[Senate Hearing 106-964]
[From the U.S. Government Publishing Office]
. S. Hrg. 106-964
EPA'S PROPOSED REGULATIONS FOR DIESEL FUEL
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON CLEAN AIR, WETLANDS,
PRIVATE PROPERTY AND NUCLEAR SAFETY
OF THE
COMMITTEE ON
ENVIRONMENT AND PUBLIC WORKS
UNITED STATES SENATE
ONE HUNDRED SIXTH CONGRESS
SECOND SESSION
__________
SEPTEMBER 21, 2000
__________
Printed for the use of the Committee on Environment and Public Works
Available via the World Wide Web: http://www.access.gpo.gov/congress/
senate
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COMMITTEE ON ENVIRONMENT AND PUBLIC WORKS
ONE HUNDRED SIXTH CONGRESS
second session
ROBERT 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
SEPTEMBER 21, 2000
OPENING STATEMENTS
Inhofe, Hon. James M., U.S. Senator from the State of Oklahoma... 1
WITNESSES
Kassel, Richard A., Senior Attorney, Natural Resources Defense
Council........................................................ 5
Prepared statement........................................... 25
Rogers, Paul, Chief Operating Officer, Voss Companies, Inc....... 7
Prepared statement........................................... 24
Vujovich, Christina, Vice President, Environmental Policy and
Product Strategy, Cummins, Inc................................. 9
Prepared statement........................................... 33
Williams, Ronald, President, Gary Williams Energy Corporation.... 3
Prepared statement........................................... 20
ADDITIONAL MATERIAL
Statement, International Truck and Engine Corporation............ 35
(iii)
EPA'S PROPOSED REGULATIONS FOR DIESEL FUEL
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THURSDAY, SEPTEMBER 21, 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 10:18 a.m. in
room 406, Senate Dirksen Building, Hon. James M. Inhofe
(chairman of the subcommittee) presiding.
Present: Senator Inhofe.
OPENING STATEMENT OF HON. JAMES M. INHOFE,
U.S. SENATOR FROM THE STATE OF OKLAHOMA
Senator Inhofe. I will ask that our subcommittee meeting
come to order. We have some new deadlines to comply with,
because of the action that the Democrats took on the floor. So
we will not be able to continue this for a very long period of
time.
This would not be a very long hearing, anyway. We have four
witnesses. As you all know, this is the second sulfur and
diesel hearing that we have had.
Our first hearing on this issue was June 15, where we
concentrated specifically on the sulfur issue. Today, we will
continue to look at the issue, but also examine the broader
issue of the diesel engine side of the regulation and, I think,
the supply side. I do not believe we got into that, to the
extent that we wanted to do it.
When we held our last hearing, gas prices were at a record
high, since the Gulf War. President Clinton predicted that the
prices would drop by this Fall. It is now September, and the
prices per barrel are even higher. Last week, it hit $35. I was
told yesterday, it is $37. So he was wrong at that time, and it
has gotten completely out of hand now.
I previously criticized this Administration, but I hasten
to say, I also criticized the last Administration, the Bush
Administration, and the Carter Administration, because in all
those Administrations, I tried to encourage them to have a
national energy policy, and they elected not to do it.
We are going to have to have it. I believe, certainly, if
``George W'' is elected, that we will. I have personally talked
to him about that.
Now it appears that the EPA's plans to finalize this
regulation are only an attempt to make political headlines and
to appease special interest groups in an election year, instead
of crafting a workable solution for diesel pollution.
They know full well that future Administrations will be
forced to change the regulations, because this proposed
regulation, if enacted, would so severely limit the supply of
diesel fuel, that it would cause price hikes and shortages,
leading to disruptions in delivery of products and goods across
the country.
Based on the testimony from the last hearing and
discussions I have had with numerous groups, let me explain
just a few of the major problems with this proposal.
First, the EPA will require the implementation of the
sulfur diesel rule at the same time as the sulfur gasoline
rule. This would, I believe, impose great capital problems,
investment problems, on the refining industry. It could, at the
same time, have an adverse effect on the supply and create
shortages.
Second, the technology review will be necessary. It is
unsure whether or not the new load diesel engines will work;
meaning that the low sulfur fuel would not be necessary. Most
refiners will probably wait for the technology review before
expending resources on the desulfurization technique. This
means if the technology works, we may not have the low sulfur
fuel available yet, creating additional shortages.
Third, for many refiners who operate on the coast, and I am
talking about the East Coast and the West Coast and the Gulf
Coast, those refineries are going to have problems created for
them. They could make the decision to go ahead and continue to
refine the products, under the current laws and rules, and just
go to the export markets, to other countries, where they do not
have these requirements. Now that would have another
devastating effect on the supply.
It is my understanding that we are pretty close to 100
percent refining capacity, right now. I think if that should
happen, then for some of the smaller ones, we will have a
witness talking about some of the problems that are created for
smaller refineries.
If some of them should have to close, or if they are forced
to export their products to other countries, then that would
cause a shortage, and certainly cause price spikes. You will
see, this is the chart we used in the last hearing on June
15th. You can see all the factors that come into play.
After today's hearings, I am going to be sending a list of
concerns to the EPA regarding this issue. If they do not
address these concerns in the final rule, I will use the
congressional Review Act, early next year, to veto this
regulation.
Now the congressional Review Act is one of our ideas that
if a bureaucracy goes out and passes regulations that are just
totally unlivable, and are wrong and against the intend of the
appropriate committees, then the committee of jurisdiction can
have virtual veto power, merely by holding a committee meeting
and stopping that regulation, and then taking it at the same
time to the floor of the House and to the Senate. So it could
all happen in 1 day.
I am just not making that as an idle threat. I am just
saying that we have to have certain problems resolved and
addressed by the EPA. So I will serve notice that I will use
that provision, that Act, if it becomes necessary. I hope it
does not get to that.
Now I would like to have our four witnesses come to the
table. I would have to ask, is it Ms. Vujovich?
Ms. Vujovich. It is Vujovich.
Senator Inhofe. Vujovich? Well, I met you the other day in
the hall there, but I do not think I got the proper
pronunciation.
Very good, the way we are divided up today, we have Mr.
Ronald Williams, president of Gary Williams Energy Corporation;
Mr. Paul Rogers, chief operating officer of Voss Companies,
Inc., on behalf of the National Association of Truck Stop
Operators; Mr. Richard Kassel, senior attorney for the National
Resources Defense Council; and Ms. Christina Vujovich, vice
president of environmental policy and product strategy for
Cummins, Inc.
While the panel is taking their chairs, I am going to ask
you to limit your opening statements, because of this new
problem that we are confronted with, to 5 minutes. We will play
the ``stop, change, go'' sign with the lights. My granddaughter
likes that. So if you would comply with that, we would
appreciate it very much.
We will start with Mr. Williams.
STATEMENT OF RONALD WILLIAMS, PRESIDENT, GARY WILLIAMS ENERGY
CORPORATION
Mr. Williams. Good morning, Mr. Chairman.
Senator Inhofe. Good morning.
Mr. Williams. I am the CEO and an owner of Gary Williams
Energy Corporation, a Denver-based refining and marketing
company. Our principal asset is a 50,000-barrel-per-day
refinery located in Wynnewood, OK. We have 275 employees in our
company and, therefore, qualify as a small business refiner.
While our industry supports the clean air benefits of lower
sulfur fuels, we believe the EPA's haste to force the use of
unproven engine technology is driving overly stringent and
unreasonable fuel standards.
We believe prematurely setting a 15-part-per-million cap on
highway diesel fuel will result in significant fuels shortages
and skyrocketing prices.
Industry experts estimate prices in some regions of the
country will triple over current levels. This rule will hurt
all those who rely on highway diesel fuel--truckers,
distributors of goods and services and, ultimately, consumers,
jobs, and our economy.
The 15 part per million diesel cap is unreasonably low and
is really not supported by credible cost benefit analyses. Our
own Department of Energy projects the industry will have to
spend $8 billion in refinery capital improvements to comply
with this proposed rule; a number which is three times what the
EPA has publicly estimated.
Senator Inhofe. Is that the whole industry?
Mr. Williams. Yes.
Senator Inhofe. What is your figure?
Mr. Williams. Our figure for our refinery, for diesel fuel
alone, is about $48 million.
Senator Inhofe. That is the sulfur and diesel. How about in
sulfur and gas?
Mr. Williams. Gasoline and benzine, together with diesel
fuel, would total approximately $90 million.
Senator Inhofe. Thank you.
Mr. Williams. Obviously, with this kind of a capital
investment for all sizes of refineries, our fear and, I think,
the country's fear, should be that many will shift out of the
highway diesel market, and dump their high sulfur product in
the off-road market. We are concerned this will allow us to not
meet the highway diesel demand, and we will have a severe
shortage.
Our estimates in the industry are that if this rule is
passed on diesel alone, we will have anywhere from a 10 to 30
percentage shortage over the projected diesel highway demand.
Right now, our refineries, as you mentioned earlier, are
operating at nearly full capacity. They are running about 95
percent, which has historically not been something the industry
can sustain on an ongoing basis, without severe upsets.
The industry has asked the EPA to take three critical
steps. One is to conduct a thorough technological review of
engine and emission systems, as well as refinery
desulfurization technology, prior to finalizing this rule. Two
is to set reasonable and cost effective standards for vehicles
and fuels. Three is to set a diesel sulfur implementation date
that does not overlap the gasoline sulfur requirements.
We do not think the EPA will respond to these urgent
recommendations without congressional intervention.
As I earlier said, small refiners such as ours share the
same concerns as the majors, but our problems are
proportionately greater, merely by the fact that we are
smaller.
As you asked and I responded, our cost to comply with the
diesel desulfurization rule will be about $48 million. In
addition, it will increase our annual operating expenses in the
refinery by about $6 million to $7 million. That number is
equal to the historic annual net income of that facility.
As has been the case with past environmental investments,
we are unlike to recoup these in incremental capital and
operating costs in the future.
When we combine these with the money that we will have to
spend in our facility to take the sulfur out of gasoline, and
to deal with the benzine rules, we will be looking at about $90
million of expenditures, over a 5-year period, beginning in
2003. That will be very difficult, if not impossible, to obtain
financing for that.
It is clear that the major oil companies' size,
diversification, and integration create a competitive advantage
over the small refiners. However, the small refining segment of
the industry has played an historical, essential rule; that of
providing pricing competition.
Often, the small independent provides the lowest wholesale
price in the market for gasoline and diesel fuel. Also, small
refiners fill important niche markets, such as providing
military jet fuel.
Nationally, the small refiners only comprise about 4
percent of the diesel market, but they provide 20 percent of
the military jet fuel, which we believe is an important
strategic issue for our country.
We are concerned that with this proposed rule that
heretofore highway diesel fuel will become ``non-spec.'' It
will not be further processed, and will be dumped into the off-
road market. If that is the case, we will have, as I indicated
earlier, severe shortages of highway diesel.
That will also create greater competition for the small
refiners, because historically, we have been the ones to
provide the off-road diesel fuel for our country. We will have
increased competition from the major refiners.
We do believe, as an industry, especially the small
refiners, that if these rules are adopted by the EPA, that
anti-dumping provisions of high sulfur diesel should take
effect, if nothing else, to preserve the ratio between on-road
and off-road diesels, so as to mitigate any on-road diesel
shortages.
We also, as a small refining industry, believe that it is
imperative that, at this time, Congress is going to need to
consider some kind of tax incentives in order for these
expenditures to take place, if the rules go forward.
Thank you for the opportunity to speak. I will answer any
questions that you may have.
Senator Inhofe. Thank you, Mr. Williams.
Mr. Kassel?
STATEMENT OF RICHARD A. KASSEL, SENIOR ATTORNEY, NATURAL
RESOURCES DEFENSE COUNCIL
Mr. Kassel. Thank you, Mr. Chairman. My name is Richard
Kassel. I am a senior attorney with the Natural Resources
Defense Council, a national non-profit environmental advocacy
organization, with over 400,000 members.
NRDC strongly supports EPA's proposal, because it will be
the equivalent of removing the pollution from 13 million of
today's trucks from the air. It will result in the elimination
of over three million tons a year of smog-forming gases, and
over 100,000 tons per year of asthma attack-inducing
particulate matter.
Why is it so important to clean up the nation's dirty
diesels? I get asked that question all the time. Diesel's
particulate matter has been linked to increased asthma attacks
and hospitalizations, bronchitis, cancer, endocrine disruption,
emphysema, and even premature death.
Diesel's nitrogen oxides are a contributor to ground level
ozone or smog formation, acid rain, and nutrient pollution in
our waterways. More than 40 toxic chemicals are typically found
in diesel exhaust.
The key to this proposal, of course, is sulfur. Just as
lead was a barrier to cleaner cars, and lead and gasoline was a
barrier to clear cars two decades ago, sulfur in today's diesel
fuel is a barrier to cleaner trucks and buses.
So we strongly support EPA's proposal for many reasons.
First, only the near elimination of sulfur, which we believe is
a cap of 15 parts per million or less, will create a fuel
supply that is clean enough to support the most promising
emission controls.
Second, we believe only a national approach will work,
given the mobility of the vehicles, themselves. Truckers
deserve to know that wherever they drive, they will be able to
get the low sulfur diesel fuel.
With a national fuel supply, mislabeling, misfueling, and
fuel supply contamination concerns would be eliminated which,
of course, would respond to some of the concerns, particularly
of the retail fuel sellers.
By including interim dates for refineries and for terminal
suppliers, we believe EPA has taken into account some of the
supply chain issues that have been raised by the subcommittee,
and is providing a clear and a useful road map to implementing
this rule in a way that will avoid market disruptions.
Third, we need the rule in mid-2006. The timing is right to
get the fuel into the supply in time for those model year 2007
engines, and to help States that will be attempting to meet,
attain, and maintain their Clean Air Act obligations for ozone
and particulate matter.
In contrast to EPA's proposal, the oil industry has
suggested 50 parts per million as a cap. We believe that would
render the proposed particulate and NOx targets unachievable.
Under the oil industry proposal, particulate traps will clog,
and failure will become a serious problem.
Likewise, plans to develop the most promising NOx controls,
which are currently something called a NOx absorber, will shift
from NOx absorbers to less effective selective catalytic
reduction, or SCR. Not only is SCR less effective, but it will
require the development of a national urea infrastructure
system, that would cost billions of dollars to install and
operate and maintain.
Regarding the oil industry, I would just like to respond to
some of the industry concerns. The first, of course, is the
cost; that the industry cannot afford the cost of updating its
refineries.
America's largest oil companies reported nearly $12 billion
in profits in just the first quarter of this year, and the Wall
Street Journal reported that those profits will be higher in
this quarter.
We believe that the cost of this program is a reasonable
cost of continuing what is obviously an extremely profitable
business, especially because of the environmental benefits.
Second is the burden on the American consumer. BP, the
nation's largest seller of diesel fuel, has already announced
that it will sell 15 PPMs, sulfur diesel fuel, in California
next year at an incremental cost of roughly a nickel a gallon,
without the economy of scale benefits of a national fuel.
Tosco has announced that it will do the same in 2003, at a
better return on capital for its investors than its current
high sulfur fuel.
