The Honorable John T. Spotila
Administrator
Office of Information and Regulatory Affairs
U.S. Office of Management and Budget
The Old Executive Office Building, Room 350
Washington, D.C. 20503
Subject: Recommendations of Representatives of Small Business Refineries under an EPA Highway Diesel Fuel Sulfur Control Program with a Sulfur Limit at the Lower End of the Range Proposed during the SBREFA Panel Process (5-40 ppm)
Dear Mr. Spotila:
At your April 19 meeting with representatives of small business refineries, Tom Kelly of EPA extended an offer to receive comments from such representatives regarding recommended regulatory flexibility alternatives under an EPA Highway Diesel Fuel Sulfur Control Program with a sulfur limit at the lower end of the range proposed during the SBREFA panel process (5-40 ppm). Enclosed are the recommendations of eleven representatives.
We believe that the regulatory flexibility alternatives recommended by these small business representatives have merit under the Regulatory Flexibility Act, as amended by the Small Business Regulatory Enforcement Fairness Act of 1996. EPA should seriously consider these alternatives.
Sincerely,
Jere W. Glover
Chief Counsel for Advocacy
cc: Bob Perciasepe, EPA
Margo Oge, EPA
Tom Kelly, EPA
Art Fraas, OMB
Small Refiner Supplemental Comments on Diesel Sulfur Standard
April 24, 2000
Mr. Jere Glover
Chief Counsel for Advocacy
U.S. Small Business Administration
409 Third Street, S.W.
Washington, DC 20416
Dear Jere:
Small business refiners producing highway diesel fuel want to respond to the invitation, issued by Tom Kelly of EPA in a meeting on April 19, to comment on the prospect of a sulfur limit significantly lower than 50 ppm. As you know, during the short time frame of the diesel SBREFA process, we were not aware that EPA might require a much lower sulfur limit. We appreciate this opportunity to reconsider and modify our recommendations in light of such a prospect.
We have tried to build on the SBREFA panel work in developing these comments. Unfortunately, the 50-ppm sulfur limit for small refinersthe corner stone of the alternatives we recommended during that processno longer appears viable in light of the prospect of a national sulfur standard significantly lower than 50-ppm. As a result, we are now placed in the uncomfortable position of making recommendations that may provide little, if any, flexibility for small refiners. We are very concerned that, even with a delay of the gasoline sulfur or "Tier 2" standards (both interim and final standards) until 2010 and an exemption for an unlimited time from the ultra-low sulfur diesel standards, many small refiners will be unable to remain in the market for highway diesel fuel for long, to take advantage of these alternatives.
The prospect of sulfur limit for highway diesel fuel in the lower end of the 5-40 ppm range would significantly impact our abilities to comply with a diesel rule by potentially increasing capital costs and dramatically escalating operational losses (with commensurate negative impacts on company earnings and profitability), and by adding a level of technological uncertainty that, when combined with the financial impacts of "Tier 2" compliance may create a situation where necessary funding is either not available to small business refiners or the interest rates that are offered are prohibitively high. However, in the spirit of SBREFA, we recommend the following set of alternatives that should be considered as a package proposal, even though, taken together, may still be of limited assistance to small refiners. We want to reemphasize that there is no "one size fits all" approach to providing flexibility for small refiners. However, once again, there is a set of alternatives (below) that may be more likely to be of assistance (e.g., an automatic delay of "Tier 2" standards) than others (e.g., a hardship provision under the diesel rule).
We have reached consensus and agree on the following priorities.
We would prefer that EPA delay the entire diesel rule because that would preclude any need to produce ultra-low sulfur diesel fuel for at least three years. However, if such an across-the-board delay were not possible, we would recommend a phase in approach that would maximize the likelihood of continued markets for 500-ppm highway diesel fuel in the lower-48 states (see point 3 below regarding an Alaska-specific phase-in). First, a significant portion of the market (not just small refiners) would have to be allowed to continue producing 500-ppm diesel for some period of time, subject to sufficient availability of the ultra-low sulfur fuel. If the main barrier to a market for vehicles requiring ultra-low sulfur diesel fuel is that consumers wont demand them in the early years because there is insufficient availability of the new fuel, then EPA would only have to ensure a sufficient supply in year one. After that, the market would work efficiently to supply and meet the increasing demand for the new fuel and transition from the old to new fuel, provided there were no backsliding from the year one requirement(s). Second, most, if not all, small businesses should be exempt from such year-1 requirement(s). If EPA decides to require that retailers must provide ultra-low sulfur fuel wherever highway diesel fuel is sold and/or that a certain amount of refinery production of highway diesel fuel must be ultra-low-sulfur, those requirements should be limited to those retailers and refiners that have some threshold level of throughput.
Alternatively, EPA diesel sulfur rules could recognize the different fuel needs of different emissions equipment by phasing in any standards lower than 50 ppm. Specifically, because the particulate matter (PM) trap is relatively less sulfur sensitive, PM traps (but not NOx absorbers) could be required on new vehicles by 2007 whereas NOx absorbers could be added later (e.g., 2010). The diesel fuel sulfur limit could be lowered if technology has not improved sufficiently to allow the use of a 50 ppm sulfur fuel.
Regardless of whether the entire rule is delayed or one or more parts of it are phased in, we recommend that EPA conduct a technological review before small refiners are required to meet a national standard below 50 ppm, to determine whether a lower standard is indeed still required.
We greatly appreciate your interest in our small businesses and stand ready to provide additional information if and when that might be helpful.
Sincerely yours,
Countrymark Cooperative (John Stern)
Frontier Refining (Gerald Faudel)
Gary-Williams Energy (Sally V. Allen)
Golden Bear Oil Specialties (Jerry Davis)
Kern Oil (Chad Tuttle)Petro Star (Richard Curtin)
Placid Refining (Ron Hurst)
San Joaquin Refining (Larry Young)
U.S. Oil and Refining (Al Cabodi)
Western Independent Refiners Association (Craig Moyer)
Wyoming Refining Company (Bob Neufeld)
Additional Comments
Western Independent Refiners Association and Kern Oil
Small refiners previously have submitted data documenting that a 15 ppm standard is unfeasible and will severely impact small refiners. Small refiner annual operating costs increase by $0.10 per gallon and maintenance costs also increase substantially, on the order of $1,000,000 per year. This is over $0.08 per gallon more than costs anticipated in connection with achieving a 50 ppm sulfur limit. Small refiners simply do not possess the broad operating flexibility, capital and other economies of scale as a major oil company. At these levels, all distillate streams will be directed through the diesel hydrotreater and additional residence time will be required. Because of limitations on hydrotreater capacities in refineries, substantial production loss would occur. Achieving a 15 ppm standard is calculated to result in production losses in excess of 30%. These production losses not only exponentially increase per gallon costs but also threaten the viability of the entire operation. There are also numerous other technical and logistical issues facing small refiners that have also previously been submitted.
It is important to note that small refiners have already reduced sulfur in diesel by over 90% from the previous 5,000 ppm standard down to the current 500 ppm standard. Please also note that a further reduction down to a 50 ppm standard results in a reduction of over 99%. A 50 ppm standard would represent the single greatest reduction of any motor fuel specification, ever. Consistent with all control technologies, the small refiner costs become exponential at control efficiencies greater than 99%, i.e., below 50 ppm.