**ATTACHMENT**

**Marathon Ashland Petroleum LLC**

**Comments on**

**The U.S. Environmental Protection Agency\'s**

**Proposed Rule on Control of Emissions of Air Pollution From Non-Road
Diesel Engines and Fuel**

**68 FR 28328; May 23, 2003**

**Docket ID Number: A-2001-28**

August 20, 2003

Marathon Ashland Petroleum (MAP) is pleased to provide the following
comments on the above referenced proposed rule. We are pleased to have
had the opportunity, along with other stakeholders, to work with the
U.S. Environmental Protection Agency (EPA) in a collaborative manner as
the agency developed this proposal. MAP is generally pleased with this
proposal and believes that it can be strengthened with some sensible
clarifications and modifications.

# **Two-Step Reduction Of Sulfur In NRLM Diesel Fuel Reduces Potential Supply Impacts**

MAP supports the two-step approach to reduce sulfur in non-road diesel
fuel. Specifically, we support EPA\'s proposed interim reduction in the
maximum sulfur level in diesel fuel used by non-road Part 89,
locomotive, and marine (NRLM) equipment to 500 parts per million (ppm)
in mid-2007 followed by the final reduction in the maximum sulfur level
in diesel fuel used by non-road Part 89 engines to 15 ppm in mid-2010.
One of the uniquely beneficial aspects of this approach is that it
provides emission reductions and health benefits a year earlier than
reducing non-road diesel to 15 ppm in a single step in 2008, which was
also considered by EPA.

Refiners are already gearing up for producing 15 ppm sulfur highway
diesel starting in mid-2006. It will be an additional challenge for
refiners to significantly lower the sulfur level of NRLM diesel to 500
ppm in mid-2007, while also phasing in the ultra low sulfur diesel
(ULSD) highway requirements. Refiners generally need four years to plan
for and implement major changes in fuels specifications and we are
already within that timeframe for a mid-2007 start date. We believe it
is possible to do so, however, and the two-step approach will reduce
potential supply impacts compared to the alternative of taking all
non-road diesel to 15 ppm sulfur in mid-2008[^1]. EPA is correct in
observing that it would be infeasible to meet an earlier date for the
reduction to a maximum of 500 ppm sulfur in non-road diesel.

# **Taking Locomotive and Marine Diesel To 15 PPM**

Reducing locomotive and marine (LM) diesel sulfur to 15 ppm is
inconsistent with EPA's recent fuel/engine systems approach to emission
reduction regulations. The primary benefit of 15 ppm sulfur diesel fuel
is in its ability to enable catalytic aftertreatment. Without a
companion requirement to reduce emissions from LM engines, it is
extremely difficult to justify lowering diesel sulfur levels below 500
ppm based on the benefits from existing engines.

Some of EPA's arguments supporting the reduction of sulfur in LM diesel
from 500 ppm to 15 ppm imply that EPA is likely to soon further regulate
LM engine emissions. MAP supports EPA's systems approach. We do not
support the required use of ULSD in LM engines until EPA determines the
need for and establishes emissions standards requiring the application
of aftertreatment technologies that need ULSD.

The July 2003 Baker and O\'Brien report indicates that significant
market tightness will already exist in distillate markets due to the
Highway Diesel Rule. The report shows that non-road diesel sulfur
regulation will further exacerbate this market tightness. A 2-step
non-road diesel rule that requires LM diesel to be capped at 500 ppm
sulfur would be less harmful from a supply perspective than proposals
that required LM diesel fuel to be capped at 15 ppm sulfur over the same
time interval.

Two additional reasons for not taking LM diesel to the lower standard
until such a standard comes into effect are: 1) The pool of 500 ppm LM
diesel fuel will provide an outlet for 15 ppm ultra low sulfur diesel
(ULSD) that through inadvertent contamination may not quite meet the 15
ppm maximum and 2) waiting to match the fuel with the emission
technology (the systems approach) will enable the last increment of
refining capacity supplying those fuels to take advantage of more
advanced and lower cost desulfurization technologies that are likely to
evolve between now and then, making controls on this pool of diesel fuel
more cost effective. The incremental reduction of this relatively small
volume of diesel from a cap of 500 ppm sulfur to 15 ppm sulfur will not
represent a significant environmental impact, as sulfate emissions will
have already been reduced by about 90%. It is likely that these
reductions will be even greater as ULSD spillover into the LM market is
likely to occur and fuels that are only slightly out of compliance with
the 15 ppm limit for diesel used in highway and other non-road engines
are likely to end up in this pool, further reducing average sulfur
levels by potentially significant amounts.

For these reasons, MAP recommends that the EPA stay with its proposal to
regulate LM diesel fuels to a 500 ppm maximum level.

**[Fungible Distribution of Undyed 500 ppm Maximum Sulfur Diesel Should
Encouraged]{.underline}**

MAP strongly supports the goal of establishing a mechanism that will
allow the fungible shipment of undyed highway and NRLM LSD (500 ppm
maximum sulfur) if a refinery so chooses (the option to dye NRLM at the
refinery gate should be maintained as an alternative). This is essential
to minimize the stress on the downstream distribution system by
minimizing the number of distillate grades and to facilitate the actual
distribution and availability of LSD after 2006. Without the planned
volumes of highway LSD available to the marketplace in the 2006-2010
period, concerns about the adequacy of overall diesel supply increase.

**[A Workable Designate and Track Approach Can Be
Developed]{.underline}**

MAP has been encouraged by the recent progress made on the Designate and
Track approach between EPA staff and the Oil Industry's Diesel work
group. If at all possible EPA should finalize a designate and track
approach because of the inherent increase in refinery production
flexibility that this approach offers over the baseline approach. The
designate and track approach would permit the fungible shipment of
undyed highway and non-road LSD while assuring ongoing compliance with
the 80/20 highway ULSD/LSD production ratio required by the highway
rule. The concept is to use the distribution system tracking
capabilities that already exist. The system would establish unique
product codes for highway and non-road LSD volumes produced, and
designate those product codes on product transfer documents (PTDs) so
that a paper record of what is produced and shipped from the refinery is
established. Such designations are already required in the proposed
regulations at 40 CFR Part 80.523. The downstream entities that convey
or store these volumes would also manage them as unique products even
though they are physically mixed and dye those volumes sold into the
non-road market. Annual reconciliation of volumes sold vs. volumes
received, after adjusting for downgrades, would be sufficient to assure
that non-road LSD was not rebranded and sold as highway LSD.