This is a very far cry from the doomsday predictions of the
American Petroleum Institute. I think it is important to note,
there are many examples of environmental regulations, over the
past three decades, where regulated industries have said that
it cannot be done, and if it can be done, it will cost too
much.
Once the policy decision is made, the companies and the
industries find a way to produce the product at a reasonable
cost. We are already seeing this in the oil industry, with the
examples of BP and Tosco.
Last, comments from some other opponents have asked you to
slow down the process, to not act this year, because the
technology is not ready. I refer you to the testimony in the
EPA hearings by the Manufacturers of Emissions Controls
Association, or MECA.
MECA represents the companies that will develop and
commercialize these technologies. MECA supports the proposal,
and has said that they believe that its members will be able to
meet the requirements in a timely and cost effective manner.
There is even evidence in the record that Cummins is
already hard at work on NOx absorbers and other technologies,
and that their presumptive emission targets for its R&D program
are already as low as EPA's targets; that it believes that NOx
absorbers are viable, based on in-house data; and that it
believes that a sulfur level of 50 parts per million would be
deleterious to NOx control systems.
The bottom line, in conclusion, is this. The diesel
industry seems to hate when environmentalists call diesels
``dirty diesels.'' But it is fighting every step EPA takes
toward cleaner diesels.
Cleaner diesels may be possible, but only by adopting EPA's
proposal by bringing sulfur levels down to a level that allows
the most promising technologies to succeed, and by meeting its
goals and the timetables of that proposal.
Every year of delay on industry's part, there are more
avoidable asthma emergencies and more avoidable cancers. We
need this rule. We need it finalized this year, so the
companies can get to work, so they can lock in their R&D
budgets, and they can lock in their capital plans for the
coming decade.
Thank you.
Senator Inhofe. Thank you, Mr. Kassel.
Mr. Rogers?
STATEMENT OF PAUL ROGERS, CHIEF OPERATING OFFICER, VOSS
COMPANIES, INC.
Mr. Rogers. Good morning, Mr. Chairman. My name is Paul
Rogers. I am the chief operating officer of Voss Companies, a
small family owned business in Cuba, Missouri.
The Voss Companies owns and operates three travel plazas
and truck stops in the Midwest, along with a small chain of
convenience stores. We employ approximately 275 people
throughout our operation, and sell approximately 45 million
gallons of diesel fuel at the retail level each year.
Personally, I have over 26 years of experience in the truck
stop industry. I appear before the subcommittee today on behalf
of NATSO, the national trade association representing the
travel plaza and truck stop industry. NATSO represents over 400
companies, which operate approximately 1,200 travel plazas and
truck stop locations nationwide.
As the primary retailer of highway diesel fuel, the truck
stop industry is, of course, a vital link in the transportation
of goods and services throughout our country. The vast majority
of our nation's products are delivered by diesel-powered
vehicles; everything from the clothes we wear to the food we
eat. So the old adage, ``If you have got it, a truck brought
it'' is absolutely correct.
Our nation's travel plazas and truck stops are a critical
link in the movement of these goods in providing the fuel
needed to keep these trucks and our economy running smoothly.
While the travel plaza and truck stop industry supports
efforts to reduce emissions, NATSO has serious concerns and
objections to the EPA's proposed diesel sulfur regulations, and
the effect it will have on our nation's energy supply and
delivery system.
EPA's rule could reduce overall supplies of diesel fuel,
lead to significant spot outages, and significantly increase
the cost of diesel fuel and other distillants. NATSO is very
concerned that this drastic 97 percent reduction in the sulfur
content of highway diesel fuel would seriously disrupt the
nation's industries ability to consistently and reliably
acquire highway diesel fuel for sale for our nation's vehicles.
The investment which refiners will need to make in order to
reduce sulfur levels by 97 percent may force many of these
refiners to opt-out of the highway diesel market and, instead,
focus on other market segments for product production.
Further, some refineries may cease operations altogether.
With our nation's current fuel supply strained as it is, the
loss of an additional diesel production supply would be
devastating.
I would point out, in the St. Louis market alone this
summer, the EPA had to drop its regulations on RFG three times,
because the market could not supply and did not have the
ability to supply the product into the market.
Additionally, due to its intricate structure, it does not
appear that our nation's diesel fuel distribution system can
maintain ultra-low sulfur highway diesel fuel supplies in all
areas of the country on a reliable basis. This is a very
serious problem, which could lead to fuel cross-contamination,
spot outages of highway diesel fuel, and severe price hikes.
Furthermore, under EPA's proposed 97 percent reduction in
sulfur levels, domestic highway diesel fuel will have a lower
sulfur level than highway diesel fuel produced in most other
nations. This would essentially prohibit the influx of foreign
supplies of diesel fuel, which could otherwise be used to ease
those shortages, and help with domestic production and supply.
Ultimately, under EPA's proposal, less diesel fuel will be
produced and supplied, driving up prices and cost, endangering
the integrity of our nation's energy supply and delivery
system.
The EPA, in a misguided attempt to address the problems
which result from the extreme sulfur reduction proposal, has
sought comment on various phase-in schemes, which would result
in the temporary manufacture, sale, and use of two separate
grades of highway diesel fuel.
These scenarios would allow the current 500 parts per
million highway diesel to continue to be produced, alongside
the new ultra-low sulfur diesel for a period of years, until it
is eventually phased out in favor of the new lower sulfur fuel.
NATSO is strongly opposed to these phase-in schemes, as
they would provide a devastating effect to the diesel fuel
distribution system, including travel plazas and truck stops,
which have the net effect of further reducing supply.
One of the things that is very critical to note, Mr.
Chairman, is that the entire diesel fuel delivery system in our
country, from refinery to retail, is currently handling a
single grade of highway diesel fuel.
Because the travel plazas and the truck stop industries are
also configured to carry only a single grade, the introduction
of a separate grade would force the truck stop travel plaza
industry, and many thousands of retailers, to make tremendous
capital investment to carry both products at retail.
Significant expenditures at a minimal excess of $100,000
per location, in many cases, would need to be made to ensure
that these separate grades of diesel are properly segregated to
prevent their cross-contamination and overt misfueling at the
pump.
This would result in the need for new storage tanks, the
re-piping and re-manifolding of tank lines, new pumps,
monitors, significant compliance expenses. In many cases, the
permits for such a mandate would be unattainable.
What really concerns our industry is the cost, which would
be borne by an industry which largely consists of small,
independent owner-operator folks, not big, huge corporations
with billions of dollars of profit. They are still recovering
financially from the 1998 upgrades that were forced upon them
by EPA to upgrade our fuel systems.
NATSO urges the subcommittee to express to EPA your
opposition to these phase-in schemes, which would result in the
temporary manufacture, sale, or use of two separate grades of
diesel fuel. This phase-in would place at risk the integrity of
our nation's diesel fuel supply, raise costs throughout the
distribution chain, and reduce the overall supply.
In such a short period of time, most businesses would not
have the opportunity to take the proper valuation on the
expense that they put into it.
NATSO does support efforts to improve our nation's air
quality, without placing our energy supply and delivery system
at risk. The petroleum industry has stated its support for a 90
percent reduction in the sulfur level, from 500 parts to 50
parts. Such a reduction, if it occurs without a two-fuel phase-
in scheme, and with significant lead-in time for refiners and
the emission control manufacturers, would achieve significant
reductions in emissions, while maintaining the integrity of our
nation's diesel fuel supply.
Sir, on behalf NATSO, I thank you for letting me speak. If
there are any questions, I would be glad to answer them.
Senator Inhofe. Thank you, Mr. Rogers.
Ms. Vujovich?
STATEMENT OF CHRISTINA VUJOVICH, VICE PRESIDENT, ENVIRONMENTAL
POLICY AND PRODUCT STRATEGY, CUMMINS, INC.
Ms. Vujovich. Good morning, Mr. Chairman. For the record,
my name is Christina Vujovich. I am the Vice President for
Environmental Policy and Product Strategy for Cummins Engine
Company.
I appreciate the opportunity today to speak to you in
regard to EPA's heavy duty engine emission standards for 2007
and the diesel sulfur proposal. Obviously, my comments will be
more directed toward the emission piece of this rulemaking.
Cummins is the only independent diesel engine manufacturer
in the United States today, and we are the largest producer of
commercial engines over 200 horsepower.
Contrary to the inference made by Mr. Kassel, I would like
to say that Cummins does share the goal of improving our air
quality, and we really support EPA's authority to regulate
emissions from heavy duty diesel engines. As a company, we are
absolutely committed to pursuing the technologies that benefit
the environment; evidence the information, again, referenced
from our written submission to EPA.
These technologies, however, must also provide superior
performance for our customers, including fuel economy.
Otherwise, our customers will not purchase the products.
This is why we have very serious concerns about the rush to
finalize these rules by the end of the year. The schedule that
EPA has established for finalizing these rules does not allow
us the time for the work that we believe is necessary to assess
the technical feasibility and the commercial viability of the
technologies required to meet the standards.
So we are urging EPA to provide an additional 18 to 24
months before they promulgate the final rule, so that the
stakeholders can assess these issues, which we believe are
extremely critical to the success of the ultimate rule.
To proceed otherwise would result in a rule that is
unworkable and that undermines the important goal of reducing
emissions and improving air quality. EPA can do this and still
have time for a rule that is applicable for 2007.
Mr. Chairman, I would like to make an important distinction
here. As a company, we are not asking EPA to delay the
implementation date of this rule. We are merely asking EPA to
take the time, before it promulgates the final rules, so that
technology can be better assessed and understand the viability
of the technology.
For more than 20 years, my work at Cummins has revolved
around the environment. That is very challenging work, because
we provide a technology essential to moving the nation's
economy, but it is also a technology that has environmental
implications. We are the first to recognize that.
That is why at Cummins, we have a corporate mission
statement, which dictates that everything we do leads to
cleaner, healthier, and safety environment. Our engineering and
development budget each year is about 4 percent of our annual
sales. Well over half of that goes to emissions development.
The work done at our transient emissions labs in the
Cummins Tech Center in Columbus, Indiana is world class, and
our engineers are regularly called on to advise government
experts worldwide, which we are pleased to do.
When EPA needs to train its technical staff in the
fundamentals of internal combustion for diesel engines, it
turns to Cummins. Indeed, EPA researched the very rule we are
here to discuss on a Cummins six-liter engine.
Now you might ask, why is all of this important? While many
of you may know us and are familiar with this company, those of
you who are not do not know that it simply is not our nature to
say no.
However, today, we are compelled in this instance to speak
out strongly and ask, why do we have to rush to this
rulemaking? Do not jeopardize the success of this rule in order
to meet an arbitrary deadline.
This rulemaking represents some significant firsts for our
industry. This rule, for the first time, recognizes that fuel
and engine technology must work together to achieve emissions
reductions. For this, we applaud EPA, because the ultra-low NOx
standards and the ultra-low particulate standards, which we are
all interested in achieving, cannot be met without significant
reduction in diesel fuel sulfur.
For the first time, these proposed regulations cannot be
achieved through in-cylinder and engine subsystem control
technologies. That means, as an engine producer, we have to
look for after-treatment suppliers to do this work for us.
In order to achieve the proposed regulations, we will have
to rely on technologies that we neither make or install on the
engine, when we ship it from our factories.
Second, these technologies do not exist in a commercial way
today; nor, do they exist in a manner that we can predict, with
confidence their capability of achieving these emission
reductions over 435,000 miles, which is the useful life of
heavy duty engines.
The diagram to my left shows our current best estimate of
the system of after-treatment devices necessary for compliance
to the 2007 rules. As you can see, there are four sequential
catalytic activities that we expect the exhaust gases to have
to go through.
We can only guess as to what the impact the envisioned
system of after-treatment technologies will have on our engine
performance and fuel economy, because many of these
technologies are still in their very early stages of
development. We know that, because we do a considerable amount
of work on our own in our labs.
But today, we do not know whether or how a commercially
viable product can be made to meet these proposed standards.
Yet, we are being asked to agree to this rule before the end of
the year, and in so doing, agree that we will certify the
emissions capability of our engines, including the yet-to-be-
developed after-treatment systems that we neither make or
install, over the 435,000 mile useful life of heavy duty
engines.
There is no doubt that the after-treatment technology shows
potential. We believe that an additional 18 to 24 months will
put us in a better position to evaluate the issues critical to
the success of this rule.
Cost is very significant for our industry, as well as the
petroleum industry. Individual component estimates today
indicate costs for our products will be four to five times
greater than that which EPA has predicted.
For truckers who already operate on extremely small
margins, most of the time in the 2 percent range, this is not a
commercially viable option.
The net result will be that diesel engine customers, who
would normally replace their engines in the 2007 or 2010
timeframe, will likely re-build older engines, rather than
replace newer ones.
That is not good for anyone. Because the only way you get
cleaner engines into the marketplace is if someone buys them.
The potential of this impact of such action is significant, and
really has not been adequately addressed yet.
At Cummins, we have an 80 year history of delivering on
what we promise. Cummins wants to participate in a successful
rulemaking and a successful low emissions product development
effort.
Our question today to the EPA and to the people in this
room is whether it is more important to rush to finalize a rule
which, on paper, promises significant emissions reductions; or
whether it is better to take the time to develop a rule that in
reality will deliver real emissions progress.
Thank you, Mr. Chairman. I will be happy to answer any
questions.
Senator Inhofe. Thank you, Ms. Vujovich.
I guess the first thing I should ask you is, do you have a
response to Mr. Kassel's characterization of dirty diesels?
Ms. Vujovich. Yes, sir, I do. I think it is important to
note that the diesels of today and diesels of the future are
not what I would characterize at all as dirty diesels.
The diesel emissions control technology, over the last 15
to 20 years, has reduced diesel exhaust emissions nearly 90
percent. With this rulemaking, it will be 90 percent from the
2004 levels that we are expected to achieve. Perhaps Mr.
Kassel's characterization is more relevant for the older
diesels that are still in the fleets.
Senator Inhofe. You know, while this chart is still fresh
in our minds, I want to make sure I understand it. You are
saying that with the application or installation of all of
these four technologies, whatever they are called, you are
required them to still have a 435,000 mile engine life?
Ms. Vujovich. Yes, sir, in the 2004 rulemaking of EPA, the
heavy, heavy duty engines, as defined by EPA, and EPA has three
classes of heavy duty engines: light heavy, medium heavy, and
heavy, heavy, it is the heavy, heavy duty engines that went
from a useful life of 290,000 to 435,000. We are required to
certify that the emissions from those engines meet EPA's
requirements for 435,000.
Senator Inhofe. And if they do not?
Ms. Vujovich. If they do not, and EPA is assessing our
products in use, or if we understand that our products do not
comply, there is either a voluntary recall, or EPA can impose a
recall on our products.
Senator Inhofe. Mr. Williams, it is my understand that the
highway diesel sulfur proposal overlaps with the gasoline
sulfur schedule. Are there any economies of scale for having
both of these at the same time? What is the impact by having
both of these going in at the same time, as far as you are
concerned?
Mr. Williams. There really are no economies of scale, Mr.
Chairman. They treat two different streams. One is for diesel,
obviously, and one is for gasoline. The units that have to be
installed for each stream are specialized. So there is no
economy of scale of getting two for one.
