Control of Emissions of Air Pollution From Nonroad Diesel Engines
and Fuel [pp. 39057-39106]
[Federal Register: June 29, 2004 (Volume 69, Number 124)]
[Rules and Regulations]
[Page 39057-39106]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr29jn04-23]
[[pp. 39057-39106]]
Control of Emissions of Air Pollution From Nonroad
Diesel Engines and Fuel
[[Continued from page 39056]]
[[Page 39057]]
technologies, we believe the market will determine if and when the
territories will make the investment needed to obtain and distribute
the diesel fuel necessary to support these technologies.
We are also requiring that all nonroad diesel engines and equipment
for these territories be certified and labeled to the applicable
requirements--either to the previous-tier standards and associated
requirements under this exclusion, or to the Tier 4 standards and
associated requirements applicable for the model year of production
under the nationwide requirements of today's action. The engines would
still be emissions warranted, as otherwise required under the CAA and
EPA regulations. Special recall and warranty considerations due to the
use of excluded high sulfur fuel would be the same as those for Alaska
during its exemption and transition periods for highway diesel fuel and
for these territories for highway diesel fuel (see 66 FR 5086, 5088,
January 18, 2001).
To protect against circumvention of the emission requirements
applicable to the rest of the U.S., we are restricting the importation
of nonroad engines and equipment from these territories into the rest
of the U.S. After the 2010 model year, nonroad diesel engines and
equipment certified under this exclusion for sale in American Samoa,
Guam and the Commonwealth of the Northern Mariana Islands will not be
permitted entry into the rest of the U.S.
b. Why Are We Treating These Territories Uniquely?
Like Alaska, these territories are currently exempt from the 500
ppm sulfur standard for highway diesel fuel. Unlike Alaska, they are
also exempt from the new highway diesel fuel sulfur standard effective
in 2006 and the new highway vehicle and engine emission standards
effective beginning in 2007 (see 66 FR 5088, January 18, 2001).
Section 325 of the CAA provides that upon request of Guam, American
Samoa, the Virgin Islands, or the Commonwealth of the Northern Mariana
Islands, we may exempt any person or source, or class of persons or
sources, in that territory from any requirement of the CAA, with some
specific exceptions. The requested exemption could be granted if we
determine that compliance with such requirement is not feasible or is
unreasonable due to unique geographical, meteorological, or economic
factors of the territory, or other local factors as we consider
significant. Prior to the effective date of the current highway diesel
fuel sulfur standard of 500 ppm, the territories of American Samoa,
Guam and the Commonwealth of the Northern Mariana Islands petitioned us
for an exemption under section 325 of the CAA from the sulfur
requirement under section 211(i) of the CAA and associated regulations
at 40 CFR 80.29. We subsequently granted the petitions.\107\ Consistent
with this decision, in our January 18, 2001 highway rule (66 FR 5088),
we determined that the 2007 heavy-duty engine emission standards and
2006 diesel fuel sulfur standard would not apply to these territories.
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\107\ See 57 FR 32010, July 20, 1992 for American Samoa; 57 FR
32010, July 30, 1992 for Guam; and 59 FR 26129, May 19, 1994 for CNMI.
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Compliance with the NRLM diesel fuel sulfur standards would result
in major economic burden on the territories. All three of these
territories lack internal petroleum supplies and refining capabilities
and rely on long distance imports. Given their remote location from
Hawaii and the U.S. mainland, most petroleum products are imported from
east rim nations, particularly Singapore. Australia, the Philippines,
and certain other Asian countries are beginning to consider and in some
cases implement lower sulfur diesel fuel standards. However, it is not
clear that supply, especially of 15 ppm sulfur diesel fuel, would be
possible to these territories.
Furthermore, compliance with new 15 ppm sulfur requirement for
highway diesel fuel beginning in 2006 and today's 15 ppm sulfur
requirement for NRLM diesel fuel beginning in 2010 (or the 500 ppm
sulfur requirement for NRLM diesel fuel beginning 2007) would require
construction of separate storage and handling facilities for a unique
grade of diesel fuel for highway and nonroad purposes, or use of 15 ppm
sulfur diesel fuel for all diesel applications to avoid segregation.
Either of these alternatives would require importation of 500 and 15
ppm sulfur diesel fuel from Hawaii or the U.S. mainland, and would
significantly add to the already high cost of diesel fuel in these
territories, which rely heavily on U.S. support for their economies. At
the same time, it is not clear that the environmental benefits in these
areas would warrant this cost. Therefore, we are not applying the fuel
and engine standards to these territories.
The Caribbean Petroleum Corporation (CPC) commented that the
proposed nonroad diesel rule would result in a major economic burden
for Puerto Rico, the environmental benefits do not warrant the cost,
and that Puerto Rico should be exempt. However, the CPC did not include
any cost or environmental information to support its claims. We have no
reason to believe that the costs of the NRLM diesel fuel program in
Puerto Rico will be significantly greater than that of the U.S. For
example, Puerto Rico is close to the U.S. mainland, and to South
American and Central American suppliers of fuel to the U.S. mainland,
and therefore has ready access to nearby fuel supplies that meet U.S.
requirements. Similar to the fuel distribution system in the rest of
the country, the fuel distribution system in Puerto Rico is geared to
separate fuel handling and storage facilities for highway and non-
highway diesel fuels. Today's rule will require additional segregation
for the NRLM diesel fuels, but no differently for Puerto Rico than for
the U.S. Nevertheless, to avoid that additional fuel segregation,
Puerto Rico could substitute highway fuel for use in NRLM diesel
engines and equipment. We also believe that the important air quality
benefits to be realized by today's rule for the four million people in
Puerto Rico should not be significantly different than those for the
rest of the country. Consequently, today's rule includes Puerto Rico in
the NRLM diesel fuel program.
D. NRLM Diesel Fuel Program Design
In addition to specifying the sulfur standards and the
implementation dates when the standards take effect, the diesel fuel
program compliance provisions must be designed and structured carefully
to achieve the overall principles of the program. Specifically, the
health and welfare benefits of the NRLM diesel fuel and the highway
diesel programs, and the need for widespread availability of 15 ppm
sulfur highway diesel fuel must be maintained. The program benefits and
fuel availability will only happen if the NRLM diesel fuel program is
designed such that the amount of 15 ppm sulfur fuel expected to be
produced under the highway diesel fuel program is in fact produced and
that 500 ppm highway fuel is not overproduced. Likewise, the benefits
of the NRLM diesel fuel sulfur standards adopted today will only be
achieved if the program is designed to ensure that the volume of diesel
fuel consumed by NRLM diesel engines is matched by the supply of NRLM
diesel fuel produced to the appropriate low sulfur levels. At the same
time, promoting the efficiency of the distribution system calls for
fungible distribution of physically similar products, and minimizing
the need for product segregation.
As discussed below, the situation faced in 1993 when EPA first
regulated the sulfur content of highway diesel fuel parallels some of
the issues that EPA
[[Page 39058]]
needed to address in today's rule. Prior to the implementation of the
500 ppm sulfur standard for highway diesel fuel in 1993, most No. 2
distillate fuel was produced to essentially the same specifications,
shipped fungibly, and used interchangeably by highway diesel engines,
nonroad diesel engines, locomotive and marine diesel engines, and
heating oil applications. Beginning in 1993, highway diesel fuel was
required to meet a 500 ppm sulfur cap and was segregated from other
distillate fuels as it left the refinery by the use of a visible level
of dye solvent red 164 in all non-highway distillate. At about the same
time, the Internal Revenue Service (IRS) similarly required non-highway
diesel fuel to be dyed red to a much higher concentration prior to
retail sale to distinguish it from highway diesel fuel for excise tax
purposes. Dyed non-highway fuel is exempt from this tax. This splitting
of the distillate pool necessitated changes in the distribution system
to ship and store the now distinct products separately. In some parts
of the country where the costs to segregate non-highway diesel fuel
from highway diesel fuel could not be justified, both fuels have been
produced to highway specifications.\108\
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\108\ Diesel fuel produced to highway specifications but used
for non-highway purposes is referred to as ``spill-over.'' It leaves
the refinery gate and is fungibly distributed as if it were highway
diesel fuel, and is typically dyed at a point later in the
distribution system. Once it is dyed it is no longer available for
use in highway vehicles, and is not part of the supply of highway fuel.
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1. Requirements During the First Step of the Fuel Program
EPA is adopting specific compliance provisions during the first
step of today's NRLM diesel fuel sulfur control program for three
reasons. The first is to maintain the integrity of the highway diesel
program, while allowing the efficient distribution of highway and NRLM
diesel fuel. Since 500 ppm sulfur highway diesel fuel allowed under the
highway diesel fuel program's Temporary Compliance Option (TCO) and
NRLM diesel fuel meeting today's 500 ppm sulfur standard will be
physically the same, it would be impossible to maintain the benefits
and program integrity of the highway diesel fuel program without some
means of differentiating highway diesel fuel from NRLM diesel fuel.
Continuing the current practice of dyeing NRLM diesel fuel at the
refinery gate and requiring that it be segregated throughout the
distribution system is not a practical way to differentiate NRLM diesel
fuel from highway fuel. At the same time, allowing the unrestricted
fungible distribution of highway and NRLM diesel fuel with the same
sulfur level risks the loss of important benefits of the highway
program. For example, if a refiner produced all 500 ppm sulfur fuel and
designated it as NRLM diesel fuel, that refiner would have no
obligation to produce any 15 ppm sulfur highway diesel fuel. Without an
effective way of limiting the use in the highway market of 500 ppm
sulfur diesel fuel produced as NRLM diesel fuel, much more 500 ppm
sulfur fuel could, and likely would find its way into the highway
market than would otherwise happen under the current highway program.
This would displace 15 ppm sulfur diesel fuel that would have otherwise
been produced. This likely series of events would circumvent the intent
of the highway program's TCO and sacrifice some of the resulting PM and
SO2 emission benefits of the overall highway diesel program.
If this occurred to any significant degree, it could also undermine the
integrity of the highway program by threatening the availability of 15
ppm sulfur diesel fuel nationwide for the vehicles that need it. This
is no longer a concern after 2010, when all highway diesel fuel is
required to meet a 15 ppm sulfur standard.
The second reason is to maintain the integrity of the NRLM diesel
fuel program, while allowing the efficient distribution of NRLM diesel
fuel and heating oil where they have similar sulfur levels. By
establishing new sulfur standards for NRLM diesel fuel but not heating
oil, today's program creates the need to distinguish the fuel used for
these two purposes. Currently, there is no grade of diesel fuel which
is produced and marketed as a distinguishable grade for NRLM diesel
engine uses. It is typically produced and shipped fungibly with other
distillate used for heating oil purposes, and it is all dyed red in
accordance with EPA and IRS regulations. Because today's rule includes
small refiner and credit provisions that allow the limited production
of high sulfur (greater than 500 ppm) NRLM diesel fuel through 2010, it
is not possible to rely on sulfur content alone to differentiate NRLM
diesel fuel from heating oil during the first step of the program.
Without adequate controls, a refiner could choose not to desulfurize
any of its fuel that is destined for the NRLM diesel fuel market,
instead designating that volume as heating oil at the refinery gate.
This fuel, ostensibly manufactured for use as heating oil could be
misdirected for use in NRLM diesel equipment, and would be
indistinguishable from legal high sulfur NRLM diesel fuel produced by
small refiners and/or through the use of credits. This could
substantially reduce the environmental benefits of today's rule.
After 2010, when the 15 ppm sulfur standard for NR diesel fuel goes
into effect, small refiner and credit NR fuel must meet a 500 ppm
standard. Therefore, after 2010 NRLM diesel fuel can be distinguished
from high sulfur (greater than 500 ppm) home heating fuel based on
sulfur content. However, 500 ppm NR (small refiner, credit) produced
from June 1, 2010 through May 31, 2012, and 500 ppm NRLM (small
refiner, credit) diesel fuel produced from June 1, 2012 through May 31,
2014, could not be distinguished from heating oil produced to meet a
similar 500 ppm sulfur limit. Likewise, from June 1, 2010 to June 1,
2012, 500 ppm NR (small refiner, credit) diesel fuel and LM diesel fuel
need to be distinguished from each other, so that diesel fuel produced
as 500 ppm LM is not later misdirected to the NR diesel market. Such
misdirected 500 ppm sulfur LM diesel fuel would be indistinguishable
from legal 500 ppm sulfur NR diesel fuel, reducing the environmental
benefits of today's rule. These various 500 ppm fuels could not be
distinguished based on sulfur level. As previously discussed, the
situation which was faced in 1993 regarding the need to differentiate
500 ppm sulfur highway diesel fuel from other diesel fuel is similar to
the need today to differentiate highway diesel fuel, NRLM diesel fuel,
and heating oil.
The third reason is to maintain the integrity of the anti-
downgrading requirements in the highway diesel program. The highway
diesel program requires that each entity in the distribution system
downgrade no more than 20 percent of the 15 ppm sulfur highway diesel
fuel for which it assumes custody to 500 ppm sulfur highway diesel
fuel. These provisions are necessary to ensure the widespread
availability of 15 ppm sulfur diesel fuel for use in model year 2007
and later highway vehicles, in which the use of 15 ppm sulfur fuel is
essential to facilitate the projected emissions benefits of the highway
program. The highway program placed no restrictions on the volume of
highway diesel fuel that could be downgraded to NRLM diesel fuel. Under
the proposed rule there would be no way to distinguish 500 ppm sulfur
NRLM diesel fuel from 500 ppm sulfur highway diesel fuel downstream of
the refinery. Therefore, to preserve the integrity of the highway
program, the proposal would have made the highway program's anti-
downgrade requirements more stringent by also
[[Page 39059]]
restricting downgrades to 500 ppm sulfur NRLM diesel fuel. We received
several negative comments on this proposed restriction. The compliance
and record keeping requirements finalized to address the two concerns
discussed above, can be utilized to facilitate the implementation of
the highway program's anti-downgrading requirements without the need to
further restrict downgrading. As a result, today's rule also contains
several modifications which clarify the anti-downgrading provisions of
the highway diesel program.
The requirements described below will help ensure that the
projected benefits of the highway diesel program and of today's NRLM
diesel program are achieved.
a. Ensuring Refiner Production Volumes of 15 ppm Sulfur Highway Diesel
Fuel Are Consistent With the Highway Rule's 80/20 Requirement
To avoid adding unnecessary cost to the fuel distribution system,
we proposed that the current requirement of dyeing non-highway
distillate fuels at the refinery gate become voluntary as of June 1,
2006.\109\ As discussed in the proposal, continuing to require that
NRLM diesel fuel and heating oil contain a visible trace of red dye at
the refinery gate would allow for simple enforcement of the highway
standards throughout the duration of the highway program's TCO. Clear,
undyed diesel fuel would have to meet the 80/20 ratio of 15 ppm to 500
ppm sulfur highway diesel fuel, and dyed fuel could only be used in
NRLM diesel equipment or as heating oil. Continuing the current dye
provisions would therefore ensure that the intended benefits of the
highway program are achieved. However, maintaining this dye distinction
would also require segregation of a new grade of dyed 500 ppm sulfur
NRLM diesel fuel throughout the entire distribution system. The costs
of requiring segregation of two otherwise identical fuels throughout
the entire distribution system could be quite substantial.\110\
Comments on the proposed rule confirmed EPA's assessment that the
ability of the fuel distribution system to distribute these fuels
fungibly is essential, since segregating the fuels could result in
substantial additional transportation costs and necessitate additional
storage tanks throughout the system.
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\109\ The IRS requirements concerning dyeing of non-highway fuel
prior to sale to consumers are not changed by this rulemaking.
\110\ Under the highway program the potential exists to add a
third grade of diesel fuel in an estimated 40 percent of the
country, and we projected one-time tankage and distribution system
costs of $1.05 billion to accomplish this. Using similar
assumptions, to add a second 500 ppm grade nationwide would cost in
excess of $2 billion. This assumes that the capability exists to add
such new tankage.
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The NPRM invited comment on two alternative approaches to ensure
that refiner production of 15 ppm sulfur highway diesel fuel met the
highway rule's 80/20 requirement; the ``refiner baseline'' approach,
and the ``designate and track'' approach. The baseline approach is
essentially a constraint on the sulfur levels of the various distillate
fuel products a refiner produces, based on historical production
volumes. Fuel with similar sulfur levels could then be fungibly
distributed with only limited controls on the downstream distribution
system. The designate and track approach requires that a refiner
designate into which market discrete volumes of the distillate fuels it
produces must be sold, without any consideration of historical
production volumes. The fuel must then be tracked through the
distribution system and sold only for its designated purpose (or a
purpose that requires less control). As with the baseline approach,
diesel fuel with similar sulfur levels could be fungibly shipped up to
the point of distribution from a terminal where off-highway diesel fuel
must be dyed red pursuant to IRS requirements to indicate its tax
exempt status.
We proposed the baseline approach because, in the absence of a red
dye requirement at the refinery-gate for NRLM diesel fuel, we expected
that it would: (1) Allow for the fungible distribution of 500 ppm
sulfur highway and NRLM diesel fuel; (2) ensure the enforceability of
the highway diesel fuel and NRLM diesel fuel standards; (3) maintain
the projected production volume of 15 ppm sulfur highway diesel fuel;
(4) allow refinery production of 500 ppm sulfur NRLM diesel fuel and
heating oil to remain flexible to meet market demand; and (5) enable
the efficient distribution of diesel fuel while imposing the least
burden on the parties in the fuel production and distribution system.
In the proposal, we also discussed how a refiner's baseline would be
set, and invited comment on ways to account for changes refiners might
make from their historical production practices in response to the
highway diesel program.
In the NPRM, we expressed concerns that a designate and track
approach would raise significant workability and enforceability issues
and therefore might not maintain the integrity of highway and NRLM
diesel fuel sulfur programs. Our concerns about the workability and
enforceability of a designate and track approach amplified potential
concerns regarding whether the approach might reduce the volume of 15
ppm sulfur diesel fuel required to be produced under the highway diesel
program, leading to a reduction in the environmental benefits of the
highway diesel program and calling into question the availability of 15
ppm sulfur diesel fuel. We were also concerned about whether this
approach would place too much burden on the numerous entities in the
fuel distribution system, as compliance was focused on downstream
parties. While the designate and track approach provided greater
production flexibility to refiners than the baseline approach, it
appeared to increase the burden and restrictions on downstream parties.
Of the approaches discussed in the NPRM, we expected that the
baseline approach would provide the best mechanism to achieve the fuel
program goals described at the beginning of this section. Since the
proposal, we have comprehensively evaluated the advantages and
disadvantages of both approaches. Based on this review, we now believe
that a baseline approach would produce significant adverse problems
because of its overly restrictive impact on the ability of fuel
producers and distributors to efficiently respond to the myriad and
daily needs of the markets for highway and NRLM diesel fuel.
Implementation of the approach could also produce an unintended bias
that would tend to reduce the benefits of the highway program and
reduce the availability of 15 ppm sulfur highway diesel fuel. At the
same time, our review of the approaches shows that the designate and
track approach can be implemented in an enforceable manner and likely
would not cause a reduction in the environmental benefits of the
highway diesel program or adversely impact the widespread availability
of 15 ppm sulfur highway diesel fuel. Our evaluation of these alternate
approaches is discussed in more detail in the following sections.
i. Proposed Refiner Baseline Approach
Under the refiner baseline approach, we proposed that from June 1,
2007 through May 31, 2010, any refiner or importer could choose to
distribute its 500 ppm sulfur NRLM and highway diesel fuels fungibly
without adding red dye at the refinery gate. Refiners and importers who
elect to distribute these fuels fungibly would need to establish a non-
highway distillate baseline, defined as a percentage of its total
distillate fuel production volume based on historical production data.
For future production
[[Page 39060]]
purposes, this percentage of the volume of diesel fuel produced would
have to either meet the 500 ppm sulfur NRLM diesel fuel sulfur standard
or be marked as heating oil. All the remaining production of diesel
fuel would have to meet the requirements of the highway fuel program
(i.e., 80 percent of this fuel would have to meet a 15 ppm sulfur cap).
Refiners not wishing to participate in the baseline approach would have
to dye all of their 500 ppm sulfur NRLM diesel fuel at the refinery.
However, we anticipated that few refiners would opt to dye 500 ppm
sulfur NRLM diesel fuel, other than the volumes that they dispense from
their own racks, since this would eliminate the ability to fungibly
distribute 500 ppm sulfur highway and NRLM diesel fuels.
Since the publication of the proposed rule, we have developed a
better understanding of refiner concerns about the constraints
associated with the baseline approach. Specifically, it is now clear
that individual refiners would be significantly constrained by the
baseline approach from efficiently responding to changes in contract
arrangements with their clients and changes in market demands. Refiners
commented that they win and lose contracts on a daily basis and that
depending on which contracts they secure, they may not be able to
comply with their baseline. Specific concerns were raised regarding the
ability of refiners to compensate for the loss of export contracts and
to respond to spikes in the demand for heating oil which periodically
result from an unexpectedly cold winter. Refiners also related that the
constraints under the baseline approach could cause an anti-competitive
dynamic between fuel refiners and their customers.
Based on our reevaluation of the baseline approach and the
information gathered from the public comments, it is now clear that the
constraints on the slate of fuels that a refiner produces under the
baseline approach could interfere with a refiner's ability to meet
market demands, which in turn could result in supply shortages and
increased fuel prices. For example, if a refiner were to lose an export
contract for high sulfur diesel fuel, the baseline approach could
prevent that refiner from seeking to market that product domestically.
This could impact the overall supply of diesel fuel since the refiner
may not have sufficient facilities to desulfurize diesel fuel. Also,
knowing that losing such an export contract would leave the refiner
with no ability to market its fuel domestically could give the
refiner's export client an undue advantage during contract negotiations.
In the case of a spike in heating oil demand due to an unusually
cold winter, the baseline approach would limit a refiner's ability to
produce additional volumes of high sulfur distillate fuel beyond the
volume established under its baseline. Refiners that were limited in
their ability to produce additional high sulfur fuel could choose to
supply low sulfur diesel fuel to the heating oil market. However, they
may not have sufficient hydrotreating capacity to do so. This could
limit their ability to respond to a supply shortage.
The proposed rule suggested various potential modifications to the
baseline approach to address refiner concerns regarding the associated
constraints on the slate of fuels they produce. We received comments on
the potential modifications discussed in the NPRM as well as other
potential changes to the baseline approach. Some commenters suggested
that if EPA were to finalize a baseline approach, refiners should be
able to apply to EPA for a yearly adjustment to their baseline based on
annual demand forecasts. Even with such flexibility, refiners still
concluded that in many cases they would likely be forced to dye their
fuel instead. For fuel distributors, having refiners dye their NRLM
diesel fuel presented an unacceptable situation due to the need to
distribute another grade of fuel. As a result, all comments from the
refining and fuel distribution community were in agreement that the
baseline approach may be unworkable.
Based on our review of the comments and our discussions with fuel
producers and distributors, it has become clear that none of the
potential modifications to the baseline approach would adequately
compensate for the inherent inflexibility of requiring refiners to
comply with set production ratios. Even if EPA were to adjust such
ratios on an annual basis, refiners might need to approach EPA for an
interim adjustment if their contractual agreements changed or if market
demand shifted unexpectedly. The process of evaluating requests for
baseline adjustments could be very burdensome to the industry and to
EPA, and EPA would unlikely be able to respond quickly enough to
changing market conditions.
More importantly, all of the potential alternatives that we might
implement to mitigate the constraints of the baseline approach could
potentially undermine the environmental benefits of the highway
program. Such alternatives all would involve granting allowances to
some refiners to produce additional volumes of non-highway fuels above
the set baseline to facilitate a refiner meeting the market demand for
such fuels. At the same time, it would not be possible for EPA to
reduce the ability of other refiners to produce non-highway fuel who
may have lost these markets. Therefore, for such alternatives to be
effective in responding to changing market conditions, an unintended
downward bias would result regarding the required production of 15 ppm
sulfur highway diesel fuel.
Even without any changes we discovered from the highway diesel
program pre-compliance reports that the proposed baseline approach has
a downward bias that could result in a reduction in the volume of 15
ppm sulfur diesel fuel produced under the highway diesel program.\111\
We proposed that refiners could choose to calculate their off-highway
baseline using either an average of 2003 through 2005 production data
or 2006 production data. Providing the option for a 2006 baseline was
necessary because a number of refiners will be changing the slate of
fuels that they produce in response to the highway diesel rule which
becomes effective in 2006. While the highway diesel pre-compliance
reports indicate an overall increase in production volume, they also
indicate that 40 percent of highway diesel refiners will decrease the
volume of highway diesel fuel they produce. If all of these refiners
were to take a 2006 baseline to determine the volume of 15 ppm sulfur
diesel fuel they would be required to produce, a substantial drop in
the total volume of 15 ppm sulfur diesel fuel produced could result.
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\111\ ``Summary and Analysis of the Highway Diesel Fuel 2003
Pre-compliance Reports,'' EPA 420-R-03-103, October 2003.
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The pre-compliance reports indicate that the other 60 percent of
refiners will be increasing the volume of highway diesel fuel they
produce. We projected that these shifts in the slate of fuel products
that refiners produce would have an overall positive impact on diesel
fuel supply. However, refiners that increase the volume of highway fuel
they produce would likely chose to calculate their baseline using their
lower 2003-2005 production volumes. Doing so would result in a lower
percentage of their distillate fuel that would be required to be
produced for highway diesel use, and subject to a 15 ppm sulfur
standard.
The volume of spillover could also be reduced refiners were to dye
500 ppm sulfur diesel they manufactured to meet anticipated NRLM diesel
fuel demand in order to avoid needing to comply with the baseline
approach. Many refiners commented that they
[[Page 39061]]
considered the baseline approach so unworkable and onerous that they
would choose to dye all of their 500 ppm sulfur NRLM diesel fuel at the
refinery gate. This could force some parts of the distribution systems
which had previously not carried two grades of diesel fuel for highway
and off-highway uses to begin doing so.
In summary, we are not finalizing the proposed baseline system
because we believe--
1. It could unnecessarily constrain refiners ability to meet market
demands, encouraging them to dye 500 ppm sulfur NRLM diesel fuel at the
refinery resulting in an added burden to the distribution system;
2. It could create a bias that could result in a loss in the volume
of 15 ppm sulfur highway diesel fuel produced, and the options to
remove these market constraints would only increase the bias to reduce
the volume of 15 ppm sulfur highway diesel fuel; and
3. The baseline approach would not ensure that the environmental
benefits of the 2007 highway diesel program would be maintained.
ii. Designate and Track Approach
At the time of the NPRM, we invited comment on an alternative to
the baseline approach called the ``designate and track'' approach.
Under the envisioned designate and track approach, refiners and
importers would designate the volumes of 500 ppm sulfur diesel fuel
they produce/import as either highway or NRLM diesel fuel and would
ship them fungibly. These designations would follow the fuel through
the distribution system and be used to restrict the sale of 500 ppm
sulfur NRLM diesel fuel from the highway market. While we sought
comment on various forms of the designate and track approach, we also
expressed serious reservations regarding its workability,
enforceability, impact on the benefits of the highway rule, and
constraints on the distribution system. For example, at the time of the
proposal, refiners supported a designate and track approach where
certain parts of the distribution system (e.g., pipelines) did not have
to report. EPA believed that such an approach was unenforceable.
Refiners were also supporting the designate and track approach as an
option for refiners to choose in addition to the baseline approach.
However, EPA believed that the two approaches were incompatible.
As noted in the proposal, the designate and track approach allows
maximum flexibility for refiners and importers, but EPA had concerns
that the volume reconciliation requirements would inappropriately
restrict the flexibility of downstream parties to respond to market
changes. EPA also had concerns that it would reduce the amount of 15
ppm spillover from the highway market, reducing the environmental
benefits of that rule.
Since the proposal, we received extensive input both in the written
comments and through in-depth meetings with representatives of all
segments of the fuel distribution industry on how the designate and
track system might be structured to provide the needed compliance
oversight without placing an undue burden on industry. Refiners now
agree that the designate and track approach should not be an option for
refiners in addition to the baseline approach, and support it as a
stand alone approach. All parties in the fuel distribution system have
also now expressed support for the record keeping and reporting
requirements associated with tracking designated fuel volumes through
each custodian in the distribution chain until the fuel leaves the
terminal either taxed or dyed. Furthermore, commenters from all
segments of the fuel distribution industry from the refiner through to
the terminal stated that the information needed to support the
designate and track approach is already kept as part of normal business
practices. Commenters stated that only modest upgrades in their record
keeping procedures would be needed to compile the needed information
and that preparing the necessary reports would not represent a
significant burden. Thus, our concerns that a designate and track
approach might represent a large burden to fuel distributors were
unfounded.
In addition, we have developed appropriate solutions to the various
open questions and issues that we had with the designate and track
approach at the time of the proposal. In the proposal it was unclear
how a designate and track approach would be structured to account for
the swell in highway diesel fuel volumes in the winter that results
from downstream kerosene blending to improve cold flow properties.
Without an adequate control mechanism, normal swell in downstream
highway diesel fuel volumes in the North due to kerosene blending
during winter months could mask the inappropriate shifting of NRLM-
designated 500 ppm sulfur fuel to the highway diesel pool. We have
developed an appropriate mechanism to address this situation as
described in section IV.D.3.
In the proposal, we also expressed concerns regarding how normal
volumetric fluctuations in the distribution system such as those caused
by product downgrading in pipelines could be adequately accounted for
under a designate and track system so that such fluctuations would not
mask the inappropriate shifting of 500 ppm sulfur NRLM diesel fuel to
the highway pool. We have subsequently developed a periodic volume
account balance system to account for such fluctuations.
Through discussions with terminal operators, we have also resolved
concerns expressed in the NPRM that a designate and track approach
might limit a terminal operator's ability to respond to shifts in
demand for 500 ppm sulfur highway versus NRLM diesel fuel. To avoid
this potential problem today's rule allows terminal operators and
others to switch the designation of 500 ppm sulfur NRLM diesel fuel to
highway diesel fuel on a temporary basis but not on a cumulative basis
over time. This will allow terminal operators to sell NRLM designated
500 ppm sulfur fuel into the highway market provided that they later
sell the same volume of highway-designated 500 ppm sulfur fuel into the
NRLM market. To ensure that 500 ppm sulfur NRLM diesel fuel is not
inappropriately shifted into the highway diesel pool, terminal
operators will need to demonstrate that the volume of 500 ppm sulfur
highway diesel fuel they delivered is less than or equal to the volume
received.
In the NPRM, we stated that determining the responsible party for a
violation of the restriction against shifting 500 ppm sulfur NRLM
diesel fuel into the highway pool would be difficult under a designate
and track approach because a number of parties in the distribution
chain take custody of the fuel without taking ownership. However, this
concern can be addressed by structuring the provisions to hold the
custodian of the fuel accountable for any such violation that takes
place while the fuel is in their custody. Review of electronic data
submitted from all custodians in the highway and NRLM diesel fuel
distribution chain will reveal the custodian responsible for a
violation. By comparing such data on the hand-offs of designated fuel
volumes between all adjacent pairs of custodians in the distribution
chain for discrepancies, we can identify any party responsible for
inappropriately shifting volumes of 500 ppm sulfur fuel designated for
use in NRLM equipment to the highway market. Many terminals do not take
ownership of the fuel that they handle. Terminals that lease storage
tanks to multiple owners will need to enter into contractual agreements
with their tenants to ensure that they understand their obligations as
[[Page 39062]]
a custodian of designated fuel and do not inappropriately change the
designation of fuels stored in such leased tanks.
An effective enforcement and compliance assurance program must
include the ability to rapidly and accurately review the large amount
of data on the hand-offs of designated fuel volumes for discrepancies.
This can be accomplished if all parties report electronically to a
database which can reconcile hand-off volumes between all parties in
the distribution chain in an automated fashion. All segments in the
fuel distribution system are now in support of providing the necessary
information to such an electronic reporting system. We have conducted a
review of the Agency resources that would be needed to compile the
industry reports on the transfer of designated fuel volumes, perform
quality assurance on these data, and to perform the necessary analysis
of the database to discover potential violations. Our review indicates
that the reporting forms can be standardized and the review process
automated in such a fashion as to minimize the Agency resource
requirements, while at that same time ensuring the quality of the data
and completeness of the review process. In light of the above
discussion, we are now convinced that a designate and track approach
can be designed to meet our enforcement and compliance assurance needs
under today's rule.
In addition to concerns regarding the workability and
enforceability of a designate and track approach, the NPRM expressed
concerns that application of such an approach could reduce the benefits
of the highway diesel program by reducing the amount of highway diesel
fuel that is used in nonroad equipment due to the logistical
constraints in the distribution system (``spillover''). Specifically,
it was thought that the opportunity to fungibly ship batches of 500 ppm
sulfur NRLM diesel fuel and 500 ppm sulfur highway diesel fuel might
allow refiners to supply highway and NRLM diesel fuel to markets where
they would otherwise have supplied just highway fuel for both purposes.
Our reevaluation since the proposal indicates that this is not a
significant concern. As noted earlier, there are currently substantial
regions of the country where only highway diesel fuel is supplied by
bulk shipments to both the highway and NRLM markets due to the high
costs associated with segregating an additional distillate grade in the
distribution system.\112\ These are the same areas where the majority
of spillover occurs today. After the highway diesel program becomes
effective in 2006, we project that only 15 ppm sulfur highway diesel
fuel will be supplied in bulk shipments to both the highway and NRLM
markets in most of these same areas. Although 500 ppm sulfur highway
diesel fuel could be shipped in bulk to these areas through 2010 under
the highway program's TCO, the potential demand for such fuel and for
500 ppm sulfur NRLM diesel fuel would not be sufficient to justify the
cost of segregating an additional grade of 500 ppm sulfur diesel fuel
in these areas for a short period of time. The designate and track
approach does not impact the costs of segregation, and therefore is not
expected to change distribution patterns that are based on these costs.
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\112\ This highway diesel fuel would meet the currently-
applicable 500 ppm sulfur standard for highway diesel fuel.
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After 2010, when 500 ppm sulfur highway fuel no longer exists, the
total volume of 500 ppm sulfur diesel fuel in the distribution system
will be substantially reduced, and there will be even less incentive to
distribute an additional grade of 500 ppm sulfur diesel fuel in bulk.
Therefore, the only areas where substantial flexibility will exist
under today's program to supply either highway or NRLM diesel fuel to
the NRLM market is in areas where this flexibility exists today.
Despite this flexibility in the current regulations, spillover
currently still occurs. Therefore, we project that there will be little
additional potential due to today's rule for refiners to reduce highway
spillover into the NRLM market under a designate and track approach and
that such spillover levels would not be significantly reduced from
historical levels. In contrast, as discussed above, we now believe that
the baseline approach would have resulted in a significant loss of 15
ppm diesel production.
Furthermore, concerns regarding a potential reduction in the
spillover of 15 ppm sulfur highway diesel into the NRLM markets has
been lessened by the information provided in the highway program pre-
compliance reports. These reports suggest that more than 95 percent of
highway diesel fuel will be produced to a 15 ppm sulfur standard
beginning in 2006. In calculating the projected benefits of the highway
diesel program, we assumed that only 80 percent of highway diesel fuel
would meet a 15 ppm sulfur standard. Therefore, the actual benefits of
the highway program will be substantially greater than estimated if the
projections in the pre-compliance reports are realized.
Based on the above discussion, we believe that the concerns
regarding the designate and track approach's workability,
enforceability, and ability to preserve the benefits of the highway
program and today's NRLM diesel fuel program have been satisfactorily
resolved.
b. Ensuring That Heating Oil Is Not Used in NRLM Equipment From June 1,
2007 Through June 1, 2010
i. Use of a Fuel Marker in Heating Oil
To prevent shifting heating oil into the NRLM market, we proposed
that a fuel marker be added to heating oil at the refinery gate. We
proposed that the presence of the marker required in heating oil would
be strictly prohibited in NRLM diesel fuel. As noted earlier, this
approach is similar to red dye requirements for high sulfur diesel fuel
that were implemented in 1993 to prevent its use as highway diesel fuel
subject to the then applicable 500 ppm sulfur standard.
We proposed that the marker be added at the refinery gate rather
than at the terminal for several reasons. First, this seemed to be the
most efficient and lowest cost option for addition of the marker given
that the number of terminals is far greater than the number of
refineries.\113\ Second, requiring that the marker be present in
heating oil when it is introduced into the distribution system would
ensure that we could differentiate high sulfur small refiner and credit
fuel from heating oil at any point in the system. This approach would
provide good assurance that the inability to use fuel sulfur content to
differentiate heating oil from high sulfur NRLM diesel fuel produced
under the small refiner and credit provisions in today's rule
(effective until June 1, 2010) would not provide an opportunity to mask
the potential use of heating oil in NRLM equipment. Providing such
assurance is an essential element to enable the implementation of the
small refiner and credit provisions in today's rule. Lastly, under the
proposed baseline approach, there was no other way to ensure that
heating oil was not shifted into the NRLM diesel fuel pool during
distribution from the refinery/importer to the terminal.
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\113\ Additional injection equipment will be required to inject
the heating oil marker.
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We received numerous comments that the upstream addition of the
proposed marker to heating oil would raise significant concerns that
the marker
[[Page 39063]]
might contaminate jet fuel. Commenters stated that this would represent
a substantial safety concern unless the proposed marker was proven not
to adversely impact the quality of jet fuel and the operation of jet
engines.
The designate and track approach described above for 500 ppm sulfur
NRLM diesel fuel, however, also provides an effective means to address
concerns about the use of the fuel marker. By extending the designate
and track approach to high sulfur NRLM diesel fuel and heating oil,
these otherwise identical fuel grades can be tracked down to the
terminal, and the marker then can be added at the terminal instead of
at the refinery gate. Going beyond the terminal with designate and
track is not feasible give the breadth and nature of entities
involved.\114\ As a result, the marker is still required downstream of
the terminal. However, shifting the point of marker addition downstream
to the terminal should eliminate any significant opportunity for jet
fuel contamination. Subsequent comments and discussions appear to have
confirmed this.\115\ EPA will continue to work with other federal
agencies, including FAA and DoD, and to follow ongoing research and
studies regarding the effect of dyes and markers on jet fuel,
particularly potential contamination that could have an adverse impact
on the safe operation of aircraft. We will keep abreast of the ASTM,
CRC, FAA, IRS, and EU activities regarding the evaluation of the use of
SY-124 and commit to a review of our use of SY-124 under today's rule
based on these findings. If alternative markers are identified that do
not raise concerns regarding the potential contamination of jet fuel,
we will initiate a rulemaking to evaluate the use of one of these
markers in place of SY-124.\116\
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\114\ Including every end-user of heating oil.
\115\ Letter to Paul Machiele, EPA, from James Thomas, American
Society for Testing and Materials (ASTM), entitled ``Withdrawal of
ASTM Request,'' January 19, 2004. In this letter ASTM withdraws its
request for a postponement of the finalization of the heating oil
marker requirements in today's rule. See section V.E regarding the
selection of the heating oil marker required in today's rule.