As to EPA concerns about enforceability, we believe that this issue can
be adequately addressed. The IRS already receives reports on terminal
dyeing of untaxed (non-highway)diesel fuel. These reports can be used to
verify that terminals have in fact dyed sufficient volumes of NRLM
diesel to match the volumes of designated undyed NRLM diesel that was
shipped from refineries. In addition, EPA needs to remember that this
designate and track approach will only be used for three year
transitional period. It is inconsistent to establish an onerous and
complex system to account for every gallon of undyed NRLM diesel in the
country for such a temporary situation. With electronic record keeping
and reporting and potential electronic screening, EPA would not need to
review each and every report or visit all 1000+ terminals as is
suggested in their criticism of the proposal. Rather, screening results
of a representative sample of reports could be used to determine
compliance and focus enforcement efforts where there might be problems.
EPA could also require attest engagements much the same as required in
the RFG program to provide another level of independent accountability.

The overwhelming advantage of the designate and track approach is that
it does not interfere in the normal, self regulating supply and demand
marketplace that seeks to supply fuels as needed, and does not seek to
push pre-set ratios of product into the marketplace in the hope that it
will somehow match up with demand. Government-set production targets
have a long and disreputable track record in those countries that have
tried and failed to sustain planned economies. While we know that is not
EPA\'s intention in this instance, never-the-less many of the
shortage/excess production and marketplace disconnects inherent in such
a production ratio based approach could well occur. The designate and
track approach can avoid such potential supply disruptions and the
ensuing market volatility that consumers have come to dislike. We urge
EPA to set aside its initial pre-conceived notions about the designate
and track approach and consider realistically if it cannot be
accommodated for the three-year phase-in period. To do otherwise puts
both EPA and the regulated community at risk of failing to meet
consumers\' needs

**[Potential Problems with the Baseline Approach]{.underline}**

Although we believe the flexibility to move fungible 500 ppm sulfur
diesel is essential to have workable highway and non-road diesel
programs, we are very concerned that EPA\'s proposed mechanism of
establishing an historical non-highway baseline percentage that cannot
be exceeded could disrupt the highway, non-road diesel, and heating oil
markets. These markets all operate under a supply/demand paradigm
wherein refiners seek to produce volumes of these products to meet
current and ongoing variable consumer demand. EPA\'s proposed
non-highway baseline would require that refiners \"lock in\" their
relative production ratios of these products regardless of what
consumers are demanding. We are particularly concerned about the impact
the proposed non-highway baseline approach will have on refineries that
experience changes in diesel fuel market demand and the normal
initiations and terminations of contracts that occur in the course of
doing business. It is unreasonable to expect that what consumers demand
in 2008 or 2009 will be the same as it was in the 2003-2005 period.
Volume swings resulting from changes in an individual refiner\'s
contracts or distillate fuels exempt from the non-road and highway rules
could have a significant impact on a refinery operating under the
baseline approach. These potential impacts on refining could result in
simultaneous shortages and excesses of particular products in particular
markets, creating unnecessary supply disruptions and market volatility.
EPA should avoid such supply problems rather than establish regulatory
programs that will foster them.

Unlike other situations where EPA has attempted to insure adequate
supplies of mandated fuels in a market environment, the proposed
baseline would be a specific intrusion into and manipulation of the
market. For example, in the highway diesel rule, EPA established an
80/20 phase in. That created a minimum production ratio requirement for
refiners that make LSD but left other key market decisions to the
refiner. It created no maximum limit on quantity of production nor did
it impact the refinery's ability to respond to market demands for other
fuels. The baseline proposed for non-highway distillate production would
set a hard limit on two distinct products, demand for which necessarily
varies year-to-year. Thus, it effectively limits the quantity of a
refinery's production for two different markets. For example a refinery
producing only or mostly highway ULSD year round would not be able to
increase distillate production should there be a strong seasonal demand
for heating oil different from the baseline. Consequently, in contrast
to the highway rule, the baseline approach would establish a much more
pervasive constraint on production and thereby affect the competitive
marketplace.

## Mitigation of Adverse Impacts Resulting From The Baseline Approach

*[If EPA Proceeds With The Baseline Approach, Adjustments To Reflect The
Highway Diesel Rule Should Be Allowed]{.underline}*

If, notwithstanding the undesirable results of its baseline approach,
EPA includes it in the final regulation, EPA should incorporate measures
to ameliorate its worst impacts. One aspect of the non-highway baseline
proposal that could help offset some of the marketplace confusion is
EPA\'s proposal to allow refiners to establish baselines that reflect
their operations from June 1, 2006 - May 31, 2007, in response to the
requirements of the highway diesel rule. This would be an essential
element for refiners whose product slate may change as a result of the
highway diesel rule implementation and if EPA persists in adopting a
non-highway baseline approach. MAP strongly supports EPA\'s proposal in
this regard if a non-highway baseline approach is ultimately selected.

*[Seasonal Heating Oil Limitation Concern]{.underline}*

One of the key concerns and limitations with the proposed non-highway
baseline approach is that it does not adequately provide for needed
seasonal flexibility, particularly to meet heating oil demand if a
winter occurs that is significantly colder than the baseline period.

If a refiner is already producing maximum ULSD for highway, and due to
weather, the marketplace demands more heating oil, under the EPA
baseline approach, the refiner can not increment his overall distillate
production. His only mechanism to meet the increased demand for heating
oil is to divert non-road diesel to that product. Such an approach could
result in shortages of non-road diesel and overall upward pressure on
all distillate product markets. To remedy this problem and allow the
normal practice of refiners meeting incremental heating oil needs by
incrementing overall distillate production at the expense of gasoline
production, the following approach is proposed:

During the period November 1 to the following March 31 of each year, the
non-highway baseline percentage can be exceeded at a refinery\'s
discretion if the increment of production above the normal baseline is
all heating oil that is dyed and marked prior to leaving the refinery.
The incremental heating oil would be reported separately as \"seasonal
heating oil.\" Otherwise, the highway and non-highway baseline
percentages would remain unchanged.

*[The Aggregation of Refiner Baselines Should Be Allowed]{.underline}*

Another degree of flexibility could be added to the non-highway baseline
approach by allowing refiners and importers to aggregate their
individual non-highway baselines, either nationally or by PADD. MAP
believes that this aggregation should be included in order to provide
some minimum level of flexibility to a baseline concept that is so
inflexible that it virtually sets production mandates for highway
diesel, NRLM diesel and heating oil. Given EPA's overly restrictive
highway diesel provisions to ensure adequate supply of 15 ppm diesel and
the proposed production mandate of total highway diesel, there is
insufficient justification for limiting the production of undyed 500 ppm
NRLM diesel by individual refineries.