The timing of it is such that we are not only forced to
deal with two, but we are forced to deal with two streams at
the same time, and incurring charges, as I indicated earlier.
But there is no common usage of any of the capital expenditures
that would be required.
Senator Inhofe. So not only, if I understand your answer
correctly, is there not an economy of scale, but if you had to
comply at a different time, it would be easier. I mean, it
would be more expensive doing it at the same time, as opposed
to less expensive. I heard the argument.
Mr. Williams. That is exactly right. I made that comment in
my presentation, that it needs to be sequential, and not
simultaneous.
Senator Inhofe. I am also concerned about availability. I
hope you all have a chance to address this. I am concerned that
the EPA has not really adequately considered the effect of this
rule on the availability of diesel. When they consider the
cost, they sometimes say, five cents a gallon.
However, with refining capacity nearly at 100 percent right
now, I would question that. You know, we talked about some of
the coastal refineries choosing to go ahead and not apply this,
and go to markets where it is not required, which I think is
something that could happen; and also, some just going out of
business.
So what is your concern about this effect on the ultimate
supply?
Mr. Williams. Well, undoubtedly, many refiners, both large
and small, will choose not to make the full financial
investment to upgrade their total stream of diesel. So the
result of that will be that there will be more off-road or high
sulfur diesel in the marketplace, and there will be less low
sulfur diesel in the marketplace.
That will put the strain on the highway diesel fuel system.
There will be a shortage, undoubtedly. I mean, I have talked to
my peers in the industry. I have talked to all of the experts,
in terms of the independent studies that have been done. We get
the same answer.
Refiners are going to look at this on a case-by-case basis.
Different companies will do different things. But they all
unanimously agree that there will be a shortage of highway
diesel.
Senator Inhofe. Mr. Rogers, the same question, do you have
a concern about the supply of diesel, and what do you think in
terms of price spikes that you might be faced with?
Mr. Rogers. Thank you for asking that question, Senator.
The concern I really have is if we go back to just this past
summer, as I stated in my testimony, in the St. Louis market,
which I have some operations that operate in the St. Louis
market, and I have some that operate outside of the RFG zone in
St. Louis, when the RFG could not be supplied, because there
were not enough tanks and not enough manufacturing capacity in
the refineries, there were price differentials as much as 25
cents per gallon, from RFG to regular unleaded gas, just this
summer alone.
Three times, the EPA did away with its rule to give some
relief to the St. Louis market because of the high price and
spikes of gasoline factors.
Now we see the same thing in diesel fuel, as there are no
more tanks. There has been 25 years since any modern refinery
has been built. More and more, the majors are getting out of
the refinery business.
We have got to have more tanks. If we bring in more
supplies of diesel, we have got to have more refining capacity.
It is just not there out there in the market today to do it,
and it will cause severe price hikes.
Senator Inhofe. I am going from memory now, but I think it
was from the last hearing that we had, that since 1990, we have
gone down in numbers of refineries from like 200 and some to
158.
Mr. Rogers. That is correct.
Senator Inhofe. So it is moving in that direction.
Mr. Kassel, in your statements and your enthusiasm for this
rule, would you think that they should have gone even further
than they went, in proposing this rule?
Mr. Kassel. Well, there are some technical issues, which I
have addressed in my written statement today. There are ways
that we could make it even tighter.
I think there are arguments, for example, for implementing
the NOx standard all at once, in 2007, rather than stretching
it out over 4 years of time. I think there are very important
arguments for developing a very strong in-use compliance
program, which I address in my written testimony.
There is a lot of debate about whether the new diesels are
clear or dirty, or clean enough or not quite as dirty, as we
say, and what not. Those are healthy debates.
One of the most important issues in that debate is the
issue of in-use submissions. Engines are certified at a certain
emission level, when they are new. The theory is that based on
a certification level, that engine will produce a certain
amount of emissions over its 435,000 mile life.
What we see from the limited in-use emissions data that is
out there is that in the real world, that does not happen, for
a variety of reasons that have to do with the way the engines
are designed.
Senator Inhofe. OK, well, let me ask it in a different way.
Would you want to go further than the EPA is going with this
rule, if you knew for a fact that it would create shortages and
price spikes?
Mr. Kassel. Well, I would like to address the shortages and
price spike issue.
Senator Inhofe. First, answer the question that I have
asked.
Mr. Kassel. The answer is, I think that EPA's proposal is
fantastic, as is.
Senator Inhofe. No, just answer the question, would you
want to go further than the current proposal, if you knew for a
fact that it would result in shortages and price spikes? That
is a yes or no question.
Mr. Kassel. No, no.
Senator Inhofe. All right, and the second part of the
question would be, if we were to determine that the current
rule will cause price spikes and shortages, would you change
your position in supporting it?
Mr. Kassel. I think it is very hard to know whether there
will be price spikes. I would like to just touch on that for a
sentence or two.
Senator Inhofe. Well, OK.
Mr. Kassel. There are many, many examples in the
environmental history over the last three decades, where before
a policy was implemented, industries were concerned about
supply, availability, prices, feasibility, and so on. That is
appropriate, in the advocacy arena.
At this point, EPA, this subcommittee, Congress, is trying
to decide what is the right policy for the nation's diesel fuel
and diesel engines. I think that the give and take is
absolutely appropriate. I think that it is natural in that
context for an environmental group, such as ours, to advocate
for the best environmental protection.
It is also logical for fuel suppliers, engine companies,
affected industries to say, what is the worst case scenario;
what is the absolute worst case scenario? I think what we have
here and what we have seen, time and time again, is the worst
case scenario is being laid out.
Senator Inhofe. But I would have to ask the further
question then, since there is such a rush to do this in this
short timeframe, and there is not time to determine, or at
least I do not think there is, what effect it is going to have
as far as price spikes or shortages, which are about the same
thing, then it would seem to me, you have to use the worst case
scenario, unless you have time to develop a more accurate
scenario.
It may be a worst case scenario, but it stands to reason,
that if it is a supply and demand situation, sure, we can say
that it is only a nickel a gallon, if it is the cost of
changing your equipment and marketing.
But if it has the deteriorating effect on the supply, right
now, people are pretty sensitive to that. That is the reason
for the question, and I wanted to frame it that way.
Mr. Kassel. Right, well, I think this summer, we all
learned a very important lesson about how markets respond to
fuel changes. I think that the lesson, there are several parts
of it.
First, I think that what we learned from the Midwest is
that it was a market failure, and not necessarily a policy
failure. Second, price spikes are multi-faceted. There are many
factors that went into the changes in pump prices over the last
year, and RFG is only one faucet of that.
Senator Inhofe. OK.
Mr. Kassel. If I could just finish with that. I think the
answer really is a national approach. Part of the problem with
what we saw with RFG is that there are different fuels in
different places.
We have heard today testimony that that is a real fear;
having multiple fuels in a fuel supply chain that is designed
for only one fuel. That is why we think the answer is not to
stretch out the implementation, not to do a phase-in; but
rather, to say, as of a date certain, diesel that comes into
the refineries from import, or that is refined at the
refineries would be low sulfur and so on.
Senator Inhofe. I would say this, as the chairman of this
committee, my concern has been, with this Administration, the
rush to getting into these things, the lack of sound science.
I have said several times that if we have a change in
Administration, what I want do with this is to have the same
goals, in terms of clean air, clean water, and it applies
across the board. But I also want to have a cost benefit
analysis, determine what it is going to cost, and use sound
science.
You know, during the ambient air thing, the CASAC, the
Clean Air Scientific Advisory Committee, there were 21
scientists. Only two agreed that those changes should be made
at that time.
All I am asking for is the time to make these
determinations, so we do not wake up with the spikes, and then
all of a sudden say, hey, Inhofe, you were Chair on that
committee that did not do what they could to be deliberate
enough to get this done.
Let me ask you, Ms. Vujovich, we hear a lot about the
problems imposed on the oil industry and the refining industry
on the over-regulations. From an engine manufacturing
perspective, what kind of effect does this have on you?
Ms. Vujovich. Well, Mr. Chairman, as you know, we are a
regulated industry, and have been for quite some time. As you
probably recall through the Clean Air Act, in the 1990
amendments, there are provisions that require a period of
stability for our standards and a period of lead time. There is
a period of 4 years of lead time and 3 years of stability.
So we have become a regulated industry that expects every
three to 4 years to see some sort of environmental control.
That is what we are confronted with today. We have standards
that will be changed across the industry, between 2002 and
2004, and then this set of regulations proposed for 2007. As
with most regulated industry, they become more and more
difficult and challenging to meet.
So I would say, we do feel very regulated. We feel that the
challenges are becoming more and more significant, and more and
more costly. But it true that we would anticipate that, given
the language in the statute.
Senator Inhofe. Thank you.
Mr. Rogers, in your testimony, I think you said that the
compliance with this rule would cost, what, $100,000 for each
service station?
Mr. Rogers. When you take the cost of adding extra tanks,
more pumps, monitoring systems, piping, all the detection
system that were required in 1998, any upgrades, of course,
have to meet those standards, or new installations have to meet
those standards.
A truck stop cannot put in one dispenser. Trucking
companies will now allow their trucks to sit in line for that
length of time. The majority of truck stops have anywhere
between eight to 16 or eighteen, up to 20 dispensers per
location. You know, dispensers cost $10,000 or more each, plus
all the supporting equipment that has to go with that. So you
would have a great expense.
Now most people had to upgrade in 1998, and they are still
trying to pay that off. They had to mortgage the house to meet
these standards to stay in business, and they are still trying
to pay those off.
Contrary to what Mr. Kassel says, the major oil companies
are not operating these travel plazas and truck stops. They are
mostly operated by small companies or small family
organizations, that have mortgaged everything to stay in
business after the 1998 change.
Senator Inhofe. Well, Mr. Kassel did characterize these
costs as being extremely reasonable. Do you have a response to
that?
Mr. Rogers. Sir, I would like for him to pay our mortgage,
and tell me it is extremely reasonable. It certainly is very
costly. It is very expensive.
Yet, certainly, we are willing to make those necessary
investments, because we also support every phase of that clean
air point, but we have got to do it at a cost that we can
continue to employ people and continue to operate a business.
Senator Inhofe. Mr. Williams, you know, Mr. Kassel talked
about the exorbitant profits of, I believe, the 11 largest oil
refiners.
Mr. Williams. Yes.
Senator Inhofe. How do you, as a small refiner, compare to
these?
Mr. Williams. Well, I think he referred to the first
quarter of this year. We and, I believe, all small refiners
lost money in the first quarter of this year.
Senator Inhofe. You lost money on your financial statement
in the first quarter?
Mr. Williams. Right, that is correct. I think most refiners
did. In fact, the refining operations of the major oil
companies lost money in the first quarter.
The reason the majors had good profitability in the first
quarter of the year was because of the price of oil escalating.
Keep in mind that the high price of oil means that you have a
high raw material cost going into the refining business.
So those that have to buy that crude oil suffer the
consequences of that, because there is no correlation between
crude cost and product pricing at the tailgate of a refinery.
It is all set by the market, and it is the law of supply and
demand.
Senator Inhofe. Mr. Kassel, do you have any response to
this?
Mr. Kassel. Sure, I do. First of all, I just want to
clarify that when I was talking about the reasonable costs that
we think would be borne by the refineries, we are looking at
that in terms of a comparison.
Senator Inhofe. So you were not talking about regional
costs that would be borne by the institutions represented by
Mr. Rogers?
Mr. Kassel. Right, that point was about the refinery issue.
Senator Inhofe. Do you think those costs are reasonable?
That was not addressed in your statement.
Mr. Kassel. Well, it actually was briefly addressed. What I
was trying to do, and it is outlined further in my written
statement, is to try to answer or solve the problems that are
posed by a multiple fueling situation; the problems of
misfueling, the problems of fuel supply contamination.
Those are very real problems that the retail sellers and
that the other distributors of diesel fuel would have to
account for and pay for, if we went into a situation where we
had multiple grades of diesel fuel.
I think every business has its own version of what is a
reasonable cost for that year, for that quarter, or for that
decade. But in thinking through a sound policy, what I have
tried to do is answer the questions that are raised by the
affected industries.
One of those is a real fear of fuel supply contamination; a
real fear of having to invest in multiple fueling with pumps at
each station. There is no reason for that, because a national
program with a national fuel would obviate the need for those
types of expenses.
That goes back to how we look at it, before a policy
decision is made, and there is a lot of uncertainty as there is
today; and after a policy decision is made, when businesses can
properly account for what their capital expenditures will be.
That is why we hope to finish the rule this year.
Senator Inhofe. OK, we are having a problem now because of
the action of the Democrats on the floor. So I am just going to
ask one more question. Let us start with you, and just get a
response to it.
If the rule is finalized, and I am talking about finalizing
it at the end of the year, it would become effective in 2007.
Because of all of these problems that we have here, I would
like to have each one of you respond as to what would be wrong
with delaying the finalization of this until some of these
questions are answered, since it is not going to be going in
effect until 2007, anyway.
Mr. Kassel, you may start first.
Mr. Kassel. This proposal will require changes in every
step of the fuel industry, the engine industry, the after-
treatment industry.
Senator Inhofe. Maybe I need to rephrase that. In your
response also, apparently, in 2003, there will be a technology
review, which could change some of these things that they are
starting to do, in order to comply with what they think is
going to be required by 2007.
Go ahead. I am sorry.
Mr. Kassel. Technologies have been used in the past by EPA
to address some of these questions as they go forward. EPA just
finished one in July. Technology review would be far preferable
to delay.
Our concern is that this is a complicated program. We would
hope that companies that are affected will have the maximum
amount of time and the maximum amount of certainty on which to
base their R&D programs, their capital expenditures, and so on.
Every year that we delay, it means extra asthma and extra
cancer. Those are avoidable, and that is our concern.
But it also means uncertainty for the companies that will
be affected. It means they would be playing catch-up later. We
would like to avoid that.
Senator Inhofe. We need time for the others.
Mr. Williams, do you have any response to that?
Mr. Williams. Yes, it is impossible to plan significant
investments of this type, when you are undergoing technological
review at the same time.
We are all going to have one shot at doing this, whatever
the rule ends up being. To be forced, early on, to plan your
capital investment contract and build, et cetera, at the time
when you are undergoing technological review is going to be
impossible.
There is going to be a big run on construction in this
industry in the next 4 years. It is going to be very difficult
to find contractors, get engineering, and all of that done with
rash of investment that is going to have to be made.
If we are going to undergo technological review, which we
need to and we are planning to, we definitely need to have a
delay, in order to make sure we do it right the first time.
Senator Inhofe. In other words, change it so you would have
that technology review before having to start into the expense
of making your changes?
Mr. Williams. Exactly, because you cannot afford to get it
wrong.
Senator Inhofe. Mr. Rogers?
Mr. Rogers. Mr. Chairman, I still have questions as to why
they rushed. We all know that we need to make further
improvements and change the spectrum of what we are getting in
sulfur.
The industry has stated they can readily take it to 50
parts per million from 500, which is a 90 percent reduction
which, as stated before, was a 90 percent reduction from where
it was prior.