\116\ See section VIII.H. of today's preamble.
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We also received a number of comments expressing concern over the
inability of the proposed marker to be detected using the standard
simple test used today to detect contamination with red dye.\117\ The
marker finalized by today's rule does not provide visual evidence of
its presence. However, if the marker is added at the terminal it will
only be present in heating oil when red dye is also present. The fact
that heating oil will be dyed red pursuant to IRS requirements before
it leaves the terminal will enable jet fuel distributors to continue to
use the ``white bucket test'' to detect heating oil contamination, and
hence marker contamination of jet fuel. Today's rule also includes a
stand-alone requirement that any fuel to which the fuel marker is added
must also contain visible evidence of red dye.\118\
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\117\ To test for contamination, jet fuel marketers typically
fill a white five gallon bucket with jet fuel. The presence of a
pink tinge to the light straw colored jet fuel indicates that the
fuel has been contaminated with fuel that contains red dye.
\118\ If IRS amends its red dye requirements, EPA will also
seriously consider amending the fuel marker and associated red dye
requirements contained in today's rule. See section V.E. of today's
preamble.
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ii. Provisions To Ensure Heating Oil Is Not Used in NRLM Equipment in
the Northeast and Mid-Atlantic
In the Northeast, heating oil will continue to be distributed in
significant quantities after implementation of the NRLM diesel fuel
program. Discussions with terminal operators in the Northeast, and
other representatives of heating oil users and distributors, revealed
concerns that the proposed heating oil marker requirement would
represent a substantial new burden on terminal operators and users of
heating oil. Terminal operators stated that the cost of installing new
injection equipment would be burdensome, and that the cost of the
marker itself would be significant given the large volume of heating
oil used in the Northeast. They also stated that they did not expect
any small refiner or credit fuel to be used in the Northeast, and that
consequently, the marker requirement was not needed in this area. They
suggested that if we prohibited the sale of small refiner and credit
fuel in PADD I, this area could be exempted from the heating oil marker
requirement.
We evaluated the viability of avoiding the heating oil marker
requirement in portions of PADD I and instead enforcing the NRLM diesel
fuel standards on the basis of sulfur content alone. The heating oil
marker is needed to ensure that heating oil is not sold into the NRLM
market as high sulfur NRLM fuel. The marker is needed only if high
sulfur NRLM fuels will otherwise be in the market. High sulfur NRLM
fuel can be produced under the small refiner and credit provisions, and
through the generation of high sulfur NRLM in the distribution system
from the downgrading of 500 ppm sulfur NRLM. In evaluating the
feasibility of avoiding the heating oil marker, EPA therefore focused
on determining the likely production and marketing of these high sulfur
NRLM fuels in portions of PADD I in this time frame.
We held in-depth discussions with organizations representing
refiners, pipelines, and terminal operators to evaluate this issue.
Representatives of non-small refiners including API and NPRA stated
that being precluded from selling sulfur credit fuel in the Northeast
and Mid-Atlantic would not significantly reduce the intended benefits
to refiners of the credit provisions in today's rule. We also spoke
with small refiner representatives of and the specific small refiners
whose marketing area might include the Northeast and Mid-Atlantic and
found that in fact, small refiners were not expected to market fuel in
this area. Finally, we evaluated the current and likely future
practices in the Northeast and Mid-Atlantic areas for the sale of
downgraded fuel generated in the distribution system. We found that
this downgraded diesel fuel could easily continue to be sold in the
very large and ubiquitous heating oil market that is expected to
continue to exist in this region. This avoids any need for additional
storage or tankage for both high sulfur and low sulfur NRLM fuels, and
fits into the pre-existing market structure for heating oil.
Consequently, unlike the rest of the country, there was little
expected need to maintain a high sulfur NRLM market in this part of the
country as an outlet for small refiner, credit, or off-specification,
downgraded diesel fuel. Based on this input, we concluded that
codifying this expected practice and making it enforceable, i.e. not
allowing high sulfur fuel to be marketed as NRLM in this area of the
country, would be consistent with the current distribution practices in
this area of the country and that the potential impact of taking such
an approach on the flexibility offered in the program would be minimal
or nonexistent. If we codified it we would no longer need the marker
requirement, and the resulting benefits and cost savings to terminals
would be substantial. The approach would also simplify and strengthen
the enforcement of today's sulfur requirements in this area by allowing
EPA to enforce the NRLM standards simply based on the measurement of
the sulfur content of the fuel. There would be little expected impact
on the environment as this is not expected to change the amount of high
sulfur fuel produced from small refiners, credit usage, or downgrade in
the distribution system, only the market into which it is sold.
[[Page 39064]]
In deciding which parts of PADD I to use this enforcement
mechanism, we attempted to minimize the number of terminals that would
need to install new injection equipment and the amount of heating oil
that would need to be marked, while preserving the benefits of the
small refiner and credit fuel provisions in today's rule to the maximum
extent possible. To assess the placement of the boundary for the
Northeast/Mid-Atlantic area where the marker requirement was waived, we
evaluated the magnitude of heating oil demand by state (see chapter 5
of the RIA), solicited input from the potentially affected parties,
evaluated the area supplied by the pipeline distribution systems that
are expected to continue to ship heating oil after the implementation
of today's rule, evaluated the locations of terminals that are likely
to receive bulk shipments of heating oil, evaluated the distribution
area of small refiner(s) for high sulfur NRLM diesel fuel, and reviewed
heating oil use levels in areas that will have access to bulk shipments
of heating oil. Based on our assessment we concluded that defining the
Northeast/Mid-Atlantic area as described below would best achieve our
goals.\119\ In most cases, whole states in PADD 1 were assigned to this
``Northeast/Mid-Atlantic'' area. This decision was primarily based on
the continued high level of heating oil use projected in these states
and the lack of significant concern regarding the elimination of the
program's flexibilities to produce high sulfur NRLM diesel fuel in
these states. A few counties in Eastern West Virginia were also
assigned to the Northeast/Mid-Atlantic area based on supply patterns in
the area. On the other hand, a number of counties in Western New York
and Pennsylvania were not assigned to the Northeast/Mid-Atlantic area
due to the need to maintain flexibilities for refiners serving this
area.
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\119\ See chapter V of the RIA for a detailed discussion of the
analysis which supports our definition of the Northeast/Mid-Atlantic
areas where the marker requirement is waived. See section VI of
today's preamble and chapter VII of the RIA for a discussion of the
costs of the heating oil marker requirements finalized by today's
rule.
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In summary, the areas excluded from the marker requirement and
where the sale of NRLM diesel fuel produced or imported under the
credit and hardship provisions or from the downstream downgrade
provisions of today's rule is prohibited are: North Carolina, Virginia,
Maryland, Delaware, New Jersey, Connecticut, Rhode Island,
Massachusetts, Vermont, New Hampshire, Maine, Washington DC, New York
(except for the counties of Chautauqua, Cattaraugus, and Allegany),
Pennsylvania (except for the counties of Erie, Warren, Mc Kean, Potter,
Cameron, Elk, Jefferson, Clarion, Forest, Venango, Mercer, Crawford,
Lawrence, Beaver, Washington, and Greene), and the eight eastern-most
counties in West Virginia (namely: Jefferson, Berkeley, Morgan,
Hampshire, Mineral, Hardy, Grant, and Pendleton). The Northeast/Mid-
Atlantic Area is illustrated in the following figure:
[GRAPHIC]
[TIFF OMITTED]
TR29JN04.003
As discussed in section IV.D.2 below, the marker requirement for
500 ppm sulfur LM diesel fuel that will be effective outside of this
Northeast/Mid-Atlantic area and Alaska from June 1, 2010, through May
31, 2012, was not a significant factor in our evaluation of how to
define the boundary of the Northeast/Mid-Atlantic area. We expect that
locomotive and marine diesel fuel subject to the marker requirements
will primarily be distributed via segregated pathways from a limited
number of refineries. Therefore, a significant number of terminals will
not need to handle LM diesel fuel that is subject to the marker
requirement. Thus, the potential cost of installing injection
[[Page 39065]]
equipment to add the marker to 500 ppm sulfur LM diesel fuel which is
subject to the marker requirement will be limited to only a few
refineries and terminals (i.e. approximately 15, see section VI.A of
today's preamble).
In all areas of the country other than the Northeast/Mid-Atlantic
area shown in figure IV.D-1 (and Alaska as discussed below), heating
oil, and high sulfur NRLM diesel fuel will be designated at the
refinery or importer and tracked through the distribution system to the
terminal. From June 1, 2010, through May 31, 2012, 500 ppm sulfur LM
diesel fuel and 500 ppm nonroad diesel fuel must also be designated at
the refinery or importer and tracked through the distribution system to
the terminal outside of the Northeast/Mid-Atlantic area and Alaska. The
specified fuel marker (see section V.E of this preamble) must be added
to heating oil distributed from all terminals located outside of the
Northeast/Mid-Atlantic area defined above and Alaska. The same fuel
marker must also be added to 500 ppm sulfur LM diesel fuel produced at
a refinery or imported that is distributed from terminals located
outside of the Northeast/Mid-Atlantic area and Alaska from June 1,
2010, through May 31, 2012. This includes all heating oil and the
subject 500 ppm sulfur LM diesel fuel distributed from terminals
outside of the Northeast/Mid-Atlantic area regardless of whether the
fuel is delivered to a retailer, wholesale purchaser-consumer, or end-
user located inside or outside of the Northeast/Mid-Atlantic area.
Terminals inside the Northeast/Mid-Atlantic area are exempted from
the fuel marker requirements in today's rule, but only for the volume
of heating oil and 500 ppm sulfur LM diesel fuel subject to the marker
requirements that is used by wholesale-purchaser-consumers and end-
users that are located inside the Northeast/Mid-Atlantic area. Any
heating oil and subject 500 ppm sulfur LM diesel fuel distributed from
terminals inside the Northeast/Mid-Atlantic area to a retailer,
wholesale-purchaser-consumer, or end-user that is located outside of
the Northeast/Mid-Atlantic area must be marked.
Terminal operators do not often distribute fuel to retailers,
wholesale-purchaser-consumers, and end-users directly. This task is
frequently accomplished by ``jobbers'' who pick up large tank truck
loads of fuel from the terminal for delivery to their retailer and
wholesale-purchaser-consumer customers, ``heating oil dealers'' who
pick up fuel from a terminal using a smaller capacity tank truck (often
referred to as a tank wagon) for direct delivery to heating oil users,
and by bulk plant operators. Bulk plant operators pick up fuel from
terminals as described above. However, since they maintain their own
bulk fuel storage facilities, they have the choice of storing the fuel
at their facility prior to eventual delivery to their customers. Under
the provisions of today's rule, as long as a bulk plant only receives
heating oil to which the marker has already been added, it does not
have to register, keep records, or report. However, if it chooses to
receive any unmarked heating oil, then it will be treated the same as a
large terminal under the provisions of today's final rule. We do not
expect that bulk plants will handle LM diesel fuel to a significant
degree. For bulk plant operators that might handle LM diesel fuel,
today's rule provides that as long as a bulk plant does not receive any
500 ppm sulfur LM diesel fuel which is required to be marked under
today's rule, but which has not yet been marked, it does not have to
register, keep records, or report. However, if it chooses to receive
any unmarked 500 ppm sulfur LM diesel fuel which is subject to the
marker requirements under today's rule, then it will be treated the
same as a large terminal under the provisions of today's final rule.
Any party that transports bulk quantities of heating oil solely to
the Northeast/Mid-Atlantic area or within this area is not subject to
the designate and track requirements for heating oil described below.
Similarly, any party that transports bulk quantities of 500 ppm sulfur
LM diesel fuel solely to the Northeast/Mid-Atlantic area or within this
area is not subject to the designate and track requirements for LM
diesel fuel. However, any high sulfur fuel distributed from inside the
Northeast/Mid-Atlantic area to outside of the Northeast/Mid-Atlantic
area must be designated as heating oil by the party responsible for the
transfer and must be marked. Likewise, any 500 ppm sulfur LM diesel
fuel distributed from inside the Northeast/Mid-Atlantic area from June
1, 2010, through May 31, 2012, must be designated as 500 ppm sulfur LM
diesel fuel by the party responsible for the transfer and must be
marked.
Entities who are required to inject marker into heating oil must
maintain records of the volume of marker used in heating oil, and the
volume of heating oil distributed over the compliance period. Entities
that are required to inject marker into 500 ppm sulfur LM diesel fuel
must maintain records of the volume of marker used in 500 ppm sulfur LM
diesel fuel, and the volume of 500 ppm sulfur LM diesel that is
required to be marked which is distributed over the compliance period.
These records must demonstrate that the prescribed marker concentration
was present in the heating oil and the 500 ppm sulfur LM diesel fuel
subject to the marker requirement that they discharged.
iii. State of Alaska
Although the fuel marker facilitates the enforcement of the NRLM
diesel fuel sulfur standards by distinguishing it from heating oil, as
described above, we are not requiring use in Alaska. Unlike the
situation in the Northeast and Mid-Atlantic area, however, we are not
prohibiting the production of high sulfur NRLM diesel fuel after 2007,
and 500 ppm nonroad diesel fuel from after 2010 by small refiners in
Alaska. While such a prohibition in the Northeast/Mid-Atlantic area
does not impact small refiners, flexibility for small refiners is
expected to be important in Alaska. Thus, we need to preserve the
flexibility for high sulfur NRLM diesel fuel in Alaska for small
refiners along with eliminating the marker. The program must therefore
provide another means of enforcing the NRLM diesel fuel sulfur
standards without eliminating a small refiner's ability to produce and
distribute high sulfur NRLM diesel fuel.
Under today's program we are finalizing a provision that will allow
flexibility for small refiners to delay compliance with the NRLM diesel
fuel sulfur standards as discussed in section IV.B. Small refiners in
Alaska may avail themselves of this option provided that the refiner
first obtains approval from the administrator for a compliance plan.
The plan must at a minimum show the following information:
(1) How they will segregate its fuel through to end-users;
(2) How they will segregate its fuels from other grades and
other refiners' fuels; and
(3) All end-users to whom the fuel is sold as well as the fuel
volumes.
End-users who receive the fuel must retain records of all fuel
shipments to demonstrate that no heating oil was used in NRLM diesel
equipment and that no 500 ppm sulfur LM diesel was used in nonroad
equipment. In order to limit the potential sources of fuel not meeting
the sulfur standard, constrain the number of end-users who may
legitimately have higher sulfur fuel in their NRLM diesel equipment,
and thus maintain the overall program's enforceability, we are not
finalizing the other provisions that allow for higher sulfur fuel to be
produced and/or distributed in Alaska (i.e., credit, transmix
processor, or downstream
[[Page 39066]]
distribution system provisions). In this regard, Alaska is treated in
the same manner as the Northeast/Mid-Atlantic area.
c. Updating the Highway Program's Anti-Downgrade Requirements
Under the highway diesel fuel program, each entity in the
distribution system may downgrade a maximum of 20 percent of the 15 ppm
sulfur highway diesel fuel it receives to 500 ppm sulfur highway diesel
fuel. However, there was no limit on the volume of 15 ppm sulfur
highway diesel fuel that could be downgraded to NRLM diesel fuel. Prior
to today's rule, this was appropriate because the sulfur content of
NRLM diesel fuel was uncontrolled, and hence once 15 ppm sulfur highway
diesel fuel was downgraded to NRLM diesel fuel such fuel could not be
used in the 500 ppm sulfur highway diesel market. The implementation of
today's 500 ppm sulfur standard for NRLM diesel fuel, however, means
that 15 ppm sulfur highway fuel downgraded to 500 ppm sulfur NRLM
diesel fuel potentially could be shifted into the highway market. This
could undermine the benefits of the highway program for the reasons
described previously. To prevent this situation, we proposed that the
anti-downgrading requirements under the highway diesel program would
also apply to the downgrading of 15 ppm sulfur highway diesel fuel to
500 ppm sulfur NRLM diesel fuel. We received comments from refiners and
fuel distributors that such a limitation would restrict their ability
to supply the NRLM diesel market, particularly in areas where refiners
plan to supply only 15 ppm sulfur diesel fuel for both the highway and
NRLM markets.
Putting in place the designate and track provisions allows 500 ppm
sulfur highway and 500 ppm sulfur NRLM diesel fuel to be tracked
separately. This enables the anti-downgrading requirements to only
apply to the downgrading of 15 ppm sulfur highway diesel fuel to 500
ppm sulfur highway fuel as originally required in the 2007 highway
final rule. In the context of the designate and track requirements in
today's rule, the highway program's anti-downgrading provisions are
clarified as described below. Similar to the approach described above
regarding the prevention of the use of 500 ppm sulfur NRLM diesel fuel
in the highway market, each custodian of 15 ppm sulfur No. 2 highway
diesel fuel must maintain records that demonstrate their compliance
with the highway program's anti-downgrade requirements. The anti-
downgrading requirements do not apply to 15 ppm sulfur No 1, diesel
fuel. Such fuel will be manufactured for wintertime blending to improve
diesel cold flow properties. In a number of areas we expect that 15 ppm
sulfur No. 1 fuel will be the only No.1 fuel available for winterizing
highway and NRLM diesel fuel, and heating oil. Therefore, applying the
anti-downgrading requirements to 15 ppm sulfur No. 1 fuel would be
unnecessary to maintain the availability of 15 ppm sulfur highway
diesel fuel, and would interfere with its intended use in the range of
No. 2 fuels.
From October 1, 2006, through May 31, 2010, all fuel distributors
downstream of the refiner or import facility must satisfy one of four
criteria as outlined in 40 CFR 80.598 of today's regulation to
demonstrate compliance with the highway program's anti-downgrading
requirements. These criteria are based on the designate and track
system for different grades of fuel through the distribution system.
The first criteria is the simplest and most straightforward, with the
least record keeping burden. It merely tracks a facility's No. 2 15 ppm
sulfur highway diesel volume receipts and deliveries and requires the
deliveries to be at least 80 percent of the receipts. Since the anti-
downgrading provisions were implemented to protect against intentional
downgrading and not to limit downgrading that would occur in the normal
distribution of 15 ppm sulfur fuel, we anticipate that most facilities
will be able to easily meet this simple criteria.
The second criteria tracks a facility's receipts and distribution
of both No. 2 15 ppm sulfur fuel and No.2 500 ppm sulfur highway diesel
fuel, and limits deliveries of No. 2 500 ppm sulfur highway diesel fuel
to no more than what was received plus 20 percent of the No. 2 15 ppm
sulfur highway diesel fuel volume received. This allows more
flexibility than the first criteria by not constraining downgrades to
NRLM diesel fuel or heating oil, but does so by requiring tracking and
records of volumes of No. 2 15 ppm sulfur highway diesel fuel received
and the products to which it is downgraded.
The third and fourth criteria provide even more flexibility,
especially for wintertime blending of No. 1 15 ppm sulfur highway
diesel fuel, and also for any temporary shifts that might occur between
NRLM diesel fuel and highway diesel fuel markets from 2007-2010.
However, a facility will have to meet more extensive criteria to
demonstrate compliance.
Today's final rule does not change any other aspects of the anti-
downgrading provisions finalized in the 2007 highway diesel final rule,
such as the provisions unique to fuel retailers.
2. Requirements During the Second Step of Today's Sulfur Control
Program
Beginning June 1, 2010, all NR diesel fuel and beginning June 1,
2012 all LM diesel fuel produced or imported must meet a 15 ppm sulfur
standard except for fuel manufactured under the credit and small
refiner provisions in today's rule. This credit and small refiner
diesel fuel must meet a 500 ppm sulfur level. From June 1, 2010 to June
1, 2012, all LM diesel fuel must meet a 500 ppm sulfur standard.
Today's rule also allows 500 ppm sulfur diesel fuel generated in the
pipeline distribution system to be used in NRLM equipment through May
31, 2014 \120\ and in locomotive and marine equipment thereafter. After
May 31, 2014, the credit and small refiner provisions expire.
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\120\ The use of 500 ppm fuel in nonroad equipment is restricted
to 2011 model year and earlier equipment.
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We proposed that once refiners were no longer able to produce 500
ppm sulfur diesel fuel for use in nonroad engines and such fuel had a
few months to work its way through the distribution system, that 500
ppm sulfur diesel fuel could no longer be used in nonroad equipment.
Today's rule adopts this proposed prohibition. Although today's rule
extends the 15 ppm sulfur nonroad diesel standard to locomotive and
marine diesel fuel, we have elected not to extend the prohibition
against the use of 500 ppm sulfur diesel fuel in locomotive and marine
equipment after refiners and importers are no longer allowed to
produce/import such fuel. Diesel fuel with a maximum sulfur
concentration of 500 ppm that is generated in the pipeline distribution
system can continue to be used in locomotive and marine equipment after
June 1, 2014, as discussed in section IV.A above.
Providing for the continued use of 500 ppm sulfur diesel fuel in
NRLM equipment through May 31, 2014, means that without adequate
controls similar to those under the first step of today's program, a
refiner could manufacture 500 ppm sulfur diesel fuel ostensibly for use
as heating oil which could actually be sold downstream into the NRLM
market through May 31, 2014. Similarly, the continued use of 500 ppm
fuel in locomotive and marine engines after May 31, 2014, means that
without adequate controls, a refiner could continue to manufacture 500
ppm sulfur diesel fuel ostensibly for use as heating oil which could
actually be sold
[[Page 39067]]
downstream into the locomotive and marine market indefinitely. To
prevent this possibility, we have elected to continue the designate and
track and marker requirements for heating oil applicable under the
first step of today's program indefinitely with some simplifications.
It is a significantly smaller program during the second step, since
only heating oil needs to be tracked, and we expect that by then very
little heating oil will be produced for sale outside of the Northeast/
Mid-Atlantic area. Consistent with the approach taken during the first
step of today's program, these designate and track provisions would not
be applicable in the Northeast/Mid-Atlantic area or Alaska, since the
flexibility to sell greater than 15 ppm sulfur diesel fuel into the
NRLM market there does not exist under this final rule.\121\ Any diesel
fuel with a sulfur content greater than 500 ppm beginning June 1, 2007,
any NR diesel fuel with greater than 15 ppm sulfur beginning June 1,
2010, and any LM diesel fuel with greater than 15 ppm sulfur beginning
June 1, 2012 in the Northeast/Mid-Atlantic area can only be sold as
heating oil, and if shipped outside of the Northeast/Mid-Atlantic area
must be marked as heating oil.
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\121\ Unless, in the case of Alaska, the refiner segregates its
fuel through to the end user as discussed in section IV.D.1.b.ii.
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While today's rule does not contain an end date for the downstream
distribution of 500 ppm sulfur locomotive and marine fuel, we will
review the appropriateness of allowing this flexibility based on
experience gained from implementation of the 15 ppm sulfur NRLM diesel
fuel standard. We expect to conduct such an evaluation in 2011. Were we
to discontinue the downstream provision for downgraded fuel, we would
also evaluate discontinuing the designate and track and marker
requirements for heating oil, as is the case now for the Northeast/Mid-
Atlantic area.
Providing for the continued production and import of 500 ppm sulfur
LM diesel fuel from June 1, 2010 to June 1, 2012 means that without
adequate controls similar to those under the first step of today's
program, a refiner could manufacture 500 ppm sulfur diesel fuel
ostensibly for use as LM diesel fuel which could actually be sold
downstream into the NR market. To prevent this possibility, we have
adopted designate and track and marker requirements similar to those
applicable to heating oil under the first step of today's program. For
these two years, 500 ppm sulfur NR and LM diesel fuel would be tracked,
and the 500 ppm sulfur LM fuel would be marked in the same manner as
heating oil. The same provisions that apply to marking of heating oil,
such as the Northeast/Mid-Atlantic area, would also apply to the
marking of 500 ppm sulfur LM fuel. The tracking and marking provisions
would not apply to any 15 ppm sulfur LM diesel fuel.
3. Summary of the Designate and Track Requirements
The designate and track program requires refiners and importers to
designate the volumes of diesel fuel they produce and/or import.
Refiners/importers will identify whether their diesel fuel is highway
or NRLM and the applicable sulfur level. They may then mix and fungibly
ship highway and NRLM diesel fuels that meet the same sulfur
specification without dyeing their NRLM diesel fuel at the refinery
gate. The volume designations will follow the fuel through the
distribution system with limits placed on the ability of downstream
parties to change the designation. These limits are designed to
restrict the inappropriate sale of 500 ppm sulfur NRLM diesel fuel into
the highway market; from 2007 to 2010, the inappropriate sale of 500
ppm sulfur LM diesel fuel into the 500 ppm sulfur NR market from 2010
to 2012; and the inappropriate sale of heating oil into the NRLM
market. The designate and track approach includes record keeping and
reporting requirements for all parties in the fuel distribution system,
associated with tracking designated fuel volumes through each custodian
in the distribution chain until the fuel exits the terminal. The
program also includes enforcement and compliance assurance provisions
to enable the Agency to rapidly and accurately review for discrepancies
the large volume of data collected on fuel volume hand-offs.
a. Registration
Each entity in the fuel distribution system, up through and
including the point where fuel is loaded onto trucks for distribution
to retailers or wholesale purchaser-consumers, must register each of
its facilities with EPA no later than December 31, 2005, or six months
prior to commencement of producing, importing, generating, or
distributing any designated diesel fuel.\122\ A facility is defined as
the physical location(s) where a party has custody of designated fuel,
from when it was produced, imported, or received from one party to when
it is delivered to another party. The definition also include mobile
components, such as the vessels in a barge facility. Examples of
facilities include refineries, import terminals, pipelines, terminals,
bulk plants, and barge systems. Where the same entity owns and operates
a series of locations in the distribution system (e.g., refiner to
pipeline to terminal), it may choose to register them as a single
aggregated facility, provided the entity maintains custody of the fuel
throughout the facility. However, if the aggregated facility includes a
refinery, then it may not receive any diesel fuel from another entity
at any place within the aggregated facility. Under this approach, a
pipeline could be treated as one facility from the point where it
receives fuel to the point where it either delivers it to a terminal,
or into a tank truck after passing through their terminal. The choice
made by the entity to treat these places as a single facility or
separate facilities may not change during any applicable compliance
period. These same definitions for facility will apply for both the
designate and track provisions, as well as the anti-downgrading
provisions of the highway rule. Therefore, if a proprietary system
chooses to aggregate into one facility for purposes of the designate
and track provisions, it will also be treated as one facility for
determining compliance with the 20 percent anti-downgrading limit of
the highway rule. EPA will provide a unique registration number to each
custodial facility of designated fuels. In addition, EPA intends to
work with industry subsequent to this final rule to provide guidance
regarding facility boundary and aggregation decisions that will address
the many unique situations.
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\122\ This requirement also applies to parties inside of the
Northeast/Mid-Atlantic area who handle heating oil.
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The designation provisions described below require refiners and
importers to designate all distillates they produce or import
consistent with the production and end-use requirements in today's
rule. These designations serve as the foundation upon which the fuel
distributors are able to properly track, designate, redesignate, and
label the fuel they receive.
b. Designation by Refiners and Importers
i. Designation of 500 ppm and 15 ppm Sulfur Diesel Fuel
From June 1, 2006, through May 31, 2010, any refiner \123\ or
importer that
[[Page 39068]]
produces or imports 15 ppm sulfur diesel fuel, and/or 500 ppm sulfur
diesel fuel must designate all batches of such fuel as one of the
following. The purpose of this designation requirement is to ensure
that 500 ppm sulfur NRLM diesel fuel is not shifted into the highway
market, and to evaluate compliance with the highway program's anti-
downgrade requirements.
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\123\ Transmix operators that produce diesel fuel from transmix
and terminal operators that produce from segregated interface will
be treated as a refiner for the purposes of compliance with these
requirements.
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? 15 ppm sulfur No. 2 highway diesel fuel;
? 15 ppm sulfur No. 1 highway diesel fuel;
? 500 ppm sulfur No. 2 highway diesel fuel;
? 500 ppm sulfur No. 1 highway diesel fuel;
? 500 ppm sulfur No. 2 NRLM diesel fuel;
? 500 ppm sulfur No. 1 NRLM diesel fuel;
? 500 ppm sulfur jet fuel; or
? 500 ppm sulfur kerosene.
The start date for these requirements coincides with the start date
for the early credit program under today's final rule, and the start
date for the highway diesel program for the purposes of anti-
downgrading. The end date for these requirements coincides with the end
date for the highway program's Temporary Compliance Option and today's
NRLM diesel fuel early credit program.
Any batch of 15 ppm or 500 ppm No. 1 diesel fuel which is also
suitable for use as kerosene or jet fuel (referred to as dual-purpose
kerosene) may be considered kerosene or jet fuel and need not be
designated as highway or NRLM diesel fuel, even if it may later be
blended into highway or NRLM diesel fuel downstream of the refinery to
improve the cold-flow properties of the fuel. Upon such blending, the
kerosene or jet fuel takes on the designation of the diesel fuel into
which it was blended. We expect refiners and importers will elect to
designate all of their 15 ppm sulfur No. 1 diesel fuel as highway fuel,
since this will aid in their compliance with the highway program's 80/
20 highway fuel production requirement. Designation as highway diesel
fuel by the refiner will also help avoid downstream blending from
causing a violation by the downstream party under the tracking and
compliance calculations finalized today. We also expect that refiners
and importers will elect to designate their 500 ppm sulfur No. 1 fuel
as kerosene or jet fuel since this will be the predominant use for such
fuel, and designating it as highway would hinder their compliance with
the 80/20 highway requirements. As with 15 ppm sulfur kerosene or jet
fuel, downstream parties would later redesignate it as highway or NRLM
diesel fuel if blended in or used for these purposes. Any 500 ppm
sulfur diesel fuel containing visible evidence of red dye must be
designated as NRLM diesel fuel or heating oil unless it is tax exempt
highway diesel fuel (e.g., fuel for use in school buses or certain
municipal fleets).
The reported volumes of designated fuels must be the volumes
delivered to the first downstream party. This is typically a pipeline
facility, a marine barge/tanker loading dock that accepts product from
a refiner/importer, or the refiner's/importer's truck loading rack.
This is consistent with normal business practices. Refiners, importers,
and transmix processors are not required to add red dye to NRLM diesel
fuel unless the fuel is distributed over their truck loading rack such
that the IRS requires the addition of red dye for the assessment of
taxes.
Fuel designated by a refiner or importer as highway diesel fuel
must comply with the highway program's 80/20 requirement for 15 ppm/500
ppm sulfur highway diesel fuel. The volume of fuel designated as NRLM
early credit fuel must be consistent with the credit provisions in
today's rule. Since highway diesel fuel volumes are determined at the
point of delivery from the refiner/importer to another party, the anti-
downgrade requirements do not apply to refiners and importers. Under
the highway diesel fuel program, refiners that are required to produce
100 percent of their highway diesel fuel to a 15 ppm sulfur standard
are provided with an allowance to deliver a small percentage of 500 ppm
sulfur diesel fuel to the pipeline (e.g., small refiners and GPA
refiners who exercise an option under the 2007 highway rule to delay
compliance with gasoline sulfur standards). This allowance is provided
because a small volume of ``line-wash'' is typically generated in the
feed line from the refiner's facility to the pipeline. This line-wash
will often be suitable for use as 500 ppm sulfur highway diesel fuel.
Under the provisions of the highway rule this line-wash could have been
excluded from compliance with the 15 ppm standard if the refiner
accounted for their production volume prior to shipment. However, in
this rule, all volume-related requirements are keyed to the volume
actually delivered. As a result of this change in the point of fuel
volume measurement (delivered versus produced), we are amending the
highway diesel fuel program requirements such that refiner who was
previously required to produce 100 percent of its highway diesel fuel
to the 15 ppm sulfur standard may now produce 95 percent to the 15 ppm
sulfur standard (in order to avail itself of the extended gasoline
sulfur interim standards).
ii. Designation of High Sulfur NRLM Diesel Fuel, Heating Oil, and Jet
Fuel/Kerosene
From June 1, 2007 through May 31, 2010, any refiner, or importer
not located in the Northeast/Mid-Atlantic area or Alaska, that produces
or imports unmarked high sulfur distillate fuel must designate all
batches of such fuel as one of the following: heating oil, high sulfur
NRLM diesel fuel, or jet fuel/kerosene. Any heating oil distributed
from a refiner's or importer's rack not located in the Northeast/Mid-
Atlantic area or Alaska must contain the designated marker and red dye.
Any heating oil distributed from a refiner/importer rack inside of the
Northeast/Mid-Atlantic area or Alaska is exempted from the marker
requirement except any heating oil that is delivered outside the
Northeast/Mid-Atlantic area must be marked.
As discussed previously, 500 ppm sulfur diesel fuel may be used in
NRLM equipment through May 31, 2014 and in locomotive and marine
equipment thereafter. Therefore, designate and track provisions for
heating oil will be needed to ensure that heating oil is not shifted
into the NRLM market from June 1, 2007 through May 31, 2014, and to the
locomotive and marine market thereafter. Consequently, from June 1,
2010 through May 31, 2014, refiners and importers must continue to
designate any heating oil they produce as such as well as any 500 ppm
sulfur NRLM diesel fuel produced under the small refiner, transmix/
segregated interface, and credit provisions.
Beginning June 1, 2014, refiners and importers may no longer
produce or import 500 ppm sulfur diesel fuel for use in NRLM equipment.
Therefore, beginning June 1, 2014, all diesel fuel with a sulfur level
greater than 15 ppm must be designated as heating oil, jet fuel, or
kerosene. The one exception to this is transmix processors and
terminals acting as refiners which will be permitted to produce 500 ppm
sulfur diesel fuel for use in locomotive and marine equipment from
transmix and segregated interface.
iii. Designation of 500 ppm NR and 500 ppm LM Sulfur Diesel Fuel
From June 1, 2010, through May 31, 2012, any refiner or importer
that
[[Page 39069]]
produces or imports 500 ppm sulfur NR diesel fuel (small refiner and
credit) and/or 500 ppm sulfur LM diesel fuel must designate all batches
of such fuel. The purpose of this designation requirement is to ensure
that 500 ppm sulfur LM diesel fuel is not shifted into the NR market.
Any 500 ppm sulfur LM diesel fuel distributed from a refiner's or
importer's rack not located in the Northeast/Mid-Atlantic area or
Alaska must contain the designated marker and red dye, along with
heating oil. Any 500 ppm sulfur LM diesel fuel distributed from a
refiner/importer rack inside of the Northeast/Mid-Atlantic area or
Alaska is exempted from the marker requirement except any 500 ppm
sulfur LM fuel that is delivered outside the Northeast/Mid-Atlantic
area must be marked.
c. Designation and Tracking Requirements Downstream of the Refinery or
Importer
The result of the refiner/importer designation provisions is that
all of the diesel fuel received by distributors will be clearly and
accurately designated. The distributors are then subject to their own
designation and tracking requirements. The downstream provisions are
designed to ensure that certain fuel shifts do not occur, such as the
inappropriate shifting of 500 ppm sulfur NRLM diesel fuel to the
highway market, the inappropriate shifting of 500 ppm sulfur LM diesel
fuel into the nonroad market, the inappropriate downgrading of 15 ppm
sulfur to 500 ppm sulfur highway diesel fuel, and the inappropriate
shifting of heating oil to the NRLM market. The downstream provisions
are designed to ensure these results in a readily enforceable manner
while maximizing downstream flexibility to address changing market
conditions.
In general, each time custody of designated fuel is transferred
from one facility to another facility, the transferor must designate
the fuel and record it's volume. The party who receives custody must
record the same information, to ensure that each party relies on the
same designation and volume for its own compliance purposes. This
process occurs each time custody of diesel fuel is transferred. Each
distributor may redesignate fuel while in its custody or when it is
delivered, subject to certain basic requirements. First, any re-
designation must be accurate. For example, 500 ppm sulfur NRLM diesel
fuel can not be redesignated as 15 ppm unless it in fact meets the 15
ppm standard. The sulfur standard applicable to downstream fuel is
based on the fuel's designation. Second, there are limits on the fuel
volumes that can be redesignated, calculated as a volume balance over a
specified compliance period. Specifically, the volumes of 15 ppm and
500 ppm sulfur highway received must be compared to the volumes of
these fuels delivered, to ensure that the amount of 15 ppm sulfur
highway diesel fuel that is downgraded to 500 ppm sulfur highway diesel
fuel complies with the highway program's anti-downgrading requirements.
The volumes of 500 ppm sulfur highway and NRLM diesel fuel that a
distributor receives must also be compared to the volumes of 500 ppm
sulfur highway and NRLM diesel fuel delivered, to ensure that NRLM
diesel fuel was not inappropriately transferred to the highway market.
The volumes of 500 ppm sulfur NR and LM diesel fuel received must be
compared to the volumes of 500 ppm sulfur NR and LM diesel fuel
delivered, to ensure that the 500 ppm sulfur LM fuel was not
inappropriately transferred to the NR market. In addition, the volumes
of heating oil received must be compared to the volumes distributed to
ensure it was not inappropriately transferred to the NRLM market. These
volume balances are calculated over a compliance period, providing
distributor's the day to day flexibility to redesignate fuel based on
market conditions, as long as the required volume balance is achieved
over the compliance period. Finally, once NRLM diesel fuel is dyed, 500
ppm sulfur LM diesel fuel is marked (2010-2012), or heating oil is
marked, the dye and marker may be used to ensure the fuels are not
inappropriately shifted to other markets, and the designation, tracking
and volume balance requirements are no longer needed; just the PTD,
labeling, and record keeping provisions typical of our other fuel
regulations (e.g., highway diesel) apply.
In large part, the designate and track provisions are structured to
be compatible with the normal business practices currently used by the
industry to record and reconcile volume transactions between parties.
As such, EPA expects that these downstream provisions can be
implemented in a fairly straightforward manner.
i. Designation and Tracking of 500 ppm and 15 ppm Sulfur Diesel Fuel
From June 1, 2006 through May 31, 2010, facilities downstream of
the refiner or importer must designate and maintain records of all
volumes of fuel designated as 15 ppm sulfur highway diesel fuel, 500
ppm sulfur highway diesel fuel, or 500 ppm sulfur NRLM diesel fuel that
they receive and deliver. In many cases, we expect that downstream
facilities will not change the designation of 500 ppm sulfur diesel
fuel from NRLM diesel fuel to highway while the fuel is in their
custody. However, to accommodate fluctuations in the demand for
highway-designated versus NRLM-designated 500 ppm sulfur fuel, today's
rule allows terminals and other distributors to change the designation
of 500 ppm sulfur fuel from NRLM diesel fuel to highway diesel fuel on
a daily basis, as long as the required volume balance is achieved over
the compliance period.\124\ Terminal operators must ensure that the
running balance of total highway-designated fuel that they discharged
from the beginning of today's program does not exceed the volume of
highway fuel that they received since, and had in their possession at
the beginning of today's program (adjusted for changes in inventory).