For the first year of the highway diesel regulations, before the
proposed NRLM rules are effective, many refineries will have already
built sufficient distillate desulfurization capacity to meet their 15
ppm and 500 ppm highway diesel requirements. Once the investment in
these units has been made and the refineries have a year's operational
experience, it is doubtful that these refineries will choose to produce
less 15 ppm diesel fuel in favor of 500 ppm NRLM. It is impractical to
completely change from highway customers to NRLM customers for a
temporary program and it is difficult to explain large investments that
are underutilized to stockholders. For these reasons, MAP sees little
evidence that 15 ppm highway diesel supplies will retract once the
proposed NRLM provisions take effect, even without the proposed
production mandate of total highway diesel.

The aggregation of refiner baselines will allow refiners with multiple
refineries, capable of supplying the same distribution system, to
optimize the timing of distillate desulfurization investments while
still meeting the combined needs of their highway and NRLM customers. It
would be irrational for a refiner with significant highway diesel
customer sales to opt to make only NRLM diesel at a specific refinery
without having provisions to provide adequate highway diesel supply to
its customers. It is for this reason that the highway diesel rule will
result in most refineries opting to invest in the capabilities to
produce 100% of their diesel production as 15 ppm highway diesel.

We recommend that EPA consider national aggregation as it will provide
the greatest degree of flexibility without endangering the availability
of either highway or non-road diesel. If EPA is concerned that national
aggregation is too broad, at a minimum, EPA should allow refiners and
importers to aggregate the non-highway baselines of their refineries
within a given PADD. This approach would significantly simplify the
planning, scheduling, monitoring, and reporting for refiners that could
take advantage of it.

# *Establish a Midyear Reporting Date*

# 

# By having the annual baseline reporting period start June 1 and end on May 31, some of the potential impacts on winter heating oil supplies could be eliminated. Since this would also align the reporting period with the refinery implementation dates under this proposal, it should have no environmental impacts.

# *Additional Flexibility Would Make The Non-Highway Baseline Approach More Workable*

Another degree of flexibility not discussed in the proposal, but worthy
of consideration, is to allow refineries to apply for adjustments to
their highway and non-road baselines in their annual compliance reports
based on DOE/EIA forecasts of changes in demand for highway and
non-highway diesel fuels. Current projections suggest growth in both the
highway and non-road diesel demand, and retraction in HO demand.

Finally, EPA should provide some mechanism for a refinery to adjust its
baseline if specific demands change due to the expiration of contracts
for product purchased or for new business contracts for specific
products. Otherwise, potential customers will have undue leverage in any
contract negotiations.

*[An Alternative Highway Baseline Approach]{.underline}*

In response to EPA\'s specific request for comments on alternatives to
the proposed non-highway baseline approach, we would suggest that EPA
could allow refiners and importers to meet a highway baseline as opposed
to the proposed non-highway baseline. The highway distillate baseline
for each refinery would be determined by averaging the volume of highway
diesel fuel that it produced or imported annually over the three year
period from January 1, 2003 through December 31, 2005 (or from June 1,
2006 through May 31, 2007) and dividing that volume by the average of
all diesel fuel and heating oil it produced or imported annually over
the same period (and then multiplied by 100). The volume of diesel fuel
represented by its highway baseline percentage would have to comply with
the 80/20 ratio requirement of the highway rule and would have to
provide a volume of 15 ppm sulfur diesel fuel that equaled or exceeded
80 percent of the highway diesel volume in the original baseline.  A
refinery would be allowed to apply for a downward adjustment to this
minimum volume of 15 ppm sulfur highway diesel fuel for any given year
that a force majeure situation was encountered, on a case-by-case basis.

** **Many of the elements of and suggested improvements to EPA\'s
proposed non-highway baseline could and should also be incorporated in
this approach, i.e., retain the capability to adjust the 2003-2005
historical baselines to reflect post-highway rule operations in
2006-2007, as proposed and provide the capability to adjust original
baselines each year to reflect changes in overall market demand for
NRLM.

This approach may ultimately be more workable than a non-highway
baseline approach because it ensures that at least a minimum amount of
highway diesel (meeting the 80/20 requirement) would be produced, based
on the baseline period, and would allow refiners flexibility to respond
to changing non-highway distillate markets. The biggest drawback to this
approach is that it still sets a de facto production quota, with all the
disadvantages and potential problems previously discussed.

.

**[EPA Should Eliminate the 20% Downgrade Limitation Extension to 500
ppm NRLM]{.underline}**

The highway diesel rule expressly allowed unlimited downgrading of 15
ppm highway diesel to non-road diesel. EPA's proposal in this NPRM to
limit the downgrading of 15 ppm highway diesel to both the highway 500
ppm diesel and 500 ppm NRLM to 20% of the 15 ppm highway diesel volumes
handled represents a major change to the highway diesel rule and the
potential cause of major disruptions in non-road supplies. MAP objects
to this provision on the basis that it significantly changes the
stringency of the highway diesel regulation, has little impact on
highway 15 ppm volumes, overly limits the spillover of highway diesel
into non-road diesel markets, and could force non-road diesel terminal
customers to pay highway diesel taxes. MAP strongly recommends that EPA
eliminate this provision.

The highway diesel regulation allowed for unlimited downgrading of 15
ppm highway diesel to non-road diesel. This provision was necessary
because the industry has no definitive estimate of how large downgrades
of 15 ppm highway diesel due to interface and piping contamination
control measures, plus the occurrence of entire batches of contaminated
15 ppm, diesel are likely to be. The arbitrary selection of 20% could
easily force downgraded or contaminated 15 ppm highway diesel out of
both the highway and NRLM markets and into heating oil, creating highway
and NRLM supply shortages and heating oil gluts. At terminals without
heating oil storage, downgrades above 20% would have to be moved into
transmix and reprocessed.

In addition, EPA is aware that significant volumes of highway fuel are
currently downgraded to non-road diesel due to tankage limitations.
While nationally this spillover is between 15% and 20% of the diesel
pool, the EPA proposal would restrict this spillover to 20% of the 80%
15 ppm requirement of the highway diesel pool (about 60% of the total
distillate pool). Consequently, less than 10% of the total diesel pool
could be downgraded. Furthermore, there are many terminals where the
volume of highway diesel downgraded to non-road diesel currently
approaches 50% of the highway diesel volumes because there is only a
single tank for diesel fuel. This requirement would force a large number
of new tanks to have to be built for a temporary period or for the
terminal to deliver only undyed 15 ppm highway diesel to all of its
customers, forcing some non-road customers to pay highway diesel taxes
on their fuel.