We do not know what the effects of that are going to be on
the asthma and so forth by reducing it that far. You are
talking about a 7 percent factor difference between the 90 and
97.
Our concern is that the amount of investment that has got
to be made by the refining industry is so drastic, to bring in
that other 7 percent, as you said, we do not know what the
technology is going to be and where it is going to be in that
sector.
So our concern goes back again to we certainly have
concerns about the imposition of this rule immediately by the
end of the year. We do not think it is going to set it enough.
We certainly have concerns that the EPA is rushing to get this
done.
Senator Inhofe. Thank you, Mr. Rogers.
Ms. Vujovich, you have a different type of compliance
requirements. What is your thinking on this?
Ms. Vujovich. Well, as you have mentioned and others have
mentioned, there is an awful lot of uncertainly still
surrounding this rulemaking. There is no doubt that there will
be huge changes in the industry, whether it is the petroleum
industry or the engine industry.
We, as an engine industry, understand that the next level
of emissions control will require after-treatment systems. So
there is no doubt in our mind that the next level of control
will require after-treatment systems.
I want to dismiss anyone's notion that the industry will
not be working on these things, absent a rule in place. By Mr.
Kassel's own testimony, he referred to the work that is going
on in Cummins' labs today, with development targets at least at
the levels that EPA is proposing in the rulemaking.
So without a rulemaking, our individual shops have
development targets at ultra-low levels. As an industry, we are
ready to continue the development work, and understand the
costs and understand the complexity in making sure that we can
commit to 435,000 miles of emissions control, without a rule in
place, but understanding that there is a technology that needs
to be developed. We will subject ourselves to a review of that,
as time goes on.
Senator Inhofe. Thank you very much.
Ms. Vujovich. Thank you, Mr. Chairman.
Senator Inhofe. One of the concerns that I have is, as an
elected person, I face problems that bureaucrats do not face.
That is, the price of gasoline, the price of fuels. They are
going to be going up.
So I am going to make an observation so that later on, I
can come back and read this out of the record as having said
this on this date.
This week, the price of oil reached $37 a barrel. This is
totally unprecedented, certainly, since the Gulf War. Even the
Clinton Administration has predicted that home oil prices would
raise by 30 percent this winter over last winter. I think it is
going to be more that. I have heard estimates as high as
doubling the price over last year.
Crude oil stockpiles are at the lowest they have been since
1976. When President Clinton met with the Saudi Crown Prince
Abdulla at the United Nations summit to request the Saudis to
produce more oil, he stated that the high gas prices could
trigger a recession. This is the President saying this.
One of the hidden causes of high oil prices are the
numerous environmental regulations. For example, on June 5th, a
Department of Energy memo revealed that the Clinton/Gore
Administration knew that the environmental regulations were a
major reason that gas prices jumped to record levels this
summer, even though what you hear from Clinton and Gore and
Carol Browner is that it is all the fault of big oil companies.
For those of you who doubt where the President and Vice
President are on this issue, I will quote from Al Gore's book,
Earth in the Balance: ``Increasing taxes on fossil fuels is one
of the logical first steps in changing our policies in a manner
consistent with a more responsible approach to the
environment.''
The view of the Clinton/Gore Administration is, if you
cannot increase taxes enough, then increase environmental costs
instead.
I will repeat this one more time. We have some real
legitimate concerns that we want to be addressed, that I do not
know whether they can be addressed in that short period of time
by the EPA. But we are going to send those to the EPA.
In the event they are not, then as soon as we get back in
session, in the next session, I will invoke the Congressional
Review Act, in order to keep this from being imposed on the
American people.
Thank you very much. I am sorry we had to rush this, but it
was something that we could not help. We are adjourned.
[Whereupon, at 11:25 a.m., the subcommittee was adjourned,
to reconvene at the call of the Chair.]
[Additional statements submitted for the record follow:]
Statement of Ronald W. Williams, President, Gary-Williams Energy
Corporation
Introduction
Good morning, Mr. Chairman and members of the committee.
My name is Ron Williams. I am President, Chief Executive Officer
and an owner of Gary-Williams Energy Corporation, a Denver-based
refining and marketing company. Our primary asset is a 50,000 BPD crude
oil refinery in Wynnewood, Oklahoma. Companywide, we have about 275
employees and fall within the definition of small business refiner used
for the Heavy Duty Engine and Vehicle Standards and Highway Diesel Fuel
Sulfur Control Requirements proposed by the Environmental Protection
Agency in May of this year.
I have been asked to speak today on behalf of the oil and gas
industry as a whole. We are members of both the National Petrochemical
and Refiners Association (NPRA) and the American Petroleum Institute
(API). NPRA represents virtually all of the US refining industry; API
represents all sectors of the petroleum industry: exploration and
production, transportation, refining and marketing. In addition, we
served as a representative of an ad hoc coalition of some 15 small
refiners producing diesel fuel during the SBREFA (Small Business
Regulatory Enforcement Fairness Act) panel investigation into the
impact of EPA's proposed rule on small business refiners.
General Industry Concerns
NPRA and API have previously testified before this committee and
have devoted extensive resources to try to work with EPA and to analyze
technical issues on this proposed ruling. The industry as a whole
firmly supports the clean air benefits of lower sulfur fuels. At the
same time, however, the industry believes that the costs and benefits
of these regulatory requirements must be carefully weighed in the
context of their impact on energy supplies and the ultimate burden on
consumers and the national economy. In short, we fear that EPA's haste
to promote very sensitive engine technology is prematurely driving
stringent and unreasonable fuel standards. We believe that a 15 ppm cap
on diesel sulfur (effective in April 2006) will mean a sharp reduction
of highway diesel fuel supplies, higher fuel prices and significant
market volatility. In addition to those in the fuel industry, the rule
will hurt all those who rely on highway diesel fuels, including
truckers and distributors of goods and services. Diesel-fueled trucks
and buses are the backbone of commerce in this country. The ultimate
harm will be to consumers, jobs and the economy.
Among the key concerns shared by most of the refining industry are:
1. The 15 ppm diesel sulfur cap proposed by EPA is unreasonably
stringent. To produce product consistently to that standard (allowing
for inevitable operational disruptions), a refinery must in fact set
itself a much lower cap. At least two things will happen: first,
refiners choosing to produce for the highway market will incur
significant capital and operating costs and consumers will experience
about a 5 percent fuel economy loss; second, other refiners will be
forced to limit or forgo participation in the highway diesel market. As
a result, additional diesel volumes will be necessary just to match
current demand.
2. The US fuel refining and distribution systems will not be able
to expand to meet anticipated future demand. Refineries are now
operating at over 95 percent of rated capacity which is approximately
full sustainable capacity and this rule will shrink existing capacity.
Forecasts (by the Energy Information Administration) are that US diesel
demand will increase by 6.5 percent between now and 2007, gasoline
demand will grow by 1.9 percent per year and jet fuel demand will rise
by 3.2 percent per year. (Note: jet fuel is made mainly from high
quality, light distillates and ``competes'' with diesel for blending
components.)
3. Distribution problems will further reduce available supplies of
ultralow sulfur diesel fuel and restrict the industry's ability to
respond to any unexpected supply shortfalls. Potential for
contamination in pipelines, barges, tankers, etc. will constrain
shipment schedules and require more extensive interface cuts. EPA
itself has suggested that some 2 percent of highway diesel may be
downgraded to off-road fuel because of a required increase in pipeline
transmix.
4. Importing additional diesel supplies to meet demand will be
restricted because foreign producers will be unlikely to meet our more
stringent sulfur standards.
5. Costs to meet a 15 ppm standard will be significantly greater
than EPA projects. According to EPA, costs for diesel fuel under the
new standard would be approximately three to four cents per gallon
higher. API, however, projects incremental costs of 12 cents per gallon
for diesel manufacturing ($8 billion in refinery capital investments)
and an additional two cents per gallon for distribution expenses. API
estimates that the capital costs to reach a 50 ppm standard (a 90
percent reduction in sulfur levels from today's standards) would be six
cents per gallon higher than EPA forecasts but about half the outlay
for the 15 ppm level.
6. Unable to make the huge investments required for a 15 ppm diesel
cap and facing additional massive expenditures to meet almost
simultaneous new regulations on gasoline sulfur, oxygenates and air
toxics, some larger refineries will move out of the highway diesel
market. Some smaller refineries will be forced to go out of business
all together. The off-road market will be flooded with higher sulfur
diesel. API has estimated that the shift away from on-road diesel could
be in the 20 to 30 percent range. More production loss may result from
refinery closures. Faced with the high cost of regulation and low rates
of return, more than 25 U.S. refineries have already closed in the last
10 years.
7. The industry is in agreement that major supply shortfalls should
be anticipated. Estimates range from 10 to 30 percent of projected
demand. A just-released Charles River Associates (CRA) study suggests a
nationwide average shortfall of more than 12 percent with particularly
acute supply shortages at the regional level. On road diesel supply is
projected to decline by 18 percent in Petroleum Administration for
Defense Districts (PADDs) I, II (where our Wynnewood refinery is
located) and III and by 37 percent in PADD IV, relative to the DOE
baseline forecast of market demand in 2007. CRA estimates potential
price increases in PADDs I-III of $0.54 to $0.80/gallon and potential
price spikes of $1.56 to $2.28/gallon in PADD IV should an insufficient
volume of imports be available to cover the loss of domestic
production.
8. The effective date of the proposed diesel rule overlaps the
period when refiners will be making major refinery modifications needed
to meet new Tier 2 gasoline sulfur requirements. In addition to the
major cost burdens imposed, almost simultaneous implementation of the
standards will exceed the capacity of available engineering and
construction resources.
Industry Recommendations
The refining industry has specifically urged EPA to take three
critical steps:
Conduct a thorough technology review (for engine and
emission systems as well as refinery desulfurization technology) before
finalizing the rule;
Set reasonable and cost-effective standards for vehicles
and fuels;
Set an effective diesel sulfur implementation date that
does not overlap the Tier 2 gasoline requirements.
The industry has no reason to believe that the Agency will respond
to these urgent recommendations without congressional intervention.
Small Refiners' Dilemma
Small business refiners share the same concerns as the majors with
this rulemaking, but our problems are much greater. There are fewer
than 25 small refiners meeting the EPA definition (fewer than 1,500
employees and total capacity not exceeding 155,000 BPD).
There are also numerous small refineries owned by larger companies
with significant crude oil production and/or significant retail outlets
which they also own or control. In some cases the owners are in
partnership with foreign producers such as Saudi Arabia and Venezuela.
In addition, they own other much larger refineries.
The benefits that these major companies enjoy from their sheer
size, diversification and integration are many:
Easy access to both debt and equity capital;
Lower cost of capital;
Significant overhead savings and buying power with
multiple refineries (e.g. utilities, operating supplied, engineering
services, etc.);
Ability for one segment of their business to subsidize
or ``carry'' another segment; and
Enormous ``staying power''.
For most of these major companies, their refineries are viewed as
part of an integrated system. For example, several foreign producers
have invested in US refineries to increase their market share of crude
oil imports. Historically, profits from the major oil companies' crude
oil production and retail marketing have subsidized the dismal rates of
return on their refining assets. Many of the larger companies have
publicly announced their desire to achieve a ``balance'' between the
amount of refining capacity they own and retail distribution outlets
they own or control. It is clear that the major oil companies' size,
diversification and integration create a formidable, competitive
advantage over the small refiners.
In short, small refiners are less able to raise the necessary
capital and to endure the related increased operating costs which
desulfurization investments will require; we face proportionately
higher costs because we do not enjoy the same economies of scale; we
cannot compete for limited construction and engineering resources. Many
of us are also faced with meeting stringent Tier 2 gasoline standards
in approximately the same timeframe.
In our case, for example, we estimate that Wynnewood refinery's
capital costs to reach 15 ppm diesel sulfur will total approximately
$48.5 million. In addition, our annual operating and maintenance costs
will increase $6 to $7 million, an amount equal to our historic annual
net income. Clearly there would have to be a significant increase in
profit margins, which has not been the case with past environmental
investments.
If we must comply with the Tier 2, Diesel and Air Toxics rules as
issued or proposed, according to our best estimates, GWEC must finance
capital expenditures totaling $87 million in a 5-year period between
2003 and 2007. Not included in this total is an additional almost $3
million capital expenditure which will be required by the fall of 2003
under MACT standards expected to be released in the next few months.
Importance of Small Refiners in a Vibrant National Oil and Gas Industry
Small business refiners believe this regulation will irreparably
damage the competitive fabric of our industry and result in
unnecessarily higher prices for diesel fuel consumers. Several will go
out of business. In our case, the impact of this proposal is
devastating and, if not amended, will ultimately cause us to shut down
our refinery.
What then would result? The rapid and pervasive trend toward
megamergers in the industry will continue unchecked. There will be
fewer if any small independents able to provide competitive products
and to challenge the majors' price increases. Historically, small
refiners have not only often been the lifeblood of the small
communities in which they operate, they have served an essential
function in providing pricing competition which requires the larger
integrated companies to better meet the needs of the consuming public.
Often the small independent provides the lowest wholesale price in the
market for gasoline and diesel.
Also small refiners serve an essential national security function.
In 1998/99, for example, small refiners (representing only about 4
percent of the diesel refining capacity in this country) provided
almost 20 percent of the military jet fuel used by U.S. Military bases.
Small refiners with defense contracts supplied almost 500 million
gallons of jet fuel.
Extensive Effort Has Not Produced Comprehensive Small Refiner Solutions
Small refiners have worked diligently with the SBREFA panel and
with EPA directly 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. Wynnewood Refining Company, for example, is
one of only a few small refiners without a distillate desulfurization
unit. Because of the strong local agricultural, ranch and oil field
markets, the additional desulfurization capacity has not previously
been necessary.
Our many discussions with EPA staff, give us no reason to believe
that the final rule will include adequate accommodation for the
majority of small refiners. The apparent sensitivity of diesel engine
technology now contemplated and the Agency's headlong rush to impose a
rule immediately mean that there will be no opportunity for additional
research and no incentive for the development of alternative
technologies that might be equally as effective with slightly higher
sulfur fuel.
Preservation of the Small Refiner Segment
Small refiners concur with the industry position summarized above.
Like the industry as a whole, small business refiners are united in our
belief that the costs, technical difficulties and tight timeframes
imposed under the proposed diesel rule will push the US refining
industry to limit production of ultralow sulfur highway diesel, cause
supply shortages and price increases and flood the off-road market with
higher sulfur product. This shift away from the on-road market will be
substantial as many refiners decide to drop their Light Cycle Oil (LCO)
into the off-road market rather than make the large capital investments
required to process the entire stream to a 15 ppm cap. The related glut
in the off-road market will reduce the price of off-road diesel and put
many small refiners who rely on that market, like Wynnewood Refining
Company, out of business.
As the industry has pointed out, the rational and preferred
solution is to delay issuing the rule. If the Agency were to withdraw
the rule to allow for more time to complete the research and thoughtful
analysis needed, a more thorough investigation of highway diesel supply
questions and antidumping provisions could be undertaken and
subsequently public comment could be invited.
