On June 29, 2004, the EPA issued a comprehensive final rule regulating emissions from nonroad diesel engines and sulfur content in nonroad diesel fuel [6]. The nonroad fuel market makes up more than 18 percent of the total distillate pool. The rule applies to new equipment covering a broad range of engine sizes, power ratings, and equipment types. There are currently about 6 million pieces of nonroad equipment operating in the United States, and more than 650,000 new units are sold each year.
The rulemaking covers such equipment as tractors, bulldozers, graders, backhoes, heavy construction, mining, and logging equipment, airport tugs, locomotives, and commercial marine vessels. The regulations represent a tiered emissions reduction approach based on engine horsepower, with phased-in restrictions on emissions of particulate matter (PM), NOx, and nonmethane hydrocarbons. The rule reduces diesel engine emissions by more than 90 percent and fuel sulfur content by 99 percent from current levels.
The regulation addresses emissions and fuels simultaneously to maximize emission reductions by integrating engine and fuel controls as a system. To meet the standards, engine manufacturers will be required to produce new engines with advanced emission control technologies similar to those already expected for on-road (highway) heavy trucks and buses. Refiners will be supplying new lower sulfur diesel fuels in both cases.
Emission Standards
By 2014, the new Tier 4 regulations will require nonroad diesel engines to cut emissions of pollutants by more than 90 percent [7]. Standards for new engines will be phased in starting with the smallest engines in 2008 until all but the very largest diesel engines meet both NOx and PM standards in 2014 (Table 3). Some of the largest engines (750-plus horsepower) will have one additional year to meet the emissions standards.
The final rule includes flexibility provisions aimed at helping small engine manufacturers meet the requirements. The EPA Tier 4 standards do not require retrofitting older diesel engines currently in service and do not apply to diesel engines used in locomotives and marine vessels, but they do cover fuel requirements for those equipment categories.
In a separate action, the EPA took the first step toward proposing new emissions standards for diesel engines by issuing an Advanced Notice of Proposed Rulemaking on June 29, 2004 [8]. Contemplated standards would apply to marine diesels used in all new commercial, recreational, and auxiliary marine diesel engines except for very large engines used for propulsion of deep-sea vessels. For locomotives, both new and existing diesel units would require advanced emission control technologies similar to those for heavy-duty trucks and buses. The widespread availability of clean nonroad diesel fuel required under the new fuel standards will enable the use of advanced control technology on locomotive and marine engines.
The EPA estimates that anticipated compliance costs will vary with the size and complexity of equipment, in the range of 1 to 3 percent of total purchase price for most categories of nonroad diesel equipment [9]. The new nonroad diesel emission standards, when fully implemented, are expected to provide significant public health benefits.
Fuel Standards
The final rule, to be implemented in multiple steps, requires sulfur content for all nonroad locomotive and marine (NRLM) diesel fuel produced by refiners to be reduced to 500 parts per million (ppm) starting in mid-2007. It also establishes a new ULSD limit of 15 ppm for nonroad diesel by mid-2010. For locomotive and marine diesel, the action establishes a ULSD limit of 15 ppm in mid-2012, providing the refining industry flexibility to align fuel supply operations with all other on-road and nonroad ULSD fuel regulations, which take effect in mid-2010. After refiners, the new standards will apply to terminals, wholesalers, retailers, and end users in subsequent months as production flows through the distribution chain.
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The nonroad diesel requirements have implications for the refining industry and, especially, for small refiners (defined as having less than 155,000 barrels per day of crude oil charge capacity and less than 1,500 corporate employees). Approximately 20 refiners fall into the small refiner category. They are dispersed across the country, with the largest concentration located in the Rocky Mountain Region. Small refiners are granted three additional years to meet the 500 ppm standard for NRLM diesel, starting in mid-2007 (Table 4). The challenges facing small refiners include additional time needed to secure capital funding, a need for longer leadtimes because of limited engineering expertise, and limits on the availability of contractors, who will be performing upgrades for major refiners.
For early or overcompliance with the fuel sulfur standards, a regional averaging, banking, and trading program will be created; however, credits may not be used or traded for use outside the credit trading region in which they are generated [10]. For the 500 ppm standard beginning in mid-2007, small refiners outside the Northeast/Mid-Atlantic area can use credits to continue producing high-sulfur nonroad fuel until the credits expire in mid-2010. After mid-2014, small refiners must comply with the 15 ppm standard for NRLM diesel.
