuel sulfur. We
strongly support the need for a uniform, nationwide low sulfur fuel
standard with a hard cap on maximum sulfur content. Regional
differences in sulfur content will not allow the systems approach
necessary to meet EPA's very stringent NOX and PM emission
levels. Further, a hard cap on sulfur is critical. Averages simply will
not work. They are difficult and impractical to enforce. Moreover, the
engine and aftertreatment legs of the stool must be assured of never
being exposed to high sulfur fuel.
In our view, a 15 ppm sulfur limit does not go far enough. Our
cooperative testing programs have indicated the extreme sensitivity of
aftertreatment devices to sulfur poisoning. Therefore, EMA advocates an
even lower limit of 5 ppm sulfur in diesel fuel to ensure we are
delivering the maximum performance of these devices for the useful life
of the truck engine, which is up to 435,000 miles. And, diesel fuel
improvements shouldn't only be limited to trucks and buses. Non-road
fuels also must be similarly improved.
We are aware of the various arguments raised by the oil industry
against improving fuel quality. They don't want to reduce sulfur to
even 15 ppm, let alone to lower levels. Nationwide ultra-low sulfur
fuel can--no, must--be achieved, and it can be done cost effectively.
In a joint project with the American Petroleum Institute and the
National Petroleum Refineries Association, the Engine Manufacturers
Association contracted with MathPro, a renown refining consultant, to
estimate the cost of producing ultra-low sulfur fuel. MathPro concluded
that the typical refining cost to produce a 5 ppm maximum sulfur fuel
was from 5\1/2\ to 9 cents per gallon for the most severe sulfur
scenario which modeled a 2 ppm average across the entire diesel pool.
Mr. Chairman, we ask that the entire MathPro Study be included with
this statement in the hearing record.
So today we are enthusiastic and hopeful about the bright future
ahead for diesel engines and our industry's ability to produce
reliable, durable, fuel efficient, high performing diesel engines that
also are as clean or cleaner than any other power source. There will be
issues along the way and a great deal of work to be done. But it is no
longer a question of `IF'. With nationwide ultra-low sulfur diesel fuel
and a little development time, engine manufacturers have the resources
to achieve the stringent emission goals set forth in EPA's proposal.
I would be pleased to respond to any questions the subcommittee
might have.