This simple one-sided test allows 15 ppm sulfur highway diesel fuel to
flow to 500 ppm sulfur highway diesel fuel (subject to anti-downgrading
limits), 500 ppm sulfur NRLM diesel fuel, or heating oil. It also
allows 500 ppm sulfur highway diesel fuel to flow to NRLM diesel fuel
or heating oil. However, the flow of NRLM diesel fuel to highway diesel
fuel must first have been offset by shifts from highway to NRLM diesel
fuel. In this way we can have assurance that the 500 ppm sulfur fuel
sold for highway purposes was in fact produced pursuant to the 80/20
requirements of the highway rule. Since any 500 ppm sulfur diesel fuel
in the possession of parties downstream of the refiner at the beginning
of today's program will be considered as highway diesel fuel, each
custodian will begin today's program with a positive volumetric account
balance regarding their input/output of highway-designated 500 ppm
sulfur. Conformity with this requirement will be evaluated by EPA at
the end of each quarterly compliance period.
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\124\ Any party is free to redesignate highway diesel fuel to
NRLM diesel fuel or heating oil at any time. The required volume
balance does not limit such designations.
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In order to accommodate volumetric fluctuations due to such factors
as thermal expansion of the fuel, facilities such as pipelines upstream
of the terminal can use the same volumetric balance. However, since
these facilities typically do not, and should not change designations,
the compliance periods can be annual. In addition, to ensure that there
are no significant redesignations, we are also requiring that the
volume of highway-designated 500 ppm sulfur diesel fuel that a facility
[[Page 39070]]
discharges from its custody must be no greater than 102 percent of the
volume of such fuel that it received during each annual compliance
period. All parties downstream of the refiner, importer, or transmix
processor also must demonstrate that over any given compliance period,
they did not downgrade more than 20 percent of the 15 ppm highway
diesel fuel that they received to 500 ppm sulfur highway diesel fuel.
From June 1, 2006 through May 31, 2010, distributors must maintain
records regarding each transfer of a designated fuel into and out of
their facility on a batch-by-batch basis. These records must include
the EPA registration number of the source or recipient facility, and
the volume of each designated fuel transfer. However, for transfers of
dyed NRLM and highway diesel fuel on which taxes have been assessed,
the recipient or source facility need not be specifically identified.
In such cases, records must be kept regarding the total volume of dyed
and tax assessed fuel that is received, discharged, and in inventory
during each compliance period. After May 31, 2010, unique records for
these designate and track provisions are no longer required, but the
normal records and PTDs must still be kept regarding compliance with
the fuel standards.
ii. Designation and Tracking of High Sulfur NRLM Diesel Fuel and
Heating Oil
The requirements regarding the designation and tracking of heating
oil and high sulfur or 500 ppm sulfur NRLM diesel fuel parallel those
regarding the designation and tracking of 500 ppm sulfur highway and
NRLM diesel fuel discussed above. However, the requirements described
below pertain only to facilities not in the Northeast/Mid-Atlantic area
or Alaska, and to facilities inside of the Northeast/Mid-Atlantic area
that transport heating oil outside of the Northeast/Mid-Atlantic area.
From June 1, 2007 through May 31, 2010, facilities downstream of
the refiner or importer must designate all high sulfur diesel fuel they
distribute as NRLM diesel fuel and all heating oil they distribute as
heating oil, and must keep records of all volumes of fuel designated as
high sulfur NRLM diesel fuel or heating oil. In many cases, we expect
that downstream facilities will not change the designation of diesel
fuel from heating oil to high sulfur NRLM diesel fuel while the fuel is
in their custody. However, today's final rule provides the flexibility
to make this change in designation provided that volume balance
requirements for high sulfur NRLM diesel fuel are met.
The volume balance for heating oil requires that the volumes of
high sulfur NRLM diesel fuel and heating oil received must be compared
to the volumes of high sulfur NRLM diesel fuel and heating oil
delivered over a compliance period. The volume of high sulfur NRLM
diesel fuel may not increase by a greater proportion than the volume of
heating oil over a compliance period. There are many reasons why the
combined pool of high sulfur fuel will increase in volume such as the
inevitable downgrades from 15 ppm and 500 ppm when these fuels are
shipped by pipeline. The volume balance allows for this to occur while
keeping fuel produced as heating oil from being shifted to NRLM diesel
fuel. The volume balance calculation allows high sulfur NRLM diesel
fuel and heating oil to increase proportionately, satisfying both
needs. As discussed previously, high sulfur NRLM diesel fuel and
heating oil compliance will be required on a quarterly basis for
terminal facilities that add marker/dye (and are more likely to change
designations on a day to day basis), while compliance for other
entities (e.g., pipelines) will be on an annual basis. Compliance with
the volume balance requirement is determined by comparing volumes
received and delivered during that compliance period. There is no need
to have a running total volume of high sulfur NRLM diesel fuel
delivered from the beginning of the program since we do not expect any
party will need to redesignate heating oil to high sulfur NRLM diesel
fuel, even on a day-to-day basis. Further, we are not providing any
tolerance since sufficient flexibility already exists due to the many
sources of downgrade to heating oil.
Facilities must maintain records regarding each transfer of heating
oil and high sulfur NRLM diesel fuel that they receive and discharge
from June 1, 2007 through May 31, 2010 on a batch-by-batch basis.\125\
These records must include the EPA registration number of the source or
recipient facility, and the volume of each fuel transfer. However, for
transfers of marked heating oil, the recipient or source facility need
not be specifically identified. In such cases, records must be kept
regarding the total volume of marked heating oil that is received,
discharged, and in inventory during each compliance period. For
transfers of dyed high sulfur NRLM diesel fuel from a truck loading
rack, the specific recipients also do not need to be identified. In
such cases, records must be kept regarding the total volume of high
sulfur NRLM diesel fuel that is received, discharged, and in inventory
during each compliance period.
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\125\ As discussed in section V, these records must be kept for
five years.
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From June 1, 2010 through May 31, 2014, facilities downstream of
the refiner or importer must continue to designate heating oil and any
500 ppm sulfur NRLM diesel fuel that they distribute. Beyond June 1
2014, they must designate 500 ppm sulfur LM diesel fuel in addition to
heating oil. Designations for heating oil are subject to the volume
balance requirements and records must be kept on the designations.
Beginning June 1, 2010, the volume balance requirement for heating
oil is simply that the volume of heating oil may not decrease. As
discussed previously, there are many reasons why the volume could
increase. Consequently, if the volume decreases it would mean that
heating oil is being shifted to NRLM or locomotive and marine uses,
thereby allowing refiners to circumvent the NRLM diesel fuel sulfur
standards. Given the likely increase in heating oil volume for other
reasons, there should be ample flexibility provided with this one-sided
test to account for minor variations due to volume swell/shrinkage
related to temperature, meter differences, or other causes, so no
additional tolerance or flexibility is necessary.
iii. Designation and Tracking of 500 ppm Sulfur NR and LM Diesel Fuel
The requirements regarding the designation and tracking of 500 ppm
sulfur NR and LM diesel fuel parallel those regarding the designation
and tracking of 500 ppm sulfur highway and NRLM diesel fuel discussed
above. However, the requirements described below pertain only to
facilities not in the Northeast/Mid-Atlantic area or Alaska, and to
facilities inside of the Northeast/Mid-Atlantic area that transport 500
ppm sulfur NR and LM diesel fuel outside of the Northeast/Mid-Atlantic
area.
From June 1, 2010 through May 31, 2012, facilities downstream of
the refiner or importer must continue to designate 500 ppm sulfur NR
and LM diesel fuel that they distribute, and must keep records of all
volumes of fuel designated as these fuels. In many cases, we expect
that downstream facilities will not change the designation of diesel
fuel from 500 ppm sulfur LM to 500 ppm sulfur NR diesel fuel while the
fuel is in their custody. However, today's final rule provides the
flexibility to make this change in designation provided that volume
balance
[[Page 39071]]
requirements for 500 ppm sulfur NR diesel fuel are met.
The volume balance for 500 ppm sulfur NR and LM diesel fuel
requires that the volumes of 500 ppm sulfur NR and LM diesel fuel
received must be compared to the volumes of 500 ppm sulfur NR and LM
diesel fuel delivered over a compliance period. The volume of 500 ppm
sulfur NR diesel fuel may not increase by a greater proportion than the
volume of 500 ppm sulfur LM diesel fuel over a compliance period. The
combined pool of 500 ppm sulfur diesel fuel may increase in volume such
as the inevitable downgrades from 15 ppm and 500 ppm sulfur diesel fuel
when these fuels are shipped by pipeline. The volume balance allows for
this to occur while keeping fuel produced as 500 ppm sulfur LM diesel
fuel from being shifted to NR fuel. The volume balance calculation
allows 500 ppm sulfur NR and LM diesel fuel to increase
proportionately, satisfying both needs. 500 ppm sulfur NR and LM diesel
fuel compliance will be required on an annual basis, for terminal
facilities as well as other entities. Compliance with the volume
balance requirement is determined by comparing volumes received and
delivered during that compliance period.
Facilities must maintain records regarding each transfer of 500 ppm
sulfur NR and LM diesel fuel that they receive and discharge from June
1, 2010 through May 31, 2012 on a batch-by-batch basis. These records
must include the EPA registration number of the source or recipient
facility, and the volume of each fuel transfer. However, for transfers
of marked 500 ppm sulfur LM diesel fuel, the recipient or source
facility need not be specifically identified. In such cases, records
must be kept regarding the total volume of marked 500 ppm sulfur LM
diesel fuel that is received, discharged, and in inventory during each
compliance period. For transfers of dyed 500 ppm sulfur NR diesel fuel
from a truck loading rack, the specific recipients also do not need to
be identified. In such cases, records must be kept regarding the total
volume of 500 ppm sulfur NR diesel fuel that is received, discharged,
and in inventory during each compliance period.
EPA plans to work closely with members of the diesel fuel refining
and distribution industry, to provide clear and comprehensive guidance
on what is expected of the various parties under the designate and
track and volume balance provisions adopted in this rule. EPA invites
suggestions from these parties on the most useful ways to provide such
guidance.
d. Reporting Requirements
i. Compliance and Reporting Periods
We believe that any regulatory program should promote compliance
and deter non-compliance. Today's program includes compliance and
reporting provisions to deter noncompliance and to detect and correct
instances of noncompliance in a timely fashion. Under today's program
entities must submit to the Agency compliance reports containing
information on the diesel fuel volumes they handle, separately by fuel
designation category. Compliance with these volume designation and
tracking requirements will be determined on an annual basis for
refiners and pipelines and a quarterly basis for terminals during the
first step of today's program. Compliance will be determined on an
annual basis for everyone after 2010. To demonstrate compliance,
refiners, pipelines, and terminals will be required to submit reports
on a quarterly basis during the first step of today's program and then
on an annual basis every year thereafter.
We are requiring the submission of volume reports on a quarterly
basis during the first step of today's program for several reasons.
First, and most importantly, today's program allows entities to change
the designations of 500 ppm sulfur diesel fuel from NRLM diesel fuel to
highway diesel fuel and heating oil to NRLM diesel fuel on a daily
basis (provided that they later redesignate the same volume of 500 ppm
diesel fuel from highway diesel fuel to NRLM diesel fuel and the same
volume of NRLM diesel fuel to heating oil). Second, quarterly reporting
coupled with quarterly compliance by terminals will constrain the
magnitude of any noncompliance. Finally, during the start up of the
designate and track system, there may also be a greater potential for
errors in the transmission of records between custodians of designated
fuels, in the calculations related to compliance with the volume
account balance requirements, and in the materials provided in reports.
Today's program establishes quarterly compliance periods which are
based on standard industry practices. Specifically, the quarterly
compliance periods finalized in today's rule are as follows:
? 1st quarter: July 1-September 30;
? 2nd quarter: October 1-December 31;
? 3rd quarter: January 1-March 31;
? 4th quarter: April 1-June 30.
Where the start and end dates of the program do not line up with
these dates, the quarters are lengthened or shortened accordingly
(e.g., June 1, 2007-September 30, 2007, and April 1, 2010-May 31,
2010). Quarterly reports are due two months following the end of the
quarterly compliance period (i.e., December 1, March 1, June 1, and
September 1). Annual compliance periods begin on July 1 and end June 30
of the following year. Again, certain annual compliance periods were
lengthened or shortened to match the significant dates of the program
(e.g., June 1, 2007-June 30, 2008). Annual reports are due by August 31
following the annual compliance period. For the sake of simplifying
compliance and record keeping, the compliance periods for the highway
final rule have been adjusted to match these.
Reports must be submitted electronically, or in a form which
facilitates direct entry into an electronic database. Without reliance
on an electronic database and reporting system to cross check and
verify reported information, the designate and track provisions would
become so cumbersome as to be virtually unenforceable by EPA staff
given projected resource availability.
ii. Reporting Requirements During the First Step of Today's Program
During the first step of today's program, from June 1, 2007 through
May 31, 2010, entities must report to EPA for each of their facilities
regarding the total volume of each of the designated fuels that they
receive from, or discharge to, another entity's facility in the fuel
distribution system. If a facility is a refiner as well as a
distributor (e.g., a blender of biodiesel or blendstocks from
unfinished diesel fuel or heating oil or otherwise both accepts
previously designated fuel and also produces fuel), it must also report
both volumes produced and released to other entities in its capacity as
refiner and also report the volumes received and released for each
designation like any other terminal or pipeline.
For example, an entity that operates a pipeline may have multiple
points where it discharges fuel, and at each of these points it may
supply multiple terminals. The pipeline operator must report on the
receipt of designated fuel from each party that transfers fuel to it,
and on the designated fuel transferred by the pipeline at each
discharge point which specifies the fuel transferred, separately for
each of its terminal customers. Entities must report for each of their
facilities the total volumes of the designated fuels that were either
dyed red, marked, or on which taxes were assessed tax while in their
custody. Reports regarding these volumes do not
[[Page 39072]]
need to include details on the recipients of the fuel (but product
transfer documents must be kept to facilitate EPA's ability to compare
the outgoing transfers and to fuel received).
Entities that handle only dyed NRLM diesel fuel, dyed and marked
500 ppm sulfur LM diesel fuel (2010-2012) and heating oil, or highway
diesel fuel on which taxes have been assessed do not need to report to
EPA. Information from such entities is not needed for compliance
purposes, because there is no chance of violating the prohibitions
against the shifting of fuel from one pool to another contained in
today's rule without also violating either the requirement that highway
diesel fuel contain no red dye, or the requirement that NRLM diesel
fuel contain no heating oil marker. Furthermore, consistent with the
highway rule, there are no periodic reporting requirements regarding
the demonstration of compliance with the highway program's anti-
downgrading requirements in today's rule. Maintenance of records should
be sufficient for EPA to adequately monitor compliance with these
requirements, as insufficient 15 ppm sulfur diesel fuel availability in
an area should highlight potential anti-downgrading violations.
Quarterly reports from facilities downstream of the refinery and
importer must also include data on the total volume of the designated
fuels received, discharged, and in inventory during the quarterly
reporting period. Using these data, the reporting party must
demonstrate compliance with the volume account balance requirements
regarding highway diesel fuel and high sulfur NRLM.
iii. Reporting Requirements During the Second Step of Today's Program
We believe that we may safely dispense with quarterly reporting and
compliance evaluations starting June 1, 2010 and instead rely on annual
reports. During the second step of today's rule, the designate and
track requirements will be focused on preventing the use of heating oil
in NRLM equipment, and during 2010-2012 preventing the use of 500 ppm
sulfur LM diesel fuel in nonroad equipment. By 2010, all reporting
parties in the system will have had experience in complying with the
program's designate and track provisions. In addition, the Agency will
have had ample experience in administering the system. Consequently, we
expect that there will be few errors or omissions in reports and that
EPA will have determined how best to detect and remedy instances of
noncompliance. We believe an annual reporting period is therefore
sufficient and appropriate.
Beginning June 1, 2010, entities that produce, import, or take
custody of 500 ppm sulfur NRLM diesel fuel, marked heating oil, or
unmarked heating oil outside of the Northeast/Mid-Atlantic area and
Alaska, must submit an annual report to EPA that provides summary
information regarding the transfer of these fuels.\126\ Entities must
report for each of their facilities the total volume of each of these
fuels that they received from, or discharge to, another entity's
facility in the fuel distribution system during each annual compliance
period. For batches of heating oil that are delivered marked, the
reports do not need to indicate the entities to which the batches were
delivered--only the total volume of marked heating oil delivered during
each compliance period must be reported. If an entity only receives
marked heating oil (i.e., it does not receive any unmarked heating
oil), it does not need to report at all. If a facility received marked
heating oil in addition to unmarked heating oil, it must report the
volume of marked heating oil separately and indicate the facility from
which the marked heating oil was received.
---------------------------------------------------------------------------
\126\ 500 ppm sulfur NR diesel fuel, and starting June 1, 2012,
500 ppm sulfur NRLM diesel fuel, is not permitted in the Northeast/
Mid-Atlantic area and only in the State of Alaska in limited
circumstances.
---------------------------------------------------------------------------
Beginning June 1, 2010 to June 1, 2012, entities that produce,
import, or take custody of 500 ppm sulfur NR and LM diesel fuel outside
of the Northeast/Mid-Atlantic area and Alaska, must submit an annual
report to EPA that provides summary information regarding the transfer
of these fuels.\127\ Entities must report for each of their facilities
the total volume of each of these fuels that they received from, or
discharge to, another entity's facility in the fuel distribution system
during each annual compliance period. For batches of 500 ppm sulfur LM
diesel fuel that are delivered marked, the reports do not need to
indicate the entities to which the batches were delivered--only the
total volume of marked 500 ppm sulfur LM diesel fuel delivered during
each compliance period must be reported. If an entity only receives
marked 500 ppm sulfur LM diesel fuel (i.e., it does not receive any
unmarked 500 ppm sulfur LM diesel fuel), it does not need to report at
all. If a facility received marked in addition to unmarked 500 ppm
sulfur LM diesel fuel, it must report the volume of marked 500 ppm
sulfur LM diesel fuel separately and indicate the facility from which
the marked 500 ppm sulfur LM diesel fuel was received.
---------------------------------------------------------------------------
\127\ During this time period, 500 ppm sulfur NR diesel fuel is
not permitted in the Northeast/Mid-Atlantic area and only in the
State of Alaska in limited circumstances.
---------------------------------------------------------------------------
E. How Are State Diesel Fuel Programs Affected by the Sulfur Diesel
Program?
Section 211(c)(4)(A) of the CAA prohibits states and political
subdivisions of states from prescribing or attempting to enforce, for
purposes of motor vehicle emission control, ``any control or
prohibition respecting any characteristic or component of a fuel or
fuel additive in a motor vehicle or motor vehicle engine,'' if EPA has
prescribed ``a control or prohibition applicable to such characteristic
or component of the fuel or fuel additive'' under section 211(c)(1).
This prohibition applies to all states except California, as explained
in section 211(c)(4)(B). This express preemption provision in section
211(c)(4)(A) applies only to controls or prohibitions respecting any
characteristics or components of fuels or fuel additives for motor
vehicles or motor vehicle engines, that is, highway vehicles. It does
not apply to controls or prohibitions respecting any characteristics or
components of fuels or fuel additives for nonroad engines or nonroad
vehicles.\128\
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\128\ See 66 FR 36543, July 12, 2001 (notice proposing approval
of Houston SIP revisions). See also letter from Carl Edlund,
Director, Multimedia Planning and Permitting Division, U.S.
Environmental Protection Agency, Region VI, to Jeffrey Saitas,
Executive Director, Texas Natural Resources Conservation Commission,
dated September 25, 2000, providing comments on proposed revisions
to the Texas State Implementation Plan for the control of ozone,
specifically the Post 99 Rate of Progress Plan and Attainment
Demonstration for the Houston/Galveston area. This letter noted that
preemption under section 211(c)(4) of the CAA did not apply to
controls on nonroad diesel fuel.
---------------------------------------------------------------------------
Section 211(c)(4)(A) specifically mentions only controls respecting
characteristics or components of fuel or fuel additives in a ``motor
vehicle or motor vehicle engine,'' adopted ``for purposes of motor
vehicle emissions control,'' and the definitions of motor vehicle and
nonroad engines and vehicles in CAA section 216 are mutually exclusive.
This is in contrast to sections 211(a) and (b), which specifically
mention application to fuels or fuel additives used in nonroad engines
or nonroad vehicles, and with section 211(c)(1) which refers to fuel
used in motor vehicles or engines or nonroad engines or vehicles.
Thus, today's action does not preempt state controls or
prohibitions respecting characteristics or components of fuel or fuel
additives used in nonroad, locomotive, or marine engines or
[[Page 39073]]
nonroad, locomotive, or marine vehicles under the provisions of section
211(c)(4)(A). At the same time, a state control that regulates both
highway fuel and nonroad fuel is preempted to the extent that the state
control respects a characteristic or component of highway fuel
regulated by EPA under section 211(c)(1).
A court may consider whether a state control for fuels or fuel
additives used in nonroad engines or nonroad vehicles is implicitly
preempted under the supremacy clause of the U.S. constitution. Courts
have determined that a state law is preempted by federal law where the
state requirement actually conflicts with federal law by preventing
compliance with the federal requirement, or by standing as an obstacle
to accomplishment of congressional objectives. A court could thus
consider whether a given state standard for sulfur in nonroad,
locomotive or marine diesel fuel is preempted if it places such
significant cost and investment burdens on refiners that refiners
cannot meet both state and federal requirements in time, or if the
state control would otherwise meet the criteria for conflict
preemption.
F. Technological Feasibility of the 500 and 15 ppm Sulfur Diesel Fuel
Program
This section summarizes our assessment of the feasibility of
refining and distributing 500 ppm NRLM diesel fuel starting in 2007 and
15 ppm nonroad diesel fuel in 2010 and locomotive and marine diesel
fuel in 2012. Based on this evaluation, we believe it is
technologically feasible for refiners and distributors to meet both
sulfur standards in the lead time provided with the desulfurization
technology available. We begin this section by describing the nonroad,
locomotive and marine diesel fuel market and how these fuels differ
from current highway diesel fuel. We discuss desulfurization
technologies, both conventional and advanced, which are available for
complying with the 500 ppm and 15 ppm NRLM standards. We then present
what mix of technologies we believe will be used. Next we provide our
analysis of the lead time for complying with either standard. Finally,
we analyze the feasibility of distributing low sulfur NRLM diesel fuel.
We refer the reader to the Final RIA for more details regarding these
assessments.
1. What Is the Nonroad, Locomotive and Marine Diesel Fuel Market Today?
Nonroad, locomotive and marine (NRLM) engines almost exclusively
use No. 2 distillate fuel. No. 2 distillate fuel is a class of fuel
defined by its boiling range. It boils at a higher average temperature
than gasoline, No. 1 distillate, jet fuel and kerosene, and at a lower
average temperature than residual fuel (or bunker fuel). ASTM defines
three No. 2 distillate fuels: (1) Low sulfur No. 2 diesel fuel (No. 2-
D); (2) high sulfur No. 2-D; and (3) No. 2 fuel oil.\129\ Low sulfur
No. 2-D fuel must contain 500 ppm sulfur or less, have a minimum cetane
number of 40, and have a minimum cetane index limit of 40 (or a maximum
aromatic content of 35 volume percent) (i.e., meet the EPA standard for
highway diesel fuel).\130\ Both high sulfur No. 2-D and No. 2 fuel oil
must contain no more than 5000 ppm sulfur,\131\ and currently averages
3000 ppm nationwide. The ASTM specification for high sulfur No. 2-D
fuel also includes a minimum cetane number of 40. Practically, since
most No. 2 fuel oil meets this minimum cetane number specification,
pipelines which ship fuel fungibly need only carry one high sulfur No.
2 distillate fuel which meets both sets of specifications. Currently,
nonroad, locomotive and marine engines can be and are fueled with both
low and high sulfur No. 2-D fuels. If No. 1 distillate is blended into
highway diesel fuel, as is sometimes done to prevent gelling in the
winter, the final blend must meet the 500 ppm EPA cap.
---------------------------------------------------------------------------
\129\ ``Standard Specification for Diesel Fuel Oils,'' ASTM D
975-98b and ``Standard Specifications for Fuel Oils,'' ASTM D 396-
98.
\130\ These ASTM requirements were formed after and are
consistent with the EPA regulations for highway diesel fuel.
\131\ Some states, particularly those in the Northeast, limit
the sulfur content of No. 2 fuel oil to 2000-3000 ppm.
---------------------------------------------------------------------------
No. 1 distillate (e.g., jet fuel and kerosene) meets lower boiling
point and viscosity specifications requirements than No. 2 distillate.
No. 1 distillate, or any of these other similar boiling distillates,
added to No. 2 NRLM distillate becomes NRLM diesel fuel and thus, must
meet the applicable specifications for No. 2 distillate.
For the purpose of this rule, we split the No. 2 distillate market
into three pieces, according to the sulfur standard which each must
meet: (1) Highway diesel fuel, (2) NRLM diesel fuel, and heating oil,
which is used in both furnaces and boilers, as well as in stationary
diesel engines to generate power.
In the NPRM, EPA estimated current production and demand for NRLM
fuel from studies conducted by the U.S. Energy Information
Administration (EIA). We projected growth in nonroad fuel demand using
EPA's NONROAD emission model. We based the growth in locomotive and
marine fuel demand from analyses supporting EPA's locomotive and marine
engine rulemaking. These future levels of NRLM fuel demand differed
from those implicit in our projection of the emission reductions
associated with the rule, which were based primarily on EPA's NONROAD
emission model. We pointed out this inconsistency in the rule and
indicated that we would resolve this inconsistency for the final rule.
In their comments on the NPRM, the American Petroleum Institute
(API), the Engine Manufacturers Association (EMA) and others
highlighted this inconsistency and suggested that EPA resolve it by
basing its projection of future NRLM fuel demand using information
developed by EIA and not from the NONROAD emission model. API pointed
to a lower estimate of nonroad fuel demand developed in a contracted
study performed by Baker and O'Brien. A detailed analysis of these
comments and additional technical analyses of distillate fuel demand
are described in Section 4.6.3.1 of the Summary and Analysis document
to this rule. In summary, we decided to continue using the NONROAD
emission model to project the emission benefits of this rule. To
eliminate the inconsistency in the NPRM, we also use the NONROAD model
to determine demand for nonroad fuel and project the economic impacts
of this final rule. However, the analyses presented in Section 4.6.3.1
of the Summary and Analysis document to this rule identified
uncertainties in the current and future level of nonroad fuel demand.
To insure that these uncertainties did not affect the outcome of this
rulemaking process, we evaluate the emissions, costs and cost
effectiveness of the standards contained in this rule using an
alternative estimate of nonroad fuel demand derived from EIA
information. This alternative analysis is presented in Appendix 8A of
the Final RIA. In addition to use of the NONROAD model to project
nonroad fuel demand, we also updated our projections of the production
of and demand for highway fuel and heating oil using more recent
versions of the same EIA reports used in the NPRM analysis.
In 2001, nationwide outside of California, nonroad diesel fuel
comprised about 18 percent of all No. 2 distillate fuel, while
locomotive and marine diesel fuel comprised about eight percent of all
No. 2 distillate fuel. Diesel fuel consumed by highway vehicles/engines
comprised about 56 percent of all No. 2 distillate fuel.
[[Page 39074]]
Heating oil comprised about 19 percent of No. 2 distillate. Because of
limitations in the fuel distribution system and other factors, about 18
percent of all non-highway distillate met the 500 ppm highway diesel
fuel cap. Thus, about 64 percent of No. 2 distillate pool met the 500
ppm sulfur cap, not just the 56 percent used in highway vehicles. We
project that this spillover of highway fuel to the NRLM diesel fuel
market will continue under the highway diesel fuel program. Thus,
today's rule will only materially affect about 19 percent of today's
distillate market. The remaining 17 percent of No. 2 distillate which
is high sulfur heating oil is estimated to remain at higher sulfur
levels.
This rule will also affect any No. 1 distillate which is blended
into wintertime NRLM fuel. Because gelling can also be prevented
through the use of pour point additives, the current and future level
of this of No. 1 distillate blending is uncertain. However, the
feasibility of desulfurizing and distributing this No. 1 distillate
will also be addressed below.
2. What Technology Will Refiners Use To Meet the 500 ppm Sulfur Cap?
Refiners currently hydrotreat most or all of their distillate
blendstocks using what is commonly referred to as ``conventional''
hydrotreating technology to meet the 500 ppm sulfur and cetane limits
applicable to highway diesel fuel. This conventional technology has
been available and in use for many years. U.S. refiners have nearly ten
years of experience with this technology in producing highway diesel
fuel. The distillate blendstocks comprising NRLM fuel do not differ
substantially from those comprising highway diesel fuel. Thus, the
technology to produce 500 ppm sulfur NRLM diesel fuel has clearly been
demonstrated and optimized over the last decade. Additionally, this
technology continues to evolve primarily through the development of
more active catalysts and motivated by the 15 ppm cap applicable to
most highway diesel fuel starting in 2006.
Several advanced desulfurization technologies are being developed
and are discussed in more detail in the next section. However, the fact
that none of these technologies have been demonstrated commercially for
a typical catalyst life (i.e., two years) makes it unlikely that they
would be selected by many refiners for use in mid-2007. Also, these
advanced technologies promise the greatest cost savings in achieving 15
ppm levels, rather than 500 ppm. These advanced technologies can also
be combined with a conventional hydrotreater to meet the 15 ppm
standard in 2010 and 2012. EPA therefore projects that the 500 ppm
sulfur cap NRLM standard will be met using conventional hydrotreating
technology. We made this same projection in the NPRM and no comments to
the contrary were received.
In some cases, refiners will also need to install or expand several
ancillary processes related to sulfur removal (e.g., hydrogen
production and purification, sulfur processing, and sour water
treatment). These technologies are all commercially demonstrated, as
nearly all refineries already have such units.
3. Is the Leadtime Sufficient To Meet the 2007 500 ppm NRLM Sulfur
Standard?
After the highway diesel fuel program is implemented, we project
that 92 refineries in U.S. will be producing high sulfur distillate
fuel. We project that 36 of these refineries will likely produce 500
ppm sulfur NRLM diesel fuel in 2007. Of those 36, 30 will have to build
new hydrotreaters while the other 6 are expected to use existing
hydrotreaters to produce 500 ppm NRLM diesel fuel.\132\ The remaining
56 refineries are projected to continue to produce high sulfur
distillate fuel, with 26 of the 56 refineries producing heating oil.
The other 30 refineries are owned by small refiners and will likely
produce high sulfur NRLM diesel fuel. The 56 refineries continuing to
produce high sulfur distillate will not have to add or modify any
equipment to continue producing this fuel.
---------------------------------------------------------------------------
\132\ These refiners have said that they will leave the highway
market in 2006 in their pre-compliance reports for complying with
the Highway Diesel Rule, thus freeing up their existing
hydrotreaters to produce 500 ppm NRLM diesel fuel.
---------------------------------------------------------------------------
This rule will provide refiners and importers 37 months before they
will have to begin producing 500 ppm NRLM diesel fuel on June 1, 2007.
Our lead time analysis projects that 27-39 months are typically needed
to design and construct a diesel fuel hydrotreater.\133\ As discussed
below, we believe that 37 months will be sufficient for all refiners of
NRLM fuel.
---------------------------------------------------------------------------
\133\ ``Highway Diesel Progress Review,'' USEPA, EPA420-R-02-
016, June 2002. The leadtime analysis in the RIA can be found in
section 5.3.
---------------------------------------------------------------------------
Easing the task is the fact that we project that essentially all
refiners will use conventional hydrotreating to comply with the 500 ppm
sulfur NRLM diesel fuel cap. This technology has been used extensively
for more than 10 years and its capabilities to process a wide range of
diesel fuel blendstocks are well understood. Thus, the time necessary
to apply this technology for a specific refiner's situation should be
relatively short.
Twenty-six out of the 36 refineries projected to produce 500 ppm
NRLM diesel fuel in 2007 have indicated that they will produce highway
diesel fuel in their highway diesel fuel pre-compliance reports, see
RIA section 7.2.1.3.4.1, Table 7.2.1-38 and following discussion for
description of these refineries. Thus, roughly 70% of the refiners
likely to produce 500 ppm sulfur NRLM diesel fuel in 2007 are already
well into their planning for meeting the 15 ppm highway diesel fuel
standard, effective June 1, 2006. It is likely that these refiners have
already chemically characterized their high sulfur diesel fuel
blendstocks, as well as their highway diesel fuel, in assessing how to
meet produce 15 ppm fuel. They will also have already assessed the
various technologies for producing 15 ppm diesel fuel. This provides an
extensive base of information on how to design a hydrotreater to
produce 500 ppm NRLM fuel, as well as how to revamp this hydrotreater
to produce 15 ppm NRLM diesel fuel in 2010 and 2012. Those refiners
only producing high sulfur distillate fuel today will be able to take
advantage of the significant experience that technology vendors have
obtained in assisting refiners of highway diesel fuel meet the 15 ppm
cap in 2006.
We also expect that roughly 20 percent of the 101 refineries in the
U.S. and its territories will build a new hydrotreater to produce 15
ppm highway fuel. Those which also produce high sulfur distillate will
be able to produce 500 ppm NRLM fuel with their existing highway
hydrotreater. In 2007, we conservatively assumed that 20% of the 500
ppm NRLM production from refineries that produce highway and high
sulfur distillate could be produced with these existing treaters at no
capital costs (existing highway treater capacity available for 500 ppm
NRLM production would be higher if based on highway treater capacity).
Thus, in 2007 we project that four refineries will be able to use their
recently idled highway treater due to building a new highway treater
unit for 2006. Furthermore, the highway diesel program pre-compliance
reports indicate that another 7 refineries currently producing 500 ppm
highway fuel will likely leave the highway fuel market in 2006. We
project that 2 of these would use their existing treater to produce 500
ppm NRLM with no investment costs. Another three of these 101
refineries produce relatively small volumes of high sulfur distillate
compared to highway diesel fuel today. We project that they will be
able to
[[Page 39075]]
produce 500 ppm sulfur NRLM fuel from their high sulfur distillate with
only minor modification to their existing highway diesel fuel
hydrotreater.
Refiners not planning on producing 100 percent highway fuel in 2006
will also need some time to assess which distillate market in which to
participate starting in 2007, NRLM or heating oil. While this is a
decision which requires some amount of time for analysis, refiners also
needed to assess what market they would participate in for the 1993 500
ppm highway diesel fuel sulfur cap. In all, we project that the task of
producing 500 ppm sulfur NRLM fuel in 2007 will be less difficult than
the task refiners faced with the implementation of the 500 ppm highway
diesel fuel cap in 1993. Refiners had just over three years of lead
time for complying with the 1993 500 ppm highway diesel fuel cap, as is
the case here, and this proved sufficient.
No explicit comments were made by refiners on the lead time needed
for complying with the proposed NRLM 500 ppm sulfur standard. However,
their comments supported the two step approach, preferring it over a
one step, 15 ppm NRLM cap starting in 2008.
4. What Technology Will Refiners Use To Meet the 15 ppm Sulfur Cap?
In the highway diesel rule, we projected that refiners producing 15
ppm fuel in 2006 would utilize extensions of conventional hydrotreating
technology. We also projected that refiners first producing 15 ppm fuel
in 2010 would use a mix of extensions of conventional and advanced
technologies. Based on the refiners' highway pre-compliance reports, it
appears that 95% of highway fuel could meet the 15 ppm cap in 2006. We
expect that virtually all of this 15 ppm fuel will be produced with
conventional hydrotreating. Thus, it appears that conventional
hydrotreating will be used to produce the vast majority of 15 ppm
highway diesel fuel.
In the nonroad NPRM, we projected that refiners would use advanced
desulfurization technologies to produce 80 percent of 15 ppm nonroad
diesel fuel in 2010, with the balance using conventional hydrotreating.
At the time of the NPRM, all of the advanced technologies appeared to
be progressing rapidly. Since the proposal, we have learned that a
couple of these technologies, Unipure and S-Zorb, are not going to be
commercially demonstrated as soon as expected. However, one refiner is
already using Process Dynamics' IsoTherming technology to commercially
produce 15 ppm diesel fuel. Thus, we continue to believe that advanced
technologies will be used to produce a large percentage of 15 ppm NRLM
fuel. However, the number of advanced technologies used may be smaller.
Because of the more limited choices, we project that the penetration of
advanced technologies will be only 60 percent. The remainder of this
section discusses the production of 15 ppm diesel fuel using
conventional and advanced technologies.
One approach to produce 15 ppm NRLM fuel would be to revamp the
conventional hydrotreater built to produce 500 ppm NRLM fuel in 2007.
Knowing that the 500 ppm NRLM cap will only be in effect for three
years for nonroad refiners and five years for locomotive and marine
refiners (four years for small refiners), we expect that refiners will
design their 500 ppm hydrotreater to allow the production of 15 ppm
fuel through the addition of reactor volume or a second hydrotreating
stage. Refiners might also shift to a more active catalyst in the
existing reactor, as the life of that catalyst might be nearing its
end. Equipment to further purify its hydrogen supply could also be
added. Producing 15 ppm NRLM fuel via these steps will be feasible as
they are essentially the same steps refiners will be using in 2006 to
produce 15 ppm highway diesel fuel.
EPA recently reviewed the progress being made by refining
technology vendors and refiners in meeting the 2006 highway diesel
sulfur cap.\134\ All evidence available confirms EPA's projection that
conventional hydrotreating will be capable of producing diesel fuel
containing less than 10 ppm sulfur. Furthermore, as part of the highway
program's reporting requirements, refiners are required to report their
progress in complying with the 15 ppm highway diesel fuel standard. In
those reports they indicated that they primarily will be applying
extensions of conventional hydrotreating. NRLM fuel refiners will have
the added advantage of being able to design their 500 ppm hydrotreater
with the production of 15 ppm fuel in mind. Additionally, refiners
producing 15 ppm NRLM fuel will be able to take advantage of the
experience gained from those producing 15 ppm highway fuel.
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\134\ ``Highway Diesel Progress Review,'' USEPA, EPA420-R-02-
016, June 2002.
---------------------------------------------------------------------------
As mentioned above, several advanced technologies are presently
being developed to produce 15 ppm diesel fuel at lower cost. One of
these advanced technologies, Process Dynamics IsoTherming, improves the
contact between hydrogen, diesel fuel and the desulfurization catalyst.
The IsoTherming process dissolves the hydrogen in the liquid fuel phase
prior to passing the liquid over the catalyst, eliminating the need for
a two-phase (gas and liquid) reactor. The liquid, plug flow reactor
design also avoids the poor liquid distribution over the catalyst bed
often present in a two-phase reactor design. Process Dynamics projects
that their IsoTherming process could reduce the hydrotreater volume
required to achieve sub-15 ppm sulfur levels by roughly a factor of
two.
