US refiners have a welcome opportunity to improve looming sulfur standards for highway diesel fuel. The US Environmental Protection Agency on Apr. 22 announced a review of its December 2000 requirement for ultralow-sulfur on-road diesel in 2006. Officials say they want to study progress toward implementation of the low-sulfur program. Refiners should treat the review as a forum in which to argue for adjustment to needlessly strict standards.
The diesel-sulfur program was a parting shot by the Clinton administration at refiners. In anticipation of requirements for new emission-control equipment in vehicle exhaust systems, the refining industry supported a huge cut in the sulfur concentration of highway diesel—to 30 ppm from an average of 340 ppm. Without any evidence that a deeper cut would improve the emissions performance of future diesel engines, EPA imposed the lowest legal sulfur limit: 15 ppm. To ensure fuel at the point of retail sale meets the standard, refiners will have to produce diesel containing 10 ppm sulfur or less.
Compliance costs
Although the environmental-performance difference between the 15 ppm and 30 ppm standards is at most negligible, the compliance-cost difference is huge. In general, refiners could have met the 30 ppm standard by upgrading and changing the operation of existing hydrotreating units. Complying with the 15 ppm standard will be more difficult. Refineries with hydrocrackers probably can expand and adjust existing equipment. Refiners without hydrocrackers probably will have to install high-pressure hydrodesulfurization units, manufacturing capacity for which is limited.
In addition to opting for the strictest possible sulfur standard, EPA paid no heed to refiners’ warnings about timing of the diesel-sulfur program. As refiners reduce sulfur from highway diesel, they also will have to be cutting sulfur and toxics from gasoline and phasing out methyl tertiary butyl ether. Compounding the difficulty will be the Clinton EPA’s unwarranted toughening of new-source-review permitting requirements and, probably, mandates for ethanol in gasoline.
The regulatory surge has claimed several small refineries. More plant closures are likely. And unless EPA raises the diesel-sulfur standard, some refineries that stay open will concentrate on products other than highway diesel. Manufacturing costs will rise. Supply will shrink. Prices will climb. And the environment will benefit no more than it would have if the EPA had accepted the 30 ppm standard industry supported.
Elevated prices would of course advance no-sulfur alternatives such as biodiesel and products from gas-to-liquids processes. But foreclosing economic fuel supply by decree is a costly and tentative way to speed development of promising new fuels now on the verge of market acceptance.
Clearly, EPA reached too far with the 15-ppm sulfur limit for highway diesel. Clearly, the review it announced Apr. 22 should make room for a change.
But it’s an election year, when politicians brandish their environmental credentials. Environmentalists will feel no need to compromise. They’ll portray any adjustment to the diesel-sulfur standard as wholesale rejection of environmental values. In such an environment, arguments about subtleties of fuel chemistry are not easy to make.
Competition among refiners themselves compounds the industry’s political challenge. Refinery closures are good for refineries that stay in business. One way for strong refiners to deal with the diesel-sulfur and other regulatory pressures is to stand fast while competitors shutter marginally profitable plants. The inevitable reduction in total refining capacity will lift product prices and improve the economics of investments needed for compliance with the new regulations. While the capacity shakeout looms, individual refiners won’t want to say much in a new fight with EPA.
Trampled interests
Another problem of the current political climate is one that refiners should try to turn to their advantage. When the industry addresses problems of EPA’s diesel-sulfur program, its opponents will disparage the argument as coming from ‘special interests.‘ It won’t matter that the affected industry knows better than anyone the effects of bad regulation.
The refining industry therefore should be ready to point out the interests trampled most by EPA’s runaway regulation: those of consumers. For noncommercial motorists, for truckers, and for purchasers of goods transported over highways, costs will rise. Unless EPA relaxes the diesel-sulfur standard, they’ll rise for no appreciable environmental gain. The program needs more than an implementation review. It needs repair.