If, however, EPA proceeds with the rulemaking, small refiners urge
EPA to adopt anti-dumping provisions in its final rule, to preserve the
small refiner segment and to mitigate the very real probability that
the supply of highway diesel will be reduced. One suggestion is to
limit sales of high sulfur diesel into the off-road market to a
refiner's current volume or some appropriate baseline. Additional sales
into the off-road market would be allowed, but the sulfur standard for
incremental volumes would be whatever cap is adopted. Small business
refiners, who produce only about 4 percent of the nation's diesel and
who market almost exclusively in attainment areas, would be exempt from
this provision. This sort of anti-dumping provision would provide
certainty that the on-road market would be first priority and therefore
adequately supplied since there would be no economic incentive to dump
incremental diesel into the off-road market. Such a provision would
have no material environmental impact. In fact, because LCO is at the
high end of allowable off-road sulfur levels, without an antidumping
provision, off-road pollutants would probably increase.
Access to Capital
Whatever provisions EPA adopts for small business refiners will not
be sufficient to keep all of us in business. We must have help to
finance these incredibly costly regulations. We ask that Congress and
the Administration fully realize the ramifications of this rule to the
small refiner. The extraordinary costs involved will result in small
refinery shutdowns, and less competition in the market place. If EPA is
allowed to proceed, we ask that Congress and the Administration
consider providing tax credits, loan guarantees and other provisions to
assist small business refiners.
For example, among the types of assistance that should be
considered:
$0.05/gallon excise tax credit or an income tax credit
for small refiners to defray costs of an investment in desulfurization
technology; and
Increase in SBA maximum loan guarantee on pollution
control loans from $1 million to $10 million or higher.
Conclusion
In conclusion, the refining industry, including the endangered
small business refiners, believe that this rule must be subject to much
more extensive review than the Agency's current timetable will allow.
Without some delay to allow the complex analyses of engine technology,
desulfurization technologies and costs and supply disruption
probability, this country can expect to see price spikes, fuel
shortages and consumer outrage that may make recent protests in the
midwest and Europe look mild in comparison.
Thank you for the opportunity to express these views.
__________
Statement of Paul Rogers, Chief Operating Officer, Voss Companies, Inc.
on Behalf of NATSO, Representing America's Travel Plazas and Truckstops
Good Morning Mr. Chairman and members of the subcommittee. My name
is Paul Rogers, and I am the Chief Operating Officer for Voss
Companies, a small family owned company based in Cuba, Missouri. Thank
you Mr. Chairman for inviting me to testify today on the Environmental
Protection Agency's Proposed Regulations which would reduce the sulfur
content of highway diesel fuel.
Voss Companies owns and operates 3 truckstops in the Midwest, along
with a small chain of convenient stores. We employ 275 people
throughout our operation, and sell approximately 45 million gallons of
diesel fuel at retail every year.
With over 26 years of personal experience in the truckstop
industry, I appear before the subcommittee today on behalf of NATSO,
the national trade association representing the travel plaza and
truckstop industry. NATSO represents nearly 400 companies, which
operate approximately 1,200 travel plaza and truckstop locations
nationwide.
As the primary retailer of highway diesel fuel, the truckstop
industry is a vital link in the transportation of goods and services
throughout our country. The vast majority of our nation's products are
delivered by diesel powered vehicles; everything from the clothes we
wear to the food we eat. Our nation's travel plazas and truckstops are
a critical link in the movement of these goods, providing the fuel
needed to keep these trucks, and our economy, running smoothly.
In an effort to improve air quality, EPA has proposed that the
sulfur content of all highway diesel fuel sold to consumers be reduced
from its current level of 500 parts per million to just 15 parts per
million beginning in 2006.
While the travel plaza and truckstop industry supports efforts to
reduce emissions, NATSO has serious concerns and objections with EPA's
proposed diesel sulfur regulation and the effect it will have on our
nation's energy supply and delivery system. As proposed, EPA's rule
will reduce overall supplies of diesel fuel, lead to significant spot
outages, and significantly increase the cost of diesel fuel and other
distillates.
NATSO is very concerned that this drastic 97 percent reduction in
the sulfur content of highway diesel fuel will seriously disrupt the
truckstop industry's ability to consistently and reliably acquire
highway diesel fuel for sale in our nation's vehicles.
The investment which refiners will need to make in order to reduce
sulfur levels by 97 percent may force many refiners to opt out of the
highway diesel market and instead focus on other market segments for
product production. Further, some refineries may cease operations
altogether. With our nation's current fuel supply strained as it is,
the loss of any additional diesel production and supply would be
devastating.
Additionally, due to its integrated structure, it does not appear
that our nation's diesel fuel distribution system could maintain ultra-
low sulfur highway diesel fuel supplies in all areas of the country on
a reliable basis. This serious problem could lead to fuel cross-
contamination, spot outages of highway diesel fuel, and severe price
spikes.
Furthermore, under EPA's proposed 97 percent reduction in sulfur
levels, domestic highway diesel fuel will have a lower sulfur level
than highway diesel fuel produced in most other nations. This would
essentially prohibit the influx of foreign supplies of diesel fuel
which could otherwise be used to ease shortages in domestic production
and supply.
Ultimately, under EPA's proposal, less diesel fuel will be produced
and supplied, driving up prices and costs, and endangering the
integrity of our nation's energy supply and delivery system.
Truckstop operators--a critical link in the movement of goods and
services throughout our nation--must be able to reliably acquire diesel
fuel for re-sale to not only remain a viable and important part of our
nation's fuel delivery system, but to ensure that adequate supplies of
diesel fuel are available to power our country's vehicles.
EPA, in a misguided attempt to address the problems which would
result from the extreme sulfur reductions proposed, has sought comment
on various phase-in schemes which would result in the temporary
manufacture, sale, and use of two separate grades of highway diesel
fuel. These scenarios would allow the current 500 parts per million
highway diesel to continue to be produced alongside the new ultra-low
sulfur diesel for a period of years until it is eventually phased out
in favor of the new ultra-low sulfur fuel.
NATSO is strongly opposed to these phase-in schemes, as they would
prove devastating to the entire diesel fuel distribution system,
including travel plazas and truckstops, while having the net effect of
further reducing the supply of diesel fuel available at retail.
It is critical to note that the entire diesel fuel delivery system,
from refinery to retail, is currently handling a single grade of
highway diesel fuel. Because the travel plaza and truckstop industry is
also configured to carry a single grade of highway diesel, the
introduction of a second separate grade would force the truckstop
industry to make tremendous capital investment to carry both products
at retail.
Significant expenditures, over $100,000 per location in many cases,
would need to be made to ensure that these separate grades of diesel
are properly segregated to prevent their cross-contamination, and to
avert misfueling at the pump. This would result in the need for new
storage tanks, the re-piping and re-manifolding of tank lines, new
pumps and monitors, and other significant compliance expense. In many
cases, the permits for such a mandate would be unattainable.
Furthermore, these costs, which would be borne by an industry which
largely consists of small independent owner/operators who are still
recovering financially from the 1998 underground storage tank upgrades,
would prove to be unrecoverable due to the temporary nature of the two
fuel system.
The introduction of a second grade of highway diesel could
therefore force many truckstop operators out of business, and have the
additional effect of further reducing diesel fuel supply.
NATSO urges the subcommittee to express to EPA your opposition to
these phase-in schemes which would result in the temporary manufacture,
sale, and use of two separate grades of highway diesel fuel. These
phase-ins will place at risk the integrity of our nation's diesel
fueling infrastructure, raise costs throughout the distribution chain,
and reduce overall supplies of highway diesel fuel.
NATSO does support efforts to improve our nation's air quality
without placing our energy supply and delivery system at risk. The
petroleum industry has stated its support for a 90 percent reduction in
sulfur levels from 500 parts per million to 50 parts per million. Such
a reduction, if it occurs without a two-fuel phase-in scheme and with
sufficient lead-time for refiners and emission control manufacturers,
would achieve significant reductions in emissions, while maintaining
the integrity of our nation's diesel fueling infrastructure.
On behalf of NATSO and the truckstop industry, I again thank the
subcommittee for holding this important hearing. I would be happy to
answer any questions from the subcommittee.
__________
Statement of Richard Kassel, Senior Attorney Natural Resources Defense
Council (NRDC)
highway diesel fuel sulfur control requirements--epa docket no. a-99-06
\1\
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\1\65 Federal Register 35430 (June 2, 2000) (the ``Proposal'').
Abbreviations not defined herein shal have meaning attributed to them
in the Proposal.
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I. Introduction
Thank you for the opportunity to testify today on EPA's diesel fuel
and emissions proposal. At NRDC,\2\ we believe strongly that EPA's
diesel proposal offers a once-in-a-generation opportunity to
significantly cleanup one of America's most enduring pollution
problems. Given the critical importance of the diesel trucking industry
to our nation's economic health, it is essential that EPA act as
quickly as possible to ensure the nation that its trucks and other
diesel vehicles are as clean as possible.
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\2\The Natural Resources Defense Council (NRDC) is a national, non-
profit environmental advocacy organization. Founded in 1970, NRDC has
over 400,000 members nationwide, and offices in Washington, DC, New
York City, Los Angeles, and San Fransisco.
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NRDC has been working to clean up diesel emissions since the mid-
1970's at about the same time as we were spear-heading the campaign to
remove lead from gasoline. The connection between our lead campaign and
EPA's current proposal is an important one: Just as lead in gasoline
was the barrier to cleaner cars in the 1970's, sulfur in diesel is the
barrier to cleaner trucks and buses in this decade.
NRDC strongly supports EPA's proposal for a very simple reason
EPA's proposal means cleaner air and better health for all Americans.
By mid-2006, 97 percent of the sulfur in diesel fuel would be
eliminated, and starting with the 2007 model year, asthma attack-
inducing soot particles would be slashed by 90 percent. By the end of
the decade, tailpipe emissions of smog-forming nitrogen oxides (NOx)
would be cut by 95 percent. These emission reductions will be the
equivalent of removing the pollution from 13 million of today's trucks
from the roads,\3\ and will result in the elimination of 2.8 million
tons/year of NOx, 305,000 tons/year of non-methane hydrocarbons, and
110,000 tons/year of particulates.\4\ This will bring critical relief
to the more than 120 million Americans live in areas that don't meet
EPA's health standards for ozone and/or particulate matter.
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\3\Statement of EPA Administrator Carol M. Browner, May 17, 2000.
\4\65 Federal Register 35430 (June 2, 2000).
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The key to the success of EPA's Proposal is the desulfurization of
today's high-sulfur diesel fuel: Just as a small amount of lead in
gasoline disables automobile catalytic converters, even a small amount
of diesel sulfur will disable the most promising emission controls for
nitrogen oxides and will make the soot controls less effective. In
other words, a smaller, compromised sulfur cut (as suggested by oil
interests) would render the EPA's proposed PM and NOx targets
unachievable, but EPA's proposed 97 percent sulfur cut would make the
air cleaner in every State of the nation.
Undoubtedly, the oil industry and its allies will continue their
fight until the end of the year, hoping to push this Proposal into the
next Administration. They are fighting against cleaner air and improved
public health--even though the oil industry earns more profits in a
single quarter of a single year than its own estimated costs of
compliance for the entire 10-year roll-out of the Proposal, and even
though the past three decades of environmental regulations are filled
with examples of air pollution regulations that did not cost nearly as
much as industry advocates had previously estimated.
EPA and the administration should continue to hold firm because it
is on the verge of a historic environmental victory. When it happens,
removing sulfur from diesel fuel will be the biggest vehicle news since
the removal of lead from gasoline. By cleaning up every truck and bus
in the nation, this should mean longer, healthier lives for asthmatics,
and many other Americans, who currently hold their breath when a diesel
truck or bus blows by and who fear the summer's first ozone alerts far
more than they should.
However, NRDC believes strongly that the Proposal--and EPA's
overall program to reduce diesel emissions--can be improved in the
following ways: (a) remove the 4-year phase-in of the NOx standard,
thereby implementing this standard fully in 2007; (b) improve the in-
use compliance and enforcement program, to ensure that engine and
vehicle certification emissions more accurately reflect in-use, real-
world emissions levels (c) ensure that the NTE limits and other
compliance mechanisms of the 1999 Consent Decrees do not expire in
2004; and (d) add a series of incentives for the increased use of
advanced technology and alternative fuel vehicles in urban fleets,
especially transit buses, sanitation trucks and delivery vehicles.
II. The Health Threat of Diesel Emissions
The reasons for our concern about diesel emissions are clear. In
our view, diesel's excessive quantities of particulate matter (PM), NOx
and toxic emissions are probably the most serious air pollution threat
facing many Americans, particularly in many urban areas.
More than fifty studies show links between particulate matter
generally and a wide range of health impacts, including increased
asthma attacks and emergencies, endocrine disruption,\5\ numerous
cardiopulmonary ailments, cancer and premature death.\6\ Nitrogen
oxides contribute to ground-level ozone formation, acid deposition,
nutrient pollution of waterways, and secondary (i.e., atmospheric)
formation of particulate matter.
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\5\Endocrine/Estrogen Letter, June 2, 2000, p. 6. Researchers at
the Science University of Tokyo found testicular abnormalities in male
mice that inhaled diesel exhaust.
\6\NRDC, Exhausted by Diesel, Third edition, May 1999, pp. 5, 8.
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While numerous studies have concluded that the particulate matter
and nitrogen oxide emissions in diesel exhaust are harmful to human
health, NRDC is increasingly concerned about the growing evidence that
diesel particulates are associated with increased cancer risk. Diesel
exhaust has long been considered to be at least a probable human
carcinogen by the National Institute of Occupational Safety and Health
(NIOSH) and the World Health Organization's International Agency for
Research on Cancer (IARC).
In the past 2 years, three actions by various government bodies
moved the nation further along this path: In July, EPA staff reiterated
its prior conclusion that diesel exhaust is a likely human carcinogen,
based on compelling epidemiological studies.\7\ We expect the Clean Air
Scientific Advisory Committee to finalize its work on this document at
its October meeting. In August 1998, the California Air Resources Board
(CARB) formally declared diesel particulate exhaust to be a toxic air
contaminant.\8\ And in December 1998, the National Toxicology Program
advisory board recommended that diesel exhaust particulates be listed
as ``reasonably anticipated to be a human carcinogen'' in the ninth
edition of the congressionally mandated Report on Carcinogens.\9\
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\7\U.S. EPA, Office of Research and Development, Health Assessment
Document for Diesel Emissions, EPA/600/8-90/057E, July 2000, SAB Review
Draft.
\8\California Air Resources Board, Resolution 98-35 (listing of
diesel particulate as a toxic air contaminant), adopted August 27,
1998.
\9\See
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Diesel's link to cancer results in thousands of avoidable cancers
nationwide. The association of the nation's State, territorial and
local air pollution officials estimates that current levels of diesel
pollution result in over 125,000 potential lifetime cancers nationwide,
based on their extrapolation of the MATES-II study.\10\
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\10\State and Territorial Air Pollution Program Administrators/
Association of Local Air Pollution Control Officials (STAPPA/ALAPCO),
Cancer Risk from Diesel Particulate: National and Metropolitan Area
Estimates for the United States March 2000. This report was based on
calculations of cancer risk first published in South Coast Air Quality
Management District, Multiple Air Toxics Exposure Study (MATES-II,
Draft Final Report, November 1999.