Process Dynamics has already built a commercial-sized demonstration
unit (5000 barrels per day) at a refinery in New Mexico. They have been
operating the unit since September 2002, and demonstrating the
capability to meet a 15 ppm cap since the spring of 2003. Thus,
refiners will have 4-5 years of operating data on this process before
they would have to select a technology to produce 15 ppm nonroad diesel
fuel in 2010, and 6-7 years before producing 15 ppm locomotive and
marine diesel fuel in 2012. This should be more than sufficient for
essentially all refiners to consider this process for 2010 or 2012.
Based on information received from Process Dynamics, we estimate that
this technology could reduce the cost of meeting the 15 ppm cap for
many refiners by about 30 percent. This savings arises from a smaller
reactor, less catalyst and avoiding the need for a recycle gas
compressor and reactor distributor. Refineries facing poorer economies
of scale, such as small refineries, would particularly benefit from
this desulfurization process.
A second process being developed to produce 15 ppm diesel fuel is
the Unipure oxidation process. This process oxidizes the sulfur in
distillate molecules, facilitating its removal. Unipure Corporation
installed a small (50 barrels per day), continuous flow demonstration
unit at Valero's Krotz Spring refinery in the spring of 2003. It
appears that this technology could reduce the cost of producing 15 ppm
diesel fuel for some refiners compared to conventional hydrotreating.
However, the small size of the demonstration unit may make the risk
associated with a new technology too large. Thus, we believe that this
technology needs be demonstrated further before most refiners will
seriously considered it for commercial application. This technology,
however, may be ideal for use at transmix processing plants or large
terminals to reprocess 15 ppm diesel fuel which have become
contaminated during shipment. We
[[Page 39076]]
discuss this distillate downgrade in greater detail in Section VI.A.2
of this preamble. This oxidation process avoids the need for high
pressure hydrogen, which is usually not economically available at these
smaller facilities.
Finally, Conoco-Phillips has adapted their S-Zorb adsorption
technology which was originally designed for gasoline desulfurization,
for diesel fuel desulfurization. At the time of the NPRM, Conoco-
Phillips had signed 23 licensing agreements with refiners in North
America regarding the use of S-Zorb to comply with the Tier 2 gasoline
sulfur standards. Furthermore, Conoco-Phillips had plans for the quick
installation of an S-Zorb unit to demonstrate the production of 15 ppm
diesel fuel. However, we have since learned that Conoco-Phillips has
dropped its plans to build a commercial demonstration unit for
desulfurizing diesel fuel. Without a commercial unit operating in the
2006 time frame, we do not believe that many refiners will seriously
consider S-Zorb to produce 15 ppm NRLM diesel fuel in 2010 and 2012.
Due to the fact that the Process Dynamics IsoTherming process is
already operating commercially and operational data indicate a 30
percent reduction in the cost of producing 15 ppm fuel relative to
conventional hydrotreating, we project that 60 percent of the new
volume of 15 ppm NRLM diesel fuel will be produced using this
technology. We project that the remaining 40 percent of 15 ppm NRLM
diesel fuel will use extensions of conventional hydrotreating. We
assume this 60/40 mix of Isotherming and extensions of conventional
hydrotreating, respectively, for 2010, 2012 and even for 2014 when the
small refiners exemptions expire.
API commented that the advanced desulfurization technologies have
not been commercially demonstrated and thus should not be used as the
basis for estimating the cost of desulfurizing NRLM diesel fuel to 15
ppm. While this is true for the Unipure oxidation and Conoco-Phillip's
S-Zorb processes, the Process Dynamics IsoTherming process has been
commercially demonstrated. It is therefore appropriate for use as a
partial basis for the refining costs associated with today's final
rule. To indicate the effect that this projection for the use of
IsoTherming has on the rule's cost, in Section 7.2.2 of the Final RIA,
we estimate the cost of producing 15 ppm NRLM fuel with only the use of
conventional hydrotreating technology.
5. Is the Leadtime Sufficient To Meet the 2010 and 2012 15 ppm NRLM
Sulfur Cap?
We project that 32 refineries will produce 15 ppm nonroad diesel
fuel in 2010, with two of these being owned by small refiners. In 2012,
we project that 15 refineries will produce 15 ppm locomotive and marine
diesel fuel. We project that an additional 15 refineries will produce
500 ppm nonroad diesel fuel in 2010 under the small refiner provisions
included in the today's final rule. Then in 2014, we project that the
15 refineries exempted under the small refiner provisions will begin
producing 15 ppm NRLM diesel fuel in 2014.
The timing of this rule provides refiners and importers with more
than six years before they will have to produce 15 ppm nonroad diesel
fuel, and two years more for producing 15 ppm locomotive and marine
diesel fuel. Our leadtime analysis, which is presented in Section 5.4.2
of the Final RIA, projects that 30-39 months are typically needed to
design and construct a diesel fuel hydrotreater, perhaps less if it is
a Process Dynamics unit. Thus, refiners will have about three years
before they would have to begin detailed design and construction for
2010, and five years before 2012. This will allow sufficient time to
consult with vendors, test their diesel fuel in pilot plants to assess
the difficulty of its desulfurization via a variety of technologies,
and to select its technology for 2010 and 2012. In addition, these
refiners will also have the chance to observe the performance of the
hydrotreaters being used to produce 15 ppm highway diesel fuel for at
least one year for those complying in 2010, and two years more for
those complying in 2012. While not a full catalyst cycle, any unusual
degradation in catalyst performance should be apparent within the first
year. Based on the pre-compliance reports, some refineries in the U.S.
will be producing 15 ppm sulfur highway diesel fuel earlier than 2006.
Some refineries are expected to produce complying fuel earlier than the
compliance date in Europe as well. The refineries which are complying
early will accrue experience earlier and longer providing refiners a
better sense of the reliability of producing 15 ppm diesel fuel. Thus,
we project that the 2010 and 2012 start dates will allow refiners to be
quite certain that the designs they select in mid-2007 will perform
adequately in 2010 and 2012.
In addition, refiners will have three to four years or more to
observe the performance of the Process Dynamics IsoTherming process
before having to make their technology selections for 2010 and 2012 .
This should be more than adequate to fully access the costs and
capabilities of this technology for all but the most cautious refiners.
Considering the amount of leadtime available and the
desulfurization technologies which will be available and proven for
complying with a 15 ppm sulfur standard, we do not expect that the
leadtime for complying with the 15 ppm NRLM cap standard in 2010 and
2012 will be an issue for refiners.
6. Feasibility of Distributing 500 and 15 ppm NRLM Fuel
There are two considerations with respect to the feasibility of
distributing non-highway diesel fuels meeting the sulfur standards in
today's rule. The first pertains to whether sulfur contamination can be
adequately managed throughout the distribution system so that fuel
delivered to the end-user does not exceed the specified maximum sulfur
concentration. The second pertains to the physical limitations of the
system to accommodate any additional segregation of product grades.
a. Limiting Sulfur Contamination
With respect to limiting sulfur contamination during distribution,
the physical hardware and distribution practices for non-highway diesel
fuel do not differ significantly from those for highway diesel fuel.
Therefore, we do not anticipate any new issues with respect to limiting
sulfur contamination during the distribution of non-highway fuel that
would not have already been accounted for in distributing highway
diesel fuel. Highway diesel fuel has been required to meet a 500 ppm
sulfur standard since 1993. Thus, we expect that limiting contamination
during the distribution of 500 ppm non-highway diesel engine fuel can
be readily accomplished by the industry. This applies to locomotive and
marine diesel fuel as well as nonroad diesel fuel.
In the highway diesel rule, EPA acknowledged that meeting a 15 ppm
sulfur specification would pose a substantial new challenge to the
distribution system. Refiners, pipelines, and terminals would have to
pay careful attention to and eliminate any potential sources of
contamination in the system (e.g., tank bottoms, deal legs in
pipelines, leaking valves, interface cuts, etc.). In addition, bulk
plant operators and delivery truck operators would have to carefully
observe recommended industry practices to limit contamination,
including practices as simple as cleaning out transfer hoses,
[[Page 39077]]
proper sequencing of fuel deliveries, and parking on a level surface
when draining the storage tank. Due to the need to prepare for
compliance with the highway diesel program, we anticipate that issues
related to limiting sulfur contamination during the distribution of 15
ppm NRLM diesel fuel will be resolved well in advance of the 2010 and
2012 implementation dates . We are not aware of any additional issues
that might arise unique to NRLM diesel fuel. If anything we anticipate
limiting contamination will become easier as batch sizes are allowed to
increase and potential sources of contamination decrease as more and
more of the diesel pool turns over to 500 and 15 ppm sulfur. Industry
representatives acknowledge that the task can be accomplished. However,
they are still in the process of identifying all of the measures that
will need to be taken.
b. Potential Need for Additional Product Segregation
As discussed in section IV.D, we have designed the NRLM diesel fuel
program to minimize the need for additional product segregation and the
feasibility and cost issues associated with it. This final rule allows
for the fungible distribution of 500 ppm highway and 500 ppm sulfur
NRLM diesel fuel in 2007, and 15 ppm highway and 15 ppm NR diesel fuel
in 2010 and 15 ppm NRLM diesel fuel in 2012, up until the point where
NRLM, LM, or nonroad fuel must be dyed for IRS excise tax purposes. We
proposed that heating oil would be required to be segregated throughout
the distribution system by the use of a marker added at the refiners
from 2007 through 2010. We received comments that addition of the
marker at the refinery would cause significant concerns regarding
potential marker contamination in the jet fuel. In responding to these
and other comments, we have chosen to adopt a designate and track
system of ensuring refiner compliance with desulfurization requirements
(see IV.D.). This allows the point of marker addition to be moved
downstream to the terminal where such contamination concerns are
minimal. As a result heating oil and high-sulfur NRLM will also be
fungible in the distribution system up to the point where the fuel
marker must be added at the terminal.\135\
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\135\ The fuel marker requirements only apply outside of the
Northeast/Mid-Atlantic area. Inside the Northeast/Mid-Atlantic area,
high sulfur NRLM cannot be sold to end users. See section IV.D for a
detailed discussion of the fuel marker provisions.
---------------------------------------------------------------------------
The design of today's fuel program eliminates any potential
feasibility issues associated with the need for product segregation.
This is not to say that additional steps will not have to be taken.
However, this program will result in only a limited number of entities
in the distribution system choosing to add new tankage due to new
product segregation. Bulk plants in areas of the country where heating
oil is expected to remain in the market will have to decide whether to
add tankage to distribute both heating oil and 500 ppm sulfur NRLM
fuel. Terminal operators commented that the proposed presence of a fuel
marker in heating oil would make it impossible for them to blend 500
ppm sulfur diesel from 15 ppm sulfur and high sulfur fuels. They
related that this ability would be important to certain terminal
operators who would not have the storage facilities available for three
grades of diesel fuel, but would still not wish to forgo selling 500
ppm diesel fuel.\136\ Today's rule allows the required marker to be
added to heating oil before it leaves the terminal (see section IV.D of
this preamble). Therefore, terminals will be able to blend 500 ppm
diesel from 15 ppm and high sulfur diesel fuels, provided they fulfill
all of the responsibilities associated with acting as a fuel refiner
(see section V of this preamble).\137\ However, because this will be a
relatively costly way of producing 500 ppm diesel fuel, we do not
expect that the practice will be widespread. In all other cases we
anticipate segments of the distribution system will choose to avoid any
fuel segregation costs by limiting the range of sulfur grades they
choose to carry, just as they do today. Regardless, however, the costs
and impacts of these choices are small. A more detailed explanation of
this assessment can be found in chapter 7 of the RIA.
---------------------------------------------------------------------------
\136\ 15 ppm diesel fuel and high sulfur heating oil will be the
largest volume products at such terminals.
\137\ The definition of a refiner includes persons who produce
highway or NRLM diesel fuel by blending.
---------------------------------------------------------------------------
A limited volume of 500 ppm sulfur diesel fuel is projected to be
produced downstream due to interface mixing in the distribution system
(see section IV.A).\138\ Fuel from these sources is currently sold into
the NRLM and heating oil markets. The implementation of the 15 ppm
sulfur standard for NR diesel fuel in 2010 and for LM diesel fuel in
2012 raises the concern that the heating oil market might be
insufficient to absorb all such downstream 500 ppm sulfur diesel fuel
in areas outside of the Northeast (where most heating oil is used). If
the market for this fuel was limited, it would have to be trucked back
to a refinery to be desulfurized which could raise significant
logistical and cost issues. Consequently, today's rule provides that
500 ppm sulfur diesel fuel produced due to interface mixing can
continue to be used in nonroad equipment until 2014 (subject to
specific sulfur requirements for new equipment), and in locomotive and
marine engines indefinitely.\139\ These provisions ensure that there
will be a sufficient market for such 500 ppm sulfur diesel fuel.
---------------------------------------------------------------------------
\138\ This fuel will be produced by transmix processors and at
terminals by segregating the pipeline interface between 15 ppm
diesel fuel and jet fuel.
\139\ While today?s rule does not contain an end date for the
downstream distribution of 500 ppm sulfur locomotive and marine
fuel, we will review the appropriateness of allowing this
flexibility based on experience gained from implementation of the 15
ppm sulfur NRLM diesel fuel standard. We expect to conduct such an
evaluation in 2011.
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G. What Are the Potential Impacts of the 15 ppm Sulfur Diesel Program
on Lubricity and Other Fuel Properties?
1. What Is Lubricity and Why Might It Be a Concern?
Engine manufacturers and owner/operators depend on diesel fuel
lubricity properties to lubricate and protect moving parts within fuel
pumps and injection systems for reliable performance. Unit injector
systems and in-line pumps, commonly used in diesel engines, are
actuated by cams lubricated with crankcase oil, and have minimal
sensitivity to fuel lubricity. However, rotary and distributor type
pumps, commonly used in light and medium-duty diesel engines, are
completely fuel lubricated, resulting in high sensitivity to fuel
lubricity. The types of fuel pumps and injection systems used in
nonroad diesel engines are the same as those used in highway diesel
vehicles. Consequently, nonroad and highway diesel engines share the
same need for adequate fuel lubricity to maintain fuel pump and
injection system durability.
Diesel fuel lubricity concerns were first highlighted for private
and commercial vehicles during the initial implementation of the
federal 500 ppm sulfur highway diesel program and the state of
California's diesel program. The Department of Defense (DoD) also has a
longstanding concern regarding the lubricity of distillate fuels used
in its equipment as evidenced by the implementation of its own fuel
lubricity improver performance specification in 1989.\140\ The diesel
fuel requirements in the state of California differed from the
[[Page 39078]]
federal requirements by substantially restricting the aromatic content
of diesel fuel which requires more severe hydrotreating than reducing
the sulfur content to meet a 500 ppm standard.\141\ Consequently,
concerns regarding diesel fuel lubricity have primarily been associated
with California diesel fuel and some California refiners treat their
diesel fuel with a lubricity additive as needed. Outside of California,
hydrotreating to meet the current 500 ppm sulfur specification does not
typically result in a substantial reduction of lubricity. Diesel fuels
outside of California seldom require the use of a lubricity additive.
Therefore, we anticipate only a marginal increase in the use of
lubricity additives in NRLM diesel fuel meeting the 500 ppm sulfur
standard for 2007.\142\ Today's action requires diesel fuel used in
nonroad, locomotive, and marine diesel engines to meet a 15 ppm sulfur
standard in 2010 and 2012, respectively. Based on the following
discussion, we believe that the increase in the use of lubricity
additives in 15 ppm sulfur NRLM diesel fuel would be the same as that
estimated for 15 ppm highway diesel fuel.
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\140\ DoD Performance Specification, Inhibitor, Corrosion/
Lubricity Improver, Fuel Soluble, MIL-PRF-25017F, 10 November 1997,
Superseding MIL-I-25017E, 15 June 1989.
\141\ Chevron Products Diesel Fuel Technical Review provides a
discussion of the impacts on fuel lubricity of current diesel fuel
compositional requirements in California versus the rest of the
nation; see http://www.chevron.com/prodserv/fuels/bulletin/diesel/
l2%5F7%5F2%5Frf.htm. 
\142\ The cost from the increased use of lubricity additives in
500 ppm NRLM diesel fuel in 2007 and in 15 ppm nonroad diesel fuel
in 2010 and locomotive and marine diesel fuel in 2012 is discussed
in section VI of this preamble.
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The state of California currently requires the same standards for
diesel fuel used in nonroad equipment as in highway equipment. Outside
of California, highway diesel fuel is often used in nonroad equipment
when logistical constraints or market influences in the fuel
distribution system limit the availability of high sulfur fuel. Thus,
for nearly a decade nonroad equipment has been using federal 500 ppm
sulfur diesel fuel and California diesel fuel, some of which may have
been treated with lubricity additives. During this time, there has been
no indication that the level of diesel lubricity needed for fuel used
in nonroad engines differs substantially from the level needed for fuel
used in highway diesel engines.
Blending small amounts of lubricity-enhancing additives increases
the lubricity of poor-lubricity fuels to acceptable levels. These
additives are available in today's market, are effective, and are in
widespread use around the world. Among the available additives,
biodiesel has been suggested as one potential means for increasing the
lubricity of conventional diesel fuel. Indications are that low
concentrations of biodiesel might be sufficient to raise the lubricity
to acceptable levels. Biodiesel is a renewable fuel made from
agricultural sources such as soybean oil, peanut oil and other
vegetable oils as well as rendered and animal fats and recycled cooking
oils. Biodiesel generally contains very low amounts of sulfur, which is
an attractive characteristic for use in diesel engines using advanced
aftertreatment systems. Additionally, biodiesel, by virtue of its
lubricity properties, may be a good alternative to additives currently
used to ensure adequate fuel lubricity. According to the U.S.
Department of Agriculture, there is a current capacity to produce 100
million gallons annually. Thus, we believe that biodiesel is a feasible
technology that could help support today's clean diesel fuel program.
Research remains to be performed to better understand which fuel
components are most responsible for lubricity. Consequently, it is
unclear whether and to what degree the sulfur standards for NRLM diesel
fuel will impact fuel lubricity. Nevertheless, there is evidence that
the typical process used to remove sulfur from diesel fuel
``hydrotreating'' can impact lubricity depending on the severity of the
treatment process and characteristics of the crude. We expect that
hydrotreating will be the predominant process used to reduce the sulfur
content of NRLM diesel fuel to meet the 500 ppm sulfur standard during
the first step of the program. Similarly, we project that both
conventional hydrotreating and the Linde Isotherming process will be
used to meet the 15 ppm sulfur standard for NRLM diesel fuel.
Based on our comparison of the blendstocks and processes used to
manufacture non-highway diesel fuels, we believe that the potential
decrease in the lubricity of these fuels from hydrotreating that might
result from the sulfur standards should be approximately the same as
that experienced in desulfurizing highway diesel fuel.\143\ To provide
a conservative, high cost estimate, we assumed that the potential
impact on fuel lubricity from the use of the new desulfurization
processes would be the same as that experienced when hydrotreating
diesel fuel to meet a 15 ppm sulfur standard. Given that the
requirements for fuel lubricity in highway and nonroad engines are the
same, and the potential decrease in lubricity from desulfurization of
NRLM diesel fuel would be no greater than that experienced in
desulfurizing highway diesel fuel, we estimate that the potential need
for lubricity additives in NRLM diesel fuel under today's action would
be the same as that for highway diesel fuel meeting the same sulfur
standard.
---------------------------------------------------------------------------
\143\ See chapter 5 of the RIA for a discussion of the potential
impacts on fuel lubricity of this proposal.
---------------------------------------------------------------------------
a. Farm and Mining Equipment
The types of fuel pumps and injection systems used in the nonroad
diesel engines found in farm and mining equipment are similar to those
used in highway diesel vehicles.\144\ The hydrotreating process for
generating 500 ppm diesel fuel will not adversely effect fuel injection
equipment in farm and mining equipment based on the use of comparable
injection systems in highway diesel vehicles. We believe that the use
of lubricity additives in 15 ppm sulfur NRLM diesel fuel will be
required and result in adequate protection of fuel injection equipment
and is similar to that needed for 15 ppm sulfur highway diesel fuel.
---------------------------------------------------------------------------
\144\ Nonroad and highway diesel engines meeting similar
emissions standards use similar fuel systems provided by common
suppliers. For example, a nonroad engine meeting the 2001 Tier 2
nonroad diesel engine emission standards would have the same fuel
system as a highway diesel engine meeting the 1998 highway diesel
engine emissions standards.
---------------------------------------------------------------------------
b. Locomotives
One of the locomotive manufacturers expressed concern in its
comments that low sulfur fuel might damage existing locomotives.
However, the manufacturer provided no evidence to show that such damage
would likely occur. Locomotives already use a significant amount of low
sulfur fuel, especially in California, and we have not seen any
evidence of sulfur-related problems. The railroads expressed a similar
concern, but acknowledged that any potential problems would be
manageable with sufficient lead time. At this time, we see no reason
for any special concern related to locomotives using low sulfur fuel.
2. A Voluntary Approach on Lubricity
In the United States, there is no government or industry standard
for diesel fuel lubricity. Therefore, specifications for lubricity are
determined by the market. Since the beginning of the 500 ppm sulfur
highway diesel program in 1993, refiners, engine manufacturers, engine
component manufacturers, and the military have been working with ASTM
[[Page 39079]]
to develop protocols and standards for diesel fuel lubricity in its D
975 specifications for diesel fuel. ASTM is working towards a single
lubricity specification that is applicable to all diesel fuel used in
any type of engine. Although ASTM has not yet adopted specific
protocols and standards, refiners that supply the U.S. market have been
treating diesel fuel with lubricity additives on a batch by batch
basis, when poor lubricity fuel is produced. ASTM's target
implementation date for this specification is January 1, 2005.
The potential need for lubricity additives in diesel fuel meeting a
15 ppm sulfur specification was evaluated during the development of
EPA's highway diesel rule. In response to the proposed highway diesel
rule, all comments submitted regarding lubricity either stated or
implied that the proposed sulfur standard of 15 ppm would likely cause
the refined fuel to have lubricity characteristics that would be
inadequate to protect fuel injection equipment, and that mitigation
measures such as lubricity additives would be necessary. However, the
commenters suggested varied approaches for addressing lubricity. For
example, some suggested that we need to establish a lubricity
requirement by regulation while others suggested that the current
voluntary, market based system would be adequate. The Department of
Defense recommended that we encourage the industry (ASTM) to adopt
lubricity protocols and standards before the 2006 implementation date
of the 15 ppm sulfur standard for highway diesel fuel.
The final highway diesel rule did not establish a lubricity
standard for highway diesel fuel. We believe the issues related to the
need for diesel lubricity in fuel used in nonroad diesel engines are
substantially the same as those related to the need for diesel
lubricity for highway engines. Consequently, we expect the same
industry-based voluntary approach to ensuring adequate lubricity in
nonroad diesel fuels that we recognized for highway diesel fuel. We
believe the best approach is to allow the market to address the
lubricity issue in the most economical manner, while avoiding an
additional regulatory scheme. A voluntary approach should provide
adequate customer protection from engine failures due to low lubricity,
while providing the maximum flexibility for the industry. This approach
would be a continuation of current industry practices for diesel fuel
produced to meet the current federal and California 500 ppm sulfur
highway diesel fuel specifications, and benefits from the considerable
experience gained since 1993. It would also include any new
specifications and test procedures that we expect would be adopted by
ASTM regarding lubricity of NRLM diesel fuel quality.
In any event, this is an issue that will be resolved to meet the
demands of the highway diesel market, and whatever resolution is
reached for highway diesel fuel could be applied to NRLM diesel fuel
with sufficient advance notice. We are continuing to participate in the
ASTM Diesel Fuel Lubricity Task Force \145\ and will assist their
efforts to finalize a lubricity standard. We are hopeful that ASTM can
reach a consensus this summer at the next meeting of the ASTM's
Lubricity Task Force. If for some reason ASTM does not take action to
set a lubricity specification, EPA will consider taking appropriate
action to ensure 15 ppm sulfur diesel fuel has adequate lubricity.
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\145\ ASTM sub committee D02.E0.
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3. What Other Impact Would Today's Actions Have on the Performance of
Diesel and Other Fuels?
We do not expect that the fuel program finalized today will have
any negative impacts on the performance of diesel engines in the
existing fleet which would use the fuels regulated today.
While the process of lowering sulfur levels to 500 ppm does lower
polynuclear aromatic hydrocarbons (PNAs) and total aromatics in
general, it does not achieve the near-zero levels previously seen in
California. The 15 ppm sulfur standard will further reduce PNAs,
however, in most diesel fuel, there will still be PNAs present.
Furthermore, since the 1990's, diesel engine manufacturers have
switched to alternative materials (such as Viton), which do not
experience leakage when PNAs are reduced. We believe that there will be
no issues with leaking fuel pump O-rings with the changes in diesel
fuel sulfur levels required by this rulemaking.
The moderate reduction in PNAs and total aromatics associated with
the hydrotreating of diesel fuel will tend to increase the cetane index
and number of diesel fuel. This will improve the driveability of
vehicles operating on this higher cetane diesel fuel.
We do not expect any negative impacts on other fuels, such as jet
fuel or heating oil. We do expect that the sulfur levels of heating oil
may decrease because of this rulemaking. Beginning in mid-2007, we
expect that controlling NRLM diesel fuel to 500 ppm sulfur will lead
many pipelines to discontinue carrying high sulfur heating oil as a
separate grade. In areas served by these pipelines, heating oil users
will likely switch to 500 ppm sulfur diesel fuel. This will reduce
emissions of SO2 and sulfate PM from furnaces and boilers
fueled with heating oil. The primary exception to this will likely be
the Northeast, where a distinct higher sulfur heating oil will still be
distributed as a separate fuel. Also, we expect that a small volume of
moderate sulfur distillate fuel will be created during distribution
from the mixing of low sulfur diesel fuels and higher sulfur fuels,
such as jet fuel in the pipeline interface. Such moderate sulfur
distillate will often be sold by the terminal as high sulfur heating
oil, but in fact its sulfur level will be lower than that normally sold
as heating oil.
H. Refinery Air Permitting
Prior to beginning diesel desulfurization projects, some refineries
may be required to obtain a preconstruction permit, under the New
Source Review (NSR) program, from the applicable state/local air
pollution control agency.\146\ We believe that today's program provides
sufficient lead time for refiners to obtain any necessary NSR permits
well in advance of the applicable compliance dates.
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\146\ Hydrotreating diesel fuel involves the use of process
heaters, which have the potential to emit pollutants associated with
combustion, such as NOX, PM, CO and SO2. In
addition, reconfiguring refinery processes to add desulfurization
equipment could increase fugitive VOC emissions. The emissions
increases associated with diesel desulfurization would vary widely
from refinery to refinery, depending on many source-specific
factors, such as crude oil supply, refinery configuration, type of
desulfurization technology, amount of diesel fuel produced, and type
of fuel used to fire the process heaters.
---------------------------------------------------------------------------
Given that today's diesel sulfur program provides roughly three
years of lead time before the 500 ppm standard takes effect, we believe
refiners will have time to obtain any necessary preconstruction
permits. In addition, the experience gained by many refineries to
obtain the preconstruction permits needed to comply with the Tier 2 and
highway diesel fuel programs should benefit them in obtaining the
necessary permits to comply with today's new diesel fuel requirements.
Nevertheless, we believe it is reasonable to continue our efforts under
the Tier 2 and highway diesel fuel programs, to help states in
facilitating the issuance of permits under the NRLM diesel fuel sulfur
program whenever such assistance may be needed and requested. We
anticipate that such assistance may include both technical
[[Page 39080]]
and procedural assistance as would be provided by the appropriate EPA
Regional and Headquarters offices. Finally, to facilitate the
processing of permits, we encourage refineries to begin discussions
with permitting agencies and to submit permit applications as early as
possible.
V. Nonroad, Locomotive and Marine Diesel Fuel Program: Details of the
Compliance and Enforcement Provisions
As with earlier fuel programs, we have developed a comprehensive
set of compliance and enforcement provisions designed to promote
effective and efficient implementation of this fuel program and thus to
achieve the full environmental potential of the program. The compliance
provisions under today's final rule are designed to ensure that
nonroad, locomotive, and marine diesel fuel sulfur content requirements
are met throughout the distribution system, from the refiner or
importer through to the end user, subject to certain provisions
applicable during the early transition years. Section IV above
describes our program for the reduction of sulfur in nonroad,
locomotive and marine (NRLM) diesel fuel including the standards and
basic design of the compliance and enforcement program. This section
contains additional details regarding the compliance and assurance
program. The provisions discussed in this section fall into several
broad categories:
--Special fuel provisions and exemptions;
--Additional provisions applicable to refiners and importers;
--Additional provisions applicable to parties downstream of the
refinery or importer;
--Special provisions regarding additives, kerosene, and the prohibition
against the use of motor oil in fuel;
--Fuel testing and sampling requirements;
--Records required to be kept, including those applying under the
designate and track, credit provisions, small refiner, and refiner
hardship provisions;
--Reporting requirements;
--Exemptions from the program;
--Provisions concerning liability, defenses, and penalties for
noncompliance; and
--The selection of the marker for heating oil and 500 ppm sulfur LM
diesel fuel. (The specific requirements with respect to heating oil and
500 ppm sulfur LM diesel fuel inside and outside of the Northeast/Mid-
Atlantic Area are discussed in section IV.D.)
A. Special Fuel Provisions and Exemptions
As discussed in section IV.A.1 above, the sulfur standards in
today's rule generally cover all the diesel fuel that is intended for
use in or used in nonroad, locomotive, and marine (NRLM) applications
that is not already covered by the standards for highway diesel fuel.
For the purposes of this preamble, this fuel is defined primarily by
the type of engine which it is used to power: Land-based nonroad,
locomotive, and marine diesel engines. Section IV.A.1 above also
describes several types of petroleum distillate that are not covered by
the sulfur standards promulgated today, including jet fuel and heating
oil, provided they are not used in NRLM engines. The following
paragraphs discuss several provisions and exemptions for NRLM diesel
fuel that will apply in special circumstances.
1. Fuel Used in Military Applications
NRLM diesel fuel used in military applications is treated in the
same manner as under the recent highway diesel rule. Refiners are not
required to produce these fuels to the NRLM standards. However, at the
same time, their use is limited only to certain military applications.
NRLM diesel fuel is defined so that JP-5, JP-8, F76, and any other
military fuel that is used or intended for use in NRLM diesel engines
or equipment is initially subject to all of the requirements applicable
to NRLM diesel fuel. However, today's rule also exempts these military
fuels from the diesel fuel sulfur content and other requirements in
certain circumstances. First, these fuels are exempt if they are used
in tactical military motor vehicles or nonroad engines, or equipment
that have a national security exemption from the vehicle or engine
emissions standards. Due to national security considerations, EPA's
existing regulations allow the military to request and receive national
security exemptions (NSE) for their motor vehicles and NRLM diesel
engines and equipment from emissions regulations if the operational
requirements for such vehicles, engines, or equipment warrant such an
exemption. This final rule does not change these provisions. Fuel used
in these applications is exempt. Second, these fuels are also exempt if
they are used in tactical military vehicles, engines, or equipment that
are not covered by a national security exemption but, for national
security reasons (such as the need to be ready for immediate deployment
overseas), these vehicles, engines, and equipment need to be fueled on
the same fuel as vehicles, engines, or equipment with a national
security exemption. Use of JP-5, JP-8, F76, or any other fuel not
meeting NRLM diesel fuel standards in a motor vehicle or NRLM diesel
engine or equipment other than the those described above is prohibited
under today's rule.
EPA and the Department of Defense have developed a process to
address the tactical vehicles, engines, and equipment covered by the
diesel fuel exemption and are discussing whether changes to it might be
appropriate. Based on data provided by the Department of Defense to
date in the context of implementing a similar exemption provision in
the highway program, EPA believes that providing an exemption for
military fuel used in tactical nonroad engines and equipment will not
have any significant environmental impact.
The Department of Defense (DoD) commented that EPA should
reconsider its determination that the definition of diesel fuel
includes JP8 and JP5. DoD cited a 1995 letter from EPA which stated
that there was insufficient reason to conclude that JP-8 is commonly
and commercially known as diesel fuel under the then applicable
definition of motor vehicle diesel fuel. Since the time of this letter,
EPA has become aware of a substantial number of cases of the misuse of
aviation turbine fuel in highway engines. The potential for misuse of
JP-8 or similar fuels in NRLM equipment where no national security
exemption exists would remain. To ensure that NRLM equipment is
properly fueled with low sulfur fuel, the definition of NRLM diesel
fuel has been written to encompass all diesel or other distillate fuels
used or intended for use in NRLM engines, which would include JP-8 and
JP-5. Furthermore, the provisions in today's rule allow vehicles,
engines, and equipment to be fueled with military specification fuels
that are exempt from the sulfur standards when needed for national
security. We believe that this provides DoD with the needed flexibility
to meet its goals of keeping vehicles, engines, and equipment ready for
quick deployment overseas.
2. Fuel Used in Research, Development, and Testing
Today's final rule permits parties to request an exemption from the
sulfur or other standards for NRLM diesel fuel used for research,
development and testing purposes (``R & D exemption''). We recognize
that there may be legitimate research programs that require the use of
diesel fuel with higher sulfur levels than allowed under today's
[[Page 39081]]
rule. As a result, this final rule contains provisions for obtaining an
exemption from the prohibitions for persons, producing, distributing,
transporting, storing, selling, or dispensing NRLM diesel fuel that
exceeds the standards, where such diesel fuel is necessary to conduct a
research, development, or testing program.
Parties seeking an R & D exemption must submit an application for
exemption to EPA that describes the purpose and scope of the program,
and the reasons why higher-sulfur diesel fuel is necessary. Upon
presentation of the required information, an exemption can be granted
at the discretion of the Administrator, with the condition that EPA can
withdraw the exemption in the event the Agency determines the exemption
is not justified. In addition, an exemption based on false or
inaccurate information will be considered void ab initio. Fuel subject
to an exemption is exempt from certain provisions of this rule,
including the sulfur standards, provided certain requirements are met.
These requirements include the segregation of the exempt fuel from non-
exempt NRLM and highway diesel fuel, identification of the exempt fuel
on PTDs, pump labeling, and where appropriate, the replacement, repair,
or removal from service of emission systems damaged by the use of the
high sulfur fuel.
3. Fuel Used in Racing Equipment
There are no provisions for an exemption from the sulfur or other
content standard and other requirements for diesel fuel used in racing
in today's final rule. Under certain conditions, racing vehicles are
not considered nonroad vehicles. See, for example, 40 CFR Sec. 89.2,
definition of ``nonroad vehicle.'' The fuel used by such racing
vehicles would not necessarily be considered nonroad diesel fuel.
However, we believe that there is a realistic chance that such fuel
also could be used in NRLM equipment, and therefore, should be
considered NRLM diesel fuel. We received no comments supporting the
need for an exemption for racing fuel. We are not aware of any
advantage for racing vehicles or racing equipment to use fuel having
higher sulfur levels than are required by this rule, and we are
concerned about the potential for misfueling of nonroad equipment and
motor vehicles that could result from having a high sulfur (e.g., 3,000
ppm) fuel for vehicle or nonroad equipment available in the
marketplace. Consequently, as was the case with the highway diesel
rule, this final rule does not provide an exemption from the nonroad
diesel fuel requirements for fuel used in racing vehicles or equipment.
4. Fuel for Export
Fuel produced for export, and that is actually exported for use in
a foreign country, is exempt from the fuel content standards and other
requirements of this final rule. Such fuel will be considered as
intended for use in the U.S. and subject to the standards in today's
rule unless it is designated by the refiner as for export only and PTDs
state that the fuel is for export only. Fuel intended for export must
be segregated from all fuel intended for use in the U.S., and
distributing or dispensing such fuel for domestic use is illegal.
B. Additional Requirements for Refiners and Importers
The primary requirements for refiners and importers under today's
final rule are discussed in section IV above. In that section, we
discuss the general structure of the compliance and enforcement
provisions applicable to refiners and importers, including fuel content
standards, fuel volume designation and tracking provisions, and credit
provisions. In this subsection, we discuss several additional
requirements for refiners and importers that are not addressed in
section IV. In addition, sections V.G, V.H, and V.I below discuss
several provisions that apply to all parties in the diesel fuel
production and distribution system, including refiners and importers.
1. Transfer of Credits
This final rule includes provisions for NRLM diesel sulfur credit
transfers that are essentially identical to other fuels rules that have
credits provisions. As in other fuels rules, NRLM diesel sulfur credits
can only be transferred between the refiner or importer generating the
credits and the refiner or importer using the credits. If a credit
purchaser can not use all the credits it purchased from the refiner who
generated them, the credits can be transferred one additional time. We
recognize that there is potential for credits to be generated by one
party and subsequently purchased and used in good faith by another
party, where the credits are later found to have been calculated or
created improperly, or otherwise found to be invalid. As with the
reformulated gasoline rule, the Tier 2/Gasoline Sulfur rule, and the
highway diesel sulfur rule, invalid credits purchased in good faith are
not valid for use by the purchaser. To allow such use would not be
consistent with the environmental goals of the regulation. In addition,
both the seller and purchaser of invalid credits must adjust their
credit calculations to reflect the proper credits and either party (or
both) can be deemed in violation if the adjusted calculations
demonstrated noncompliance. We expect that the parties to such a credit
transaction will develop contractual provisions to address these
circumstances.
Nevertheless, in a situation where invalid credits are transferred,
our strong preference will be to hold the credit seller liable for the
violation, rather than the credit purchaser. As a general matter we
expect to enforce a shortfall in credit compliance calculations against
the credit seller, and we expect to enforce a compliance shortfall
(caused by the good faith purchase of invalid credits) against a good
faith purchaser only in cases where we are unable to recover sufficient
valid credits from the seller to cover the shortfall. Moreover, in
settlement of such cases we will strongly encourage the seller to
purchase credits to cover the good faith purchaser's credit shortfall.
EPA will consider the covering of a credit deficit through the purchase
of valid credits a very important factor in mitigation of any case
against a good faith purchaser, whether the purchase of valid credits
is made by the seller or by the purchaser.
2. Additional Provisions for Importers and Foreign Refiners Subject to
the Credit Provisions or Hardship Provisions
Since this final rule includes several compliance options that can
be used by NRLM diesel fuel importers and foreign refiners, we are also
finalizing specific compliance and enforcement provisions to ensure
compliance for imported NRLM diesel fuel. These additional foreign
refiner provisions are similar to those under the gasoline anti-dumping
regulations, the gasoline sulfur regulations and the highway diesel
fuel regulations (see 40 CFR 80.94, 80.410, and 80.620).