This proposed provision could completely distort both the highway and
NRLM diesel markets and could also fail to provide the benefit that EPA
claims is intended. Forcing undyed 15 ppm highway diesel to be used by
non-road customers results in the same loss of highway diesel production
as the case where spillover is allowed, but at a much greater cost. EPA
has already asserted that the highway diesel regulations ensure adequate
supplies of 15 ppm highway diesel fuel at locations throughout the
country. It therefore can not contend that this provision is also
necessary to achieve this goal. It is only through the use of
exaggerated what-if scenarios that EPA can pretend that a proposed
regulation that mandates the additional conversion of NRLM volumes to
500 ppm sulfur will create a shortage in 15 ppm highway diesel
production.

The proposed 20% limitation on the downgrading of 15 ppm highway diesel
to all 500 ppm diesel is a serious mistake and should be eliminated. EPA
must refrain from this ill-advised attempt to control the market place.

### **Costs and Benefits of Extending Highway Diesel Aromatics and Cetane Requirements To Non-Road Diesel**

EPA asks for comments on the costs and benefits to extend the cetane
index and alternative aromatics standard applicable to highway diesel
fuel to NRLM diesel fuel. Several of the pipelines currently have
cetane/cetane index specifications for high sulfur diesel, therefore,
this is likely not a major cost issue. However, Section 80.599 in the
proposed regulatory text would require batch reporting for those using
the baseline approach and (e)(5) would require reporting of cetane
[and]{.underline} aromatics content of the fuel. The reporting of
aromatics should not be required if the refiner is complying with the
cetane index requirement (or vice versa). Therefore, the reporting
requirement should be cetane or aromatics, not both.

**MAP Supports The Use of a Dye or Marker To Differentiate Heating Oil
and Locomotive and Marine Diesel From Other Distillates**

The use of red dye to distinguish products and detect contamination is
an effective solution to ensure compliance. The compliance tracking
issues downstream of wholesale terminals concerning heating oil
(2006-2010) and locomotive marine (2010-2014) are unique due to current
IRS regulations regarding the use of red dye. MAP supports the use of a
separate maker for heating oil during the unique transitions of the
non-road proposal, which will discourage and allow for the detection of
misuse of fuels downstream of wholesale terminals. However, MAP believes
that the proper location for the addition of dye is at the wholesale
terminal location, not at the refinery gate.

Current regulations utilize a visual red dye. Visual dyes offer the
distribution system the best method to quickly detect and react to
possible problems or errors. The proposed yellow marker is not visually
detected and does not offer the ability to quickly detect problems. EPA
states that improper dying would be a result of human error, however
many if not most of the dye systems are typically automated with little
human interaction. Visual detection is the primary method of detecting
dye injection errors. Without visual evidence, the distribution system
downstream of the yellow dye injection may be forced to test unmarked
fuels, primarily jet fuel, to assure the product is free of yellow dye.
As with most additives, the presence of yellow dye in aviation kerosene
(jet fuel) is strictly prohibited.

The current proposal requires the addition of the marker by the refiner
or importer. However, the current distribution system has attempted to
minimize the unintended consequences of moving dyed product by moving
the dye injection location to the wholesale product terminal. EPA needs
to recognize this practice and allow it to continue if at all possible.
While downstream injection may result in a greater capital investment by
the industry, marker injection at the end of the distribution system
would minimize the impact on the distribution system and greatly reduce
aviation kerosene concerns. By moving the marker requirement to
downstream of the refiner, industry can determine the best solution for
marker injection to minimize downstream issues.

Again, we understand and support the use of a marker but the proposed
selection of Yellow Solvent #124 may be premature. Many questions such
as detection limits, fouling, compatibility with the current red dye are
still unanswered, and adequate time to work through all of these issues
by the end of the comment period is not available. The current use of
acid in the yellow dye test method raises serious health concerns for
field operators, and the ability to run this method may be restricted to
laboratories with very limited or no field testing.

We recommend that EPA and industry continue to study and evaluate
markers to make a final selection based on testing and impact concerns.
We also recommend that EPA allow the introduction of the marker anywhere
upstream of the truck loading rack by simply moving the marker
requirement to downstream of the truck rack similar to current non-road
IRS dye requirements.

## Kerosene Dye Requirements

In Section 80.520, EPA is proposing to require all kerosene not
designated for use only in jet aircrafts to be dyed. The only dying
exception would be to include the kerosene in the refiner's 80/20
temporary compliance as 500 ppm highway diesel fuel or in the baseline
compliance option as non-highway volume. This dye requirement creates
two major complications:

-   Many states currently do not allow the use of red dye in kerosene.
    The EPA proposal will create a conflict with State requirements.

-   Many fuels are shipped under multipurpose specifications to create
    the greatest flexibility in the distribution system. A low sulfur
    kerosene (400 ppm sulfur) is currently shipped that is used as K-1
    kerosene, jet fuel, and can be used to winterize on road diesel.
    This fuel allows for the greatest flexibility to minimize tankage
    and maintain a complete slate of fuels. The inclusion of the "for
    use only" language will impact the production and movement of
    kerosene and will negatively impact the distribution of jet fuel,
    kerosene, and winterization volumes of 500 ppm diesel.

MAP recommends that EPA allow the continued use of multipurpose kerosene
for K-1 kerosene, jet fuel, and winterization of 500 ppm highway diesel
by allowing the movement of this fuel undyed and the removal of the term
"for use only" specifically for jet fuel. In other words, fuel could be
undyed as long as the fuel meets jet fuel requirements. EPA should
provide specific relief to remove the dye requirement, which should
resolve conflicts with State dye requirements and continue distribution
system flexibility. The ability of multipurpose, generally higher priced
kerosene to spill over into the highway diesel market and greatly
influence production of highway fuel is limited and should not pose a
threat to the supply of 15 ppm highway fuel during the transition to
2010 and may improve the overall supply of highway diesel.

## Credit Trading Should Be National in Scope

MAP supports credit generation, banking and trading for refiners or
importers who produce more 500 ppm sulfur non-road diesel prior to June
1, 2007 or 15 ppm sulfur non-road diesel prior to June 1, 2010 than
necessary. Refiners and importers would be able to buy, sell or trade
credits or bank them for later use, making it more attractive for some
to produce or import lower sulfur non-road diesel before the
requirements come into effect.

In order for a credit trading program to provide real world flexibility
to refiners, there must be a sufficient volume of credits traded on an
annual basis to ensure that market equilibrium between supply and demand
is achieved. The Highway Diesel rule's PADD restricted credit trading
program fails to meet this objective and is unlikely to be effective in
encouraging the creation and use of highway diesel credits for 500 ppm
sulfur diesel fuel. Placing PADD restrictions on the non-road diesel
credit programs would make this program even more inflexible than the
highway diesel credit program, given the expected smaller volume of
credits and the single year timeframe for credit generation for both
high sulfur NRLM credits and 500 ppm sulfur NRLM credits. Therefore, if
EPA intends to create NRLM credit programs that have a real chance of
improving refiner flexibility, the programs must be national in nature.