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NRDC is also especially concerned about the growing incidence of
asthma in our nation, as well as the association between diesel
particulate matter and asthma attacks. A recent study estimated that
asthma cases will double by 2020, hitting one out of every five
American families.\11\ Nobody knows what causes asthma, but numerous
studies have found associations between pollution (i.e., both ozone and
particulate levels) and acute respiratory symptoms, including asthma
attacks and hospitalizations.\12\
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\11\Pew Environmental Health Commission, Attack Asthma: Why America
Needs a Public Health Defense System to Battle Environmental Threats,
May 2000.
\12\Regarding ozone associations, see, e.g., Gilmour, M.I.,
``Interaction of air pollutants and pulmonary allergic responses in
experimental animals,'' Toxicology 1995 Dec 28; 105(2-3): 335-42;
regarding PM associations, see, e.g., Nel, A.E., Diaz-Sanchez, D., Ng,
D., Hiura, T., Saxon, A., ``Enhancement of allergic inflammation by the
interaction of diesel exhaust particles and the immune system,'' J
Allergy Clin Immunol 1998 Oct; 102 (4 Pt. 1): 539-54:
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III. NRDC Strongly Supports the Proposed National Sulfur Limit of 15
parts per million (ppm), Starting in mid-2006
NRDC strongly supports EPA's proposed national sulfur cap of 15 ppm
in mid-2006. In fact, NRDC has previously testified that EPA should
adopt a national sulfur cap of 10 ppm.\13\ NRDC would strongly oppose
any sulfur level above a cap of 15 ppm because such a sulfur level
would disable NOx adsorbers\14\ and other promising NOx and PM
controls, and would reduce the effectiveness of continuously
regenerating PM traps and other promising emission controls.
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\13\See NRDC Comments on EPA Proposed Rule No. A-98-32, submitted
at EPA's hearing in Philadelphia, PA on November 2, 1999.
\14\NOx adsorbers are generally considered to be the most promising
advanced NOx emission control technologies in development. They were
originally developed for stationary sources and have been used in lean-
burning gasoline-fueled direct injection engines. Other than an ultra-
low sulfur diesel fuel, no further infrastructure changes are necessary
with NOx adsorbers--a distinct advantage over SCR, discussed further
below.
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Our opposition to higher sulfur caps derives from the simple truth,
noted above: Just as a small amount of lead in gasoline disables
automobile catalytic converters, even a small amount of diesel sulfur
will inhibit or disable the most promising NOx emission controls and
will make PM controls less effective.\15\ Because sulfur-sensitive
emission controls will be affected more by their interaction with peaks
of sulfur than by average sulfur levels, NRDC believes that EPA should
focus its sulfur limits on caps, rather than averages.\16\
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\15\NRDC notes that sulfur controls for engine lubricating oils may
also be necessary, to ensure that advanced PM and NOx controls are not
compromised by sulfur elsewhere in the system. Today's lubricating oils
have sulfur levels up to 8,000 ppm, which is estimated to be equivalent
to 2-7 ppm diesel fuel sulfur. If the final rule includes the closing
of all crankcases, a less-than-2 ppm diesel fuel sulfur contribution
can be maintained. 65 Fed. Reg. at 35477.
\16\However, NRDC does not object to an additional limit on the
average level of sulfur, so long as the cap of 1 S ppm is not
increased.
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NRDC believes that a paradigm shift is required to sufficiently
cleanup diesel emissions. Such a paradigm shift involves a ``systems''
approach to reducing diesel emissions evaluating fuel, engine and
aftertreatment technologies together as a unified system to maximize
the potential emission reductions from the entire ``system.'' Reducing
sulfur levels is the key to enabling a systems approach to reducing
diesel emissions. Such an approach was critical to the success of last
year's Tier 2 emissions and gasoline sulfur standards, and it is
appropriately the principle behind today's Proposal.
In sum, implementing the new 15 ppm sulfur cap nationally by mid-
2006 makes sense for at least four reasons:
First, only the near-elimination of sulfur (i.e., capped at 15 ppm)
will create a fuel supply that is clean enough to adequately support
the most promising PM and NOx emission controls like continuously
regenerating PM traps and NOx adsorbers.
Second, a national approach to low-sulfur diesel is critical, given
the mobility of the vehicles themselves. Because the presence of sulfur
could disable NOx adsorbers and other emission controls, EPA must
ensure vehicle operators that the on-road diesel fuel supply is as
close to sulfur-free as possible, wherever the vehicle is
operating.\17\ With a national fuel supply, mislabeling, misfueling and
fuel supply contamination concerns are eliminated thereby responding to
the concerns of the nation's diesel fuel sellers.
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\17\It is worth noting that, without a national low-sulfur diesel
requirement, only centrally-fueled fleets will use sulfur-sensitive
emission control strategies. Other fleets will not want to risk
contaminating their engine systems with high-sulfur diesel fuel.
Likewise, without a national low-sulfiu diesel requirement, diesel fuel
sellers will be forced to operate two segregated fuel systems to avoid
mixing fuels.
---------------------------------------------------------------------------
Third, implementing the low-sulfur cap in mid-2006 ensures that the
fuel supply of low-sulfur diesel will be adequate to service the first
model year 2007 vehicles that are sold (typically, in the summer and
fall preceding the calendar year). By requiring that all highway diesel
fuel produced by refiners or imported meet the new sulfur standard by
April 1, 2006, and that all highway diesel fuel at the terminal level
meet the new sulfur standard by May 1, 2006, EPA is providing adequate
lead time to ensure that all highway diesel fuel users are buying only
the low-sulfur diesel fuel by June 1, 2006 and is providing a clear and
useful road map to implementing the sulfur limits in a manner that
avoids market disruptions that could occur if only a retail compliance
date were provided.\18\
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\18\NRDC notes that several fuel suppliers (e.g., BP, Tosco) have
already signaled their intention to sell low-sulfur diesel fuel in
California and elsewhere prior to 2006. In New York, the nation's
largest operator of diesel transit buses will be using 30 ppm sulfur
fuel by 2001 and has committed to using 15 ppm sulfur fuel as soon as
it is available. NRDC assumes that, with proper incentives, other
fleets would be early adopters of ultra-low sulfur diesel fuel once it
is available, especially those who seek to participate in EPA or state
retrofit/rebuild programs.
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Fourth, a national low-sulfur diesel fuel will provide direct
sulfate emissions reductions in pre-2007 diesel vehicles that do not
have PM or NOx aftertreatment, helping reduce sulfate particulate
matter, acid deposition (due to reduced sulfur dioxide emissions) and
other harmful air pollution.
Predictably, the oil companies that fought unleaded gasoline in the
1970's and that would have to clean up their diesel fuels in order to
help the nation's trucks and buses reach the new emission targets are
crying foul. NRDC firmly rejects the oil's industry's suggestion of a
90 percent sulfur cut (to 50 ppm) because it would render the EPA's
proposed PM and NOx targets unachievable.
Under the oil industry proposal of 50 ppm, PM traps are likely to
suffer high failure rates, leaving oxidation catalysts that yield only
a 20 percent PM reduction\19\ as the most likely PM after-treatment
technology. While some PM traps (including the most promising
continuously regenerating traps) can operate at 50 ppm, trap clogging
and failure is a serious problem at this level, due to the formation of
sulfate PM. Fuel economy also suffers, as a result of increased
regeneration needs. As a result, it would be difficult--if not
impossible--for engine, aftertreatment and/or vehicle manufacturers
and/or sellers to warrant such a trap for the full useful life of the
vehicle, and fuel economy-sensitive vehicle users might not welcome the
technology. Consequently, in the event that EPA adopts a 50 ppm sulfur
cap, manufacturers and sellers would be likely to opt for the less
effective oxidation catalyst, rendering the proposed 0.01 g/bhp-hr PM
standard unachievable.
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\19\Statement by EPA Office of Transportation and Air Quality
(OTAQ) Director Margo T. Oge, June 19, 2000, as reported in the
transcript of the New York hearing on the Proposal, pp. 53, 55.
---------------------------------------------------------------------------
Likewise, under the oil industry proposal, engine manufacturers and
vehicle sellers would likely opt for selective catalytic reduction
(SCR) as their preferred NOx after-treatment because it is less sulfur-
sensitive than NOx adsorbers and other NOx aftertreatment technologies
that are in development. NOx adsorber efficiencies are dramatically
reduced when sulfur contacts the NOx storage bed. Perhaps for this
reason, the Manufacturers of Emission Controls Association has
testified that industry efforts to develop an effective NOx adsorber
would cease if EPA adopts a 50 ppm cap.\20\ While SCR seems capable of
significant emission reductions, it also requires the development of a
nationwide urea infrastructure that would cost billions of dollars to
install, operate and maintain. As with oxidation catalysts, it seems
unlikely that the proposed 0.2 g/bhp-hr NOx standard would be
achievable with an SCR-only strategy.\21\
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\20\Testimony of Bruce Bertelson, June 19, 2000, as reported in the
transcript of the New York hearing (hereafter, ``Bertelson
testimony''), p. 56.
\21\EPA OTAQ Director Oge noted that EPA estimated that a 50 ppm
sulfur limit would yield NOx reductions of 20 percent, presumably
because of the perceived limits of SCR technology. See footnote 10
above.
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It is worth reiterating that the oil industry's 50 ppm sulfur limit
would have a negative effect on the fuel economy of the nation's trucks
and buses. For example, NOx adsorbers are expected to consume diesel
fuel as they cleanse themselves of stored sulfates. As noted above, PM
trap regeneration is inhibited by diesel fuel's sulfur leading to
increased PM loading, increased exhaust backpressure, and decreased
fuel economy.\22\ In other words, the higher the sulfur cap, the lower
the fuel economy.
---------------------------------------------------------------------------
\22\Memorandum from former EPA Official Michael P. Walsh to
Interested Parties, May 17, 2000, p. 10.
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Because they can't win on the science, the oil industry and its
allies are making three arguments: The companies can't afford it;
American consumers won't stand for it; and delay. Each argument is
addressed briefly in the following paragraphs.
First, EPA estimates that its proposal will force the oil industry
to spend, together, between $3 and $4 billion over the next six to 10
years to update their refineries to produce low-sulfur diesel fuel.
Given that America's largest oil companies reported nearly $12 billion
in profits in just the first quarter of 2000 (see Appendix A), this
investment in cleaner fuels seems to be an extremely reasonable cost of
continuing an extremely profitable business.
Second, some oil industry opponents of this Proposal have asserted
that a 15 ppm sulfur fuel would create an undue cost on the American
consumer. We disagree strongly. EPA has estimated that these rules
could add up to four cents to the price of a gallon of diesel fuel over
the course of the decade--hardly enough to derail the nation's strong
economy. It is worth noting that BP--the nation's largest seller of
diesel fuel--has reported that its 15 ppm sulfur fuel will be sold in
California next year at an incremental cost of five cents/gallon, even
without the economies-of-scale benefits of a nationwide fuel.\23\
Tosco--the nation's leading independent refiner and marketer of
petroleum products--recently announced its commitment to upgrading its
California and Washington refineries to enable it to sell 15 ppm sulfur
fuel in 2003 at a better return on capital for its investors than its
current, high-sulfur diesel fuel.\24\
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\23\http://www.ecdiesel.com/keypoints.html; BP Amoco, press
release, June 15, 2000.
\24\News article, ``Tosco Corporation Announces Investment Program
To Produce Clean Fuels On The West Coast,'' August 3, 2000,
---------------------------------------------------------------------------
A recent American Lung Association/Clean Air Trust/Environmental
Defense poll found that 85 percent of the American public would be
willing to pay the incremental costs anticipated by EPA, BP and
Tosco.\25\ These costs seem especially reasonable once the benefits of
eliminating 2.8 million tons/year of NOx, 305,000 tons/year of non-
methane hydrocarbons, and 110,000 tons/year of particulates are
factored in.\26\
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\25\http://www.cleanupdiesel.org/bulletin.061600.html
\26\65 Federal Register 35430 (June 2, 2000). NRDC also notes EPA's
estimated incremental vehicle costs of this proposal: $1,000-1,600 per
vehicle over the long run. Given that heavy-duty buses now cost over
$300,000 and that heavy-duty trucks can cost over $200,000, we believe
that this is a reasonable cost of compliance.
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Finally, Cummins and some other opponents of the Proposal are
asking EPA to ``slow down'' the rulemaking process, i.e., that EPA
should not rush to finalize these rules this year.\27\ These opponents
claim that the PM and NOx technology has not been demonstrated, so EPA
shouldn't act.
---------------------------------------------------------------------------
\27\Statement of Cummins Engine Company, June 19, 2000.
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Already, the Manufacturers of Emission Controls Association (MECA)
has testified in support of the proposed PM and NOx standards and has
stated that it believes that its members will able to meet the
requirements of this proposal in a cost-effective manner.\28\ Given
that MECA members are quite likely to develop and commercialize the PM
and NOx aftertreatment controls, MECA's position should be given great
weight by EPA and this subcommittee. Further, it is worth noting that
the past three decades of environmental regulation are filled with
examples of regulations that were opposed by regulated entities who
said it couldn't be done, only to thereafter prove that it could be
done and usually at a lower cost than initially estimated.
---------------------------------------------------------------------------
\28\See, e.g., Bertelson testimony, p. 48.
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Cummins' position is troubling for another reason. There is
evidence in the rulemaking docket that suggests strongly that Cummins'
presumptive emission targets are as low as EPA's proposed PM and NOx
levels, and that it already believes that NOx adsorbers will work, that
there are several approaches to sulfur management, and that a sulfur
level of 50 ppm is deleterious to EGR systems.\29\
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\29\Presentation of John Wall, Cummins Vice President, to EPA and
the White House Office of Management and Budget, May 1, 2000. EPA
Docket No. A-99-06, Document No. 2E-25, pp. 1, 2, 4, 8, 12.
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The bottom line is this: Technologies that require low-sulfur
diesel are being commercialized and used in Europe and elsewhere, and
are providing the health benefits of reduced diesel emissions in those
places. Americans deserve the health benefits of these technologies.
Every year of delay on industry's part means more avoidable asthma
emergencies and more avoidable cancers.
It is worth noting that industry is not monolithic in its
opposition to this Proposal. We note those industry associations and
companies that have supported EPA's timetable and the move to ultra-low
sulfur diesel (in some cases, supporting a move to a cap below 15 ppm),
including the Engine Manufacturers Association, the Manufacturers of
Emission Controls Association, the Alliance of Automobile
Manufacturers, the California Trucking Association, International,
TOSCO, BP, the Diesel Technology Forum, and others. We invite their
peers to reconsider their positions of opposition to cleaner fuels,
trucks and buses.
IV. NRDC Strongly Supports the Proposed Emission Standards for PM, NOx
and Other Emissions from Diesel Vehicles and Engines in 2007
But With No NOx Phase-In
NRDC strongly supports EPA's proposed new standards for particulate
matter and nitrogen oxides (0.01 grams-per-brake-horsepower-hour (g/
bhp-hr) for PM and 0.2 g/bhp-hr for NOx, respectively). However, NRDC
has strongly urged EPA to eliminate the 4-year phase-in of the NOx
standard. NRDC also supports and applauds EPA's other proposed
emissions standards (e.g., non-methane hydrocarbons, formaldehyde,
complete vehicle standards, gasoline standards), as well as EPA's
decision to include turbocharged diesels in the existing crankcase
emissions prohibition.\30\
---------------------------------------------------------------------------
\30\NRDC notes that EPA should not take any actions in this rule-
making that would preclude further reductions from diesel engines and
vehicles that may be necessary under EPA's mobile source air toxics
program.