Under today's final rule, the per gallon standards for NRLM diesel
fuel produced by refineries owned by foreign refiners must be met by
the importer, unless the foreign refiner has been approved to produce
NRLM diesel fuel under the credit provisions, small refiner provisions
or hardship provisions of this final rule. If the foreign refiner is
approved under any of these provisions, the volume and other
requirements must be met by the foreign refiner for its refinery(s) and
the foreign refiner must be the entity(s) generating, using, banking or
trading any credits for the NRLM diesel fuel produced for and
[[Page 39082]]
imported into the U.S. Importers themselves are not eligible for small
refiner or hardship relief as they do not face the same capital cost
and lead-time issues faced by refiners. Importers may participate in
the credit programs, however, an importer and a foreign refiner may not
generate credits for the same fuel.
Any foreign refiner that produces NRLM diesel fuel subject to the
credit provisions, small refiner provisions or the hardship provisions
will be subject to the same requirements as domestic refiners operating
under the same provisions. Additionally, provisions for foreign
refiners exist that are similar to the provisions at 40 CFR 80.94,
80.410, and 80.620, which include:
--Segregation of NRLM diesel fuel produced at the foreign refinery
until it reaches the U.S. and separate tracking of volumes imported
into each PADD;
--Controls on product designation;
--Load port and port of entry testing; and
--Requirements regarding bonds and sovereign immunity.
These provisions will aid the Agency in tracking NRLM diesel fuel
from the foreign refinery to its point of import into this country. We
believe these provisions are necessary and sufficient to ensure that
foreign refiners' compliance can be monitored and that the diesel fuel
requirements in today's rule can be enforced against foreign refiners.
3. Diesel Fuel Treated as Blendstock (DTAB)
Under today's program, a situation could arise for importers where
fuel that was expected to comply with the 15 ppm sulfur NRLM standard
is found to be slightly higher in sulfur than the standard. Rather than
require that importer to account for, and report, that fuel as 500 ppm
sulfur fuel, an importer will be able to designate the non-complying
fuel as blendstock--``diesel fuel treated as blendstock'' or DTAB--
rather than as NRLM diesel fuel. In its capacity as a refiner, the
party can then blend this DTAB fuel with lower sulfur diesel fuel or
with other blendstocks to cause the sulfur level of the combined
product to meet the 15 ppm sulfur NRLM diesel fuel standard prior to
delivery to another entity. The same situation exists with respect to
compliance with the 15 ppm sulfur highway standard. However, no
provision was made in the 2007 highway final rule for this.
Consequently, we are also finalizing these DTAB provisions in this
final rule for application to 15 ppm sulfur highway diesel fuel.
Where diesel fuel that has been previously designated by a refiner
is used to reduce the sulfur level of the DTAB to 15 ppm or less, the
party, in its refiner capacity, is required to report only the volume
of the imported DTAB as the amount of diesel fuel produced.\147\ This
avoids the double counting that would result if the same diesel fuel is
reported twice (i.e., once by the refiner who originally produced it
and again by the refiner using it to blend with DTAB). If the product
that is blended with the DTAB is not previously designated diesel fuel,
but is also blendstock, the total combined volume of the DTAB and other
blendstock constitutes the batch produced.
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\147\ Volumes of previously designated diesel fuel would be
reported as volumes received under the designate and track
provisions of Section IV.D.
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When an importer classifies diesel fuel as DTAB, that DTAB does not
count toward the importer's calculations under the highway diesel
rule's temporary compliance option, toward credit generation or use, or
for volume account balance compliance calculations (see section
IV).\148\ The same party, however, must include the DTAB in such
calculations in its capacity as a refiner. We believe such an approach
will increase the supply of 15 ppm sulfur fuel by reducing the volume
of near-compliant fuel that is downgraded to higher sulfur
designations. In essence, it allows importers the same flexibility that
refiners have within their refinery gate.
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\148\ Importer/refiners availing themselves of the DTAB
provisions are still subject to the downgrading provisions, and
other provisions applicable to any importer or refiner.
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Similar to the provisions discussed above regarding the manufacture
of 15 ppm sulfur diesel fuel using DTAB, 500 ppm sulfur NRLM and
highway diesel fuel can also be manufactured using DTAB provided that
this is appropriately reflected in the importer's compliance
calculations.
C. Requirements for Parties Downstream of the Refinery or Import
Facility
In order for the environmental benefits of the NRLM diesel program
to be realized, parties in the fuel distribution system downstream of
the refinery (including pipelines, terminals, bulk plants, wholesale
purchaser-consumers, and retailers \149\) must ensure that the sulfur
level of fuels supplied to the various end-users covered by today's
rule complies with the requirements in today's rule. At certain points
in the distribution system, such parties must keep the various grades
of fuel having different sulfur specifications physically
separate,\150\ and ensure that the fuel is properly designated and
labeled. In other words, fuel represented as 15 ppm sulfur must comply
with the 15 ppm sulfur standard, and fuel represented as 500 ppm sulfur
must meet the 500 ppm sulfur standard. At other points in the
distribution system, certain fuels may be commingled provided that the
fuel volumes are appropriately designated and accounted for in the
custody holders volume account balance. Owners and operators of NRLM
diesel equipment must also use fuels meeting specific sulfur content
standards. The following paragraphs discuss several provisions that
apply to these parties: Distribution of various fuel sulfur grades;
diesel fuel pump labeling; use of used motor oil in diesel fuel; use of
kerosene in diesel fuel; use of additives in diesel fuel; requirements
for end users; and provisions covering downgrading of undyed diesel
fuel to different grades of fuel. These provisions are analogous to
similar provisions that apply to highway diesel fuel under the highway
program. Section IV discusses in detail the provisions applicable to
downstream parties under the designate and track program.
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\149\ An owner/operator of a tanker truck that delivers fuel
directly from the tanker truck tank into motor vehicles or nonroad
equipment of another business entity (i.e. a mobile refueler) would
be acting as a retailer, and the truck would be operating as a
retail outlet. In other words, the term retail outlet is not limited
to stationary facilities. EPA proposed specific textual changes to
the definition of retail outlet to clarify this, but has decided
there is no need to change the definition, as it has always had this
plain meaning. The owner/operator of such a tanker truck may also be
subject to distributor requirements and prohibitions, or carrier
responsibilities if the trucker company does not take title to the
fuel. As the definitions in 40 CFR 80.2 make clear, it is the
functions performed by the owner/operator that determine whether
they come within the scope of the applicable definitions, and the
resulting obligations or requirements that apply. Mobile refuelers
are not subject to the labeling requirements applicable to other
retailers but are required to provide PTDs to their customers.
\150\ For example: Once the required marker is added to heating
oil at the terminal, heating oil must be segregated from all other
fuel grades. Once red dye is added to NRLM it must be segregated
from highway diesel fuel.
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1. Product Segregation and End Use Requirements
The main requirements for compliance with the fuel sulfur standards
under today's rule, including the designate and track provisions, are
discussed in section IV of today's preamble. The sulfur content of all
fuels subject to the sulfur requirements in today's rule must be
appropriately
[[Page 39083]]
represented (designated/classified/labeled) at all times through to the
retailer or wholesale purchaser consumer. Furthermore, the designation
and classification information on the label and PTD, and the actual
sulfur content of any subject fuel must be consistent with the
requirements detailed in section IV. Section IV also details how to
accurately redesignate, reclassify, and re-label fuel volumes. This
subsection discusses the various grades and uses of NRLM fuel under the
NRLM diesel program. In later subsections, we discuss related
requirements for PTDs to identify fuels throughout the distribution
system and provisions relating to the liability that all parties in the
distribution face for failing to maintain the standards of these
different fuel sulfur grades.
a. The Period From June 1, 2007 Through May 31, 2010
From June 1, 2007 through May 31, 2010, all fuel used in NRLM
equipment must meet a 500 ppm sulfur standard except for fuel produced
or imported under the hardship, small refiner, and credit
provisions.\151\ Outside of the Northeast/Mid-Atlantic Area and Alaska,
we will not be able to rely upon the measurement of sulfur content
alone to enforce the segregation requirements for heating oil, and are
therefore requiring that heating oil be marked before it leaves the
terminal by the addition of 6 mg/L of SY-124. Fuel containing more than
0.1 mg/L of the marker will be deemed to be heating oil and may not be
used as nonroad, locomotive or marine fuel.
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\151\ Fuel produced in the distribution system that meets a 500
ppm sulfur specification may be used in NRLM equipment through June
1, 2014, and in locomotive and marine equipment thereafter.
---------------------------------------------------------------------------
NRLM fuel designated or labeled as 500 ppm sulfur must meet the 500
ppm sulfur standard and any fuel designated or labeled as 15 ppm must
meet the 15 ppm sulfur standard.\152\ If a fuel meeting these standards
is mixed or contaminated with a higher sulfur fuel it must be
downgraded to the higher sulfur product and new documentation (e.g.,
PTD, label) must be created to reflect the downgrade. During this
period there will also be nonroad equipment that is expected to be
equipped with sulfur sensitive emissions control technology that needs
to operate on 500 ppm sulfur or less fuel in order to meet the NRLM
program's emission standards in-use. Fuels sold for use in, or
dispensed into, these engines must be identified as meeting the 15 ppm
sulfur standard or the 500 ppm sulfur standard, as applicable, and if
so identified must meet such standard. Distributors and retailers must
avoid contaminating fuel represented by them on PTDs or pump labels as
15 ppm sulfur fuel or 500 ppm sulfur fuel with higher sulfur fuels. End
users are required to use only the fuel grades identified as
appropriate for use on the label affixed to their NRLM equipment.
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\152\ This requirement becomes effective June 1, 2006 to support
the anti-downgrade requirements in the highway diesel rule.
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b. The Period From June 1, 2010 Through May 31, 2012
Beginning June 1, 2010, all fuel used in nonroad equipment must
meet a 15 ppm sulfur standard except for 500 ppm sulfur fuel produced
or imported under the hardship, small refiner, and credit provisions,
or downstream flexibility provisions which may continue to be used in
nonroad engines produced prior to 2011. Locomotive and marine fuel will
continue to be subject to the sulfur requirements applicable beginning
June 1, 2007, until May 31, 2012.
During this time period, we will not be able to rely upon the
measurement of sulfur content alone to enforce the segregation
requirements for LM fuel and NR 500 ppm sulfur fuel outside of the
Northeast/Mid-Atlantic Area and Alaska, and are therefore requiring
that LM fuel produced or imported for use outside of the Northeast/Mid-
Atlantic Area and Alaska be marked before it leaves the terminal by the
addition of 6 mg/L of SY-124. Fuel containing more than 0.1 mg/L of the
marker will be deemed to be either LM fuel or heating oil and may not
be used as nonroad fuel. Fuel containing the marker that meets a 500
ppm sulfur standard will be deemed to be LM fuel, whereas fuel
containing the marker with a sulfur content above 500 ppm will be
deemed to be heating oil.
As discussed in section IV above, small refiners will be able to
continue to produce 500 ppm sulfur nonroad fuel, through May 31, 2014.
Other refiners may use credits through May 31, 2014 to continue to
produce fuel to the 500 ppm sulfur nonroad diesel fuel standard.
Nonroad diesel fuel meeting a 500 ppm sulfur standard may also be
produced due to interface mixing in the distribution system.\153\ In
any case, 15 ppm sulfur diesel fuel must be segregated from 500 ppm
sulfur NRLM diesel fuel throughout the distribution system including
the end user, such that it maintains its designation, or it must be
redesignated and labeled to its downgraded specification.\154\
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\153\ Such 500 ppm sulfur downstream flexibility nonroad diesel
fuel may be also be used in LM equipment since it complies with the
LM sulfur standard applicable during this time period. Thus, both
marked and unmarked 500 ppm sulfur fuel may be used in LM equipment
during this time period.
\154\ These flexibilities do not exist in the Northeast/Mid-
Atlantic Area, and only the small refiner option exists in Alaska.
---------------------------------------------------------------------------
Because of the sulfur sensitivity of the expected engine emission
control systems beginning in model year 2011 for nonroad diesel
engines, it is imperative that the distribution system segregate
nonroad diesel fuel subject to the 15 ppm sulfur standard from higher
sulfur distillate products, such as 500 ppm sulfur LM fuel, 500 ppm
sulfur nonroad diesel fuel produced by small refiners or through the
use of credits, heating oil, and jet fuel. End users are required to
use only the fuel grades identified as appropriate for use on the label
affixed to their NR and LM equipment.
We are also concerned about potential misfueling of engines
requiring 15 ppm sulfur fuel at retail or wholesale purchaser-consumer
facilities (as defined under this program), or other end-user
facilities, even when segregation of 15 ppm sulfur fuel from the
higher-sulfur grades of diesel fuel has been maintained in the
distribution system. Thus, downstream compliance and enforcement
provisions of this rule are aimed at both preventing contamination of
nonroad diesel fuel subject to the 15 ppm sulfur standard (i.e., fuel
represented to meet that standard) and preventing misfueling of new
nonroad equipment.
c. The Period From June 1, 2012 Through May 31, 2014
Beginning June 1, 2012, all fuel used in locomotive and marine
equipment must meet a 15 ppm sulfur standard except for 500 ppm sulfur
fuel produced or imported under the hardship, small refiner, and credit
provisions, or downstream flexibility provisions. As discussed in
section IV above, small refiners will be able to continue to produce
500 ppm sulfur LM fuel, through May 31, 2014. Other refiners may use
credits through May 31, 2014 to continue to produce fuel to the 500 ppm
sulfur LM diesel fuel standard. Locomotive, and marine diesel fuel
meeting a 500 ppm sulfur standard may also be produced due to interface
mixing in the distribution system indefinitely.
The marker requirement for 500 ppm sulfur LM diesel fuel expires on
June 1, 2012. After June 1, 2012, only heating oil must continue to be
marked and any LM diesel fuel distributed from the terminal must not
contain the marker. To allow marked LM diesel fuel
[[Page 39084]]
distributed prior to June 1, 2012 to be consumed by end-users, the
downstream prohibition against LM fuel containing the marker will not
become effective until October 1, 2012. Beginning October 1, 2012, LM
diesel fuel at any location must contain no more than 0.1 mg/L of the
marker.\155\ We believe that allowing four months for downstream
parties to blend down their stocks of marked LM diesel fuel with
receipts of unmarked LM diesel fuel will be sufficient for such parties
to comply with the prohibition against possessing LM fuel with a marker
concentration greater than 0.1 mg/L.
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\155\ Allowing four months for the LM fuel distribution system
to sufficiently purge itself of marked fuel is consistent with the
time allowed for LM diesel fuel to comply with a 500 ppm sulfur
standard after the refinery gate 15 ppm sulfur standard for LM fuel
becomes effective.
---------------------------------------------------------------------------
The requirements that became effective for fuel used in nonroad
equipment on June 1, 2010, will remain effective until May 31, 2014.
d. After May 31, 2014
After the small refiner, credit, and off-specification fuel
flexibilites have expired, the remaining sulfur grades of diesel fuel
will be 15 ppm sulfur highway and NRLM fuel, 500 ppm sulfur LM diesel
fuel (produced due to interface mixing in the distribution system
outside of the Northeast/Mid-Atlantic Area and Alaska), and heating
oil, some of which may meet a 500 ppm sulfur standard. Product transfer
documents are required to accompany the batches of such fuels which
must contain the specified identifying information. Highway and NRLM
diesel fuel meeting a 15 ppm sulfur specification must be segregated
from 500 ppm sulfur LM diesel fuel, and heating oil. Today's rule
contains provisions for the fungible shipment of LM diesel fuel with
any heating oil meeting a 500 ppm sulfur cap up to the point where the
fuel leaves the terminal that are similar to the provisions that allow
the fungible shipment of high sulfur NRLM diesel fuel and high sulfur
heating oil discussed in the previous section. Under such circumstances
the designate and track and heating oil account balance requirements
must be satisfied.
2. Diesel Fuel Pump Labeling To Discourage Misfueling
For any multiple-fuel program like the two-step program we are
finalizing today, we believe that the clear labeling of nonroad diesel
fuel pumps is vital so that end users can readily distinguish between
the several grades of fuel that may be available at fueling facilities,
and properly fuel their nonroad equipment. Section III.N above
describes the labels that manufacturers are required to place on
nonroad equipment, and the information that must be provided to nonroad
equipment owners. Section VI discusses the likely benefit for many
nonroad engines to utilize 500 ppm sulfur diesel fuel as soon as it
becomes available in 2007. Today's final rule includes requirements for
labeling fuel pump stands used to fuel NRLM equipment and highway
diesel vehicles.
To help prevent misfueling of nonroad, locomotive and marine
engines, and to thus ensure that the environmental benefits of the
program are realized, we are finalizing pump labeling requirements
similar to those adopted in the highway diesel rule (40 CFR 80.570).
Today's pump dispenser labeling requirements are discussed separately
according to the date they become effective: June 1, 2006, June 1,
2007, June 1, 2010, and June 1, 2014.
Today's final rule also amends the pump dispenser labeling language
in the highway diesel regulations for consistency with the NRLM
program. Because existing highway diesel regulations prohibit highway
diesel fuel with sulfur levels above 500 ppm, the highway diesel final
rule and this program have different meanings for the terms ``low
sulfur'' and ``high sulfur,'' and the highway diesel final rule does
not use the term ``ultra low-sulfur.'' Further, because the highway
diesel final rule did not need to categorize the different uses of non-
highway diesel fuel, the highway diesel final rule and this program
have different meanings for the term ``nonroad.'' \156\ The amendments
to the highway pump dispenser labeling language finalized by today's
rule are meant to avoid confusion at the fuel pumps caused by labels
that would have different meanings depending on whether the pump is
dispensing highway or non-highway diesel fuel. Today's final rule adds
effective dates to each paragraph of the labeling provisions of the
highway diesel rule for consistency with the additional pump labeling
sections of this program, and to distinguish the non-highway labeling
requirement effective June 1, 2006 under the highway diesel rule from
the non-highway labeling requirements of this rule that are effective
in 2007.
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\156\ In the highway diesel rule, the term ``high-sulfur'' means
diesel fuel with a sulfur level greater than 15 ppm, whereas in this
rule it means diesel fuel with a sulfur level greater than 500 ppm.
In the highway diesel rule, the term ``low-sulfur'' means diesel
fuel with a sulfur level less than or equal to 15 ppm, whereas in
this rule it means diesel fuel with a sulfur level less than or
equal to 500 ppm. In addition, the term ``nonroad'' as used in the
highway diesel rule means ``non-highway'' (i.e., all fuel that is
not highway fuel), but the term ``nonroad'' as used in this rule
does not include locomotive diesel, marine diesel and heating oil.
---------------------------------------------------------------------------
Alternate labels to those specified in today's rule may be used if
they are approved by the Administrator.
Today's rule also finalizes labeling requirements for pumps in
Alaska that dispense NRLM diesel fuel and heating oil which is exempt
from the red dye and fuel marker requirements which differ from the
labeling requirements discussed in this section. Please refer to Sec.
69.52(e) of the regulatory text to today's rule for these pump labeling
requirements applicable in Alaska.
a. Pump Labeling Requirements that Become Effective June 1, 2006
The pump labeling requirements described in this section become
effective June 1, 2006.
i. Pumps Dispensing Highway Diesel Fuel Subject to the 15 ppm Sulfur
Standard
The label on pumps dispensing highway diesel fuel subject to the 15
ppm sulfur standard must read as follows:
ULTRA LOW-SULFUR HIGHWAY DIESEL FUEL (15 ppm Sulfur Maximum)
Required for use in all model year 2007 and later highway diesel
vehicles and engines.
Recommended for use in all diesel vehicles and engines.
The above labeling requirement for 15 ppm sulfur highway diesel
fuel continues through May 31, 2010, after which time different pump
label requirements for this fuel become effective as described in
section V.C.2.c.3. of this preamble.
ii. Pumps Dispensing Highway Diesel Fuel Subject to the 500 ppm Sulfur
Standard
The label on pumps dispensing highway diesel fuel subject to the
500 ppm sulfur standard must read as follows:
LOW-SULFUR HIGHWAY DIESEL FUEL (500 ppm Sulfur Maximum)
WARNING
Federal law prohibits use in model year 2007 and later highway
vehicles and engines.
Its use may damage these vehicles and engines.
Dispensing highway diesel fuel that has a sulfur content above 15
ppm is prohibited into any highway vehicle after September 30, 2010.
Hence no pumps may display the above label after September 30, 2010.
[[Page 39085]]
iii. Pumps Dispensing Diesel Fuel for Non-Highway Equipment That Does
Not Meet the Standards for Motor Vehicle Diesel Fuel
The label on pumps dispensing diesel fuel for non-highway equipment
that does not meet the standards for motor vehicle diesel fuel must
read as follows:
NON-HIGHWAY DIESEL FUEL (May Exceed 500 ppm Sulfur)
WARNING
Federal law prohibits use in any highway vehicle or engine
Its use may damage these vehicles and engines.
This labeling requirement is effective until May 31, 2007, after
which high sulfur non-highway diesel fuel must be labeled according to
the provisions described in section V.C.2.b.iii and 500 ppm sulfur non-
highway diesel fuel must be labeled according to the provisions
described in section V.C.2.b.1. of today's preamble.
b. Pump Labeling Requirements That Become Effective June 1, 2007
As discussed in section IV, between June 1, 2007 and September 30,
2010, end users are not always required to dispense fuel meeting the
500 ppm sulfur standard into nonroad, equipment, locomotives or marine
vessels. During this time period, small refiner fuel and fuel produced
under the credit provisions with sulfur levels exceeding 500 ppm will
continue to exist in the distribution system. During this time period,
there will also be nonroad equipment with engines certified as meeting
the Tier 4 emission standards (i.e., engines equipped with emission
controls that allow them to meet the Tier 4 standards earlier than
required). Some of this equipment is expected to be equipped with
sulfur sensitive technology that will need to operate on fuel with a
sulfur content of 500 ppm or less to function properly. For this
reason, it is important that NRLM end users be able to know the sulfur
level of the fuel they are purchasing and dispensing. Therefore, fuel
pump dispensers for the various sulfur grades must also be properly
labeled. The following pump labeling requirements become effective from
June 1, 2007:
i. Pumps Dispensing NRLM Diesel Fuel Subject to the 500 ppm Sulfur
Standard
The label on pumps dispensing 500 ppm (maximum) sulfur content
diesel fuel for use in NRLM engines must read as follows:
LOW-SULFUR NON-HIGHWAY DIESEL FUEL (500 ppm Sulfur Maximum)
WARNING
Federal law prohibits use in any highway vehicle or engine
The above labeling requirement remains effective until May 31,
2010, after which it is superceded by the requirements described below.
ii. Pumps Dispensing NRLM Diesel Fuel Subject to the 15 ppm Sulfur
Standard
It is also likely that prior to June 1, 2010 some 15 ppm sulfur
(maximum) diesel fuel will be introduced into the nonroad market early.
Both the engine and fuel credit provisions envision such early
introduction of 2011-compliant engines and 15 ppm sulfur diesel fuel.
Thus, it is important that nonroad end users be able to know when they
are purchasing diesel fuel with 15 ppm or less sulfur.\157\ The label
on pumps dispensing 15 ppm sulfur diesel fuel for use in NRLM engines
must read as follows:
---------------------------------------------------------------------------
\157\ The IRS requires that 15 ppm sulfur non-highway diesel
fuel must contain red dye after it leaves the terminal.
---------------------------------------------------------------------------
ULTRA-LOW SULFUR NON-HIGHWAY DIESEL FUEL (15 ppm Sulfur Maximum)
Required for use in all model year 2011 and newer nonroad diesel
engines.
Recommended for use in all nonroad, locomotive and marine diesel
engines.
WARNING
Federal law prohibits use in any highway vehicle or engine.
The above labeling requirement continues until May 31, 2014, after
which it is superceded by the labeling provisions described in section
V.C.2.e.i of today's preamble.
iii. Pumps Dispensing Diesel Fuel With a Sulfur Content Greater Than
500 ppm for Use in Older NRLM Equipment
The label on pumps dispensing diesel fuel having a sulfur content
greater than 500 ppm (for use in older nonroad, locomotive, and marine
diesel engines) must read as follows:
HIGH-SULFUR NON-HIGHWAY DIESEL FUEL (May Exceed 500 ppm Sulfur)
WARNING
Federal law prohibits use in highway vehicles or engines
May damage nonroad, diesel engines required to use low-sulfur or
ultra-low sulfur diesel fuel.
The above labeling requirement remains effective until September
30, 2010. After September 30, 2010 no pump may display this label.
iv. Pumps Dispensing Heating Oil
As discussed in section IV.B.2.b, it is necessary to segregate
heating oil from NRLM diesel fuel to ensure that the fuel used in
nonroad, locomotive, and marine equipment is compliant with the sulfur
standards in today's rule. The label on pumps dispensing non-highway
diesel fuel for use other than in nonroad, locomotive or marine
engines, such as for use in stationary diesel engines or as heating
oil, must read as follows:
HEATING OIL (May Exceed 500 ppm Sulfur)
WARNING
Federal law prohibits use in highway vehicles or engines, or in
nonroad, locomotive, or marine engines.
Its use may damage these diesel engines.
The above labeling will remain effective indefinitely.
c. Pump Labeling Requirements That Become Effective June 1, 2010
Beginning October 1, 2010, all diesel fuel introduced into highway
diesel vehicles, regardless of the year of manufacture, must meet the
15 ppm sulfur standard. Furthermore, with certain exceptions, fuel
introduced into any nonroad engine must meet the 15 ppm sulfur
standard. The exceptions are fuel allowed to meet the 500 ppm sulfur
standard for use only in pre-model year 2011 nonroad engines and
locomotive and marine engines, for example, small refiner nonroad
diesel fuel and credit nonroad diesel fuel, as well as downgraded 15
ppm sulfur diesel fuel from the distribution system. This use of 500
ppm sulfur diesel fuel in nonroad engines will continue through
September 30, 2014,\158\ after which all nonroad diesel fuel must meet
the 15 ppm sulfur standard. The following pump labeling requirements
become effective June 1, 2010:
---------------------------------------------------------------------------
\158\ Production of 500 ppm sulfur fuel under the credit
provisions is allowed until June 1, 2012, but small refiner fuel
subject to the 500 ppm sulfur standard can continue to be produced
until June 1, 2014 and will be available to end users until
September 1, 2014.
---------------------------------------------------------------------------
i. Pumps Dispensing NRLM Diesel Fuel Subject to the 500 ppm Sulfur Standard
The label on pumps dispensing 500 ppm (maximum) nonroad,
locomotive, and marine diesel fuel, as discussed in section IV.B.3.b,
must read as follows:
LOW-SULFUR NON-HIGHWAY DIESEL FUEL (500 ppm Sulfur Maximum)
WARNING
Federal law prohibits use in all model year 2011 and newer
nonroad engines.
May damage model year 2011 and newer nonroad engines.
[[Page 39086]]
Federal Law Prohibits Use in any Highway Vehicle or Engine.
Recommended for use in all locomotive and marine equipment.
The above labeling requirement remains effective until September
30, 2014. After September 30, 2014, no pump may display this label.
ii. Pumps Dispensing Marked LM Fuel
The label on pumps dispensing 500 ppm sulfur locomotive, and marine
diesel fuel, as discussed in section IV.B.3.b., must read as follows:
LOW-SULFUR LOCOMOTIVE AND MARINE DIESEL FUEL (500 ppm Sulfur Maximum)
WARNING
Federal law prohibits use in nonroad engines or in highway
vehicles or engines.
The above labeling requirement remains effective until September
30, 2012. After September 30, 2012, no pump may display this label.
iii. Pumps Dispensing Highway Diesel Fuel Subject to the 15 ppm Sulfur
Standard
The label on pumps dispensing highway diesel fuel subject to the 15
ppm sulfur standard of Sec. 80.520(a)(1) must read as follows:
ULTRA LOW-SULFUR HIGHWAY DIESEL FUEL (15 ppm Sulfur Maximum)
Required for use in all highway diesel vehicles and engines.
Recommended for use in all diesel vehicles and engines.
The above labeling requirement for 15 ppm sulfur highway diesel
fuel continues indefinitely.
d. Pump Labeling Requirements That Become Effective June 1, 2014
Beginning October 1, 2014, all nonroad fuel distributed to end-
users is required to meet the 15 ppm sulfur standard, without
exception. Locomotive and marine fuel downstream of the refinery or
importer is still subject to the 500 ppm sulfur standard. The pump
labels for heating oil will continue to be the same as for the period
2010 through 2014. The following pump labeling requirements become
effective beginning June 1, 2014:
i. Pumps Dispensing NRLM Diesel Fuel Subject to the 15 ppm Sulfur
Standard
For pumps dispensing nonroad diesel fuel the label must read as
follows:
ULTRA-LOW SULFUR NON-HIGHWAY DIESEL FUEL (15 ppm Sulfur Maximum)
Required for use in all nonroad diesel engines.
Recommended for use in all locomotive and marine diesel engines.
WARNING
Federal law prohibits use in any highway vehicle or engine.
The above labeling requirement continues indefinitely.
ii. Pumps Dispensing Locomotive and Marine Diesel Fuel Subject to the
500 ppm Sulfur Standard
For pumps dispensing locomotive or marine diesel fuel, the label
must read as follows:
LOW-SULFUR LOCOMOTIVE OR MARINE DIESEL FUEL (500 ppm Sulfur Maximum)
WARNING
Federal law prohibits use in nonroad engines or in highway
vehicles or engines.
Its use may damage these engines.
The above labeling requirement will remain effective indefinitely.
f. Nozzle Size Requirements or other Requirements To Prevent Misfueling
Like the highway diesel fuel program, the NRLM diesel fuel program
does not include a nozzle size requirement. In part this is because we
are not aware of an effective and practicable scheme to prevent
misfueling through the use of different nozzle sizes or shapes, and in
part because we do not believe that improper fueling will be a
significant enough problem to warrant such an action. In the preamble
to the highway diesel fuel rule, we stated our belief that the use of
unique nozzles, color-coded scuff-guards, or dyes to distinguish the
grades of diesel fuel may be useful in preventing accidental use of the
wrong fuel. (See 66 FR 5119, January 18, 2001.) However, we did not
finalize any such requirements, for the reasons described in the RIA
for that final rule (section IV.E).
Similar reasoning applies to the NRLM diesel fuel program. For
example, 15 ppm sulfur diesel fuel will be the dominant fuel in the
market by 2010, likely comprising more than 80 percent of all number 2
distillate. Further, we believe that 500 ppm sulfur diesel fuel will
have limited availability between 2010 and 2014. High-sulfur distillate
for heating oil uses will remain, but will only exist in significant
volumes in certain parts of the country. In addition, as with highway
diesel engines, there is currently no standardization of fuel tank
openings and filler necks that would allow for a simple, inexpensive,
standardization of nozzles. In any event, we believe that most owners
and operators of new nonroad diesel engines and equipment will not risk
voiding the general warranty and the emissions warranty by misfueling.
Although in the highway diesel fuel rule we did not finalize any
provisions beyond fuel pump labeling requirements, we recognized that
some potential for misfueling could still exist. Consequently, we
expressed a desire to continue to explore with industry simple, cost-
effective approaches that could further minimize misfueling potential
such as color-coded nozzles/scuff guards. Since the highway diesel rule
was promulgated, we have had discussions with fuel retailers, wholesale
purchaser-consumers, vehicle manufacturers, and nozzle manufacturers,
and continue to examine different methods for preventing accidental or
intentional misfueling under the highway diesel fuel sulfur program. To
date, the affected stakeholders, including engine and truck
manufacturers, truck operators, fuel retailers, and fuel nozzle
manufacturers have not reached any common view that the concerns over
misfueling warrant any additional prevention measures.
3. Prohibition Against the Use of Used Motor Oil in New Nonroad Diesel
Equipment
We understand that used motor oil is sometimes blended with diesel
fuel today for use as fuel in nonroad diesel equipment. Such practices
include blending used motor oil directly into the equipment fuel tank,
blending it into the fuel storage tanks, and blending small amounts of
motor oil from the engine crank case into the fuel system as the
equipment is operated.
However, motor oil normally contains high levels of sulfur. Thus,
the addition of used motor oil to nonroad diesel fuel could
substantially impair the sulfur-sensitive emissions control equipment
expected to be used by engine manufacturers to meet the emissions
standards in today's final rule. Depending on how the oil is blended,
it could increase the sulfur content of the fuel by as much as 200 ppm
sulfur. As a result, we believe blending used motor oil into nonroad
diesel fuel could render inoperative the expected emission control
technology and potentially cause driveability problems. Consequently,
it would violate the tampering prohibition in the Act. See CAA sections
203(a)(3), and 213(d).
Therefore, like the highway diesel rule, today's rule prohibits any
person from introducing or causing or allowing the introduction of used
motor oil, or diesel fuel containing used motor oil, into the fuel
delivery systems of nonroad equipment engines manufactured in model
year 2011 and later. The only exception to this will be
[[Page 39087]]
where the engine was explicitly certified to the emission standard with
used motor oil added and the oil was added in a manner consistent with
the certification. Furthermore, as discussed in section IV, today's
rule includes certain sunset dates when all NRLM diesel fuel in the
distribution system must meet the applicable sulfur standard, and
before that date any NRLM designated, classified, or labeled as 15 ppm
sulfur fuel must meet that sulfur standard. Blending of used motor oil
into NRLM could cause these standards to be exceeded in violation of
today's rule. Any party who causes the sulfur content of nonroad diesel
fuel subject to the 15 ppm sulfur standard to exceed 15 ppm by blending
motor oil into nonroad diesel fuel, or by using motor oil as nonroad
diesel fuel, is subject to liability for violating the sulfur standard.
Similarly, parties who cause the sulfur level of nonroad diesel fuel
subject to the 500 ppm sulfur nonroad diesel fuel standard to exceed
that standard by blending motor oil into the fuel, are also subject to
liability.
4. Use of Kerosene in Diesel Fuel
As we discussed in the highway diesel final rule, kerosene is
commonly added to diesel fuel to reduce fuel viscosity in cold weather
(see 66 FR 5120, January 18, 2001). This final rule does not limit this
practice with regard to 15 ppm sulfur or 500 ppm sulfur NRLM diesel
fuel. However the resulting blend will still be subject to the 15 ppm
sulfur or 500 ppm sulfur standard. Kerosene that is used, intended for
use, or made available for use as, or for blending with, 15 ppm sulfur
or 500 ppm sulfur diesel fuel is itself required to meet the 15 ppm
sulfur or 500 ppm sulfur standard.
As a general matter, any party who blends kerosene, or any
blendstock, into NRLM diesel fuel, or who produces NRLM diesel fuel by
mixing blendstocks, will be treated as a refiner and will be subject to
the requirements and prohibitions applicable to refiners under today's
rule. For example, the fuel that they manufacture must meet the sulfur
standards established in this rule, and represented on the PTD.
However, in deference to the longstanding and widespread practice of
blending kerosene into diesel fuel at downstream locations, downstream
parties who only blend kerosene into NRLM and highway diesel fuel will
not be subject to the requirements applicable to other refiners,
provided that they do not alter the fuel in any other way, and do not
violate the volume balance requirements discussed in section IV.D. For
example, they will not need to meet the 80/20 requirements under the
highway diesel program. This activity is treated the same way under the
final highway diesel rule. Parties that blend kerosene into diesel fuel
are subject to the downstream designate and track provisions applicable
to other downstream parties.
In order to ensure the continued compliance of 15 ppm sulfur fuel
with the 15 ppm sulfur standard, downstream parties choosing to blend
kerosene into 15 ppm sulfur NRLM diesel fuel are required to either
have a PTD for that kerosene indicating compliance with the 15 ppm
sulfur standard, or to have test results for the kerosene establishing
such compliance. Further, downstream parties choosing to blend kerosene
into 15 ppm sulfur NRLM diesel fuel are entitled to the two ppm
adjustment factor discussed in section V.D.2. for both the kerosene and
the diesel fuel into which it is blended at downstream locations,
provided that the kerosene had been transferred to the party with a PTD
indicating compliance with that standard. Sulfur test results from
downstream locations of parties who do not have such a PTD for their
kerosene will not be subject to this adjustment factor, either for the
kerosene itself, or for the NRLM diesel fuel into which it is blended.
Any party who causes the sulfur content of NRLM diesel fuel
represented as meeting the 15 ppm sulfur standard to exceed 15 ppm
sulfur by blending kerosene into NRLM diesel fuel, or by using greater
than 15 ppm sulfur kerosene as NRLM diesel fuel, is subject to
liability for violating the sulfur standard. Similarly, parties who
cause the sulfur level of NRLM diesel fuel subject to the 500 ppm
sulfur diesel fuel standard to exceed that standard by blending
kerosene into the fuel, are also subject to liability.
Today's rule does not require refiners or importers of kerosene to
produce or import kerosene meeting the 15 ppm sulfur standard. However,
we believe that refiners will produce ultra low sulfur kerosene in the
same refinery processes that they use to produce ultra low sulfur
diesel fuel, and that the market will drive supply of ultra low sulfur
kerosene for those areas where, and during those seasons when, the
product is needed for blending with NRLM, as well a highway, diesel fuel.
As discussed in section IV.D, kerosene blending also factors into
the designate and track provisions finalized today from June 1, 2006
until June 1, 2010. During this time period it is possible, and in fact
likely, that kerosene meeting the 15 ppm sulfur standard will instead
be designated as No. 1 highway diesel fuel, and will simply need to
meet all of the requirements of highway diesel fuel. It is also
possible, though less likely that kerosene meeting the 500 ppm sulfur
standard will be designated as No. 1 highway diesel fuel. However, if
it is, it would also merely need to comply with all the requirements
applicable to highway diesel fuel.
5. Use of Diesel Fuel Additives
Diesel fuel additives include lubricity improvers, corrosion
inhibitors, cold-operability improvers, and static dissipaters. Use of
such additives is distinguished from the use of kerosene or biodiesel
by the low concentrations at which they are used (defined to be one
percent or less) and their relatively more complex chemistry.\159\ The
suitability of diesel fuel additives for use in diesel fuel meeting a
500 ppm sulfur specification has been well established due to the
existence of 500 ppm sulfur highway diesel fuel in the marketplace
since 1993. The suitability of additives for use in 15 ppm sulfur
diesel fuel was first addressed by EPA in the highway diesel program,
which requires highway diesel fuel to meet a 15 ppm sulfur standard
beginning in 2006. At the time of the finalization of the highway
diesel final rule and during our development of the proposed NRLM
diesel rule, our review of data submitted by additive and fuel
manufacturers to comply with EPA's Fuel and Fuel Additive Registration
requirements indicated that additives to meet every purpose, including
static dissipation, are currently in common use which meet a 15 ppm cap
on sulfur content.\160\
---------------------------------------------------------------------------
\159\ Diesel fuel additives are used at concentrations commonly
expressed in parts per million. Diesel fuel additives can include
specially-formulated polymers and other complex chemical components.
Kerosene is used at much higher concentrations, expressed in volume
percent. Unlike diesel fuel additives, kerosene is a narrow
distillation fraction of the range of hydrocarbons normally
contained in diesel fuel.
\160\ See Chapter IV.D. of the RIA for the highway diesel fuel
rule for more information on diesel fuel additives, EPA Air docket
A-99-06, docket item V-B-01. Also see 40 CFR part 79.