EPA argued that the PADD restrictions on highway diesel credits were
required to ensure adequate supply of 15 ppm diesel fuel throughout the
nation. MAP can only assume that EPA's objectives will be achieved under
the highway diesel rule and, therefore, there can be little
justification for not having nationwide NRLM diesel credit trading
programs. Certainly, the high sulfur NRLM credit program, which does not
involve the production of 15 ppm diesel fuel, has no impact on supplies
of 15 ppm highway diesel fuel. Also, the use of 500 ppm sulfur NRLM
credits will occur after June 1, 2010, when the highway diesel
requirements are for 100% 15 ppm sulfur diesel and the non-road
requirements are for 15 ppm sulfur diesel. It is difficult to envision a
situation where the national use of 500 ppm sulfur NRLM credits, could
have any significant impact on 15 ppm diesel availability.

Finally, MAP recommends that EPA extend the time period for early credit
generation by producing 500 ppm maximum sulfur NRML diesel by changing
the start date from June 1, 2006 to June 1, 2004. This would provide
parity between the generation period and the usage period. It would also
encourage the early conversion of refinery facilities to 500 ppm diesel
and might result in increased environmental benefits.

**[Restrictions On When Early 15 ppm Sulfur Diesel Credits May Be
Generated Will Discourage Early Introduction of 15 PPM NR
Diesel]{.underline}**

The start date EPA has proposed for generating early 15 ppm non-road
diesel credits in its proposal is unnecessary. By limiting refiners\'
ability to generate credits to the period from June 1, 2009 to May 31,
2010, EPA would discourage the early introduction of 15 ppm non-road
diesel. We agree that production that exceeds the requirements of the
highway program TCO should not be allowed to generate credits for both
the highway and the non-road programs and so a refiner or importer would
need to specify such credits as either highway or non-road credits.

## The Same Requirements Should Apply To All Regulated Parties

EPA has proposed to allow small refiners to continue to make 500 ppm
sulfur diesel and generate early 500 ppm sulfur reduction credits beyond
the June 1, 2007 compliance deadline that applies to non-small refiners.
They would also be allowed to produce 500 ppm diesel without obtaining
credits beyond June 1, 2010 until 2014. MAP believes that EPA should not
provide preferential treatment to any class of refiners. Thus, MAP
opposes the extension of compliance deadlines for small refiners and
recommends that the Agency promulgate a rule that provides a level
playing field upon which all refiners can compete. Special provisions
can result in inequitable situations that can adversely affect the
industry for many years.

EPA's proposed non-road diesel sulfur standard will be challenging for
all refiners to meet, including small refiners and farm co-ops. Allowing
small refiners and farm co-ops to meet the lower sulfur requirements
later than non-small refiners puts the quality of the diesel fuel in the
distribution system at risk, threatening the viability and value of
lower sulfur products. EPA has attempted to argue that postponing
compliance dates will make it easier for small refiners to comply. We
would argue that it will simply give these small refiners the ability to
operate and produce substandard fuels longer and at a competitive
advantage and will not significantly change the business decisions those
refiners would ultimately make, i.e., they will either upgrade their
units or exit the market. Non-small refiners face similar issues with
their older, smaller refineries and will need to make the same sort of
business decisions without the benefit of being able to postpone them.

**[105% Limitation on Transmix Processors]{.underline}**

Under the proposed NRLM rules, transmix processors can elect to be
treated as small refiners and will be allowed to produce the same diesel
fuels as small refiners. However, it appears that the small refiner
baseline process and the 105% limitation on baseline volumes would also
apply to transmix processors. Since transmix volumes have the potential
to increase significantly under both the highway and non-road diesel
rules, the 105% limitation is unreasonable and would significantly
impact the ability of the distribution system to properly handle and
dispose of transmix. MAP recommends that the baseline and 105% volume
limitation requirements be eliminated for those facilities that process
only transmix.

Also, if a transmix processor wants to bring in "blendstocks" to blend
in with the diesel produced from processing the transmix, they would be
classified as a refiner and subject to the associated restrictions.
There should be some provision to allow this on a limited basis --
perhaps applying a percentage limitation could apply to production, to
include blendstocks.

## Lubricity Requirements Should Be Set Through A Consensus Process

MAP supports EPA\'s decision to allow the voluntary consensus-based ASTM
process for setting an appropriate lubricity specification for non-road
diesel fuels to move the issue forward. Regulatory requirements would
not make sense at this time, especially considering the ongoing
uncertainty and debate regarding what lubricity characteristics may be
needed. The ASTM process will allow government and industry participants
to agree to appropriate specifications and efficiently adjust them as
necessary as knowledge regarding lubricity needs is improved.

## Pump Labeling Provisions

MAP supports the strong pump labeling provisions outlined in the
proposal. It will be important for retailers to clearly indicate to the
consumer what fuels are available for highway and non-road vehicle and
engine use. We believe the proposed pump labeling requirements, while
complex, are necessary and can be adopted into weights and measures
guidelines and laws.

EPA Should Continue Its Support Of Necessary Capital Improvement Through
Its National And Regional Permit Teams

This rulemaking will add to the already numerous projects, and thus the
construction resources and permits needed, to complete refinery capital
improvements. MAP welcomes the continued focus on and support by EPA for
efforts to facilitate permitting of needed refinery and distribution
system facility changes that will be required by the rule. MAP supports
EPA\'s continued commitment of its national and regional permit teams to
facilitate permit reviews.

Reporting Burden Significantly Greater for Non-Highway Baseline Approach
Versus The Dye and Segregate Approach

MAP notes that the relative reporting burden imposed for dyeing vs. the
baseline or designate and track approach to demonstrate compliance is
quite large. The overall diesel supply system will need the volume of
500 ppm S highway and non-road diesel that a fungible distribution
alternative can facilitate. However, if the additional burden of
demonstrating compliance is high, some refiners may opt to just dye
their NRLM production and avoid the increased reporting burden
associated with a baseline or designate and track approach.

# **Diesel Sulfur Test Method**

MAP strongly supports EPA's proposal to adopt a performance-based test
method approach for both highway and non-road diesel fuel subject to the
15 ppm standard, as well as the 500 ppm standard. MAP has long advocated
that the Agency should set the performance standards, and allow an
industry laboratory to qualify its test method(s) of choice.

Regarding the measurement of sulfur concentration in diesel fuel, we
recommend that the Agency adopt the same performance-based criterion
approach for all diesel fuel up to 500 ppm for consistency and cost
effectiveness reasons while recognizing that the quantitative value of
the performance-based criteria would be different for diesel fuel
subject to the 15 ppm sulfur standard versus the 500 ppm sulfur
standard.