---------------------------------------------------------------------------
We have urged EPA to eliminate the NOx phase-in, for the following
reasons.
First, by 2007, low-sulfur diesel fuel will be available
nationwide, so there will be no fuel barrier to the national use of the
most advanced PM and NOx controls. If the oil industry is required to
complete its infrastructure and distribution investments by mid-2006 in
order to provide fuel for model year 2007 vehicles and engines, it
makes sense to require engine manufacturers and aftertreatment
suppliers to work on the same timetable.
Second, implementing all of the new standards at the same time will
minimize the cost and burdens of compliance. This is especially true
for the engine manufacturers and after-treatment companies that will be
commercializing new equipment to meet the proposed PM, NOx and NMHC
standards, as well as California's upcoming urban bus standards. With
one national, industry-wide compliance date, these companies will not
have to maintain multiple production and recordkeeping operations, nor
will EPA have to investigate the sales records of every truck and bus
seller in the nation.
Third, other low-emission heavy-duty activities around the world--
from the California Air Resources Board's urban bus standards to
various upcoming European national and European Community low-sulfur
diesel requirements\31\--will have created momentum for the
commercialization of advanced emission control technologies elsewhere
that will be applied to meeting EPA's requirements.
---------------------------------------------------------------------------
\31\Sweden's Class I diesel is capped at 10 ppm sulfur; tax
incentives are quickly reducing the sulfur in the diesel fuel supplies
of the United Kingdom and Germany to a cap of 10 ppm; and the European
Community is considering moving to a 10 ppm cap in the 2007-2008 time
frame:
---------------------------------------------------------------------------
Fourth, States around the nation will be relying on the new NOx
standards to meet ozone attainment and maintenance deadlines over the
course of the decade. Public health imperatives in these States,
combined with these States' legal obligation to meet their attainment
and maintenance deadlines, require the implementation of the proposed
NOx standard as expeditiously as practicable. It is not clear how
States will be able to take SIP credits on a NOx standard that is
implemented over a 4-year timeframe on a percent-of-sales basis. In
contrast, a full phase-in of the NOx standard in 2007 would enable
nonattainment areas to take full advantage of this Proposal's NOx
standard in meeting their attainment and maintenance requirements.
V. In-Use Compliance, Testing Procedures and Enforcement
Setting more stringent tailpipe standards alone will not be
sufficient to assure Americans that diesels are getting cleaner, so
NRDC has urged EPA to ensure the strongest possible in-use compliance
and enforcement program for the nation's trucks and buses. Thanks to
the diesel engine industry's decade-long practice of designing and
building engines that meet EPA's certification standards while emitting
far-greater emissions on the open road, Americans continue to breathe
excess NOx emissions from the current truck fleet. These excess
emissions will add a wide range of serious public health impacts and
costs, including an estimated 2,500 premature deaths, 5,000
hospitalizations and public health costs of 6-21 billion dollars over
the lives of these vehicles. This widespread industry practice resulted
in last year's consent decrees between the U.S. Government and seven
major diesel engine manufacturers (collectively, the ``Consent
Decrees'').\32\
---------------------------------------------------------------------------
\32\Consent decrees filed in 1999 between the United States and
each of Caterpillar Inc., Cummins Engine Company, Inc., Detroit Diesel
Corporation, Mack Trucks, Inc. and Renault V.L, s.a., Navistar
Internatianal Transportation Corp. and Volvo Truck Corporation.
---------------------------------------------------------------------------
Even beyond the deplorable industry actions that led to the Consent
Decrees, several recent studies confirm that emission levels rise
significantly as a vehicle ages and its parts deteriorate. One recent
study found that actual NOx and particulate matter emission levels from
heavy-duty diesel vehicles ranging in age from model year 1994 and
later were as high as 12.5 g/bhp-hr and 0.6 g/bhp-hr, respectively.\33\
This is surprisingly high, given that these same diesel vehicles had
been certified at NOx and PM emission levels of 5.0 g/bhp-hr and 0.1 g/
bhp-hr, respectively, only a few years earlier.\34\ Even more telling,
an analysis performed for this same study indicated that ``in-use PM
and NOx emissions for [tested vehicles] may not reflect the emissions
improvements expected based on stricter engine certification test
standards put into effect since 1985.''\35\ In other words, because
diesel vehicles deteriorate with age but are never re-tested to ensure
that they continue to comply with certification emission standards, EPA
may not be realizing the intended air quality benefits from
increasingly stronger certification standards.
---------------------------------------------------------------------------
\33\West Virginia University, Transportable Heavy Duty Vehicle
Emissions Testing Laboratory, Exhaust Emissions Test Results Report of
Raley's Distribution Center Tractors Sec. 3.4 (September 1997)
(hereinafter the ``West Virginia Study''); Engine, Fuel, and Emissions
Engineering, Inc., The Cleaner Choice: Natural Gas as a Substitute for
Diesel (September 1999) (hereinafter ``The Cleaner Choice'')
(converting West Virginia Study results from g/mi to g/bhp-hr). See
also Colorado School of Mines, Chassis Dynamometer Study of Emissions
from 21 In-Use Heavy-Duty Diesel Vehicles at 1, 9 (hereinafter the
``Colorado Study''). The Colorado Study covered heavy-duty vehicles
ranging in age from 1984-1995. As in the West Virginia study, the
results were expressed in terms of g/mi. The Colorado Study results
were similar to those of the West Virginia study; however, PM levels
were found to be significantly higher.
\34\Id.
\35\Id. at 2, 14-15.
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NRDC notes approvingly that EPA recently finalized a rule (the
``2004 Rule'') that will require diesel engines to meet the not-to-
exceed (NTE) limits in last year's Consent Decrees, new onboard
diagnostics (OBD) requirements, a steady-state emissions test and other
compliance and enforcement mechanisms (collectively, the ``compliance
mechanisms''), beginning in 2007.\36\ However, NRDC is deeply concerned
that the final 2004 Rule may leave a 3-year gap between the termination
of the Consent Decrees in 2004 and the industry-wide implementation of
the NTE limits and other compliance mechanisms in 2007 under the 2004
Rule's implementation schedule. Thus, we have urged EPA to take steps
to extend the Consent Decrees until the codification of the NTE limits
and other compliance mechanisms are fully implemented in 2007.
---------------------------------------------------------------------------
\36\EPA, Regulatory Announcement, Final Emission Standards for 2004
and Later Model Year Highway Heavy-Duty Vehicles and Engines, July
2000. See http://www.epa.gov/oms/regs/hd-hwy/2000frm/tn0026.pdf (the
``2004 Rule'').
---------------------------------------------------------------------------
Even though the 2004 Rule is now final, NRDC stresses the
importance of these points because of the interaction between the
Consent Decrees, the 2004 Rule and this 2007 Proposal. It has been
widely reported that at least some of the engine companies wish to
weaken the NTE limits and perhaps other compliance mechanisms. NRDC
continues to urge EPA to maintain a rigorous commitment to these
mechanisms because they are the public's best protection against the
kind of emissions ``cheating'' practiced throughout the 1990's and
because they will help assure the public that real world, in-use
emissions are being reduced as a result of the Proposal's new emissions
standards and other provisions. To the extent that competitive issues
underlie the companies' request for relief from the Consent Decree's
NTE limits and other compliance mechanisms, NRDC feels strongly that
the only acceptable resolution of these competitive issues is an
industry-wide adherence to the NTE limits and the other compliance
mechanisms, rather than carve-outs and exceptions that favor one
company over another especially if such carve-outs result in
competitive advantages for companies that have failed to remove the
auxiliary emission control devices that were at the heart of the defeat
device problem.
To summarize, NRDC strongly opposes any change to the NTE limits
contained in the Consent Decrees, strongly opposes any weakening of the
NTE limits or any of the compliance mechanisms in the 2004 Rule, and
strongly urges EPA to apply the NTE limits and other compliance
mechanisms to all heavy-duty engines and vehicles, regardless of the
fuel used.\37\ Further, NRDC strongly encourages EPA to take all
necessary steps to extend last year's Consent Decrees until the NTE
limits and other compliance mechanisms are implemented on a codified,
industry-wide basis in 2007, including a strict enforcement of EPA's
defeat device policy and returning to court if necessary.
---------------------------------------------------------------------------
\37\NRDC also encourages EPA to adopt supplemental Federal test
procedures (SFTP) standards for heavy-duty vehicles that would further
enable EPA to limit off-cycle emissions from these vehicles. One
element of such a SFTP adoption would be to consider SFTP standards for
emerging hybrid-electric vehicles.
---------------------------------------------------------------------------
Even under the 2004 Rule, it appears that heavy-duty engines and
vehicles may only be tested once--when they are new. Regular, in-use
testing--which would demonstrate whether engines or vehicles are
remaining at certified emissions levels throughout their useful life--
still will not be required under the 2004 Rule or this Proposal. NRDC
continues to urge EPA to expand its in-use compliance and enforcement
mechanisms to ensure that emissions from the nation's fleet of heavy-
duty vehicles and engines do not deteriorate as these vehicles and
engines age.
In closing, a more robust system of in-use emissions testing will
become particularly important if and when emerging diesel
technologies--including the PM traps, NOx adsorbers and other
aftertreatment technologies envisioned by this Proposal--are
certified.\38\ Some of these technologies are still being developed,
and they will be tested and commercialized in upcoming years. However,
their long-term performance and reliability is not proven yet. This
point cannot be overstated--regular testing and an effective compliance
and enforcement program is critical to ensuring the proper operation of
these new technologies and their abilities to reduce harmful emissions
over their full useful lives.
---------------------------------------------------------------------------
\38\An analogy to automobile emission controls is apt here: as
automobile emission control systems have grown mare sophisticated,
emissions deterioration and a system of diagnosing malfunctions in
these systems have become extremely important issues. There is no
reason to suspect that the introduction of advanced emission control
technologies to the heavy-duty vehicle market will be any different.
---------------------------------------------------------------------------
VI. Advanced Technology and Alternative-Fuel Vehicle Incentives
As discussed above, emissions test data demonstrates a gap between
certification and in-use emissions for heavy-duty diesel engines. This
gap does not appear to exist for engines powered by alternative fuels,
such as natural gas.\39\ For example, the staff of the California Air
Resources Board (CARB) concludes that diesel transit buses currently
have in-use particulate emissions of approximately 0.23 g/mi, over ten
times the 0.02 g/mi for natural gas buses\40\--even though the diesel
buses certify to PM levels only two to three times higher than their
natural gas counterparts.
---------------------------------------------------------------------------
\39\Based an data from the Alternative Fuels Data Center.
www.afdc.doe.gov and Engine, Fuel, and Emissions Engineering, Inc. The
Cleaner Choice: Natural Gas as a Substitute for Diesel, September 1999.
\40\CARB. Proposed Regulation for a Public Transit Bus Fleet Rule
and Emission Standards for New Urban Buses, Staff Report: Initial
Statement of Reasons, December 1999.
---------------------------------------------------------------------------
Zero-emission technologies, such as the fuel cell buses expected to
be commercial by the time EPA's rule goes into effect, offer
substantial, guaranteed air pollution benefits while also eliminating
toxic emissions from the tailpipe, substantially cutting emissions of
greenhouse gases over the total fuel cycle, and reducing reliance on
foreign oil. Other advanced technologies, such as hybrid-electric
vehicles, may also offer in-use emissions benefits if they are designed
to reduce engine operating characteristics that lead to high emissions
rates.
These intrinsically cleaner options are currently being
demonstrated throughout the country in applications such as medium duty
delivery vehicles, school buses, transit buses and waste haulers, and
wider applications are expected within the next few years. We have
urged EPA to ensure that its rule does everything it can to encourage
these technologies and fuels by (a) revising to its averaging, banking
and trading (``ABT'') program (a program that permits engines that beat
EPA's standards to generate marketable credits); (b) creating a
separate, more stringent emissions standard for fleet vehicles
(historically, transit buses have met more stringent emissions
standards than other heavy duty vehicles, thereby providing greater
health protection from diesel emissions in high-population urban
centers); and/or (c) creating optional low-pollution standards
(following California's lead, EPA should adopt optional low-pollution
standards for diesel engines that would encourage the development of
even lower-polluting engines, taking toxic and greenhouse gas emissions
into account)
VII. Conclusion
NRDC looks forward to working with the subcommittee and all
interested parties toward the successful finalization of this Proposal
by the end of this year.
appendix a
------------------------------------------------------------------------
Company--First Qtr. 2000
Big Oil's Big Profits Profits (rounded)
------------------------------------------------------------------------
ExxonMobil................................ $3.35 billion
Royal Dutch/Shell......................... 3.13 billion
BP Amoco.................................. 2.71 billion
Chevron................................... 1.04 billion
Texaco.................................... 602 million
Conoco.................................... 391 million
Phillips.................................. 250 million
Marathon.................................. 199 million
Coastal................................... 174 million
Sunoco.................................... 78 million
Tosco..................................... 75 million
Total................................. $11.99 billion
------------------------------------------------------------------------
Source: Clean Air Trust
__________
Statement of Tina Vujovich, Cummins Inc.
epa's proposed regulations for diesel fuel and heavy-duty engines
Good morning. My name is Christine Vujovich. I am the Vice
President for Environmental Policy and Product Strategy for Cummins
Inc. Thank you, Mr. Chairman and members of the subcommittee, for the
opportunity to appear here today to discuss the EPA's heavy-duty engine
and diesel sulfur proposal. This is of great importance to Cummins, as
well as to society at large due to its significant environmental and
economic implications.
Cummins is the only independent diesel engine manufacturer in the
United States and we are the world's largest producer of commercial
engines over 200 horsepower. We share the goal of improving our air
quality and we support the EPA's authority to regulate emissions from
heavy-duty diesel engines. As a company, we are absolutely committed to
pursuing technologies that benefit the environment. These technologies,
however, must also provide the superior performance--including fuel
economy--that our customers require.
This is why we have serious concerns about the rush to finalize the
proposed rule by year's end. The schedule established by EPA is
politically driven and does not allow time for the work that is
necessary to assess the technical feasibility and commercial viability
of technologies required to meet these standards.
We are urging EPA to provide an additional 18 to 24 months so that
stakeholders can assess these issues, which are critical to the success
of the ultimate rule. EPA can do this and still implement a rule for
2007. To proceed otherwise, however, would result in a rule that is
unworkable and that undermines the important goal of reducing emissions
and improving air quality.
For more than 20 years, my work at Cummins has revolved around the
environment. It is a challenging job. We provide a technology essential
to moving this nation's economy, but it is a technology that has
environmental implications. That is why at Cummins we demand that
everything we do lead to a cleaner, healthier and safer environment.
Our engineering and development budget each year is about 4 percent
of our annual sales, and well over half of that goes directly toward
environmental issues. This is a significant investment, but one that
produces significant results.