---------------------------------------------------------------------------
a. Additives Used in 15 ppm Sulfur Diesel Fuel
Similar to the highway diesel rule, today's rule allows the bulk
addition of diesel fuel additives with a sulfur content greater than 15
ppm in NRLM diesel fuel under certain circumstances.\161\ However, NRLM
[[Page 39088]]
diesel fuel containing such additives will continue to be subject to
the 15 ppm sulfur cap. We believe that it is most appropriate for the
market to determine how best to accommodate increases in fuel sulfur
content from the refinery gate to the end user, while maintaining the
15 ppm sulfur cap, and whether such increases result from contamination
in the distribution system or bulk diesel additive use. By providing
this flexibility, we anticipate that market forces will encourage an
optimal balance between the competing demands of manufacturing fuel
lower than the 15 ppm sulfur cap, limiting contamination in the
distribution system, and limiting the bulk additive contribution to
fuel sulfur content.
---------------------------------------------------------------------------
\161\ Most diesel fuel additives are added at the terminal to
bulk fuel volumes before sale to the consumer. These additives are
referred to as bulk additives. End users and wholesale purchaser
consumers sometimes also add additives to diesel fuel by hand
blending into the vehicle fuel tank or fleet fuel storage tanks.
Such additives are referred to as aftermarket additives. As
discussed at the end of this section, today's rule contains
different requirements regarding the use of aftermarket additives.
---------------------------------------------------------------------------
Thus, as in the highway diesel program, additive manufacturers that
market bulk diesel additives with a sulfur content higher than 15 ppm
and blenders that use them in nonroad diesel have additional
requirements to ensure that the 15 ppm sulfur cap for NRLM diesel fuel
is not exceeded.
The 15 ppm sulfur cap on highway diesel fuel that becomes effective
in 2006 may encourage the gradual retirement of additives that do not
meet a 15 ppm sulfur cap. The 15 ppm sulfur cap for NR fuel in 2010 and
for LM fuel in 2012 may further this trend. However, we do not
anticipate that this will result in disruption to additive users and
producers or a significant increase in cost. Additive manufacturers
commonly reformulate their additives on a periodic basis as a result of
competitive pressures. We anticipate that any reformulation that might
need to occur to meet a 15 ppm sulfur cap, will be accomplished prior
to the implementation of the 15 ppm sulfur cap on highway diesel fuel
in 2006.
Like the highway diesel fuel rule, this rule will limit the
continued use in 15 ppm sulfur fuel of a bulk additive that exceeds 15
ppm sulfur to a concentration of less than one volume percent. We
believe that this limitation is appropriate and will not cause any
undue burden because the diesel fuel additives for which this
flexibility was included are always used today at concentrations well
below one volume percent. Further, one volume percent is the threshold
above which the blender of an additive becomes subject to all the
requirements applicable to a refiner. See 40 CFR 79.2(d)(1) and 40 CFR
part 80.
The specific requirements regarding the use of bulk diesel fuel
additives in NRLM fuel subject to the 15 ppm sulfur standard are as
follows:
--Bulk additives that have a sulfur content at or below 15 ppm must be
accompanied by a PTD that states: ``The sulfur content of this additive
does not exceed 15 ppm.''
--Bulk additives that exceed 15 ppm sulfur could continue to be used in
diesel fuel subject to the 15 ppm sulfur standard provided that they
are used at a concentration of less than one volume percent and their
transfer is accompanied by a PTD that lists the following:
(1) A warning that the additive's sulfur content may exceed 15 ppm
and that improper use of the additive may result in non-complying fuel,
(2) The additive's maximum sulfur concentration,
(3) The maximum recommended concentration for use of the additive
in diesel fuel, and
(4) The contribution to the sulfur level of the fuel that would
result if the additive is used at the maximum recommended
concentration.
We proposed that the affirmative defenses to presumptive liability
for blenders of bulk additives with a sulfur content greater than 15
ppm must include periodic sulfur tests after the addition of the
additive showing that the finished fuel does not exceed the 15 ppm
sulfur cap. We are adopting this proposed requirement for additives
other than static dissipater additives.
b. Static Dissipater Additives
Comments from diesel fuel distributors and additive manufactures
stated that static dissipater additives are unique among the various
types of diesel fuel additives in that there are currently none
available with a sulfur content below 15 ppm which are fully effective.
Considering the lack of static dissipater additives meeting a 15 ppm
sulfur cap, and the inability to add static dissipater (S-D) additives
prior to shipment by pipeline, commenters stated that the prohibitive
cost of testing fuel batches after the addition of static dissipater
additives could discourage their use. To avoid the potential adverse
impact on the safety of the fuel distribution industry which could
result, commenters requested that we provide an alternative method for
use in demonstrating their affirmative defense to presumptive liability
when they use static dissipater additives with a sulfur content above
15 ppm. Manufacturers of static dissipater additives stated that due to
very low treatment rates that are needed for such additives, their use
will raise the sulfur content of the finished fuel by no more than 0.02
ppm. Commenters stated that because of the extremely low potential
contribution to the sulfur level of the finished diesel fuel which
might result from the use of static dissipater additives, there was
little risk that use of such additives would result in noncompliance
with the 15 ppm sulfur cap.
We contacted all of the additive manufactures that have registered
static dissipater additives in EPA's Fuel and Fuel Additive
Database.\162\ All of these manufactures stated that there are no
fully-effective static dissipater additives available that have a
sulfur content below 15 ppm. They further stated that sulfur is an
essential component in static dissipater additives, and that it is
currently unclear how to formulate a static dissipater additive that
would have a sulfur content below 15 ppm. Because of this input, we now
recognize that static dissipater additives are in a unique category
with respect to the ability to comply with a 15 ppm sulfur cap.
Additive manufactures stated that reformulation of static dissipater
additives to meet a 15 ppm sulfur cap will likely be a lengthy undertaking.
---------------------------------------------------------------------------
\162\ All additives must be registered with EPA Fuel and Fuel
Additive Database prior to their use in motor vehicle diesel fuel.
---------------------------------------------------------------------------
It is unclear which of the naturally-occurring components in diesel
fuel act to dissipate static electricity. However, certain batches of
fuel are periodically found which do not have adequate static
dissipating qualities. In such cases, static dissipater additives are
necessary to prevent a static discharge from occurring during the
transfer of fuel into a storage tank which might cause an explosion.
Therefore, it is essential that today's rule is structured in such a
way so as to not impede the use static dissipater additives. Because of
the lack of static dissipater additives meeting a 15 ppm sulfur
specification, the unique difficulty in reformulating them to meet a 15
ppm sulfur standard, the fact that they are essential to the safety of
the fuel distribution system, and the impracticability for them to be
added at the refinery, today's rule includes special affirmative
defense provisions to reduce the sulfur testing burden associated with
the use of static dissipater additives that have a sulfur content
greater than 15 ppm.
Commenters suggested an alternative mechanism to demonstrate an
affirmative defense to presumptive liability for blenders of static-
dissipater (S-D) additives which would avoid the need to test every
batch of fuel at the
[[Page 39089]]
terminal after additization. Under this approach, blenders of S-D
additives would be required to provide volume accounting reconciliation
(VAR) records similar to those under EPA's deposit control additive
rule (40 CFR part 80, subpart G) which would show whether the S-D
additive is being added at the appropriate rate on average over a
course of a monthly accounting period. Today's rule finalizes the
approach suggested by commenters with certain modifications. In cases
where a violation of the 15 ppm sulfur cap for diesel fuel is
discovered on a batch of fuel downstream of a blender of S-D additives
that have a sulfur content above 15 ppm, the S-D additive blender must
provide the following information to EPA in order to meet their
affirmative defense to presumptive liability regarding the potential
that the use of S-D additive might have caused or contributed to the
violation:
? A sulfur test on the diesel batch prior to the addition of
the S-D additive package that indicates that the additive, when added,
will not cause the fuel to exceed 15 ppm
? A product transfer document that accompanied the transfer
of the S-D additive package to the additive blender which contains the
following:
--A statement that the S-D additive package exceeds 15 ppm in sulfur
content and that special requirements apply if it is to be used in
diesel fuel subject to the 15 ppm sulfur cap.
--The maximum sulfur level of the S-D additive package including other
additive components such as diesel detergents and carrier fluid to the
extent that they are part of the package. Each component of the
additive package other than the S-D additive itself must comply with
the 15 ppm sulfur cap.
--The maximum recommended concentration for the S-D additive package.
--The contribution to the final sulfur content of a finished fuel when
the additive is added at the maximum recommended concentration. The
maximum recommended concentration must result in a potential increase
in the sulfur content of the finished fuel of no more than 0.05 ppm.
? Monthly volume accounting reconciliation (VAR) records that include:
--The amount of S-D additive package used during the month
--The volume of the fuel into which the additive was injected during
the month
--The measured sulfur level of each fuel batch prior to injection of
the additive which shows that the contribution to the sulfur level of
the finished diesel fuel from the use of the additive at the treatment
level at which it was injected would not cause any such batch of fuel
to exceed the 15 ppm sulfur specification
? Quality assurance records which show that the precision of
the additive injection equipment has been maintained in such a manner
as to prevent malfunctions which could result in the injection of the
S-D additive at a higher concentration than that reported.
The additive blender must also be able to meet its normal diesel
fuel defense elements: That the additive blender-fuel distributor did
not cause the violation; that PTDs account for all the fuel and show
apparent compliance; and that quality assurance sampling and testing
has occurred, as modified by the discussion above.
In addition, the ratio of the amount of additive used to the amount
of fuel into which the additive was injected over any given monthly VAR
period must not exceed the maximum treatment rate which could be added
to any batch of fuel additized during the period. If not, the blender
could be liable for any batch of diesel fuel found that exceeded the 15
ppm sulfur cap which had been in their possession. The above provisions
are only relevant for establishing affirmative defense to presumptive
liability regarding the potential that the use of S-D additives might
have caused a violation. Under no circumstances may an additive blender
cause the sulfur level of any batch of finished fuel to exceed the 15
ppm sulfur cap. Blenders of S-D additives must meet all other
requirements for distributors of 15 ppm sulfur diesel fuel. Regardless
of the cause of a violation of the 15 ppm sulfur standard, any party
that had custody or title of off-specification fuel is potentially
liable and responsible for their affirmative defense elements.
These provisions may only be used for static dissipater additives
which have the potential to raise the sulfur content of the finished
fuel by no more than 0.050 ppm when used at their maximum recommended
treatment level. Based on the input from additive manufacturers noted
above, this will allow the use of S-D additives that are fully
effective for this purpose. The use of S-D additives that might have a
higher contribution to the sulfur content of the finished fuel,
therefore, is unnecessary. To establish affirmative defense to
presumptive liability, blenders that use S-D additives that could
contribute more than 0.050 ppm to the sulfur content of a finished fuel
subject to the 15 ppm sulfur specification when used at the maximum
recommended treatment level are required to conduct a sulfur test on
the fuel batch after the addition of the additive. Blenders of
additives other than S-D additives which have a sulfur content greater
than 15 ppm into diesel fuel subject to the 15 ppm sulfur standard are
also required to conduct a sulfur test on the fuel batch after the
addition of the additive for affirmative defense purposes.
EPA may require additive manufactures to supply samples of the
additive packages (or the components additives in such packages) that
are used in 15 ppm sulfur diesel fuel, or may sample from additive
batches already in the distribution system. In such cases, we may test
the sulfur content of these additives to evaluate whether they are in
compliance with the information provided on the PTDs or other relevant
documentation. In cases where a violation is discovered, any party in
the distribution system that had custody of the additive batch found to
be in violation may be held presumptively liable for the violation.
Today's rule amends the highway diesel regulation so that the
provisions finalized today regarding the use of S-D additives with a
sulfur content above 15 ppm in NRLM diesel fuel also apply to the use
of such additives in highway diesel fuel subject to a 15 ppm sulfur
standard. However, we continue to be concerned about the use of
additives having a sulfur content greater than 15 ppm. We will continue
to monitor this issue and may initiate an additional rulemaking in the
future to consider further limiting or prohibiting the use of greater
than15 ppm sulfur additives in diesel fuel subject to a 15 ppm sulfur cap.
The special provisions for static-dissipater additives finalized in
today's rule will ensure that the unique challenges regarding the
manufacture and use of such additives do not present a barrier to their
continued use. Additive manufactures have stated that they are working
on reformulation of their S-D additives to meet a 15 ppm sulfur limit.
We recently learned that industry is beginning to develop a
standardized test to quantify the concentration of static-dissipater
additives in finished fuel.\163\ If such a test were available, it
might be useful for establishing an additive blender's affirmative
defense to presumptive liability in place of some of the VAR provisions
described above. If
[[Page 39090]]
a batch of fuel was found to exceed the 15 ppm sulfur cap, the use of
such a test would allow for the measurement of the contribution to the
sulfur level of the finished fuel which resulted from the addition of
the static dissipater additive. If the contribution was below the
permissible level given the sulfur measurements on each batch of fuel
additized with the greater than 15 ppm S-D additive, it might be useful
in association with other blender records to demonstrate that the
additive blender was not at fault for the violation. If such a
standardized test becomes available, EPA will work with the appropriate
industry parties to evaluate its applicability for affirmative defense
purposes, and conduct a rulemaking if appropriate to amend the elements
required to establish affirmative defense to presumptive liability
under the NRLM and highway diesel programs.
---------------------------------------------------------------------------
\163\ Phone conversation with Eon McMullen, Octel additives,
February 12, 2004.
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c. Additives Used in 500 ppm Sulfur Diesel Fuel
The 1993 and 2007 highway diesel programs did not contain any
requirements regarding the maximum sulfur content of additives used in
highway diesel fuel subject to a 500 ppm sulfur cap.\164\ Our
experience under the highway program indicates that application of the
500 ppm sulfur cap throughout the distribution system to the end-user
has been sufficient to prevent the use of additives from jeopardizing
compliance with the 500 ppm sulfur standard. The potential increase of
several ppm in the sulfur content of diesel fuel which might result
from the use of some diesel additives raises substantial concerns
regarding the impact on compliance with a 15 ppm sulfur cap. However,
this is not the case with respect to the potential impact on compliance
with a 500 ppm sulfur cap. The current average sulfur content of
highway diesel fuel of 340 ppm provides ample margin for the minimal
increase in the fuel sulfur content which might result from the use of
additives. We expect that this will also be the case for NRLM fuel
subject to the 500 ppm sulfur standard. Therefore, we are not
finalizing any requirements regarding the sulfur content of additives
used in NRLM fuel subject to the 500 ppm sulfur standard. We believe
that the requirement that NRLM fuel comply with a 500 ppm sulfur cap
throughout the distribution system to the end-user will be sufficient
to ensure that entities who introduce additives into such fuel take
into account the potential increase in fuel sulfur content.
---------------------------------------------------------------------------
\164\ The 500 ppm sulfur highway diesel final rule contains the
requirement that highway diesel fuel not exceed 500 ppm sulfur at
any point in the fuel distribution system including after the
blending of additives. Fuel Quality Regulations for Highway Diesel
Fuel Sold in 1993 and Later Calendar Years, Final Rule, 55 FR 34120,
August 21, 1990.
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d. Aftermarket Additives
We believe that more stringent requirements are needed for
aftermarket additives than for bulk additives due to the lack of
practical safeguards to ensure that the use of such additives do not
cause a violation of the sulfur standards in today's rule. Also, the
presence of multiple grades of aftermarket additives, some suitable for
use in engines equipped with sulfur sensitive emissions control
equipment as well as pre-control engines, and some suitable for use
only in pre-control engines would raise significant concerns regarding
the misuse. The misuse of a high sulfur additive in an engine with
sulfur sensitive emissions control equipment could damage this
equipment. Therefore, today's rule requires that all aftermarket
additives sold for use in nonroad, locomotive, and marine equipment
must meet a 500 ppm sulfur cap beginning June 1, 2007, and that all
aftermarket additives sold for use in nonroad equipment must meet a 15
ppm sulfur specification beginning June 1, 2010. After June 1, 2010,
aftermarket additives with a sulfur content less than 500 ppm may
continue to be used in locomotive and marine engines. This approach is
consistent with that taken in the highway diesel rule which requires
all aftermarket additives to meet a 15 ppm sulfur specification
beginning June 1, 2006.
6. End User Requirements
In light of the importance of ensuring that the proper fuel is used
in nonroad, locomotive, and marine engines covered by this program, any
person is prohibited from fueling such an engine with fuel not meeting
the applicable sulfur standard.
Specifically:
(1) No person may introduce, or permit the introduction of fuel
containing the heating oil marker into nonroad, locomotive, marine or
highway diesel engines;
(2) No person may introduce, or permit the introduction of, fuel
that exceeds 15 ppm sulfur content into nonroad equipment with a model
year 2011 or later engine;
(3) Beginning December 1, 2010, no person may introduce, or permit
the introduction of any fuel exceeding 500 ppm sulfur content into any
nonroad, locomotive, and marine engine; and
(4) Beginning December 1, 2014, no person may introduce, or permit
the introduction of any fuel exceeding 15 ppm sulfur content into any
nonroad diesel engine regardless of year of manufacture.
D. Diesel Fuel Sulfur Sampling and Testing Requirements
1. Testing Requirements
Today's action provides a new approach for fuel sulfur measurement.
The details of this approach are described below, followed by a
description of who will be required to conduct fuel sulfur testing as
well as what fuel must be tested. The diesel fuel sulfur sampling and
testing provisions described below are similar to those that were
proposed. Adjustments we made to the proposed provisions were in
response to comments we received during the public comment period.
a. Test Method Approval, Record-keeping, and Quality Control
Requirements
Most current and past EPA fuel programs designated specific
analytical methods which refiners, importers, and downstream parties
\165\ use to analyze fuel samples at all points in the fuel
distribution system for regulatory compliance purposes. Some of these
programs have also allowed certain specific alternative methods which
may be used as long as the test results are correlated to the
designated test method. The highway diesel rule (66 FR 5002, January
18, 2001), for example, specifies one designated test method and three
alternative methods for measuring the sulfur content of highway diesel
fuel subject to the 15 ppm sulfur standard. The rule also specifies one
designated method and three alternative methods for measuring the
sulfur content of highway diesel fuel subject to the 500 ppm sulfur
standard.
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\165\ Other EPA fuels regulations have allowed downstream
parties conducting periodic quality assurance testing for defense
purposes to use methods other than the designated method, so long as
the method is an ASTM method appropriate for testing for the
applicable fuel property, and so long as the instrument is
correlated to the designated method.
[[Page 39091]]
Table V.H-1.--Designated and Alternative Sulfur Test Methods Allowed
Under the Highway Diesel Program
------------------------------------------------------------------------
Sulfur Test Method 500 ppm 15 ppm
------------------------------------------------------------------------
ASTM D 2622-03, as modified, Designated........ Alternative.
Standard Test Method for Sulfur
in Petroleum Products by
Wavelength Dispersive X-ray
Fluorescence Spectrometry.
ASTM D 3120-03a, Standard Test .................. Alternative.
Method for Trace Quantities of
Sulfur in Light Liquid
Petroleum Hydrocarbons by
Oxidative Microcoulometry.
ASTM D 4294-03, Standard Test Alternative....... ..................
Method for Sulfur in Petroleum
and Petroleum Products by
Energy-Dispersive X-ray
Fluorescence Spectrometry.
ASTM D 5453-03a, Standard Test Alternative....... Alternative.
Method for Determination of
Total Sulfur in Light
Hydrocarbons, Motor Fuels and
Motor Oils by Ultraviolet
Fluorescence.
ASTM D 6428-99, Test Method for Alternative....... Designated.
Total Sulfur in Liquid Aromatic
Hydrocarbons and Their
Derivatives by Oxidative
Combustion and Electrochemical
Detection.
------------------------------------------------------------------------
The highway diesel fuel rule also announced the Agency's intention
to adopt a performance-based test method approach in the future, as
well as our intention to continue working with the industry to develop
and improve sulfur test methods. Today's action adopts such a
performance-based test method approach for both highway and NRLM diesel
fuel subject to the 15 ppm and 500 ppm sulfur standards. In addition,
the current approach for measuring the sulfur content of diesel fuel
subject to the 500 ppm sulfur standard, i.e., using the designated
sulfur test method or one of the alternative test methods with
correlation will remain applicable.
Under the performance-based approach, a given test method can be
approved for use in a specific laboratory by meeting certain precision
and accuracy criteria specified in the regulations. The method can be
approved for use by that laboratory as long as appropriate quality
control procedures are followed. Properly selected precision and
accuracy values allow multiple methods and multiple commercially
available instruments to be approved, thus providing greater
flexibility in method and instrument selection while also encouraging
the development and use of better methods and instrumentation in the
future. Under today's rule, there is no designated sulfur test method
as specified under previous regulations.
Since any test method that meets the specified performance criteria
may qualify, this type of approach does not conflict with the
``National Technology Transfer and Advancement Act of 1995'' (NTTAA),
section 12(d) of Public Law 104-113, and the Office of Management and
Budget (OMB) Circular A-119. Both of these are designed to encourage
the adoption of standards developed by ``voluntary consensus standards
bodies'' (VCSB) \166\ and to reduce reliance on government-unique
standards where such consensus standards would suffice. Under the
performance criteria approach in today's rule, methods developed by
consensus bodies as well as methods not yet approved by a consensus
body qualify for approval provided they meet the specified performance
criteria as well as the record-keeping and reporting requirements for
quality control purposes.
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\166\ These are standard-setting organizations, like ASTM, and
ISO that have broad representation of all interested stakeholders
and make decisions by consensus.
---------------------------------------------------------------------------
i. How Can a Given Method Be Approved?
A given test method can be approved for use under today's program
by meeting certain precision and accuracy criteria. Approval applies on
a laboratory/facility-specific basis. If a company chooses to employ
more than one laboratory for fuel sulfur testing purposes, then each
laboratory must separately seek approval for each method it intends to
use. Likewise, if a laboratory chooses to use more than one sulfur test
method, then each method must be approved separately. Separate approval
is not necessary for individual operators or laboratory instruments
within a given laboratory facility.
The specific precision and accuracy criteria were derived from
existing sulfur test methods that are either required or allowed under
the highway diesel fuel sulfur program. The first criterion, precision,
refers to the consistency of a set of measurements and is used to
determine how closely analytical results can be duplicated based on
repeat measurements of the same material under prescribed conditions.
To demonstrate the precision of a given sulfur test method under the
performance-based approach, a laboratory facility must perform 20
repeat tests over 20 days on samples taken from a homogeneous supply of
a commercially available diesel fuel. Based on the comments we received
on this issue, we are also clarifying that the test results must in
general be a sequential record of the analyses with no omissions. A
laboratory facility may exclude a given sample or test result only if
(1) the exclusion is for a valid reason under good laboratory practices
and (2) it maintains records regarding the sample and test results and
the reason for excluding them. Using the test results\167\ of ASTM D
3120 for diesel fuel subject to the 15 ppm sulfur standard, the
precision must be less than 0.72 ppm.\168\ Similarly, using the test
results of ASTM D 2622 for diesel fuel subject to the 500 ppm sulfur
standard, the precision must be less than 9.68 ppm.
---------------------------------------------------------------------------
\167\ Sulfur Repeatability of Diesel by Method at 15 ppm, ASTM
Report on Low Level Sulfur Determination in Gasoline and Diesel
Interlaboratory Study--A Status Report, June 2002.
\168\ 0.72 ppm is equal to 1.5 times the standard deviation of
ASTM D 3120, where the standard deviation is equal to the
repeatability of ASTM D 3120 (1.33) divided by 2.77. 9.68 ppm is
equal to 1.5 times the standard deviation of ASTM D 2622, where the
standard deviation is equal to the repeatability of ASTM D 2622
(17.88) divided by 2.77. In the proposal, we stated that the
repeatability of ASTM D 2622 was 26.81. While that reported value
was incorrect due to either a typographical or a computational
error, the resulting precision value that we are finalizing today
was correctly calculated and reported as 9.68 ppm. The ``sample
standard deviation'' should be used for this purpose. By its use of
N-1 in the denominator, this measure applies a correction for the
small sample bias and provides an unbiased estimate of the standard
deviation of the larger population from which the sample was drawn.
Since the conditions of the precision qualification test admit more
sources of variability than the conditions under which ASTM
repeatability is determined (longer time span, different operators,
environmental conditions, etc.) the repeatability standard deviation
derived from the round robin was multiplied by what we believe to be
a reasonable adjustment factor, 1.5, to compensate for the
difference in conditions.
---------------------------------------------------------------------------
The second criterion, accuracy, refers to the closeness of
agreement between a measured or calculated value and the actual or
specified value. To demonstrate the accuracy of a given test method
under the performance-based approach, a laboratory facility is required
to perform 10 repeat tests on a
[[Page 39092]]
standard sample, the mean of which for diesel fuel subject to the 15
ppm sulfur standard can not deviate from the Accepted Reference Value
(ARV) of the standard by more than 0.54 ppm and for diesel fuel subject
to the 500 ppm sulfur standard can not deviate from the ARV of the
standard by more than 7.26 ppm \169\. These tests must be performed
using commercially available gravimetric sulfur standards. Ten tests
are required using each of two different sulfur standards. For 15 ppm
fuel, one must be in the range of 1-10 ppm sulfur and the other in the
range of 10-20 ppm sulfur. For 500 ppm fuel, one must be in the range
of 100-200 ppm sulfur and the other in the range of 400-500 ppm sulfur
for 500 ppm sulfur diesel fuel. Therefore, a minimum of 20 total tests
is required for sufficient demonstration of accuracy for a given sulfur
test method at a given laboratory facility. As with the requirement for
precision demonstration described above, the test results must be a
sequential record of the analyses with no omissions. Finally, any known
interferences for a given test method must be mitigated.
---------------------------------------------------------------------------
\169\ 0.54 and 7.26 are equal to 0.75 times the precision values
of 0.72 for 15 ppm sulfur diesel and 9.68 for 500 ppm sulfur diesel,
respectively.
---------------------------------------------------------------------------
Some commenters remarked that the ARV of the standards does not
account for any uncertainty given that all commercially available
standards have an uncertainty associated with the certified value. The
commenters added that EPA should specify what maximum value in the
uncertainty associated with the ARV is allowed.
These requirements are not intended to be overly burdensome.
Indeed, we believe these requirements are equivalent to what a
laboratory would do during the normal start up procedure for a given
test method. In addition, we believe this approach will allow regulated
entities to know that they are measuring diesel fuel sulfur levels
accurately and within reasonable site reproducibility limits.
ii. What Information Must Be Reported to the Agency?
For test methods that have already been approved by a VCSB, such as
ASTM or the International Standards Organization (ISO), each laboratory
facility must report to the Agency the precision and accuracy results
as described above for each method for which it is seeking approval.
Such submissions to EPA, as described elsewhere, are subject to the
Agency's review for 90 days, and the method will be considered approved
in the absence of EPA comment. Laboratory facilities are required to
retain the fuel samples used for precision and accuracy demonstration
for 90 days. While we proposed a 30 day sample retention period,
commenters stated that the sample retention period for fuel samples
that are used for precision and accuracy demonstrations should be
equivalent to the length of EPA's review period (i.e., 90 days). We
agree with the commenters and are thus finalizing a 90 day sample
retention period in today's rule. This sample retention requirement
also applies to non-VCSB methods which are described below.
For test methods that have not been approved by a VCSB, full test
method documentation, including a description of the technology/
instrumentation that makes the method functional, as well as subsequent
EPA approval of the method is also required. These submissions will
also be subject to the Agency's review for 90 days, and the method will
be considered approved in the absence of EPA comment. Submission of
VCSB methods is not required since they are available in the public
domain. In addition, industry and the Agency will likely have had
substantial experience with such methods.
As described above, federal government and EPA policy is to use
standards developed by voluntary consensus bodies when available. The
purpose of the NTTAA, at least in part, is to foster consistency in
regulatory requirements, to take advantage of the collective industry
wisdom and wide-spread technical evaluation required before a test
method is approved by a consensus body, and to take advantage of the
ongoing oversight and evaluation of a test method by the consensus body
that results from wide-spread use of an approved method e.g., the
ongoing round-robin type analysis and typical annual updating of the
method by the consensus body. These goals are not met where the Agency
allows use of a non-consensus body test method in perpetuity. Moreover,
it is not possible to realize many of the advantages that result from
consensus status where a test method is used by only one or a few
companies. It will not have the practical scrutiny that comes from
ongoing wide-spread use, or the independent scrutiny of the consensus
body and periodic updating. In addition, EPA does not have the
resources to conduct the degree of initial scrutiny or ongoing scrutiny
that are practiced by consensus bodies. Nevertheless, EPA believes it
is appropriate to allow limited use of a proprietary test method for a
limited time, even though the significant advantages of consensus test
methods are absent, because EPA can evaluate the initial quality of a
method and a company may have invested significant resources in
developing a method. However, if after a reasonable time a test method
fails to gain consensus body approval, EPA believes approval of the
method should be withdrawn because of the absence of ongoing consensus
oversight. Accordingly, a non-VCSB method will cease to be qualified
five years from the date of its original approval by EPA in the absence
of VCSB approval.
To assist the Agency in determining the performance of a given
sulfur test method, non-VCSB methods, in particular, we reserve the
right to send samples of commercially available fuel to laboratories
for evaluation. Such samples are intended for situations in which the
Agency has concerns regarding a test method and, in particular, its
ability to measure the sulfur content of a random commercially
available diesel fuel. Laboratory facilities are required to report
their results from tests of this material to the Agency.
iii. What Quality Control Provisions Are Required?
We are requiring ongoing Quality Control (QC) procedures for sulfur
measurement instrumentation. These are procedures used by laboratory
facilities to ensure that the test methods they have qualified and the
instruments on which the methods are run are yielding results with
appropriate accuracy and precision, e.g., that the results from a
particular instrument do not ``drift'' over time to yield unacceptable
values. It is our understanding that most laboratories already employ
QC procedures, and that these are commonly viewed as important good
laboratory practices. Laboratories will be required, at a minimum, to
abide by the following QC procedures for each instrument used to test
batches of diesel fuel under these regulations even where a laboratory
elects to use the test method used to establish the precision and
accuracy criteria finalized in today's rule:
(1) Follow the mandatory provisions of ASTM D 6299-02, Standard
Practice for Applying Statistical Quality Assurance Techniques to
Evaluate Analytical Measurement System Performance. Laboratories are
required to construct control charts from the mandatory QC sample
testing prescribed in paragraph 7.1, following the guidelines under A
1.5.1 for individual observation charts and A 1.5.2 for moving range
charts.
(2) Follow ASTM D 6299-02 paragraph 7.3.1 (check standards) using
[[Page 39093]]
a standard reference material. Check standard testing is required to
occur at least monthly and should take place following any major change
to the laboratory equipment or test procedure. Any deviation from the
accepted reference value of the check standard greater than 1.44 ppm
for diesel fuel subject to the 15 ppm sulfur standard and 19.36 ppm for
diesel fuel subject to the 500 ppm sulfur standard\170\ must be
investigated.
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\170\ 1.44 ppm is equal to two times the precision value of 0.72
ppm for 15 ppm diesel and 19.36 is equal to two times the precision
value of 9.68 ppm for 500 ppm diesel.
---------------------------------------------------------------------------
(3) Upon discovery of any QC testing violation of A 1.5.2.1 or A
1.5.3.2 or check standard deviation greater than 1.44 ppm and 19.36 ppm
for 15 ppm sulfur diesel and 500 ppm sulfur diesel, respectively, as
provided in item 2 above, any measurement made while the system was out
of control must be tagged as suspect and an investigation conducted
into the reasons for this anomalous performance. Refiners and importers
are required to retain batch samples for 30 days or the period equal to
the interval between QC sample tests, whichever is longer. If an
instrument is found to be out of control, all of the retained samples
since the last time the instrument was shown to be in control must be
retested.
(4) QC records, including investigations under item 3 above must be
retained for five years and must be provided to the Agency upon
request.
b. Requirements To Conduct Fuel Sulfur Testing
Given the importance of assuring that NRLM diesel fuel designated
to meet the 15 ppm sulfur standard in fact meets that standard, we are
requiring that refiners, importers, and transmix processors test each
batch of NRLM diesel fuel designated to meet the 15 ppm sulfur standard
and maintain records of such testing. Requiring that refiners,
importers, and transmix processors test each batch of fuel subject to
the 15 ppm sulfur NRLM standard assures that compliance can be
confirmed through testing records, and even more importantly, assures
that diesel fuel exceeding the 15 ppm standard is not introduced into
commerce as fuel for use in nonroad equipment having sulfur-sensitive
emission control devices. Batch testing was not required under the
highway diesel fuel rule. Instead, such testing was expected to be
performed to establish a defense to potential liability. However, for
the same reasons discussed above, today's rule extends this batch
testing requirement to15 ppm sulfur highway diesel fuel beginning in
2006.
In order to address situations where refiners produce NRLM diesel
fuel using computer-controlled inline blending equipment and do not
have storage tanks from which to withdraw samples, we are including in
today's final rule a provision to allow refiners to test a composited
sample of a batch of diesel fuel for its sulfur content after the
diesel fuel has been shipped from the refinery. This inline blending
provision is similar to the provision that exists under the
reformulated gasoline and gasoline sulfur programs and applies to both
highway and NRLM diesel fuel under today's action.
Today's rule does not require downstream parties to conduct every-
batch testing. However, we believe that most downstream parties will
voluntarily conduct ``periodic'' sampling and testing for quality
assurance purposes if they want to establish a defense to presumptive
liability, as discussed in section V.H. below.
2. Two Part-Per-Million Downstream Sulfur Measurement Adjustment
We believe that it is appropriate to recognize sulfur test
variability in determining compliance with the 15 ppm sulfur NRLM
diesel fuel standards downstream of a refinery or import facility.
Thus, today's rule provides that for all 15 ppm sulfur NRLM diesel fuel
at locations downstream of a refinery or import facility, sulfur test
results can be adjusted by subtracting two ppm. In the same manner as
finalized for 15 ppm sulfur highway diesel fuel, the sole purpose of
this downstream compliance provision is to address test variability
concerns (see the highway diesel fuel rule). We received comments
suggesting that a higher downstream test tolerance is needed based on
the current values for test method variability. However, we anticipate
that the reproducibility of sulfur test methods is likely to improve to
two ppm or even less by the time the 15 ppm sulfur standard for highway
diesel fuel is implemented--four years before implementation date of
the 15 ppm standard for NRLM diesel fuel. With this provision, we
anticipate that refiners will be able to produce diesel fuel with an
average sulfur level of approximately 7-8 ppm and some contamination
could occur throughout the distribution system, without fear of causing
a downstream violation due solely to test variability. As test methods
improve in the future, we will reevaluate whether two ppm is the
appropriate allowance for purposes of this compliance provision. We
also received comments that a test tolerance should be provided in
determining compliance with the 500 ppm sulfur standards for NRLM fuel.
We believe that such a tolerance is not needed for fuels subject to a
500 ppm sulfur standard because of the flexibility that refiners
possess to produce fuel with a sufficiently low sulfur content to
accommodate test variability.
3. Sampling Requirements
Today's rule adopts the same sampling methods adopted by the
highway diesel rule (66 FR 5002, January 18, 2001). These sampling
methods are American Society for Testing and Materials (ASTM) D 4057-95
(manual sampling) and D 4177-95 (automatic sampling from pipelines/in-
line blending). The requirement to use these methods becomes effective
for NRLM diesel fuel on June 1, 2007. These same methods were also
adopted for use in the Tier 2/Gasoline Sulfur rule.\171\
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\171\ 65 FR 6833-34 (Feb. 10, 2000). Today's rule also provides
that these methods be used under the RFG and CG rules. See 62 FR
37337 et seq. (July 11, 1997).
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4. Alternative Sampling and Testing Requirements for Importers of
Diesel Fuel Who Transport Diesel Fuel by Tanker Truck
We understand that importers who transport diesel fuel into the
U.S. by tanker truck are frequently relatively small businesses that
could be subject to a substantial burden if they were required to
sample and test each batch of NRLM or highway diesel fuel imported by
truck, especially where a trucker imports many small loads of diesel
fuel. Therefore, today's rule provides that truck importers may comply
with an alternative sampling and testing requirement, involving a
sampling and testing program of the foreign truck loading terminal, if
certain conditions are met. For an importer to be eligible for the
alternative sampling and testing requirement, the terminal must conduct
sampling and testing of the NRLM or highway diesel fuel immediately
after each receipt into its terminal storage tank but before loading
product into the importer's tanker truck storage compartments or
immediately prior to loading product into the importer's tanker truck
if it hasn't tested after each receipt. Moreover, the importer will be
required to conduct periodic quality assurance testing of the
terminal's diesel fuel, and the importer will be required to assure EPA
that we will be allowed to make unannounced
[[Page 39094]]
inspections and audits, to sample and test fuel at the foreign terminal
facility, to assure that the terminal maintained sampling and testing
records, and to submit such records to EPA upon request.
E. Selection of the Marker for Heating Oil
As discussed in section IV.D, to ensure that heating oil is not
shifted into the NRLM market, we need a way to distinguish heating oil
from high sulfur or 500 ppm sulfur NRLM diesel fuel produced under the
small refiner and credit provisions in today's rule. Currently, there
is no differentiation today between fuel used for NRLM uses and heating
oil. Both are typically produced to the same sulfur specification, and
both are required to have the same red dye added prior to distribution
from downstream of the terminal. Based on recommendations from
refiners, in the NPRM, we concluded that the best approach to
differentiate heating oil from NRLM diesel fuel would be to require
that a marker be added to heating oil at the refinery gate. Since the
proposal we received additional information which allows us to rely
upon record-keeping and reporting provisions to differentiate heating
oil from NRLM up to the point where it leaves the terminal (see section
IV.D). Therefore, today's rule requires that a marker be added to
heating oil before it leaves the terminal gate rather than the refinery
gate as proposed.\172\
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\172\ Heating oil sold inside the Northeast/Mid-Atlantic Area
adopted under today's rule and Alaska does not need to contain a
marker (see section IV.D.).