## *Test Method Approval \-- Precision (80.584(a))*

The NPRM proposes that precision of a given sulfur test method be
determined by performing 20 repeat tests over a minimum of 4 days on
samples taken from a homogeneous supply of a commercially available
diesel fuel. The laboratory would be required to demonstrate that the
precision of the chosen method(s) for measuring diesel fuel sulfur
subject to the 15 ppm standard be less than 0.72 ppm \[where 0.72 =
(1.5)(1.33)/2.77\] in order for the test method to be qualified.
Similarly, the laboratory would be required to demonstrate that the
precision of the chosen test method(s) for measuring diesel sulfur
subject to the 500 ppm standard be less than 9.68 ppm.

We support this approach, and also believe that the proposed "20 repeat
tests over a minimum of 4 days" requirement is reasonable.

*[Test Method Approval \-- Accuracy (80.584(b))]{.underline}*

The NPRM proposes that the accuracy of a given sulfur test method be
determined by the laboratory performing a minimum of 10 repeat tests on
a standard sample, the mean of which for diesel fuel subject to the 15
ppm sulfur standard may not deviate from the Accepted Reference Value
(ARV) of the standard by more than 0.54 ppm \[where 0.54 =
(0.75)(0.72)\], and for diesel fuel subject to the 500 ppm sulfur
standard may not deviate from the ARV by more than 7.26 ppm.

These tests would be performed using commercially available gravimetric
sulfur standards. A minimum of ten tests would be required using each of
two different sulfur standards, one in the range of 1-10 ppm sulfur and
the other in the range of 10-20 ppm sulfur for 15 ppm sulfur fuel, and
one 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. In other words, a
minimum of 20 total tests would be required for sufficient demonstration
of accuracy in the ultra low 1-20 ppm sulfur range, and a minimum of 20
total tests would be required for sufficient demonstration of accuracy
in the 100-500 ppm sulfur range.

MAP agrees with the proposed performance-based test method approach
detailed in the NPRM for accuracy except for the following point. It
appears that the Agency has assumed that the accepted reference value
(ARV) of the standard is assumed to have no uncertainty associated with
it. This assumption would be in conflict with the fact that all
commercially available standards do, in fact, have an uncertainty
associated with the certified value. This uncertainty in the certified
value is expressed in the literature as an "expanded uncertainty". For
example, NIST provides to purchasers of its standard materials the
"expanded uncertainty" (based on a 95% prediction interval) along with
the certified value. It is not unusual for the NIST standard materials
to have an expanded uncertainty on the same order of magnitude as the
certified value itself.

We request the Agency to comment on how it has taken into account this
matter of uncertainty in the certified value or ARV for the standard
material. Also, please comment on the associated question of what
maximum value in the uncertainty associated with the ARV is allowable
for the accuracy criterion being proposed by the Agency? This latter
question involving the uncertainty associated with the ARV is important
knowledge for a laboratory to have when making a decision as to which
standard material(s) to purchase for the purpose of qualifying its test
method per the accuracy criterion.

*[Agency Approval \-- Required Information for VCSB Test Methods
(80.585(a))]{.underline}*

MAP agrees with the proposed requirements for information to be
submitted to the Agency for approval of the VCSB test methods. We
recommend that the submittal requirements for precision and accuracy
data also include the date on which each piece of data was obtained.

Regarding retention of the fuel samples used for precision and accuracy
demonstration, we recommend that the samples be retained for the length
of the Agency-review period \-- i.e., 90 days \-- for consistency
purposes.

*[Agency Approval \-- Required Information for Non-VCSB Test Methods
(80.585(b)-(c))]{.underline}*

MAP recommends that the above two requirements articulated for VCSB test
methods (test dates, and 90 day sample retention) also be adopted for
non-VCSB methods.

In addition, we recommend that Agency approval for non-VCSB test methods
not automatically lapse after 5 years with no option whatsoever for
reconsideration and renewal. Agency approval of the test method in the
first place suggests that the method is technically sound. Five years
experience with the method "certifying" diesel batches for sulfur
concentration suggests that the method is accurate, precise and robust.

In the NPRM preamble, the Agency wrote that "approval would be rescinded
unless the method had been adopted by a consensus body" within five
years. We agree that a five year period is a reasonable amount of time
for an instrument vendor to obtain approval from a consensus body of a
new and/or improved test method.

However, in the case of a refiner having developed a new and/or improved
test method, it quite possible that the refiner may not wish to share
the method with others in industry if the refiner felt that the method
provided a competitive advantage exceeding any income resulting from the
licensing of the instrument technology. It is impossible to know how
many, if any, such cases will occur except to say that the anticipated
number will likely be very small due to the large financial resources
needed to develop such methods, especially when accurate and precise
test instruments are already available in the marketplace at relatively
modest cost.

We recommend that the Agency allow a re-approval process whereby a
laboratory having an approved non-VCSB test method could apply for
re-approval at the end of the first, five year period. For example, five
years worth of performance data, including associated control chart
performance data, along with any other relevant performance data, could
be part of the review process.

*[Quality Assurance Procedures for Sulfur Measurement
Instrumentation]{.underline}*

*[(80.585(d)]{.underline}*

MAP supports the proposed quality assurance procedure requirements
specified in 80.585(d), which are based on selected provisions contained
in ASTM D 6299-02, "Standard Practice for Applying Statistical Quality
Assurance Techniques to Evaluate Analytical Measurement System
Performance."

In addition, we have one specific recommendation: The required retention
period for samples of tested batches of diesel fuel should be a simple,
specified length of time such as "30 days" rather than a more vague
period such as "at least as long as the period between quality control
material or check standard testing occasions."

[ASTM Interlaboratory ULSD Cross Check Program]{.underline}

ASTM has recently announced a new Interlaboratory Crosscheck Program
focused on diesel samples in the 1 to 15 ppm sulfur range, and set to
commence on January 1, 2004. The stated purpose of the program is to (1)
gain experience in measuring the sulfur concentration at the ultra-low
levels present in ULSD, and (2) to compare their laboratory performance
versus other participating laboratories using specific ASTM tests for
the determination of sulfur. We understand that ASTM will be inviting
the EPA Ann Arbor laboratory to participate in this new program. MAP
highly recommends that EPA participate in this crosscheck program (and
allow its measured values be made known to the other participating
laboratories) as the Agency already does in the ASTM RFG crosscheck
program.

Batch Testing And Sample Retention Requirements

In Section 80.581 of the proposed regulations, EPA has proposed
requiring test results prior to shipment for diesel subject to the
15-ppm standard. Currently, there are refineries that inline blend
diesel to the distribution system just as they do with gasoline. EPA has
provided a mechanism for these refineries to obtain a gasoline in-line
blending waiver through a process outlined in 40 CFR 80.65. We request
similar provisions be made available for diesel. This will prevent
refineries in this situation from having to build additional tankage to
contain the diesel product while obtaining the test results. In some
situations, refineries are very constrained on available space making
construction of additional tankage very difficult.