I am proud to say that Cummins offers the largest portfolio of low
emission and alternative fuel engines of any manufacturer. This
includes building the first natural gas engine to be certified by the
California Air Resources Board under its Low Emissions Transit Bus
Standards and leading the industry in the provision of engines that are
certified to meet EPA LEV and ULEV standards.
The work done at the transient emissions laboratory at the Cummins
Technology Center is world-class, and our engineers are regularly
called on to advise government experts worldwide, which we are pleased
to do.
In the early 1980's, EPA developed its first transient test system
based on the technology at Cummins' testing facility. When EPA needs to
train its technical staff in the fundamentals of internal combustion,
it turns to Cummins. Indeed, EPA researched the very rule we are here
to discuss today on a Cummins six-liter engine.
Why is all of this important? While many of you in this room are
familiar with Cummins, those of you who aren't don't know that it
simply isn't our nature to say ``NO.'' However, we are compelled in
this instance to speak out loudly and to speak out strongly to say,
``don't jeopardize the success of this rule in order to meet an
arbitrary political deadline.''
This rulemaking represents a lot of firsts.
This rule for the first time recognizes that fuel and engine
technology must work together to achieve emissions reductions. And, for
this, we applaud EPA, because ultra-low NOx and ultra-low particulate
standards cannot be met without a significant reduction in diesel fuel
sulfur.
These are the biggest percentage NOx and PM emission reductions of
any proposed rulemaking. They come on top of already significant
reductions.
Most importantly, this is the first time that proposed reductions
cannot be achieved through in-cylinder and engine sub-system control
technologies. This is very significant for two reasons. First, in order
to achieve the proposed reductions, engine manufacturers will have to
rely on technologies that we neither make nor install. Second, these
technologies do not exist today.
Cummins' current best estimate of the system of aftertreatment
devices necessary for compliance includes four components: a
particulate trap, a sulfur trap, a NOx adsorber and an oxidation
catalyst. These devices, however, are in varying stages of early
development. Particulate traps are in limited production with more
development required. Sulfur traps being developed, but are not
developed yet. The NOx adsorber is currently in the lab, but is still
years away from field-testing. And, finally the oxidation catalyst is
in production, but on limited applications. (See attached diagram)
We can neither evaluate the pieces individually nor as an
integrated system with the potential to achieve the proposed
reductions. Moreover, we can only guess as to what impact the
envisioned system of aftertreatment technologies will have on engine
performance, fuel economy and cost.
__________
Statement of International Truck and Engine Corporation
International Truck and Engine Corporation (``International'')
appreciates the opportunity to submit a statement in connection with
the subcommittee's September 21, 2000 hearing on the U.S. Environmental
Protection Agency's (``EPA'' or ``Agency'') proposed model year
(``MY'') 2007 heavy-duty engine and vehicle standards and highway
diesel fuel sulfur control requirements. This proposal, which EPA
published on June 2 of this year, would require substantial emission
reductions by heavy-duty engines (``HDEs'') through a ``systems
approach'' premised both on improved fuel quality and advances in
engine technology.
EPA's proposed emissions targets are very ambitious. However, our
company is making sizable investments to develop engine and
aftertreatment technologies that have the potential to achieve major
strides in emissions performance for both light-duty and heavy-duty
diesel-powered vehicles. These technologies are extremely sulfur-
sensitive and will only be effective with the availability of ultra-
clean diesel fuel. EPA's proposed sulfur limit of 15 parts per million
(``ppm'') is the minimum level of sulfur reduction that can ``enable''
the commercial introduction of the emissions control technologies we
are developing.
With the assurance of ultra-clean fuel in 2006, our company is
prepared to make every effort to meet EPA's challenging HDE emissions
targets for the 2007-2010 timeframe. Since the particulate trap is
ready for commercial introduction today, we are confident that, with
ultra-low sulfur fuel, we can achieve EPA's 2007 emission standards for
particulate matter (``PM''). While the feasibility of NOx adsorber
technology is more uncertain, we believe that EPA's proposed Nitrogen
Oxides (``NOx'') standards should be within reach assuming the 2007-
2010 phase-in period under EPA's final rule gives us adequate time to
mature this technology with clean diesel fuel.
International does not agree with all aspects of EPA's proposal. We
have made detailed recommendations to EPA on how the rule can be
improved. However, we support completing the rulemaking promptly on the
basis of the extensive record developed by EPA. Postponing the rule is
not needed for sound decisionmaking and would create uncertainties that
delay investment in the next generation of fuel and engine
technologies.
Who is International
International, formerly known as Navistar International
Transportation Corp., is a major North American manufacturer of medium
and heavy-duty trucks and buses marketed under the ``International ``
brandname. International is the world's largest manufacturer of mid-
range (160-300 hp) diesel engines. Our engines are more than 97 percent
on-road certified. We supply these engines both to other International
divisions and to other customers, including Ford Motor Company.
International is Ford's exclusive supplier through the year 2012 of V-8
diesel engines for heavy-duty pickups. These heavy-duty vehicles would
be subject to EPA's proposed MY 2007 emission standards for HDEs. We
are also planning to supply V-6 engines to Ford for sport utility
vehicles subject to EPA's recently issued Tier 2 rule.
Because our trucks and engines are 100 percent dieselized, we have
long been a leader in diesel technology and were the first engine
manufacturer to introduce several breakthroughs that are now common in
the industry. We have also been a leader in environmental improvement
and have pioneered many of the advances in emissions performance that
diesel technology has recently achieved. We are investing hundreds of
millions of dollars in the development of advanced engine and
aftertreatment technology to improve engine performance and provide a
cost-effective answer to clean air concerns for all the markets heavy-
duty and light-duty where our engines are sold.
A major part of our technology program involves Green Diesel
TechnologyTM, which utilizes the benefits of the catalyzed particulate
filter (``CPF'') system and ultra-low sulfur fuel in combination with
an exclusive International engine performance design to significantly
lower the emissions and odor of diesel-powered buses and trucks. Last
year, International conducted a demonstration of a CPF system on a
school bus utilizing a heavy-duty diesel engine and run with a special
ultra-clean blend of diesel fuel manufactured by BP Amoco. PM levels
were reduced to below .01 g/bhp-hr a reduction well in excess of 90
percent from current levels, as well as 50 percent lower than the best
1998 certified compressed natural gas engine. Hydrocarbon emissions
were also reduced below measurable levels (which eliminated the odor
often associated with diesel engines).
We are pleased to inform the subcommittee that International's
Green Diesel Technology school bus will be offered in 2001 in areas of
the country where 15 ppm sulfur fuel is available. BP Amoco will
provide the 15 ppm sulfur fuel in California and possibly elsewhere,
thus ensuring that greatly improved emissions performance on these
vehicles is achieved in the very near future.
With Ultra-Low Fuel Sulfur Levels, EPA's Proposed MY 2007 HDE Emissions
Standards Represent Challenging But Reasonable Goals
EPA has proposed 90 percent reductions from 2004 levels for both
NOx and PM emissions by the 2010 timeframe. These would be the largest
step reductions ever mandated for either NOx or PM emissions from HDEs
in the United States. These emission targets present enormous technical
challenges, but there is no credible dispute that the aftertreatment
technologies required to bring them within reach will function
efficiently and durably only with ultra-clean diesel fuel. We therefore
commend EPA for taking steps in the rulemaking to address the
critically important issue of diesel fuel quality. Progressive oil
companies including BP Amoco already are making commercially available
diesel fuel with sulfur levels of 15 ppm or lower. These oil companies
have earned recognition and our applause for their efforts to bring
clean diesel fuel to the marketplace well in advance of any regulatory
requirement to do so.
Focussing on PM control, extensive data indicates that ultra-low
sulfur fuel is a prerequisite to the effectiveness and durability of
CPF technology, which we believe is the only viable path for reducing
PM emissions in 2007 to the near zero levels called for under EPA's
proposal. CPF operation is inhibited by sulfur in diesel fuel, as is
total PM control effectiveness due to the formation of sulfate PM.
Relevant experience with CPF technology, however, shows that ultra-low
sulfur levels assure that CPF technology will perform efficiently and
durably. As stated above, International has demonstrated the
effectiveness of CPF technology, combined with ultra-clean fuel, in
reducing PM emissions to levels at or below those proposed by EPA. By
the same token, field tests conducted with higher (50 ppm) sulfur
levels were much less successful, showing an unacceptable CPF failure
rate of 10 percent. In sum, there is no question that the availability
of ultra-low sulfur fuel is a critical ``enabler'' for CPF technology's
ability to control PM emissions reliably during vehicle use. Nor is
there any question that, when used with low sulfur fuel, this
technology will deliver the emission reductions proposed by EPA and is
ready for commercial introduction today.
NOx control presents greater challenges at this stage than reducing
PM emissions. Here too, however, ultra-low sulfur fuel is essential for
progress toward EPA's targets. The NOx adsorber is our technology of
choice in meeting the MY 2007 NOx standards but its performance is
extremely sensitive to sulfur poisoning. The Diesel Emissions Control
Sulfur Effect program, which evaluated various sulfur-sensitive
technologies and obtained data on high sulfate conversion levels at
high speed and load conditions over a broad range of engine operating
conditions, confirms this point. The test program's interim results
indicate that, at sulfur fuel levels in excess of 15 ppm, NOx adsorber
performance declines significantly after only 150 hours of testing.
Diesel Emission Control Sulfur Effects Program, Phase I Interim Data
Report No. 2: NOx Adsorber Catalysts, pp. 2, 23 (October 1999). By
contrast, with diesel sulfur levels of 15 ppm and below, NOx adsorber
technology promises to achieve a high level of emission reduction over
a range of engine operating conditions. Accordingly, assuming our
recommendations for improving the rule are adopted, International
believes that EPA's NOx emission limits represent a challenging but
reasonable goal that we should start working toward now using the
technological resources and expertise of our industry, aftertreatment
suppliers and the refining sector.
We do not accept the argument that fuel and engine requirements
should be delayed until control technologies needing ultra-clean fuel
have fully matured. For example, some in the refining industry have
suggested that, since commercial application of the NOx adsorber
technology is now unproven, it is premature to reduce diesel sulfur
content to 15 ppm in the belief that clean fuel is needed to enable NOx
adsorber technology. From our perspective, this concern misses the
point. NOx adsorber technology certainly needs maturation but we know
from available data that its commercial deployment by MY 2007-10 is a
realistic possibility assuming the corresponding availability of ultra-
low sulfur fuel. If fuel and engine requirements were delayed until the
technology had been fully demonstrated, companies like International
and their suppliers would not be motivated to make large investments in
improved emissions performance and progress toward lower emissions
would be stymied.
Although recent debate has focussed on the technical uncertainties
surrounding EPA's proposal, there are two critical points that are not
in dispute: (i) aftertreatment technologies for PM and NOx require fuel
sulfur levels of 15 ppm or less to function effectively; and (ii) if
these technologies cannot be used because clean diesel fuel is not
available, the remaining technology options can achieve at best a 30
percent reduction in PM and NOx emissions. It is not our company's role
to set national air quality goals. However, we can say with confidence
that, if the public expects a 90 percent reduction in PM and NOx
emissions as proposed by EPA, only a rule which maintains a dual focus
on improved fuel quality and superior aftertreatment performance and
sets aggressive targets for both will enable us to reach that goal.
Recommended Changes in the Rule
Our willingness to accept EPA's rule, however, is conditioned on
adoption of the recommendations for modifying EPA's proposal that we
have presented in our comments to the Agency. Of greatest importance,
while EPA's proposal to phase-in NOx controls between 2007 and 2010 is
a step in the right direction, we are concerned that as framed it would
call upon the NOx adsorber to achieve a 90 percent emission reduction
immediately upon commercialization. Experience tells us that it will be
critically important to have a meaningful transition period during
which the adsorber can mature in-use. Therefore, International has
proposed that EPA set an interim NOx + NMHC standard of 1.40 g/bhp-hr
for all MY 2007-2009 HDEs, with a further drop to 0.30 in MY 2010. In
our comments to EPA, we have demonstrated that the International
proposal would offer significant environmental benefits over EPA's
approach of phasing in the NOx requirements for 25 percent of the fleet
each year between 2007 and 2010. It should be emphasized that our
proposed interim NOx limits for the MY 2007-2009 period and the PM
emission targets proposed by EPA for 2007 cannot be achieved unless
ultra-low sulfur fuel, at or below the 15 ppm level, is available in
2006.
We have also raised concerns with the proposed Not-To-Exceed
(``NTE'') requirements, which could not be met over the full range of
engine operating and ambient conditions given the extremely stringent
underlying emissions standards proposed for 2007 and beyond. Our
comments further recommend that EPA remove restrictions it has proposed
on the use of pre-2007 Averaging, Banking and Trading (``ABT'') credits
as well as make a number of smaller technical revisions. We hope our
proposed modifications are receiving careful consideration by the
Agency as it develops a final rule.
EPA Should not Delay Issuance of a Final Rule
Although we recognize the complexities and challenges presented by
EPA's 2007 fuel and HDE proposal, our company is already committing
hundreds of millions of dollars to development of advanced emission
control technology that, with the availability of ultra-clean fuel, can
``enable'' the commercial introduction of the CPF and NOx adsorber
technologies. International believes that, to continue this progress,
the engine industry, aftertreatment suppliers and refiners need the
motivators provided by clear long-term performance goals for both
engines and fuel.
Extended study of the issues and rulemaking delays will create
uncertainties and inevitably slow down the R&D programs that will lead
to improved emissions performance. For example, without knowing what
level of sulfur reduction will be required and when cleaner fuel will
be available, our industry could not determine what emission control
technologies to pursue and how great our investment in these
technologies should be. The aftertreatment industry would likewise be
unable to focus its R&D efforts on the most promising aftertreatment
devices since it would be uncertain what level of sulfur reduction
would be available to ``enable'' these devices to perform effectively.
Accordingly, delaying this rule for another year or 18 months is
unlikely to move us closer to answers but could reduce the lead-time
which our engineers and production managers have to implement the new
requirements.
Extended study of the issues and rulemaking delays will create
uncertainties and inevitably slow down the R&D programs that will lead
to improved emissions performance. For example, without knowing what
level of sulfur reduction will be required and when cleaner fuel will
be available, our industry could not determine what emission control
technologies to pursue and how great our investment in these
technologies should be. The aftertreatment industry would likewise be
unable to focus its R&D efforts on the most promising aftertreatment
devices since it would be uncertain what level of sulfur reduction
would be available to ``enable'' these devices to perform effectively.
Accordingly, delaying this rule for another year or 18 months is
unlikely to move us closer to answers but could reduce the lead-time
which our engineers and production managers have to implement the new
requirements.
Conclusion
In sum, International believes that the rulemaking process for the
proposed HDE rule has created a full record on the critical questions
EPA must resolve and provides a sufficient foundation for
decisionmaking. While we support certain non-fuel related changes in
EPA's rule so that its requirements are more reasonable, prompt
completion of the rulemaking is a high priority for our company so that
we can move forward with our advanced technology program. Accordingly,
International urges that any move to slow down completion of the
rulemaking or ease the requirements for ultra-low sulfur fuel should be
rejected.