---------------------------------------------------------------------------
Section IV.D of today's preamble also discusses the need to
distinguish 500 ppm sulfur locomotive and marine fuel produced by
refiners and imported from 2010-2012 from 500 ppm sulfur nonroad diesel
fuel produced during this time frame under the small refiner, credit,
and downstream flexibility provisions in today's rule. Without this
ability, it would be possible for 500 ppm sulfur LM diesel fuel to be
shifted into the nonroad market during this time period outside of the
Northeast/Mid-Atlantic Area and Alaska. Therefore, today's rule
requires that from June 1, 2010 through May 31, 2012, the same marker
added to heating oil must also be added to 500 ppm sulfur LM diesel
fuel produced by a refiner or imported for use outside of the
Northeast/Mid-Atlantic Area and Alaska before the fuel leaves the
terminal. Nonroad diesel fuel meeting a 500 ppm sulfur standard
produced under the small refiner or credit provisions, and 500 ppm
sulfur NRLM diesel fuel generated under the downstream flexibility
provisions in today's rule could be sold into the LM market outside of
the Northeast/Mid-Atlantic Area and Alaska. Such 500 ppm sulfur NRLM
diesel fuel does not need to be marked. Therefore, both marked and
unmarked 500 ppm sulfur diesel fuel could be used in locomotive and
marine diesel equipment outside of the Northeast/Mid-Atlantic Area and
Alaska from 2010 through 2012.\173\
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\173\ Inside the Northeast/Mid-Atlantic Area, 500 ppm sulfur
fuel produced from transmix or segregated interface could be sold
into the LM or heating oil markets from 2010-2012, and could only be
sold into the heating oil market after 2012. Outside of the
Northeast/Mid-Atlantic Area, such fuel could be sold into the NRLM
market from 2010-2012, and into the LM market thereafter.
---------------------------------------------------------------------------
As discussed in section IV.D., use of the same marker in heating
oil and 500 ppm sulfur LM fuel is feasible because the underlying goal
is the same, i.e., keeping 500 ppm sulfur diesel fuel produced as
heating oil or LM fuel from begin shifted into the nonroad diesel
market from 2010 through 2012. We will be able to determine whether
heating oil with a sulfur content greater than 500 ppm has been shifted
into the LM market downstream of the terminal by testing the sulfur
content of LM. 500 ppm fuel initially designated as heating oil can be
later shifted into the LM market, since the sulfur standard for LM
diesel fuel during this period is 500 ppm.
Terminal operators suggested that we might be able to rely on
record-keeping and reporting downstream of the terminal as well as
above the terminal level, thereby eliminating any need for a fuel
marker. However, we believe such record-keeping and reporting
mechanisms would be insufficient to keep heating oil out of the NRLM
market and 500 ppm sulfur LM fuel produced by a refiner or imported out
of the nonroad market downstream of the terminal under typical
circumstances. We can rely on such measures before the fuel leaves the
terminal because it is feasible to require all of the facilities in the
distribution system to report to EPA on their fuel transfers. As
discussed in section IV.D., these electronic reports can be compared by
EPA to identify parties responsible for shifting heating oil into the
NRLM market from 2007-2014, 500 ppm sulfur LM fuel into the nonroad
market from 2010-2012, and heating oil into the LM market beginning
2014. Downstream of the terminal the parties involved in the fuel
distribution system become far too numerous for such a system to be
implemented and enforced (including jobbers, bulk plant operators,
heating oil dealers, retailers, and even end-users with storage tanks
such as farmers. Reporting errors for even a small fraction would
require too many resources to track down and correct and would
eliminate the effectiveness of the system.
Our proposal envisioned that a fuel marker would be required in
heating oil from June 1, 2006 through May 31, 2010, and that the same
marker would be required in locomotive and marine fuel from June 1,
2010 through May 31, 2014. As a consequence of finalizing the 15 ppm
sulfur standard for locomotive and marine fuel in 2012, we no longer
need to require that LM diesel fuel be marked after June 1, 2012. The
2010-2012 marking requirement for 500 ppm sulfur LM diesel fuel does
not apply to 500 ppm sulfur LM fuel produced by a refiner or imported
in the Northeast/Mid-Atlantic Area or in Alaska. There is an ongoing
need to require the continued use of the marker in heating oil
indefinitely (see section IV of today's preamble).
We proposed that beginning June 1, 2007 SY-124 must be added to
heating oil in the U.S. at a concentration of 6 milligrams per liter
(mg/L). Today's rule adopts this requirement except for heating oil
used in the Northeast/Mid-Atlantic Area and Alaska.\174\ The chemical
composition of SY-124 is as follows: N-ethyl-N-[2-[1-(2-
methylpropoxy)ethoxyl]-4-phenylazo]-benzeneamine.\175\ This
concentration is sufficient to ensure detection of SY-124 in the
distribution system, even if diluted by a factor of 50. Any fuel found
with a marker concentration of 0.1 milligrams per liter or more will be
presumed to be heating oil. Below this level, the prohibition on use in
highway, nonroad, locomotive, or marine applications would not apply.
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\174\ See section IV.D of today's preamble for a discussion of
the provisions for the Northeast/Mid-Atlantic Area and Alaska.
\175\ Opinion on Selection of a Community-wide Mineral Oils
Marking System, (``Euromarker''), European Union Scientific
Committee for Toxicity, Ecotoxicity and the Environment plenary
meeting, September 28, 1999.
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There are a number of other types of dyes and markers. Visible dyes
are most common, are inexpensive, and are easily detected. Using a
second dye in addition to the red dye required by IRS in all non-
highway fuel for segregation of heating oil based on visual
identification raises certain challenges. The marker that we require in
heating oil and 500 ppm sulfur LM diesel fuel must be different from
the red dye currently required by IRS and EPA and not interfere with
the identification of red dye in distillate fuels. Invisible
[[Page 39095]]
markers are beginning to see more use in branded fuels and are somewhat
more expensive than visible markers. Such markers are detected either
by the addition of a chemical reagent or by their fluorescence when
subjected to near-infra-red or ultraviolet light. Some chemical-based
detection methods are suitable for use in the field. Others must be
conducted in the laboratory due to the complexity of the detection
process or concerns regarding the toxicity of the reagents used to
reveal the presence of the marker. Near-infra-red and ultra-violet
flourescent markers can be easily detected in the field using a small
device and after brief training of the operator. There are also more
exotic markers available such as those based on immunoassay, and
isotopic or molecular enhancement. Such markers typically need to be
detected by laboratory analysis.
We selected SY-124, however, for a number of reasons:
(1) There is considerable data and experience with it which
indicates there are no significant issues with its use;
(2) It is compatible with the existing red dye;
(3) Test methods exist to quantify its concentration, even if
diluted by a factor of 50 to one;
(4) It is reasonably inexpensive; and
(5) It can be produced and provided by a number of sources.
Effective in August 2002, the European Union (EU) enacted the
requirement that SY-124 be added at 6 mg/L to diesel fuel that is taxed
at a lower rate in all EU member states.\176\ Solvent yellow 124 is
referred to as the ``Euromarker'' in the EU. The EU has found this
treatment rate to be sufficient for their enforcement purposes while
not interfering with the identification of the various different
colored dyes required by different EU member states (including the same
red dye that is required in the U.S.). Despite its name, SY-124 does
not impart a strong color to diesel fuel when used at a concentration
of 6 mg/L. Most often it is reportedly nearly invisible in distillate
fuel given that the slight yellow color imparted is similar to the
natural color of many distillate fuels.\177\ In the presence of red
dye, SY-124 can impart a slight orange tinge to the fuel. However, it
does not interfere with the visual identification of the presence of
red dye or the quantification of the concentration of red dye in
distillate fuel. Thus, the use of SY-124 at 6 mg/L in diesel fuel would
not interfere with the use of the red dye by IRS to identify non-taxed
fuels.
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\176\ The European Union marker legislation, 2001/574/EC,
document C(2001) 1728, was published in the European Council
Official Journal, L203 28.072001.
\177\ The color of distillate fuel can range from near water
white to a dark blackish brown but is most frequently straw colored.
---------------------------------------------------------------------------
Solvent yellow 124 is chemically similar to other additives used in
gasoline and diesel fuel, and has been registered by EPA as a fuel
additive under 40 CFR part 79. Therefore, we expect that its products
of combustion would not have an adverse impact on emission control
devices, such as a catalytic converter. Extensive evaluation and
testing of SY-124 was conducted by the European Commission. This
included combustion testing which showed no detectable difference
between the emissions from marked and unmarked fuel. Norway
specifically evaluated the use of distillate fuel containing SY-124 for
heating purposes and determined that the presence of the Euromarker did
not cause an increase in harmful emissions from heating equipment.
Based on the European experience with SY-124, we do not expect that
there would be concerns regarding the compatibility of SY-124 in the
U.S. fuel distribution system or for use in motor vehicle engines and
other equipment such as in residential furnaces.
Our evaluation of the process conducted by the EU in selecting SY-
124 for use in the EU convinced us that SY-124 was also the most
appropriate marker to propose for use in heating oil under today's
program. We received a number of comments expressing concern about the
use of SY-124 in heating oil. Based on our evaluation of these comments
(summarized below and in the S&A), we continue to believe that SY-124
is the most appropriate marker to specify for use in heating oil and
500 ppm sulfur LM diesel fuel under today's rule. Therefore, today's
rule requires that beginning June 1, 2007, SY-124 be added to heating
oil, and that from June 1, 2010 through May 31, 2012, SY-124 be added
to 500 ppm sulfur LM diesel fuel produced by a refiner or imported at a
concentration of 6 mg/L before such fuel leaves the terminal except in
the Northeast/Mid-Atlantic Area and Alaska.
The concerns regarding the use of SY-124 in heating oil primarily
pertained to: the potential impact on jet engines if jet fuel were
contaminated with SY-124; the potential health effects of SY-124 when
used in fuel for heating purposes, particularly for unvented heaters;
the potential cost impact on fuel distributors and transmix processors;
and the potential conflict with IRS red dye requirements.
The American Society of Testing and Materials (ASTM), the
Coordinating Research Council (CRC), and the Federal Aviation
Administration (FAA) requested that we delay finalizing the selection
of a specific marker for use in heating oil in today's rule. They
requested that selection of a specific marker should be deferred until
testing could be conducted regarding the potential impact of SY-124 on
jet engines. The Air Transport Association stated that EPA should
conduct an extensive study regarding the potential for contamination,
determine the levels at which the marker will not pose a risk to jet
engines, and seek approval of SY-124 as a jet fuel additive. Other
parties including the Department of Defense (DoD) also stated that EPA
should refrain from specifying a heating oil marker under today's rule
until industry and other potentially affected parties can recommend an
appropriate marker. Representatives of the heating oil industry stated
that they were concerned that EPA had not conducted an independent
review regarding the safety/suitability of SY-124 for use in heating oil.
We met and corresponded with numerous and diverse parties to
evaluate the concerns expressed regarding the use of SY-124, and to
determine whether it might be more appropriate to specify a different
marker for use in heating oil. These parties include IRS, FAA, ASTM,
CRC, various marker/dye manufacturers, European distributors of fuels
containing the Euromarker, marker suppliers, and members of all
segments in the U.S. fuel distribution system.
We believe that concerns related to potential jet fuel
contamination have been sufficiently addressed for us to finalize the
selection of SY-124 as the required heating oil marker in today's
rule.\178\ As discussed in section IV.D of today's preamble, changes in
the structure of the fuel program finalized in today's rule from that
in the proposed program have allowed us to move the point where the
marker must be added from the refinery gate to the terminal. The vast
majority of concerns regarding the potential for contamination of jet
fuel with SY-124 pertained to the shipment of marked fuel by pipeline.
All parties were in agreement that nearly all of the potential for
marker contamination of jet fuel would disappear if the point of marker
addition was moved to the terminal. We
[[Page 39096]]
spoke with terminal operators, both large and small, who confirmed that
they maintain strictly segregated distribution facilities for red dyed
fuel and jet fuel because of jet fuel contamination concerns. The same
type of segregation practices will apply to the handling of marked
heating oil, marked 500 ppm sulfur LM diesel fuel, and jet fuel since
the marker will only be present in heating oil and locomotive and
marine fuel when red dye is also present. Therefore, these practices
will be equally effective in limiting contamination of jet fuel with
SY-124. Downstream of the terminal, the only other chance for marker
contamination of jet fuel pertains to bulk plant operators and jobbers
that handle marked heating oil and jet fuel. For the most part, these
parties also currently maintain strict segregation of the facilities
used to transport jet fuel and heating oil. The one exception is that
small bulk plant operators that supply small airports sometimes use the
same tank truck to alternately transport jet fuel and heating oil. In
such cases, they flush the tank compartment prior to transporting jet
fuel to remove any residual heating oil left behind after the tank is
drained. Since few, if any bulk plants handle LM fuel, it is unlikely
that the same tank trucks will be used to alternately transport LM fuel
and jet fuel. Thus, we expect that there will be even less chance for
LM fuel containing the marker to contaminate jet fuel.
---------------------------------------------------------------------------
\178\ See the Summary and Analysis of Comments for a more
detailed discussion of our response to concerns about the possible
contamination of jet fuel with the marker prescribed for use in
heating oil and 500 ppm sulfur LM fuel under today's rule.
---------------------------------------------------------------------------
Today's rule requires that heating oil and locomotive and marine
fuel which contains the marker must also contain visible evidence of
red dye. Therefore, the ``white bucket'' test that distributors
currently use to detect red dye contamination of jet fuel can also be
relied upon to detect marker contamination of jet fuel. Based on the
above discussion, we concluded that the required addition of the marker
to heating oil and 500 ppm sulfur locomotive and marine fuel from 2010-
2012 would not significantly increase the likelihood of jet fuel
contamination, and that when such contamination might occur, it could
be readily identified without the need for additional testing. Our
finalization of the Northeast/Mid-Atlantic Area in (see section IV.D)
also minimizes potential concerns regarding the potential that jet fuel
may become contaminated with the marker, since no marker is required in
this area. Furthermore, there is expected to be little heating oil used
outside of the Northeast/Mid-Atlantic Area, the locomotive and marine
market outside of the Northeast/Mid-Atlantic Area is limited. We
anticipate that the distribution of marked LM diesel fuel will
primarily be by segregated pathways, and the duration of the marker
requirement for 500 ppm sulfur LM diesel fuel produced by refiners or
imported for use outside of the Northeast/Mid-Atlantic Area and Alaska
is only two years. On the whole, we actually expect that today's rule
will reduce the potential for jet fuel to become contaminated with the
azo dyes such as the IRS-required red dye and SY-124 since visual
evidence will no longer be required leaving the refinery gate in 500
ppm NRLM fuel beginning June 1, 2007, and will no longer be required in
any off-highway diesel fuel beginning June 1, 2010.
This final rule requires addition of the marker at the terminal
rather than the refinery gate as proposed. Based on this change, ASTM
withdrew its request to delay the finalization of the marker
requirements in today's rule. However, ASTM stated that some concern
remains regarding jet fuel contamination downstream of the terminal
(due to the limited use of the same tank wagons to alternately
transport jet fuel and heating oil discussed above). Nevertheless, ASTM
related that these concerns need not delay finalization of the marker
requirements in this rule. ASTM intends to support a CRC program to
evaluate the compatibility of markers with jet fuel. The Federal
Aviation Administration is also undertaking an effort to identify fuel
markers that would be compatible for use in jet fuel. We commit to a
review of the use of SY-124 in the future based on the findings of the
CRC and the FAA, experience with the use of SY-124 in Europe, and
future input from ASTM or other concerned parties. If alternative
markers are identified that do not raise concerns regarding the
potential contamination of jet fuel, we will initiate a rulemaking to
evaluate the use of one of these markers in place of SY-124.
Since the NPRM, no new information has been provided which
indicates that the combustion of SY-124 in heating equipment would
result in more harmful emissions than when combusted in engines, or
would result in more harmful emissions than combustion of unmarked
heating oil. The European experience with the use of SY-124 and the
evaluation process it underwent prior to selection by the EU, provides
strong support regarding the compatibility of SY-124 in the U.S. fuel
distribution system, and for use in motor vehicle engines and other
equipment such as in residential furnaces and nonroad, locomotive, and
marine engines. We believe that concerns regarding the potential health
impacts from the use of SY-124 do not present sufficient cause to delay
finalization of the requirement for it's use that is contained in
today's rule.
The European Union intends to review the use of SY-124 after
December 2005, but may undertake the review earlier if any health and
safety or environmental concerns about its use are raised. We intend to
keep abreast of such activities and may initiate our own review of the
use of SY-124 depending on the European Union's findings, or other
relevant information. There will be nearly four years of accumulated
field experience with the use of SY-124 in Europe at the time of the
review by the EU and nearly 5 years by the implementation of the marker
requirement under today's rule. This will provide ample time for any
potential unidentified issues with SY-124 to be identified, and for us
to choose a different marker if warranted.
Commenters stated that potential health concerns regarding the use
of SY-124 might be exacerbated with respect to its use in unvented
space heaters. Commenters further stated that there are prohibitions
against the dyeing of kerosene (No. 1 diesel) used in such heaters. No
information was provided to support these concerns, however, and we
have no information to suggest any health concerns exist regarding the
use of SY-124 in unvented heaters. Nevertheless, even if there were
such concerns, today's rule will not require SY-124 to be used in the
fuel used in unvented heaters. Furthermore, today's rule, does not
require that SY-124 be added to kerosene. This resolves most of what
concern might remain regarding this issue, since kerosene is the
predominate fuel used in unvented heaters. However, the DoD stated that
No. 2 diesel fuel is sometimes used in its tent heaters and expressed
concern regarding the presence of SY-124 in fuel used for this purpose.
We understand that to simplify the DoD fuel distribution system, it is
DoD policy to use a single fuel called JP-8 for multiple purposes where
practicable, including space heating. JP-8 used for such a purpose
would not be subject to today's fuel marker requirement. In cases where
JP-8 might not be available for space heating, DoD could avoid the use
of SY-124 containing fuel by using kerosene in their space heaters.
We believe that the concerns expressed regarding the potential
impact on distributors and transmix processors from the presence of SY-
124 in heating oil and 500 ppm sulfur LM fuel have been addressed by
moving the point of marker addition to the terminal. Terminal operators
stated that they
[[Page 39097]]
desire the flexibility to blend 500 ppm diesel fuel from 15 ppm diesel
fuel and heating oil. This practice would have been prevented by the
proposed addition of the marker at the refinery gate. Under today's
rule, terminal operators will have access to unmarked high sulfur fuel
with which to manufacture 500 ppm diesel fuel by blending with 15 ppm
diesel fuel.\179\
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\179\ Terminals that manufacture 500 ppm diesel fuel by blending
15 ppm and high sulfur fuel are treated as a refiner under today's
rule. They must also comply with all applicable designate and track
requirements, anti-downgrading provisions, and the other applicable
requirements in today's rule (see section IV.D of today's preamble).
---------------------------------------------------------------------------
Transmix processors stated that the presence of a marker in
transmix would limit the available markets for their reprocessed
distillates. The feed material for transmix processors primarily
consists of the interface mixing zone between batches of fuels that
abut each other during shipment by pipeline where this mixing zone can
not be cut into either of the adjacent products. If marked heating oil
and locomotive and marine fuel was shipped by pipeline, the source
material for transmix processors fed by pipelines that carry marked
fuel could contain SY-124.\180\ Transmix processors stated that it
would be prohibitively expensive to segregate pipeline-generated
transmix containing the marker from that which does not contain the
marker prior to processing, and that they could not economically remove
the marker during reprocessing. Thus, in cases where the marker would
be present in a transmix processor's feed material, they would be
limited to marketing their reprocessed distillate fuels into the
heating oil market. Since today's final rule requires that the marker
be added at the terminal gate (rather than at the refinery gate), the
feed material that transmix processors receive from pipelines will not
contain the marker. Hence, they will not typically need to process
transmix containing the fuel marker prescribed in today's rule, and
today's marker requirement is not expected to significantly alter their
operations. There is little opportunity for marker contamination of
fuels that are not subject to the marker requirements to occur at the
terminal and further downstream. In the rare instances where this might
occur, the fuel contaminated would likely also be a distillate fuel,
and thus could be sold into the heating oil market without need for
reprocessing.
---------------------------------------------------------------------------
\180\ We do not expect that there will be sufficient demand for
500 ppm sulfur LM diesel fuel produced by refiners or importers to
justify its shipment by pipeline after 2010.
---------------------------------------------------------------------------
We do not expect that the fuel marker requirements will result in
the need for additional fuel storage tanks or tank trucks in the
distribution system. As discussed in section VI.A of today's preamble,
the implementation of the NRLM sulfur standards in today's rule is
projected to result in the need for additional storage tanks and tank
truck de-manifolding at a limited number of bulk plant facilities. The
marker requirement does not add another criteria apart from the sulfur
content of the fuel which would force additional product segregation.
As discussed above, industry has expressed concern about the use of the
same tank trucks to alternately transport heating oil and jet fuel. We
do not expect that the addition of marker to heating oil and 500 ppm
sulfur LM diesel fuel will exacerbate these concerns. However,
depending on the outcome of the aforementioned CRC program, the
addition of marker to heating oil may hasten the current trend to avoid
the use of tank trucks to alternately transport jet fuel and heating
oil. To the extent that this does occur, we do not expect that it would
result in substantial additional costs since few tank truck operators
currently use the same tank truck compartments to alternately transport
heating oil and jet fuel.
Through our discussions with the IRS, we have confirmed that the
presence of SY-124 will not interfere with enforcement of their red dye
requirement. \181\ Although, SY-124 may impart a slight orange tint to
red-dyed diesel fuel, this will not complicate the identification of
the presence of the IRS red dye. In fact, IRS has determined that the
presence of SY-124 may even enhance enforcement of their fuel tax
program. \182\ However, as identified in the comments, the
implementation of today's marker requirement for heating oil arguably
may be in conflict with IRS regulations at 26 CFR 48.4082-1(b) which
state that no dye other than the IRS-specified red dye must be present
in untaxed diesel fuel. IRS is evaluating what actions might be
necessary to clarify that the addition of SY-124 to heating oil would
not be in violation of IRS regulations.
---------------------------------------------------------------------------
\181\ Phone conversation between Carl Dalton and Rick Stiff, IRS
and Jeff Herzog and Paul Machiele, EPA, February 19, 2004.
\182\ ibid.
---------------------------------------------------------------------------
IRS also related that they are investigating new markers for
potential use either to supplement or to replace red dye under their
diesel tax program which might be compatible with jet fuel. IRS stated
that it might result in a reduced burden on industry if EPA were to
adopt one of the markers from the family of markers that they are
investigating. Given the changes to our program in today's final rule,
the marker provisions will not impose a significant burden. However, if
the IRS program were to develop an alternate marker that would be
compatible with jet we will initiate a rulemaking to evaluate the use
of one of these markers in place of SY-124 (see section VIII.H.).
Commenters also expressed concerns regarding the proprietary rights
related to the manufacture and use of SY-124, and stated that EPA
should adopt a nonproprietary marker if possible. The proprietary
rights related to SY-124 expire several months after the implementation
of the marker requirements finalized in today's rule. Therefore, we do
not expect that the current proprietary rights regarding SY-124 are a
significant concern. Commenters also stated that our estimated cost of
SY-124 in the NPRM (0.2 cents per gallon of treated fuel) was high
compared to other markers that cost hundredths of a cent per gallon.
Since the proposal we have obtained more accurate information which
indicates that the current cost of bulk quantities of SY-124 is
approximately 0.03 cents per gallon of treated fuel (see section
VI.A.). Based on conversations with various marker manufacturers, this
cost is comparable to or less than other fuel markers.
F. Fuel Marker Test Method
As discussed in section V.E above, today's rule requires the use of
SY-124 at a concentration of 6mg/L in heating oil beginning in 2007,
and in 500 ppm sulfur LM diesel fuel produced by a refiner or importer
from 2010 through 2012, except for such fuels that used in the
Northeast/Mid-Atlantic Area and Alaska. There is currently no industry
standard test procedure to quantify the presence of SY-124 in
distillate fuels. The most commonly accepted method is based on the
chemical extraction of the SY-124 using hydrocloric acid solution and
cycloxane, and the subsequent evaluation of the extract using a visual
spectrometer to determine the concentration of the marker.\183\ This
test is inexpensive and easy to use for field inspections. However, the
test involves reagents that require some safety precautions and the
small amount of fuel required in the test must be disposed of as
hazardous waste. Commenters expressed concerns about
[[Page 39098]]
the use of a test procedure which involves a hazardous reagent
(hydrochloric acid) and which generates a waste product that must be
disposed of as hazardous waste. Nevertheless, we continue to believe
that such safety concerns are manageable here in the U.S. just as they
are in Europe and that the small amount of waste generated can be
handled along with other similar waste generated by the company
conducting the test, and that the associated effort and costs will be
negligible.
---------------------------------------------------------------------------
\183\ Memorandum to the docket entitled ``Use of a Visible
Spectrometer Based Test Method in Detecting the Presence and
Determining the Concentration of Solvent Yellow 124 in Diesel
Fuel.''
---------------------------------------------------------------------------
Changes made in today's final rule from the proposal will mean that
few parties in industry will need to test for the marker, thereby
minimizing concerns about the burden of such testing. Much of the
testing for the fuel marker that was envisioned by industry was
associated with detecting marker contamination in other fuels. By
moving the required point of marker addition downstream to the
terminal, today's rule virtually eliminates these concerns. Where such
concerns continue to exist, the presence of the red dye will provide a
visual means of detecting marker contamination.\184\ Therefore, we
expect that the instances where parties will need to test for marker
contamination will be rare. Also, the Northeast/Mid-Atlantic Area
provisions finalized in today's rule will exempt the vast majority of
heating oil used in the U.S. from the marker requirement. Based on the
above discussion, we believe that the vast majority of testing for the
presence of the fuel marker that will be conducted will be that by EPA
for enforcement purposes.
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\184\ Today's rule requires that red dye be present in heating
oil which contains the marker.
---------------------------------------------------------------------------
Similar to the approach proposed regarding the measurement of fuel
sulfur content discussed in section V.H above, we are finalizing a
performance-based procedure to measure the concentration of SY-124 in
distillate fuel. Section V.H above describes our rationale for
finalizing performance-based test procedures. Under the performance-
based approach, a given test method can be approved for use in a
specific laboratory or for field testing by meeting certain precision
and accuracy criteria. Properly selected precision and accuracy values
allow multiple methods and multiple commercially available instruments
to be approved, thus providing greater flexibility in method and
instrument selection while also encouraging the development and use of
better methods and instrumentation in the future. For example, we are
hopeful that with more time and effort a simpler test can be developed
for SY-124 that can avoid the use of reagents and the generation of
hazardous waste that is by product of the current commonly accepted method.
Under the performance criteria approach, methods developed by
consensus bodies as well as methods not yet approved by a consensus
body will qualify for approval provided they meet the specified
performance criteria as well as the record-keeping and reporting
requirements for quality control purposes. There is no designated
marker test method.
1. How Can a Given Marker Test Method Be Approved?
A marker test method can be approved for use under today's program
by meeting certain precision and accuracy criteria. Approval will apply
on a laboratory/facility-specific basis. If a company chooses to employ
more than one laboratory for fuel marker testing purposes, then each
laboratory will have to separately seek approval for each method it
intends to use. Likewise, if a laboratory chooses to use more than one
marker test method, then each method will have to be approved
separately. Separate approval will not be necessary for individual
operators or laboratory instruments within a given laboratory facility.
The method will be approved for use by that laboratory as long as
appropriate quality control procedures were followed.
In developing the precision and accuracy criteria for the sulfur
test method, EPA drew upon the results of an inter-laboratory study
conducted by the American Society for Testing and Materials (ASTM) to
support ASTM's standardization of the sulfur test method.
Unfortunately, there has not been sufficient time for industry to
standardize the test procedure used to measure the concentration of SY-
124 in distillate fuels or to conduct an inter-laboratory study
regarding the variability of the method. Nevertheless, the European
Union has been successful in implementing its marker requirement while
relying on the marker test procedures which are currently available, as
noted above. We used, the most commonly used marker test procedure to
establish the precision and accuracy criteria on which a marker test
procedure would be approved under the today's rule.\185\
---------------------------------------------------------------------------
\185\ Memorandum to the docket entitled ``Use of a Visible
Spectrometer Based Test Method in Detecting the Presence and
Determining the Concentration of Solvent Yellow 124 in Diesel Fuel.''
---------------------------------------------------------------------------
There has been substantial experience in the use of this reference
market test method since the August 2002 effective date of the European
Union's marker requirement. However, EPA is aware of only limited
summary data on the variability of the reference test method from a
manufacturer of the visible spectrometer apparatus used in the
testing.\186\ The stated resolution of the test method from the
materials provided by this equipment manufacturer is 0.1 mg/L, with a
repeatability of plus or minus 0.08 mg/L and a reproducibility of plus
or minus 0.2 mg/L.\187\ Given the lack of more extensive data, we have
decided to use these available data as the basis of the precision and
accuracy criteria for the marker test procedure under today's rule (as
discussed below). EPA may initiate a review of the precision and
accuracy criteria finalized in today's rule should additional test data
become available.
---------------------------------------------------------------------------
\186\ Technical Data on Fuel/Dye/Marker & Color Analyzers, as
downloaded from the Petroleum Analyzer Company L.P. Web site at
http://www.paclp.com/product/PetroSpec/lit_pspec/DTcolor.pdf.
\187\ Repeatability and reproducibility are terms related to
test variability. ASTM defines repeatability as the difference
between successive results obtained by the same operator with the
same apparatus under constant operating conditions on identical test
materials that would, in the long run, in the normal and correct
operation of the test method be exceeded only in one case in 20.
Reproducibility is defined by ASTM as the difference between two
single and independent results obtained by different operators
working in different laboratories on identical material that would,
in the long run, be exceeded only in one case in twenty.
---------------------------------------------------------------------------
Using a similar methodology to that employed in deriving the sulfur
test procedure precision value results in a precision value for the
marker test procedure of 0.043 mg/L (see section V.H).\188\ However, we
are concerned that the use of this precision value, because it is based
on very limited data, might preclude the acceptability of test
procedures that would be adequate for the intended regulatory use. In
addition, the lowest measurement of marker concentration that will have
relevance under the regulations is 0.1 mg per liter. Consequently,
today's rule requires that the precision of a marker test procedure
will need to be less than 0.1 mg/L for it to qualify.
---------------------------------------------------------------------------
\188\ See section V.H of this proposal for a discussion of the
methodology used in deriving the proposed precision and accuracy
values for the sulfur test method.
---------------------------------------------------------------------------
To demonstrate the accuracy of a given test method, a laboratory
facility will be required to perform 10 repeat tests, the mean of which
can not deviate from the Accepted Reference Value (ARV) of the standard
by more than 0.05 mg/L. We believe that this accuracy level is not
overly restrictive, while being sufficiently protective considering
that the lowest marker level of
[[Page 39099]]
regulatory significance would be 0.1 mg/L. Ten tests will be required
using each of two different marker standards, one in the range of 0.1
to 1 mg/L and the other in the range of 4 to 10 mg/L of SY-124.
Therefore, a minimum of 20 total tests will be required for sufficient
demonstration of accuracy for a given marker test method at a given
laboratory facility. Finally, any known interferences for a given test
method will have to be mitigated. These tests must be performed using
commercially available SY-124 standards. Since the European Union's
marker requirement will have been in effect for nearly 5 years by the
implementation date of today's marker, we believe that such standards
will be available by the implementation date for today's rule.
These requirements are not overly burdensome. To the contrary,
these requirements are equivalent to what a laboratory would do during
the normal start up procedure for a given test method. In addition, we
believe the performance based approach finalized in today's rule will
allow regulated entities to know that they are measuring fuel marker
levels accurately and within reasonable site reproducibility limits.
2. What Information Would Have To Be Reported to the Agency?
As noted above, the European Union's (EU) marker requirement will
have been in effect for nearly five years prior to the effective data
for the proposed marker requirements and we expect the EU requirement
to continue indefinitely. Thus, we anticipate that the European
testings standards community will likely have standardized a test
procedure to measure the concentration of SY-124 in distillate fuels
prior to the implementation of the marker requirement in today's final
rule. The United States testing standards community may also enact such
a standardized test procedure. To the extent that marker test methods
that have already been approved by a voluntary consensus standards body
\189\ (VCSB), such as the International Standards Organization (ISO) or
the American Society for Testing and Materials (ASTM), each laboratory
facility would be required to report to the Agency the precision and
accuracy results as described above for each method for which it is
seeking approval. Such submissions to EPA, as described elsewhere, will
be subject to the Agency's review for 30 days, and the method will be
considered approved in the absence of EPA comment. Laboratory
facilities are required to retain the fuel samples used for precision
and accuracy demonstration for 30 days.
---------------------------------------------------------------------------
\189\ These are standard-setting organizations, like ASTM, and
ISO that have broad representation of all interested stakeholders
and make decisions by consensus.
---------------------------------------------------------------------------
For test methods that have not been approved by a VCSB, full test
method documentation, including a description of the technology/
instrumentation that makes the method functional, as well as subsequent
EPA approval of the method is also required. These submissions are
subject to the Agency's review for 90 days, and the method will be
considered approved in the absence of EPA comment. Submission of VCSB
methods is not required since they are available in the public domain.
In addition, industry and the Agency will likely have had substantial
experience with such methods.
To assist the Agency in determining the performance of a given
marker test method (non-VCSB methods, in particular), we reserve the
right to send samples of commercially available fuel to laboratories
for evaluation. Such samples are intended for situations in which the
Agency has concerns regarding a test method and, in particular, its
ability to measure the marker content of a random commercially
available diesel fuel. Laboratory facilities are required to report the
results from tests on this material to the Agency.
G. Requirements for Recordkeeping, Reporting, and PTDs
1. Registration Requirements
As discussed in section IV.D, by December 31, 2005, or six months
prior to handling fuels subject to the designation requirements of
today's rule, each entity in the fuel distribution system, up through
and including the point where fuel is loaded onto trucks for
distribution to retailers or wholesale purchaser-consumers, must
register each of its facilities with EPA.
An entity's registration must include the following information:
? Corporate name and address
--Contact name, telephone number, and e-mail address
? For each facility operated by the entity:
--Type of facility (e.g. refinery, import facility, pipeline, terminal)
--Facility name
--Physical location
--Contact name, telephone number, and e-mail address
2. Applications for Small Refiner Status
An application of a refiner for small refiner status must be
submitted to EPA by December 31, 2004 and shall include the following
information:
? The name and address of each location at which any
employee of the company, including any parent companies, subsidiaries,
or joint venture partners \190\ worked From January 1, 2002 until
January 1, 2003;
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\190\ ``Subsidiary'' here covers entities of which the parent
company has 50 percent or greater ownership.
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? The average number of employees at each location, based on
the number of employees for each of the company's pay periods from
January 1, 2002 until January 1, 2003;
? The type of business activities carried out at each location; and
? The total crude oil refining capacity of the corporation.
We define total capacity as the sum of all individual refinery
capacities for multiple-refinery companies, including any and all
subsidiaries, and joint venture partners as reported to the Energy
Information Administration (EIA) for 2002, or in the case of foreign
refiners, a comparable reputable source, such as professional
publication or trade journal.\191\ Refiners do not need to include
crude oil capacity used in 2002 through a lease agreement with another
refiner in which it has no ownership interest.
---------------------------------------------------------------------------
\191\ We will evaluate each foreign refiner?s documentation of
crude oil capacity on an individual basis.
---------------------------------------------------------------------------
The crude oil capacity information reported to the EIA is presumed
to be correct. However, in cases where a company disputes this
information, we will allow 60 days after the company submits its
application for small refiner status for that company to petition us
with detailed data it believes shows that the EIA's data was in error.
We will consider this data in making a final determination about the
refiner's crude oil capacity.
Finally, applications for small refiner status must also include
information on which small refiner option the refiner expects to use at
each of its refineries.
3. Applications for Refiner Hardship Relief
As discussed above in section IV.C, a refiner seeking general
hardship relief under today's program will apply to EPA and provide
several types of financial and technical information, such as internal
cash flow data and information on bank loans, bonds, and assets as well
as detailed engineering and construction plans and permit status.
Applications for general hardship relief are due June 1, 2005.
[[Page 39100]]
4. Pre-Compliance Reports for Refiners
We believe that an early general understanding of the refining
industry's progress in complying with the requirements in today's rule
will be valuable to both the industry and EPA. As with the highway
diesel program, we are requiring that each refiner and importer provide
annual reports on the progress of compliance and plans for compliance
for each of their refineries or import facilities. These pre-compliance
reports are due June 1 of each year beginning in 2005 and continuing
through 2011, or until the production of 15 ppm sulfur NR and LM diesel
fuel commences, whichever is later.
EPA will maintain the confidentiality of information submitted in
pre-compliance reports to the full extent authorized by law. We will
report generalized summaries of this data following receipt of the pre-
compliance reports. We recognize that plans may change for many
refiners or importers as the compliance dates approach. Thus,
submission of the reports will not impose an obligation to follow
through on plans projected in the reports.
Pre-compliance reports can, at the discretion of the refiner/
importer, be submitted in conjunction with the annual compliance
reports discussed below and/or the pre-compliance and annual compliance
reports required under the highway diesel program, as long as all of
the information that is required in all reports is clearly provided.
Based on experience with the first pre-compliance reports for the
highway diesel program, we are clarifying the information request for
the pre-compliance reports as shown below. This should provide
responses in a more standardized format which will allow for better
aggregation of the data, as well as eliminate reporting of unnecessary
information.
Pre-compliance reports must include the following information:
? Any changes in the basic corporate or facility information
since registration;
? Estimates of the average daily volumes (in gallons) of
each sulfur grade of highway and NRLM diesel fuel produced (or
imported) at each refinery (or facility). These volume estimates must
be provided both for fuel produced from crude oil, as well as any fuel
produced from other sources, and must be provided for the periods of
June 1, 2010-December 31, 2010, calendar years 2011-13, January 1,
2014-May 31, 2014, and June 1, 2014-December 31, 2014;
? For entities expecting to participate in the credit
program, estimates of numbers of credits to be earned and/or used;
? Information on project schedule by known or projected
completion date (by quarter) by the stage of the project. For example,
following the five project phases described in EPA's June 2002 Highway
Diesel Progress Review report (EPA420-R-02-016): (1) Strategic
planning, (2) planning and front-end engineering, (3) detailed
engineering and permitting, (4) procurement and construction, and (5)
commissioning and startup.
? Basic information regarding the selected technology
pathway for compliance (e.g., conventional hydrotreating vs. other
technologies, revamp vs grassroots, etc.);
? Whether capital commitments have been made or are
projected to be made; and
? The pre-compliance reports in 2006 and later years must
provide an update of the progress in each of these areas.
5. Compliance Reports for Refiners, Importers, and Distributors of
Designated Diesel Fuel
a. Designate and Track Reporting Requirements
i. Quarterly Reports
From June 1, 2007 and through September 1, 2010, all entities who
are required to maintain records must report the following information
by facility to EPA on a quarterly basis:
? The total volume in gallons of each type of designated
diesel fuel for which custody was transferred by the entity to any
other entity, and the EPA entity and facility identification number(s),
as applicable, of the transferee; and
? The total volume in gallons of each type of designated
diesel fuel for which custody was received by the entity from any other
entity and the EPA entity and facility identification number(s), as
applicable, of the transferor.
If a facility receives fuel from another facility that does not
have an EPA facility identification number then that batch of fuel must
be designated and reported as (1) heating oil if it is marked, (2)
highway diesel fuel if taxes have been assessed, (3) NRLM diesel fuel
if the fuel is dyed but not marked.