The rule recognizes certain exceptions. For Alaska, NRLM diesel covers only areas served by Federal highways. Rural and remote areas are not required to convert to ULSD until 2011. For stationary power sources, the rule excludes No. 4, 5, and 6 heavy distillates. In special marine situations, giant Category 3 ocean ship engines face a separate regulation expected by April 2007. Category 2 or 3 marine diesel engines using distillate with a distillation point over 700oF are excluded.
There are also special exceptions for transmix facilities on pipelines [11]. Because transmix facilities do not have sulfur removal equipment to clean up pipeline interface mixes, the final rule provides that they may produce fuels for sale into the NRLM markets that meet small refiner provisions, in order to avoid the burden of additional investment in treating equipment or returning mix to refineries for reprocessing. After the NRLM small refiner provisions expire in 2014, transmix processors may continue to sell 500 ppm fuel into the locomotive and marine market.
The rule also prescribes certain dyeing, tracking, and record keeping requirements to ensure that fuel is not diverted from authorized channels and that taxes are properly paid. The Internal Revenue Service ordinarily requires that fuel used in NRLM engines be dyed before leaving the terminal, to indicate its nontaxed status. Fuels that meet on-road diesel specifications but are destined for NRLM markets can leave the terminal undyed, provided that the tax is paid first. NRLM users can then apply for a tax refund. To minimize misfueling, a system of labels is prescribed on diesel retail pumps, fuel tank inlets, and dashboard and instrument panels, corresponding with the introduction of new diesel engines and equipment.
The EPA did not specify lubricity standards in the rule, because the industry has been working to finalize a universal standard for all diesel fuel. If the American Society for Testing and Materials does not establish a universal lubricity standard, a separate rulemaking applying to lubricity additives will be issued by the EPA.
Impacts of the Emission and Fuel Standards
The effects of the new NRLM diesel standards are represented in AEO2005. The National Energy Modeling System (NEMS) has been revised to reflect the nonroad rule and recalibrated for market shares of highway, NRLM diesel, and other distillate (mostly heating oil and excluding jet fuel and kerosene). The nonroad rule, following closely on the heels of the highway diesel rule, represents an incremental tightening of the entire diesel pool that will cause demand for high-sulfur distillate to diminish over time while demand for ULSD (both highway and NRLM) increases.
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After 2007, during the rule’s implementation, the projections for refinery distillate production are slightly lower with the rule in place because of the more stringent and costly processing requirements, and imports of distillate are higher. For the composite distillate market, prices are slightly higher with the rule in place and vary by sector. Table 5 shows key projections for distillate fuel prices, production, and imports in the AEO2005 reference case, which includes the new nonroad diesel rule, and in a sensitivity case that does not include the new rule.
Because heating oil is not subject to NRLM diesel rules, residential distillate prices are not expected to be affected significantly. Eventually, however, residential prices are projected to parallel those in other sectors as the distillate market converges toward a universal ULSD standard. More than two-thirds of all high-sulfur distillate use after 2010 is projected to be concentrated in the Northeast.
In the commercial and industrial sectors, distillate fuel prices after 2010 are projected to be higher with the rule in place. Nonroad diesel is a relatively small portion of commercial distillate use, but it dominates industrial use. Thus, the price impact is greater for the industrial sector. For the electric power sector there is little or no projected impact on distillate prices. Diesel prices in the transportation sector are projected to be about 2 cents per gallon higher in 2010-2012 because of the nonroad diesel sulfur reduction and about 3 cents per gallon higher in 2014, when the sulfur content of all NRLM diesel fuel is reduced to 15 ppm.
EPA estimates [12] place the added cost of ULSD for NRLM diesel use in the range of about 7 cents per gallon; however, the EPA expects the added cost to be offset by reduced engine maintenance expenses, lowering the net incremental impact to about 4 cents per gallon. The EPA estimates assume complete turnover of nonroad diesel engines by 2030.
Notes and Sources
Contact: Crawford Honeycutt
Phone: 202-586-1420
E-mail: crawford.honeycutt@eia.doe.gov | 