# 

# 

# 

# **Static Dissipater Additives**

Section 80.613(a)(1)(vi) of the proposed regulations provides that in
order to establish a defense to a presumptive violation, "any person
who, at a downstream location, blends a diesel fuel additive subject to
the requirements of § 80.521(b) into motor vehicle diesel fuel or
nonroad diesel fuel subject to the 15 ppm sulfur standard under §§
80.520(a) or 80.510(b)," must have "test results which are conducted
subsequent to the blending of the additive into the fuel". Section
80.521(b) provides that a diesel fuel additive may have a sulfur content
exceeding 15 ppm provided that, among other things: (1) The additive is
added or used in the diesel fuel in a quantity less than 1% by volume of
the resultant additive/diesel mixture; the product transfer document
indicates that the additive may exceed the 15 ppm sulfur standards, and
that improper use of the additive may result in non-complying fuel.

As the sulfur level of diesel fuel is reduced so is its conductivity,
which is likely to require the addition of static dissipater additives.
To our knowledge, all currently commercially available static dissipater
additives have sulfur contents exceeding 15 ppm. As a consequence, in
order to establish a defense under section 80.613(a)(1)(vi), test
results would have to be obtained subsequent to the blending of the
additive in the fuel. MAP believes that this is an overly burdensome and
unnecessary requirement. The dosage rate of static dissipater additives
is typically very low and the resultant impact on the final sulfur level
of the diesel fuel is de minimis. It is our understanding that OcTel
America made a presentation at the June 10, 2003 public hearing that
indicates that use of static dissipater additives at terminals to
achieve a conductivity of 50 pS/m results in an average sulfur
contribution from the additive of 0.02 to 0.04 ppm.

Given the de minimis impact on the sulfur content of the diesel fuel,
MAP believes that the Agency should simplify the requirements for
establishing a defense under section 80.613(a)(1)(iv) for the addition
of static dissipater additives. We believe that adequate enforcement of
diesel sulfur content can be achieved through records that show static
dissipater additive use against fuel volume through the terminal. EPA
has taken this approach in other circumstances. For example, in 40 CFR
80.169(c) under the Agency's additive regulations, a regulated party can
establish a defense if, among other things, the party demonstrates "(ii)
That product transfer documents account for the gasoline, detergent, or
detergent-additized PRC in violation and indicate that the gasoline,
detergent, or detergent additized PRC satisfied relevant requirements
when it left the party's control." Similarly, section
80.613(a)(1)(iv)(C) of this proposal provides that in "lieu of testing
for marker solvent yellow 124 concentration a refiner or importer may
present evidence of an oversight program, including records of marker
inventory, purchase and additization, and records of periodic inspection
and calibration of additization equipment that ensure that marker is
added . . . in the required concentration."

Production of 15 ppm Non-road Diesel Is Technologically Feasible But
Will Result In Potentially Significant Yield Losses

Diesel fuels are formulated from various refinery streams, including
production from conversion units and virgin feed stocks. At the sulfur
levels found currently, the diesel pool contains light cycle oil (LCO)
from FCC units that may require further hydrotreating, diesel products
from hydrocracking units, some virgin diesel, and hydrotreated coker and
virgin distillates. Each of the streams contains numerous types of
sulfur compounds, each ranging in its ability for processing from
simple, to immensely difficult refractory species. There are a number of
reliable methods for the production of ULSD within a refinery. These
include hydrocracking of vacuum gas oils (VGO) to produce a primary ULSD
product, partial conversion of FCCU feeds, and simple hydrotreating.
However, the primary method will be the use of hydrotreating technology.
When the diesel sulfur target became 500 ppm, many refiners loaded more
active catalyst in their existing hydrotreaters, or performed minor
revamps. This modification resulted in production of similar quantities
of hydrotreated diesel fuel and afforded the opportunity to blend many
of the marginal streams directly. As a result, the hardest to treat
components/streams were often dedicated to production of non-road diesel
fuels.

As refiners look to consistently produce LSD and ULSD for highway and
non-road use, it will be necessary to treat nearly all of the components
of the diesel pool. Practical and economical decision-making suggests
the first alternative that most refiners will investigate is
reconfiguration (revamps) of existing assets. During the last era of
revamps (those required to produce \<500 ppm highway diesel), refiners
added hydrogen during the relatively mild desulfurization step. They
observed either a negligible loss of diesel yield, or in some cases, a
slight increase in diesel volume due to swell as hydrogen was added. To
produce ULSD, the severe hydrotreating that will be necessary will
result in much higher hydrogen requirements accompanied by significant
yield loss -- perhaps in excess of 2%. This volume loss occurs as the
severity of the hydrotreating unit increases and some cracking of the
distillate to lighter components results. To conserve capital and/or
utilize existing assets, some refiners may also choose to remove the
heaviest portion of the diesel from pool. This heavy portion could
represent 3-5% of the distillate pool based on a 1996 survey of average
distillate properties. While each refinery will have a different
quantitative impact, the overall effect will be significant and larger
than the processing yield loss noted above.

In situations where a revamp will not satisfy the diesel demand or new
highway and non-road diesel sulfur specifications, a refiner will
undoubtedly evaluate several alternative new unit-processing
options---hydrotreating being the primary candidate. In selecting the
design criteria for a new hydrotreater, a refinery must consider the
amount of diesel they want to produce, as well as the ability to process
the feed components. The more difficult to process feeds require units
that have larger catalyst volumes or that operate under more severe
conditions (pressure and/or temperature.) With proper design, yield
losses can be minimized. However, no matter which diesel hydrotreating
unit a refiner elects to construct, there will be yield losses,
incremental processing costs and significant capital requirements.

A refiner must further include excess capacity in the unit design to
have the capability of reprocessing off specificiation diesel.
Previously, off spec material could be managed by slowly blending it
back into the pool. As the sulfur levels in the highway and non-road
pool drop and the stringent ULSD specs phase-in, this will likely become
an infeasible practice. In addition, both planned and unplanned downtime
of the new hydrotreater or other diesel processors in the refinery must
be accommodated. In new units refinery planners are including an
additional 5 % for downtime and 5% (or more) for off spec processing. In
many cases, this added 10% is not simply for the new unit, but for an
entire refinery diesel pool. If a refinery does not have the capacity to
make up for lost or off-spec production, the additional volume will
disappear from the ULSD market.