Terminals must also report the results of all compliance
calculations including the following:
? The total volumes received of each fuel designation
required to be reported over the quarterly compliance period;
? The total volumes transferred of each fuel designation
required to be reported over the quarterly compliance period;
? Beginning and ending inventories of each fuel designation
required to be reported over the quarterly compliance period;
? Calculations showing that the volume of highway diesel
fuel distributed from the facility relative to the volume received did
not increase since June 1, 2007; and
? Calculations showing that the volume of high sulfur NRLM
diesel fuel did not increase by a greater proportion than the volume of
heating oil over the quarterly compliance period (not applicable in the
Northeast/Mid-Atlantic Area or Alaska).
The quarterly compliance periods and dates by which the reports are
due for each period are as follows.
Table V.G-1. Quarterly Compliance Periods and Reporting Dates a
------------------------------------------------------------------------
Quarterly compliance period Report due date
------------------------------------------------------------------------
July 1 through September 30............... November 30.
October 1 though December 31.............. February 28.
January 1 through March 31................ May 31.
April 1 through June 30................... August 31.
------------------------------------------------------------------------
Notes: a The first quarterly reporting period will be from June 1, 2007
though September 30, 2007 and the last quarterly compliance period
will be from April 1, 2010 through May 31, 2010.
ii. Annual Reports
Beginning June 1, 2007, all entities that are required to maintain
records for batches of fuel must report by facility on an annual basis
(due August 31) information on the total volumes received of each fuel
designation as well as the results of all compliance calculations
including the following:
? The total volumes transferred of each fuel designation;
? Beginning and ending inventories of each fuel designation;
? In Alaska, for diesel fuel designated as high sulfur NRLM
delivered from June 1, 2007 through May 31, 2010 and for diesel fuel
designated as 500 ppm sulfur NRLM delivered from June 1, 2010 through
May 31, 2014, refiners must report all information required under their
individual compliance plan, including the end-users to whom each batch
of fuel was delivered and the total delivered to each end-user for the
compliance period;
? Ending with the report due August 31, 2010, calculations
showing that the volume of highway diesel fuel distributed from the
facility relative to the volume received did not increase since June 1,
2007;
[[Page 39101]]
? Ending with the report due August 31, 2010, calculations
showing that the volume of highway diesel fuel distributed from the
facility relative to new volume received did not increase over the
annual compliance period by more than two percent of the total volume
of highway diesel fuel received;
? Ending with the report due August 31, 2010, calculations
showing that the volume of high sulfur NRLM diesel fuel did not
increase by a greater proportion than the volume of heating oil over
the annual compliance period (not applicable in the Northeast/Mid-
Atlantic Area or Alaska);
? Calculations showing that the volume of heating oil did
not decrease over the annual compliance period, beginning June 1, 2010
(not applicable in the Northeast/Mid-Atlantic Area or Alaska); and
? From June 1, 2010 through August 1, 2012, calculations
showing that the volume of 500 ppm sulfur NR diesel fuel did not
increase by a greater proportion than the volume of 500 ppm sulfur LM
diesel fuel over the annual compliance period (not applicable in the
Northeast/Mid-Atlantic Area and Alaska.
b. Other Reporting Requirements
After the NRLM diesel fuel sulfur requirements begin on June 1,
2007, refiners and importers will be required to submit annual
compliance reports for each refinery or import facility. If a refiner
produces 15 ppm sulfur or 500 ppm sulfur fuel early under the credit
provisions, its annual compliance reporting requirement will begin on
June 1 following the beginning of the early fuel production. These
reporting requirements will sunset after all flexibility provisions end
(i.e., after May 31, 2014). Annual compliance reports will be due on
August 31.
A refiner's or importer's annual compliance report must include the
following information for each of its facilities:
? Batch reports for each batch produced or imported
providing information regarding volume, designation (e.g., 500
highway), sulfur level and whether the fuel was dyed and/or marked.
Each batch can only have one designation. Therefore, if a refiner ships
100 gallons of 500 ppm sulfur fuel in 2007 and wants to designate 50
gallons as highway 500 and 50 gallons as NR 500, the refiner must
report two separate batches and there must be two PTDs--one for 50
gallons of highway 500 and one for 50 gallons of NR 500).
? Report on the generation, use, transfer and retirement of
diesel sulfur credits. Credit transfer information must include the
identification of the number of credits obtained from, or transferred
to, each entity. Reports must also show the credit balance at the start
of the period, and the balance at the end of the period. NRLM or
nonroad diesel sulfur credit information is required to be stated
separately from highway diesel credit information since the two credit
programs are treated separately.
? For a small refiner that elects to produce 15 ppm sulfur
NRLM diesel fuel by June 1, 2006 and therefore is eligible for a
limited relaxation in its interim small refiner gasoline sulfur
standards, the annual reports must also include specific information on
gasoline sulfur levels and progress toward highway and NRLM diesel fuel
desulfurization.
6. PTDs
Refiners, importers, and other parties in the distribution system
must provide information on commercial PTDs that identify diesel fuel
distributed by use designation and sulfur content; i.e., for use in or
motor vehicles, nonroad equipment, locomotive and marine equipment, or
nonroad, locomotive, and marine diesel equipment, as appropriate, and
the sulfur standard to which the fuel is subject. The PTD must indicate
whether the fuel is diesel fuel, heating oil, kerosene, exempt fuel, or
other. It must further state whether it is No. 1 or No. 2, dyed or
undyed, marked heating oil, marked LM fuel, or unmarked. The specific
designations on PTDs will change during the course of the program. For
example, the highway designation for 500 ppm sulfur fuel ends after
2010. Where a party delivers or receives a particular load of fuel that
has a uniform sulfur content but that has two different designations,
the parties must utilize two different PTDs. For example, if, in 2007 a
refiner moves 1,000 gallons of 500 ppm sulfur diesel into a pipeline,
and the refiner's designation is that half of that product is highway
500 and half is nonroad 500, the parties would utilize one PTD for 500
gallons of highway 500 ppm sulfur diesel fuel and another for 500
gallons of nonroad 500 diesel fuel.
As in other fuels programs, PTDs must accompany each transfer of
either title or custody of fuel. However, only custody transfers are
relevant to compliance with the designation and tracking requirements
and the downgrade limitations, and transfers to retail outlets and
wholesale purchaser-consumers of fuel by distributors below the truck
rack are not covered by the designate and track scheme. Therefore, the
PTDs for these non-designate and track transfers are somewhat more
straightforward.
We believe this additional information on commercial PTDs is
necessary to maintain the integrity of the various grades of diesel
fuel in the distribution system. Parties in the system will be better
able to identify which type of fuel they are dealing with and more
effectively ensure that they are meeting the requirements of today's
program. This in turn will help to ensure that misfueling of sulfur
sensitive engines does not occur and that the program results in the
needed emission reductions.
Today's rule allows the use of product codes to convey the required
information, except for transfers to truck carriers, retailers and
wholesale purchaser-consumers. We believe that more explicit language
on PTDs to these parties is necessary since employees of such parties
are less likely to be aware of the meaning of product codes. PTDs will
not be required for transfers of product into nonroad, locomotive, or
marine equipment at retail outlets or wholesale purchaser-consumer
facilities with the exception of mobile refuelers. Mobile refuellers
are required to provide a separate PTD to their customers for each type
of fuel (e.g., 500 ppm sulfur NRLM diesel fuel, 15 ppm sulfur NRLM
diesel fuel, or 15 ppm highway diesel fuel) that they dispense from
tanker trucks or other vessels into motor vehicles, nonroad diesel
engines or nonroad diesel engine equipment, for each instance when they
refuel such equipment at a given location.\192\
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\192\ Only one PTD is required for each fuel designation or
classification regardless of the number of motor vehicles or the
number of diesel-powered NRLM equipment that are fueled.
---------------------------------------------------------------------------
a. Kerosene and Other Distillates To Reduce Viscosity
To ensure that downstream parties can determine the sulfur level of
kerosene or other distillates that may be distributed for use for
blending into 15 ppm sulfur highway or NRLM diesel fuel, for example,
to reduce viscosity in cold weather, we are requiring that PTDs
identify distillates specifically distributed for such use as meeting
the 15 ppm sulfur standard.
b. Exported Fuel
Consistent with other EPA fuel programs, NRLM diesel fuel exported
from the U.S. is not required to meet the sulfur standards of today's
regulations. For example, where a refiner designates a batch of diesel
fuel for export, and can demonstrate through commercial documents that
the fuel was exported, such fuel would not be required to
[[Page 39102]]
comply with the NRLM sulfur standards in today's rule. Product transfer
documents accompanying the transfer of custody of the fuel at each
point in the distribution system are required to state that the fuel is
for export only and may not be used in the United States.
c. Additives
Today's rule requires that PTDs for additives for use in NRLM
diesel fuel state whether the additive complies with the 15 ppm sulfur
standard. Like the highway diesel rule, this program allows the sale of
additives, for use by fuel terminals or other parties in the diesel
fuel distribution system, that have a sulfur content greater than 15
ppm under specified conditions.
For additives that have a sulfur content less than 15 ppm, the PTD
must state: ``The sulfur content of this additive does not exceed 15
ppm.'' For additives that have a sulfur content greater than 15 ppm,
the additive manufacturer's PTD, and PTDs accompanying all subsequent
transfers, must provide a warning that the additive's sulfur content
exceeds 15 ppm; the maximum sulfur content of the additive; the maximum
recommended concentration for use of the additive in diesel fuel
(stated as gallon of additive per gallon of diesel fuel); and the
increase in sulfur concentration of the fuel the additive will cause
when used at the maximum recommended concentration.
Today's rule contains provisions for aftermarket additives sold to
owner/operators for use in diesel powered nonroad equipment. These
provisions are in response to concerns that additives designed for
engines not requiring 15 ppm sulfur fuel, such as locomotive or marine
engines, could accidentally be introduced into nonroad engines if they
had no label stating appropriate use. Beginning June 1, 2010,
aftermarket additives for use in nonroad equipment must be accompanied
by information that states that the additive complies with the 15 ppm
sulfur standard. We believe this information is necessary for end users
to determine if an additive is appropriate for use.
7. Recordkeeping Requirements for Refiners and Importers
Refiners and importers of distillate fuel must maintain the
following designate and track records for the distillate fuel they
produce and/or import. The specific types of distillate fuel that are
subject to these recordkeeping requirements are described below for the
various periods of the program.\193\
---------------------------------------------------------------------------
\193\ Transmix processors and terminal operators acting as
refiners that produce 500 ppm sulfur diesel fuel for sale into the
locomotive and marine markets are also subject to the recordkeeping
requirements.
---------------------------------------------------------------------------
? Batch number (including whether it is an incoming or out-
going batch for refineries that also handle previously designated fuel);
? Batch designation;
? Volume in gallons;
? Date/time of day of custody transfer; and
? Name and EPA entity and facility identification number of
the facility to which the batch was transferred.
For highway diesel fuel, the records must also identify whether the
batch was received or delivered with or without taxes assessed. For
NRLM diesel fuel, the records must also identify whether the batch was
received or delivered with or without the IRS red dye. For heating oil,
the records must indicate whether the batch was received or delivered
with or without the fuel marker. From June 1, 2010, through May 31,
2012, the records for LM fuel batches must also indicate whether the
batch was received or delivered with or without the fuel marker.
In addition to the designate and track records, refiners and
importers must maintain the following records on the highway and NRLM
diesel fuel that they produce and/or import:
? PTDs;
? Sampling and testing results for sulfur content (for
highway and NRLM diesel fuel that is subject to either the 15 ppm or
500 ppm sulfur standards), as well as sampling and testing results that
are part of a quality assurance program;
? Sampling and testing results for the cetane index or
aromatics content, as well as sampling and testing results for additives;
? Records on credit generation, use, transfer, purchase, or
termination, maintained separately for the highway and NRLM diesel fuel
credit programs; and
? Records related to individual compliance plans, if
applicable, and annual compliance calculations.
a. June 1, 2006 through May 31, 2007
Refiners and importers must maintain the records listed above for
each batch of diesel fuel that they designate and transfer custody of
during the time period from June 1, 2006 through May 31, 2007, with the
following fuel types:
? No. 1 15 ppm sulfur highway diesel fuel;
? No. 2 15 ppm sulfur highway diesel fuel;
? 15 ppm sulfur NRLM diesel fuel;
? No. 1 500 ppm sulfur highway diesel fuel;
? No. 2 500 ppm sulfur highway diesel fuel; or
? 500 ppm sulfur NRLM diesel fuel.
b. June 1, 2007 Through May 31, 2010
Refiners and importers must maintain the records listed above for
each batch of distillate fuel that they designate and transfer custody
of during the time period from June 1, 2007 through May 31, 2010 with
the following fuel types:
? No. 1 15 ppm sulfur highway diesel fuel;
? No. 2 15 ppm sulfur highway diesel fuel;
? 15 ppm sulfur NRLM diesel fuel;
? No. 1 500 ppm sulfur highway diesel fuel;
? No. 2 500 ppm sulfur highway diesel fuel; or
? 500 ppm sulfur NRLM diesel fuel;
? High sulfur NRLM diesel fuel; or
? Heating oil.
c. June 1, 2010 Through May 31, 2012
Refiners and importers must maintain the records listed above for
each batch of diesel fuel that they designate and transfer custody of
during the time period from June 1, 2010 through May 31, 2012, with the
following fuel types:
? 500 ppm sulfur NR diesel fuel;
? 500 ppm sulfur LM diesel fuel; or
? Heating oil.
d. June 1, 2012 Through May 31, 2014
Refiners and importers must maintain the records listed above for
each batch of distillate fuel that they transfer custody of and
designate during the time period from June 1, 2012 through May 31, 2014
with the following fuel types:
? 15 ppm sulfur highway or NRLM diesel fuel;
? 500 ppm sulfur NRLM diesel fuel; or
? Heating oil.
d. June 1, 2014 and Beyond
Refiners and importers must maintain the records listed above for
each batch of heating oil that they transfer custody of and designate
during the time period from June 1, 2014 and beyond.
8. Recordkeeping Requirements for Distributors
Distributors of distillate fuel must maintain the following
designate and track records on a facility-specific basis for the
distillate fuel they distribute. The specific distillate fuel
designations that are subject to these recordkeeping requirements are
described below for the various periods of the program.
[[Page 39103]]
? Batch number (including whether it is an incoming or out-
going batch);
? Batch designation;
? Volume in gallons;
? Date/time of day of custody transfer;
? Name and EPA entity and facility identification number of
the facility from which the fuel batch was received or to which the
fuel batch was delivered;
? Beginning and ending inventory volumes on a quarterly basis; and
? Inventory adjustments.
For highway diesel fuel, the records must also identify whether the
batch was received or delivered with or without taxes assessed. For
NRLM diesel fuel, the records must also identify whether the batch was
received or delivered with or without the IRS red dye. For heating oil,
the records must indicate whether the batch was received or delivered
with or without the fuel marker. From June 1, 2010, through October 1,
2012, the records must indicate whether LM fuel was received or
delivered with or without the fuel marker.\194\ In addition to these
designate and track records, distributors will be required to maintain
records related to their quarterly and annual compliance calculations
as well as copies of all PTDs.
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\194\ After August 1, 2012, LM fuel distributed from terminals
must contain a concentration of the marker no greater than 0.1 mg/L.
After October 1, 2012, LM fuel at any location in the fuel
distribution system must contain no more than a trace amount of the
marker (0.1 mg/L).
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If a facility receives fuel from another facility that does not
have an EPA facility identification number then that batch of fuel must
be designated as (1) heating oil if it is marked, or from 2010 through
2012, LM diesel fuel if the fuel is dyed and marked and is not heating
oil (2) highway diesel fuel if taxes have been assessed, and (3) NRLM
diesel fuel if the fuel is dyed but not marked.
If a facility delivers fuel to other facilities and that fuel is
either 500 ppm sulfur highway diesel fuel on which taxes have been
assessed or 500 ppm sulfur NRLM, or LM diesel fuel into which red dye
has been added pursuant to IRS requirements, then the facility does not
need to maintain separate records for each of the other facilities to
which it delivered fuel. Similarly, if a facility delivers batches of
marked heating oil to other facilities, then it does not need to
maintain separate records for each of the other facilities to which it
delivered the marked heating oil. If a facility only receives marked
heating oil (i.e., it does not receive any unmarked heating oil), then
it does not need to maintain any heating oil records.
Similarly, if a facility only receives highway diesel fuel on which
taxes have been assessed or NRLM diesel fuel which has been dyed
pursuant to IRS regulations (i.e., it does not receive any untaxed
highway diesel fuel or undyed NRLM diesel fuel), then it does not need
to maintain records of the 500 ppm sulfur highway or NRLM diesel fuel
that it receives.
a. June 1, 2006 Through May 31, 2007
Facilities that receive No. 2 15 ppm sulfur highway diesel fuel and
distribute any No. 2 500 ppm sulfur highway diesel fuel, must maintain
records for each batch of diesel fuel with the following designations
that they receive or deliver during the time period from June 1, 2006
through May 31, 2007:
? No. 1 15 ppm sulfur highway diesel fuel;
? No. 2 15 ppm sulfur highway diesel fuel;
? No. 2 500 ppm sulfur highway diesel fuel; and
? 500 ppm sulfur NRLM diesel fuel.
b. June 1, 2007 Through May 31, 2010
All facilities must maintain records for each batch of diesel fuel
or heating oil with the following designations for which they receive
or transfer custody during the time period from June 1, 2007 through
May 31, 2010:
? No. 1 15 ppm sulfur highway diesel fuel;
? No. 2 15 ppm sulfur highway diesel fuel;
? No. 1 500 ppm sulfur highway diesel fuel;
? No. 2 500 ppm sulfur highway diesel fuel;
? 500 ppm sulfur NRLM diesel fuel;
? 15 ppm sulfur NRLM diesel fuel;
? High sulfur NRLM diesel fuel; and
? Heating oil.
c. June 1, 2010 Through May 31, 2012
All facilities must maintain records for each batch of diesel fuel
or heating oil with the following designations for which they receive
or transfer custody during the time period from June 1, 2007 through
May 31, 2012. This requirement does not apply to facilities located in
the Northeast/Mid-Atlantic Area or Alaska.
? 500 ppm sulfur NR diesel fuel;
? 500 ppm sulfur LM diesel fuel; or
? Heating oil.
d. June 1, 2012 Through May 31, 2014
Facilities that receive unmarked fuel designated as heating oil,
must maintain records for each batch of diesel fuel with the following
designations that they receive or deliver during the time period from
June 1, 2012 through May 31, 2014. This requirement does not apply to
facilities located in Alaska or the Northeast/Mid-Atlantic Area unless
they deliver marked heating oil to facilities outside of these areas.
? 500 ppm sulfur NRLM diesel fuel; and
? Heating oil.
9. Recordkeeping Requirements for End-Users
Today's program also contains certain recordkeeping provisions for
end-users. From June 1, 2007 through October 1, 2010, end-users that
receive any batch of high sulfur NRLM in Alaska must maintain records
of each batch of fuel received for use in NRLM equipment unless
otherwise allowed by EPA. From June 1, 2010 through October 1, 2012,
end-users that receive any batch of 500 ppm sulfur NR in Alaska must
maintain records of each batch of fuel received for use in NR equipment
unless otherwise allowed by EPA. In addition, from June 1, 2012 through
October 1, 2014, end-users that receive any batch of 500 ppm sulfur
NRLM in Alaska must maintain records of each batch of fuel received for
use in NRLM equipment unless otherwise allowed by EPA.
10. Record Retention
We are adopting a retention period of five years for all records
required to be kept under today's rule. This is the same period of time
required in other fuels rules, and it coincides with the applicable
statute of limitations. We believe that most parties in the
distribution system would maintain some or all of these records for
this length of time even without the requirement.
This retention period applies to PTDs, records required under the
designate and track provisions, records of any test results performed
by any regulated party for quality assurance purposes or otherwise
(whether or not such testing was required by this rule), along with
supporting documentation such as date of sampling and testing, batch
number, tank number, and volume of product. Business records regarding
actions taken in response to any violations discovered must also be
maintained for five years.
All records that are required to be maintained by refiners or
importers participating in the generation or use of credits, hardship
options (or by importers of diesel fuel produced by a foreign refiner
approved for the temporary compliance option or a hardship option),
including small refiner options, are also covered by the retention period.
[[Page 39104]]
H. Liability and Penalty Provisions for Noncompliance
1. General
The liability and penalty provisions of the today's NRLM diesel
sulfur rule are very similar to the liability and penalty provisions
found in the highway diesel sulfur rule, the gasoline sulfur rule, the
reformulated gasoline rule and other EPA fuels regulations.\195\
Regulated parties are subject to prohibitions which are typical in EPA
fuels regulations, such as prohibitions on selling or distributing fuel
that does not comply with the applicable standard, and causing others
to commit prohibited acts. For example, liability will also arise under
the NRLM diesel rule for violating certain prohibited acts and
requirements, such as: Distributing or dispensing NR diesel fuel not
meeting the 15 ppm sulfur standard for use in model year 2011 or later
nonroad equipment (and after Dec 1, 2014 into any nonroad diesel
equipment); distributing or dispensing diesel fuel not meeting the 500
ppm sulfur standard for locomotive and marine engines; distributing
fuel containing the marker for use in engines that require the use of
fuel that does not contain the marker; prohibitions and requirements
under the designate and track provisions in today's rule, including
specific prohibitions and requirements regarding fuel produced or
distributed in the Northeast/Mid-Atlantic Area or in Alaska.\196\
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\195\ See section 80.5 (penalties for fuels violations); section
80.23 (liability for lead violations); section 80.28 (liability for
gasoline volatility violations); section 80.30 (liability for
highway diesel violations); section 80.79 (liability for violation
of RFG prohibited acts); section 80.80 (penalties for RFG/CG
violations); section 80.395 (liability for gasoline sulfur
violations); section 80.405 (penalties for gasoline sulfur
regulations).; and section 80.610-614 (prohibited acts, liability
for violations, and penalties for highway diesel sulfur regulations.
\196\ Today's rule, in 40 CFR 80.610, provides that no person
shall, inter alia, ``dispense, supply, offer for supply, store or
transport * * *'' fuel not in compliance with applicable standards
and requirements starting on a certain date. These prohibitions
apply at downstream locations such as retail outlets, wholesale
purchaser-consumer facilities as well as end-user locations. The act
of storage or transport refers to storage or transport in fuel
storage tanks from which fuel is dispensed into motor vehicles or
NRLM engines or equipment. It does not refer to storing or
transporting the fuel that is in the motor vehicle propulsion tank
or other tank that is incorporated in the NRLM equipment for the
purpose of supplying the engine with fuel. While the prohibition
against dispensing inappropriate fuels does apply as of the
applicable date, the motor vehicle or NRLM engine or equipment may
continue to burn any fuel in the motor vehicle fuel tank or NRLM
equipment fuel tank that was properly dispensed into such tank.
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Small refiners and refiners using credits can produce high sulfur
NRLM when NRLM would otherwise be required to meet a 500 ppm sulfur
standard, and can produce 500 ppm sulfur NR or LM diesel fuel when
nonroad or LM diesel fuel would otherwise be required to meet a 15 ppm
sulfur standard. A refiner that produces fuel under the small refiner
and credit provisions would be in violation unless they can demonstrate
that they meet the definition of a small refiner or have sufficient
credits for the volume of fuel produced. All regulated parties will be
liable for a failure to meet certain requirements, such as the record-
keeping, reporting, or PTD requirements, or causing others to fail to
meet such requirements.
Under today's rule, the party in the diesel fuel distribution
system that controls the facility where a violation occurred, and other
parties in that fuel distribution system (such as the refiner,
reseller, and distributor), will be presumed to be liable for the
violation.\197\ As in the Tier 2 gasoline sulfur rule and the highway
diesel fuel rule, today's rule explicitly prohibits causing another
person to commit a prohibited act or causing non-conforming diesel fuel
to be in the distribution system. Non-conforming fuels include: (1)
Diesel fuel with sulfur content above 15 ppm incorrectly represented as
appropriate for model year 2011 or later nonroad equipment or other
engines requiring 15 ppm fuel; (2) diesel fuel with sulfur content
above 500 ppm incorrectly represented as appropriate for nonroad
equipment or locomotives or marine engines after the applicable date
for the 500 ppm sulfur standard for these pieces of equipment; (3)
heating oil that is required to contain the marker which does not, LM
fuel which is required to contain the marker which does not, or other
fuels that are required to be free of the marker in which the marker is
present; (4) fuel designated or labeled as 500 ppm sulfur highway
diesel fuel above and beyond the volume balance limitations; (5) fuel
designated or labeled as NRLM above and beyond the volume balance
limitations; or (6) fuels otherwise not complying with the requirements
of this rule. Parties outside the diesel fuel distribution system, such
as diesel additive manufacturers and distributors, are also subject to
liability for those diesel rule violations which could have been caused
by their conduct.
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\197\ An additional type of liability, vicarious liability, is
also imposed on branded refiners under today's rule.
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Today's rule also provides affirmative defenses for each party
presumed liable for a violation, and all presumptions of liability are
rebuttable. In general, in order to rebut the presumption of liability,
parties will be required to establish that: (1) The party did not cause
the violation; (2) PTD(s) exist which establish that the fuel or diesel
additive was in compliance while under the party's control; and (3) the
party conducted a quality assurance sampling and testing program. As
part of their affirmative defense diesel fuel refiners or importers,
diesel fuel additive manufacturers, and blenders of high sulfur
additives into diesel fuel, will also be required to provide test
results establishing the conformity of the product prior to leaving
that party's control. Blenders of static dissipater additives have
alternative defense provisions as discussed in section V.C. Branded
refiners have additional affirmative defense elements to establish. The
defenses under the nonroad diesel sulfur rule are similar to those
available to parties for violations of the highway diesel sulfur,
reformulated gasoline, gasoline volatility, and the gasoline sulfur
regulations. Today's rule also clarifies that parent corporations are
liable for violations of subsidiaries, in a manner consistent with the
gasoline sulfur rule and the highway diesel sulfur rule. Finally, the
NRLM diesel sulfur rule mirrors the gasoline sulfur rule and the
highway diesel sulfur rule by clarifying that each partner to a joint
venture will be jointly and severally liable for the violations at the
joint venture facility or by the joint venture operation.
As is the case with the other EPA fuels regulations, today's rule
will apply the provisions of section 211(d)(1) of the Clean Air Act
(Act) for the collection of penalties. These penalty provisions
currently subject any person that violates any requirement or
prohibition of the diesel sulfur rule to a civil penalty of up to
$32,500 for every day of each such violation and the amount of economic
benefit or savings resulting from the violation.\198\ A violation of a
NRLM diesel sulfur standard will constitute a separate day of violation
for each day the diesel fuel giving rise to the violation remains in
the fuel distribution system. Under today's regulation, the length of
time the diesel fuel in question remains in the distribution system is
deemed to be twenty-five days unless there is evidence that the fuel
remained in its distribution system a lesser or greater amount of time.
This is the same time presumption that is incorporated in the
[[Page 39105]]
RFG, gasoline sulfur and highway diesel sulfur rules. The penalty
provisions in today rule are also be similar to the penalty provisions
for violations of these regulations.
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\198\ This limit is amended periodically pursuant to
Congressional authority to change maximum civil penalties to account
for inflation.
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EPA has included in today's rule two prohibitions for ``causing''
violations: (1) Causing another to commit a violation; and (2) causing
non-complying diesel fuel to be in the distribution system. These
causation prohibitions are like similar prohibitions included in the
gasoline sulfur and the highway diesel sulfur regulations, and, as
discussed in the preamble to those rules, EPA believes they are
consistent with EPA's implementation of prior motor vehicle fuel
regulations. See the liability discussion in the preamble to the
gasoline sulfur final rule, at 65 FR 6812 et seq.
The prohibition against causing another to commit a violation will
apply where one party's violation is caused by the actions of another
party. For example, EPA may conduct an inspection of a terminal and
discover that the terminal is offering for sale nonroad diesel fuel
designated as complying with the 15 ppm sulfur standard, while the
fuel, in fact, had an actual sulfur content greater than the
standard.\199\ In this scenario, parties in the fuel distribution
system, as well as parties in the distribution system of any diesel
additive that had been blended into the fuel, will be presumed liable
for causing the terminal to be in violation. Each party will have the
right to present an affirmative defense to rebut this presumption.
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\199\ At downstream locations the violation will occur if EPA's
test result show a sulfur content of greater than 17 ppm, which
takes into account the two ppm adjustment factor for testing
reproducibility for downstream parties.
---------------------------------------------------------------------------
The prohibition against causing non-compliant diesel fuel to be in
the distribution system will apply, for example, if a refiner transfers
non-compliant diesel fuel to a pipeline. This prohibition could
encompass situations where evidence shows high sulfur diesel fuel was
transferred from an upstream party in the distribution system, but EPA
may not have test results to establish that parties downstream also
violated a prohibited act with this fuel.
The Agency expects to enforce the liability scheme of the NRLM
diesel sulfur rule in the same manner that we have enforced the similar
liability schemes in our prior fuels regulations. As in other fuels
programs, we will attempt to identify the party most responsible for
causing the violation, recognizing that party should primarily be
liable for penalties for the violation.
2. What are the Liability Provisions for Additive Manufacturers and
Distributors, and Parties That Blend Additives into Diesel Fuel?
a. General
The final highway diesel rule permits the blending of diesel fuel
additives with sulfur content in excess of 15 ppm into 15 ppm highway
diesel fuel under limited circumstances. As more fully discussed
earlier in this preamble, this rule also permits downstream parties to
blend fuel additives having a sulfur content exceeding 15 ppm into 15
ppm nonroad diesel, provided that: (1) The blending of the additive
does not cause the diesel fuel's sulfur content to exceed the 15 ppm
sulfur standard; (2) the additive is added in an amount no greater than
one volume percent of the blended product; and (3) the downstream party
obtained from its additive supplier a product transfer document
(``PTD'') with the additive's sulfur content and the recommended
treatment rate, and that it complied with such treatment rate. As
discussed in section V.C, today's rule includes alternate affirmative
defense requirements for blenders of S-D additives that can contribute
a maximum of 0.050 ppm to the sulfur content of finished fuel subject
to the 15 ppm sulfur standard. Today's rule also implements these same
alternate defense requirements regarding the blending of such additives
into 15 ppm highway diesel fuel.
Since today's rule permits the limited use in nonroad diesel fuel
of additives with high sulfur content, the Agency believes it might be
more likely that a diesel fuel sulfur violation could be caused by the
use of high sulfur additives. This could result from the additive
manufacturer's misrepresentation or inaccurate statement of the
additive's sulfur content or recommended treat rate on the additive's
PTD, or an additive distributor's contamination of low sulfur additives
with high sulfur additives during transportation. The increased
probability that parties in the diesel additive distribution system
could cause a violation of the sulfur standard warrants the imposition
by the Agency of increased liability for such parties. Therefore,
today's rule, like the final highway diesel rule, explicitly makes
parties in the diesel additive distribution system liable for the sale
of nonconforming diesel fuel additives, even if such additives have not
yet been blended into diesel fuel. In addition, today's rule imposes
presumptive liability on parties in the additive distribution system if
diesel fuel into which the additive has been blended is determined to
have a sulfur level in excess of its permitted concentration. This
presumptive liability will differ depending on whether the blended
additive was designated as meeting the 15 ppm sulfur standard (a ``15
ppm additive'') or designated as a greater than 15 ppm sulfur additive
(a ``high sulfur additive''), as discussed below.
b. Liability When the Additive Is Designated as Complying with the 15
ppm Sulfur Standard
Additives blended into diesel fuel downstream of the refinery are
required to have a sulfur content no greater than 15 ppm, and be
accompanied by PTD(s) accurately identifying them as complying with the
15 ppm sulfur standard, with the sole exception of diesel additives
blended into nonroad diesel fuel at a concentration no greater than one
percent by volume of the blended fuel.
All parties in the fuel and additive distribution systems will be
subject to presumptive liability if the blended fuel exceeds the sulfur
standard. The two ppm downstream adjustment will apply when EPA tests
the fuel subject to the 15 ppm sulfur standard. Low sulfur additives
present a less significant threat to diesel fuel sulfur compliance than
would occur with the use of additives designated as possibly exceeding
15 ppm sulfur. Thus, parties in the additive distribution system of the
low sulfur additive could rebut the presumption of liability by showing
the following: (1) Additive distributors will only be required to
produce PTDs stating that the additive complies with the 15 ppm sulfur
standard; (2) additive manufacturers are also be required to produce
PTDs accurately indicating compliance with the regulatory requirements,
as well as producing test results, or retained samples on which tests
could be run, establishing the additive's compliance with the 15 ppm
sulfur standard prior to leaving the manufacturer's control. Once they
meet their defense to presumptive liability, these additive system
parties will only be held responsible for the diesel fuel non-
conformity in situations in which EPA can establish that the party
actually caused the violation.
Under today's rule, parties in the diesel fuel distribution system
will have the typical affirmative defenses of other fuels rules. For
parties blending an additive into their diesel fuel, the requirement to
maintain PTDs showing that the product complied with the
[[Page 39106]]
regulatory standards will necessarily include PTDs for the additive
that was used, affirming the compliance of the additive and the fuel.
c. Liability When the Additive Is Designated as Having a Possible
Sulfur Content Greater than 15 ppm
Under today's rule, a nonroad diesel fuel additive will be
permitted to have a maximum sulfur content above 15 ppm if the blended
fuel continues to meet the 15 ppm standard and the additive is used at
a concentration no greater than one volume percent of the blended fuel.
However, if nonroad diesel fuel containing that additive is found by
EPA to have high sulfur content, then all the parties in both the
additive and the fuel distribution chains will be presumed liable for
causing the nonroad diesel fuel violation.
Since this type of high sulfur additive presents a much greater
probability of causing diesel fuel non-compliance, parties in the
additive's distribution system will have to satisfy an additional
element to establish an affirmative defense. In addition to the
elements of an affirmative defense described above, parties in the
additive distribution system for such a high sulfur additive will also
be required to establish that they did not cause the violation, an
element of an affirmative defense that is typically required in EPA
fuel programs to rebut presumptive liability.
Parties in the diesel fuel distribution system will essentially
have to establish the same affirmative elements as in other fuels
rules, with an addition comparable to the highway diesel rule. Blenders
of high sulfur additives into 15 ppm sulfur nonroad diesel fuel, will
have to establish a more rigorous quality control program than will
exist without the addition of such a high sulfur additive. For
additives other than static dissipater additives, to establish a
defense to presumptive liability, the Agency has adopted the proposal
to require test results establishing that the blended fuel was in
compliance with the 15 ppm sulfur standard after being blended with the
high sulfur additive. This additional defense element will be required
as a safeguard to ensure nonroad diesel fuel compliance, since the
blender has voluntarily chosen to use an additive which increases the
risk of diesel fuel non-compliance.
An exception to this defense element is made for blenders of static
dissipater additives, that are allowed by today's rule to contribute no
more than 0.05 ppm to the sulfur content of a finished fuel subject to
the 15 ppm sulfur standard. As discussed in section V.C.5, blenders of
such additives may rely on volume accounting reconciliation records in
lieu of the requirement to sample and test each batch of fuel subject
to the 15 ppm sulfur standard after the addition of an additive that
exceeds the 15 ppm sulfur standard. Today's rule also implements these
same alternate defense requirements regarding the blending of such
additives into 15 ppm highway diesel fuel.
I. How Will Compliance With the Sulfur Standards Be Determined?
Today's rule provides that compliance with the sulfur standards and
use requirements under today's rule can be determined by evaluating the
designate and track records (discussed in section IV.D.) and other
records, such as PTDs; by evaluating compliance with the fuel marker
requirements discussed in section IV.D and V.E; and by sampling fuel
and testing for sulfur content. Today's rule includes a requirement for
refiners and importers to measure the sulfur content of every batch of
NRLM fuel designated under the rule, using a testing methodology
approved under the provisions discussed in section V.H of this
preamble. In general, downstream parties must conduct only periodic
sampling and testing as an element of a defense to presumptive
liability (retailers are exempt from sampling and testing). Today's
rule further provides that in determining compliance, any evidence from
any source or location can be used to establish the diesel fuel sulfur
level, provided that such evidence is relevant to whether the sulfur
level would have met the applicable standard had compliance been
determined using an approved test methodology. While the use of a non-
approved test method might produce results relevant to determining
sulfur content, this does not remove any liability for failing to
conduct required batch testing using an approved test method. This is
consistent with the approach taken under the gasoline sulfur rule and
the highway diesel sulfur rule.
For example, the Agency might not have sulfur results derived from
an approved test method for diesel fuel sold by a terminal, yet the
terminal's own test results, based on testing using methods other than
those approved under the regulations, could reliably show a violation
of the sulfur standard. Under today's rule, evidence from the non-
approved test method could be used to establish the diesel fuel's
sulfur level that would have resulted if an approved test method had
been conducted. This type of evidence is available for use by either
the EPA or the regulated party, and could be used to show either
compliance or noncompliance. Similarly, absent the existence of sulfur
test results using an approved method, commercial documents asserting
the sulfur level of diesel fuel or additive could be used as some
evidence of what the sulfur level of the fuel would be if the product
would have been tested using an approved method.
The Agency believes that the same statutory authority for EPA to
adopt the gasoline sulfur rule's evidentiary provisions, Clean Air Act
section 211(c), provides appropriate authority for the evidentiary
provisions of today's diesel sulfur rule. For a fuller explanation of
this statutory authority, see the gasoline sulfur final rule preamble,
65 FR 6815, February 10, 2000.
VI. Program Costs and Benefits
In this section, we present the projected cost impacts and cost
effectiveness of the nonroad Tier 4 emission standards and fuel sulfur
requirements. We also present a benefit-cost analysis and an economic
impact analysis. The benefit-cost analysis explores the net yearly
economic benefits to society of the reduction in mobile source
emissions likely to be achieved by this rulemaking. The economic impact
analysis explores how the costs of the rule will likely be shared
across the manufacturers and users of the engines, equipment and fuel
that would be affected by the standards.
We revised our cost and benefit analysis to reflect the comments we
received on our analysis. The fuel-related costs have been updated to
reflect information received from refiners as part of EPA's highway
diesel fuel program, comments received on the nonroad NPRM, as well as
more recent information available on future energy costs and the cost
of advanced desulfurization technologies. The engine and equipment-
related costs were revised to reflect additional R&D costs associated
with tailoring R&D to each particular engine line and to accommodate
changes in the final emission control requirements, particularly with
regard to engines above 750 hp. These costs are also now presented in
2002 instead of 2001 dollars. With regard to the benefits analysis, we
have updated our methods consistent with Science Advisory Board (SAB)
advice as specified in RIA chapter 9. Finally, we adjusted the economic
impact analysis to reflect the revised cost inputs and to explicitly
model the impacts on the locomotive and marine intermediate market
sectors.
The results detailed below show that this rule would be highly
beneficial to
[[Continued on page 39107]]
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