Background
EPA has proposed a rule to reduce highway sulfur in diesel fuel to unnecessarily low levels beginning in 2006. API supports the clean air benefits of lower sulfur levels and proposes a 90- percent reduction. Lower sulfur means cleaner air. However, EPA's proposal goes beyond what is practical, necessary or affordable--and would not produce significantly greater air quality improvements than API's proposal (see Attachment I). It could depress diesel fuel production and unnecessarily harm those who rely on diesel fuels: truckers, distributors of goods and services and farmers as well as those in the fuel industry: refiners, fuel distributors and fuel retailers. Because diesel fuel and the trucks and buses that use it are the lifeblood of American commerce, the new rule could also harm consumers, jobs and the economy.
What the proposal says
EPA's proposal would require that highway diesel fuel sulfur content be reduced from the current level of 500 parts per million (ppm) maximum to a 15 ppm maximum in 2006. API has recommended a 90-percent reduction to a cap of 50 ppm (approximately what EPA also recommended more than a year ago). A reduction to this level would reduce diesel emissions nearly as much as EPA's proposal at a more reasonable cost and would enable vehicle emission reduction equipment that is tested and proven.
EPA also suggested that the new fuel might be phased in. Under a phase-in, two highway diesel fuels would have to be made and provided to retail outlets.
Additional air quality benefits minimal
The additional air quality benefits produced by EPA's proposal compared with API's proposal would be very small. That's because the industry's proposal would cut sulfur nearly as much.
In fact, EPA's proposal may not reduce emissions any more. EPA assumes its fuel will work with a new kind of vehicle emission reduction technology, but it has presented no evidence that this unproven technology will cut emissions to the desired level no matter how low sulfur content is set.
EPA's lack of confidence in its own technical assessment is unmasked by its proposal to phase in the new nitrogen oxide tailpipe standard over a period of time. The agency wanted to give engine manufacturers an opportunity to "gain valuable experience" with the new technology, which EPA acknowledges has not advanced to the "field trial stage." However, this approach is unfair to truckers and other diesel fuel users who should not have to pay for changes in the fuels they use when there is no promise that the vehicles they drive will perform as intended.
Not a solution to diesel smoke
While EPA's proposal will reduce vehicle emissions, it is not a solution to the diesel smoke problem. A reduction in sulfur in any amount will have little impact on this. Modern diesel engines are virtually smokeless even on current fuels. The vast majority of smoking trucks on the road today are older and poorly maintained. Improved vehicle maintenance is the key to solving the smoke problem.
Costs of the EPA proposal would be excessive
As a result of EPA's proposal, diesel manufacturing costs would increase about 12 cents per gallon ($8 billion in capital investments to modify refineries). These costs would far exceed the capital investments needed for API's proposal of a 90-percent reduction. A 90-percent reduction would add about 6 cents per gallon ($4 billion in capital investments).
These added manufacturing costs do not include higher costs for distribution, stemming from the need for companies to avoid or address contamination problems resulting from moving ultra-low sulfur diesel fuel through common pipelines and storage facilities with other products. The added distribution costs for a 15 ppm fuel would increase costs by about 2 cents per gallon.
According to a February 2000 study by Turner, Mason & Company titled Costs/Impacts of Distributing Potential Ultra Low Sulfur Diesel" (see Attachment II for Executive Summary), a phase-in of ultra-low sulfur diesel could increase costs by about four cents per gallon, or as high as 13 cents per gallon, depending on how the phase-in works. A phase-in would require companies to manufacture, handle and segregate two separate varieties of highway diesel in addition to off-road diesel fuel. This would require installation of additional underground tanks, piping and pumps. Some distributors may not be able to make the required investments--or may not have space to accommodate the changes at some of their retail stations.
Proposal could affect supplies
Some refiners may be unable to make the huge investments needed to make 15 ppm sulfur diesel, especially in light of other investments necessary to reduce sulfur in gasoline and to address oxygenates. As a result, some, including small farmer-owned refineries, may not be able to stay in business. They would join more than 25 other U.S. refineries that have closed over the past decade, owing in part to the high costs of regulations and rates of return averaging about three percent, less than a passbook savings account.
Among refineries that stay in business, some could reduce the amount of highway diesel fuel they manufacture. Ultimately, less diesel fuel would be produced in the United States, which would tend to push up prices. It is questionable whether shortfalls could be made up with imports given the stringency of EPA's 15 ppm proposal compared to the rest of the world.
The Turner Mason study also concluded that it would probably not be feasible for the distribution system to maintain continuously available supplies of extremely low sulfur diesel in all areas. Spot outages could occur for up to a week or longer in some less populated regions that are remote from source refineries.
Diesel users and consumers would be harmed
EPA's proposal could add about $2,500 to the cost of a trucker's annual operations in higher diesel fuel costs and reduced fuel economy (see Figure 1). A phase-in could drive those additional costs even higher. This assumes a truck is driven 100,000 miles annually at six miles per gallon. These new cost burdens do not include the higher cost of new trucks with required emission reduction equipment, which would be several thousand dollars more ($4,000 to $8,000 according to some automotive engineering experts).
All owners of truck fleets, including small businesses, could see their cost of doing business increase substantially as a result of higher fuel costs. The higher costs would also adversely impact businesses such as bakeries, nurseries and others that operate small fleets of diesel vehicles. Since the cost of moving goods would increase, consumers would pay more for food, clothing, and other products.
If there are fewer refiners and suppliers of fuels, this could increase the potential for supply disruptions, particularly to more remote rural markets that serve the farm sector, thus affecting supplies of highway and off-road diesel fuel. EPA claims that new diesel trucks and buses could be permanently damaged if any fuel other than EPA's 15 ppm is used. Thus, owners and operators of new trucks would have to shut down their operations if 15 ppm fuel supplies were disrupted for any reason, including natural disasters or unexpected physical interruptions.
Since this proposal, in combination with all the other EPA controls on transportation fuels and refineries, could reduce the number of suppliers of fuels, it could impact the home heating oil and other specialty fuels markets, including aviation fuels. The U.S. Department of Defense has raised concerns about possible impacts on military fuels.
Other groups have expressed concerns about EPA's proposal
The negative impacts of EPA's proposal are not just an issue for API and the refining industry. Many groups, including farmer cooperatives, fuel distributors, truckers, and others have expressed serious concerns about EPA's proposal in public forums and directly to EPA and the U.S. Department of Energy (see Attachments III, IV and V).
API appreciates the opportunity to provide testimony on this important issue, and we look forward to working closely with the federal government to address the nation's air quality and energy needs.