API largely endorses pending EPA two-step low sulfur diesel plan

June 13, 2003
Industry generally endorses a pending US Environmental Protection Agency proposal that will reduce most nonroad diesel sulfur levels to 15 ppm by mid-2010, the American Petroleum Institute said Thursday.

By OGJ editors
WASHINGTON, DC, June 13 -- Industry generally endorses a pending US Environmental Protection Agency proposal that will reduce most nonroad diesel sulfur levels to 15 ppm by mid-2010, the American Petroleum Institute said Thursday.

EPA in April proposed a new rule that limits sulfur content in nonroad diesel to a maximum 500 ppm by mid-2007 with the stricter 15 ppm standard phased in 3 years later. The agency considered but rejected a plan requiring all nonroad diesel fuel to contain 15 ppm sulfur or less by 2008 (OGJ Online, Apr. 16, 2003).

Refiners, engine makers, state regulators, and most environmental groups largely support the proposal although the agency may revamp the compliance portions of the rule, industry and government sources said.

EPA this spring said it wanted to have the regulation finalized by March 2004. But since that announcement, EPA Administrator Christine Whitman gave notice she was leaving the agency before the end of June. That means the offroad diesel timeline could slip given it may be weeks or months before a successor is named. There also is the chance that Whitman's replacement may want to dramatically retool the rule, causing further delay, agency sources said.

Meanwhile, the regulatory process marches forward. The agency held public meetings on Tuesday in New York, on Thursday in Chicago, and will hold a meeting in Los Angeles on June 17.

API testimony
Industry supports the two-step nonroad diesel fuel sulfur reduction in the proposal, according to written testimony by John H. Medley, fuels issues advisor, ExxonMobil Refining and Supply Co. who represented API in Chicago. The association said it also endorses the agency's plan to keep locomotive and marine equipment fuel levels at 500 ppm, beginning in mid-2007.

Refiners are already gearing up to produce 15 ppm sulfur highway diesel starting in mid-2006, according to Medley. And while refiners generally need 4 years to plan for and implement major changes in fuels specifications, API said it thinks its members can meet a tighter timetable if a two-step approach is used.

"We believe it is doable, however, and using the two-step approach will reduce potential supply impacts compared to the alternative of taking all nonroad diesel to 15 ppm sulfur in mid-2008," Medley said. "EPA is correct in its assessment that it would be infeasible to meet an earlier date for the reduction to a maximum of 500 ppm sulfur in nonroad diesel."

Clean air group
The Clean Air Trust Education Fund also presented testimony at the Chicago regional hearing. The group said it supports EPA efforts to cap the sulfur content of nonroad diesel fuel at 15 ppm. But the standard should apply to all diesel, including fuel used in marine and locomotive engines, sooner than what EPA proposes, said CATEF Executive Director Frank O'Donnell.

"Having clean fuel in place would complement clean new engines and enable retrofits of dirty old engines," he said. Instead of the two-step method API and EPA support, there should be a single 15 ppm 2007 deadline, CATEF said.

The EPA plan currently allows refiners to earn credits for early production of 500 ppm sulfur nonroad diesel prior to mid-2007, and for early production of 15 ppm sulfur nonroad diesel prior to mid-2010.

"Cleaner fuel is the linchpin of the entire diesel cleanup, since sulfur poisons emission controls for diesel engines just as lead in gasoline disabled catalytic converters," O'Donnell said.

Industry criticisms
API also would like to see EPA change the rule, but in a way environmental groups are sure to oppose.

The association said it has serious concerns with the method in which EPA wants to maintain fungibility of undyed highway and nonroad 500 ppm sulfur diesel. API said the agency's "nonhighway distillate baseline" includes market assumptions that may become outdated before they are even enforced.

"We are concerned that the proposed baseline approach could unduly interfere with the marketplace and create simultaneous shortages and excesses of particular products in particular markets. The baseline approach essentially requires the production of diesel fuel products in the same historical three-year proportions even though market demands may dictate otherwise," Medley said.

If EPA finalizes the baseline approach, refiners need to be able to adjust the 3-year, 2003-05 historical baseline to reflect the 2006-07 capabilities of refineries modified to meet the requirements of the highway rule, he noted.

"This would minimize the potential mismatches among early decade production ratios and potential changes in market demand later in the decade. We believe this proposed flexibility for the baseline proposal is one initial way to minimize the problems created by the overall baseline approach."

API would prefer a different monitoring system referred to as "designate and track" in the proposed rule. EPA told API it is not sure the industry-favored method would provide enough oversight to prevent fuel switching.

But, the association argued, "there is little doubt regarding the workability of the approach. The current refined product distribution system in the US already requires the ability to track and differentiate products and position holders of the same product in fungible pipeline shipments and in the same terminal tank. Hence, only modest upgrading of record-keeping software would be needed to make this approach fully workable."

Highway concerns remain
API also said it remains concerned that EPA's final highway diesel rule is being phased-in too quickly. The group argued that implementation of the highway rule "should have been timed more in line with the actual need for this fuel by new after-treatment equipped vehicles.

"While many of the common sense approaches EPA has proposed for the nonroad rule should serve to mitigate any additional adverse market impacts, our concerns regarding the highway rule remain. We recognize that EPA has begun an ongoing dialogue with stakeholders regarding implementation of the highway rule and we intend to continue to work with EPA and other stakeholders to achieve the shared goal of a smooth implementation."

API's comments on the highway rule provoked a response from CATEF, which maintained refiners do not need additional time to supply the market.

"We want to reiterate our strong opposition to any use of this (nonroad) rule to undermine EPA's earlier highway diesel rule, including anything that would limit or reduce the available supply of clean highway diesel fuel," ODonnell said. "EPA already made concessions to the oil industry in crafting this compromise proposal. Further concessions are unnecessary—especially given the prosperous state of the oil industry, which made more than $21 billion in profits during the first quarter of this year alone," he said.