When analyzing the ability to process various feedstocks, a refiner must
consider several additional factors, each having implications for total
yield/loss. One traditional option is to take the harder to process
materials and treat them to a higher sulfur level for use in the
non-road diesel pool. This option becomes less feasible and eventually
untenable as non-road sulfur requirements phase in. A second option
suggests cracking high sulfur aromatic diesel materials in an existing
hydrocracking unit to produce gasoline. If this diesel replaces VGO
feedstocks to the hydrocracker, the direct impact would be a loss of
available diesel to the pool.

So, while desulfurization technologies are feasible and may be
implemented in the timeframes allowed in the non-road proposal and the
highway rule, EPA must assess the likelihood of significant product
yield loss resulting from application of hydrotreating (and other)
technologies and strategies and the implications on the overall supply
of diesel fuel.

[EPA Supply Impact Analysis of its Proposed Non-Road Diesel Rule
(Section 5.8 of RIA)]{.underline}

The EPA did not undertake a comprehensive analysis of the potential
supply impacts of its proposed non-road diesel rule but rather used
heuristic arguments to suggest that there will not be adverse supply
implications associated with its proposed rule. More specifically, the
EPA examined four cases that could adversely impact the supply of
non-road diesel fuel due to the implementation of its proposed non-road
diesel rule. The four examined cases are:

1.  Blendstock Shifts

2.  Processing Losses

3.  Exit the NRLM Diesel Fuel Market

4.  Refinery Closure

EPA addressed each case in turn using unsubstantiated arguments to
conclude that the proposed non-road diesel rule will not have any
measurable impact on diesel fuel supply. A primary problem with the EPA
approach stems from the lack of any formal economic/engineering analysis
to support its claim of negligible supply impacts. It is simply not
sufficient for EPA to reach a conclusion regarding supply without
defensible supporting data and analysis.

Another major problem with the EPA supply analysis is that it is not
adequately integrated with the potential supply impacts of the impending
highway diesel rule. Since the EPA assessment starts at the wrong point,
by assuming that there is no tightness in highway diesel volumes, it
completely misses the cumulative impact of its proposed non-road diesel
rule. As shown in a recent study by Baker and O'Brien[^2] (summarized at
the end of this section), the proposed non-road diesel rule will
exacerbate an already tight diesel market brought about by the impending
highway diesel rule. This view is corroborated in a recent research
report by Fitch[^3] and is shared by the Energy Information
Administration of the Department of Energy[^4]. Overwhelmingly, the
existing evidence points to an increased risk of market tightness and
potential shortages, and increased import dependency of diesel fuel,
particularly for ULSD, as a result of the EPA highway and non-road
diesel rules. This evidence is in stark contrast to the unsubstantiated
EPA conclusion stated on page 5-74 of the RIA: "Therefore, consistent
with our findings made during the 2007 highway diesel rule, we do not
expect this proposed rule to cause any supply shortages of non-road,
locomotive and marine diesel fuel."

The four arguments used by the EPA in support of its claim of "no supply
shortages" are stated below along with specific MAP commentary.

*[Blendstock Shifts]{.underline}*: EPA argues (p. 5-68) that "...there
is no technical reason to remove certain feedstocks from the diesel fuel
pool". EPA cites technologies, used on a commercial scale both here and
in Europe and in pilot studies, such as hydro-dearomatization, that can
desulfurize a wide range of feedstocks to less than 15 ppm sulfur. MAP
agrees that that this technology may work. However, it is used primarily
in Europe where light cat cracked cycle oil volume is small and outlets
for higher sulfur diesel/heating oil exist. In the U.S. (except
California) a large volume of cycle oil must be used to blend both on-
and off-road diesels. As a consequence, economic considerations may lead
to a redirection of difficult to desulfurize streams away from ULSD and
LSD pools.

EPA also argues that by shifting some or all of the LCO to the heating
oil pool while shifting straight run distillate from heating oil to the
diesel pool that volume loss would be minimal, if any, thereby allowing
a refiner to maintain volume while avoiding the need to desulfurize LCO.
The EPA acknowledges that such an approach would require refiners to
maintain separate inventories of NRLM diesel fuel and heating oil and
hence likely require the installation of additional tankage. The EPA
also admits that such an approach would be potentially feasible only for
those refiners with access to significant heating oil markets after
2007. Hence, for most refiners, such an approach would not be a
realistic or cost effective option.

The EPA has failed to demonstrate why a refiner, for economic or
technical reasons, would not remove difficult to desulfurize streams
such as LCO from the diesel pool with consequent volume loss to the ULSD
and LSD pools.

*[Processing Losses]{.underline}*: The EPA argues that processing losses
will be minimal, that conventional hydrotreating to 15 ppm sulfur
results in approximately 1.5% naphtha or light crackate which can be
used to produce gasoline and 0.5% evenly split between LPG and refinery
fuel gas. The EPA further argues that these light ends will displace,
for example, other gasoline components that can be redirected back to
the diesel pool so that no net loss in volume should accrue due to
processing losses. MAP disagrees with this assessment. These loss rates
are only consistent with high temperature operation; properly
designed/revamped units are expected to have naphtha/liquid production
rates significantly low than this. The combination of volume loss to
naphtha and gas production, plus hydrogen incorporation into the diesel
fuel, is expected to actually produce a volume gain on the order of
1-2%, which is consistent with normal hydrotreating operations. There
will also normally be up to 10% naphtha in the feed to these units due
to fractionation inefficiencies. While some HDS units may be built
without the capabilities of separating feed or produced naphtha from
distillate, other HDS units are designed with the facilities to separate
this naphtha so that it can be blended into gasoline. During typical
summer operations, US refineries are operated to maximize gasoline
production and thus there is an economic incentive to move this naphtha
into the gasoline pool. During typical winter operations, US refineries
are operated to maximize diesel production. Thus during winter, this HDS
naphtha can be left in distillate pool. If the naphtha produced from HDS
operations or the naphtha brought in with the HDS feed stream is
separated and blended into gasoline, it will represent a volume loss to
the diesel pool. Furthermore, some refiners' responses to the Tier 2
gasoline rules have been to drop heavy gasoline components into the
distillate pool thereby limiting the difference between maximum
distillate or gasoline production modes. For these refineries, further
redirection of gasoline components to the distillate pool is not an
option. Finally, the EPA conclusion regarding processing losses is also
at odds with the above-cited Fitch report.

EPA also states (p.5-70): "Refiners can easily adjust the relative
amounts of gasoline and diesel fuel produced by a unit, especially at
the process level under discussion." As explained above, refineries tend
to operate either to maximize gasoline production or to maximize
distillate production. Since the determination of these modes of
operation is economically driven, they are already being achieved to the
maximum degree possible by each refinery. In either of these modes, the
refinery has no further flexibility to adjust between gasoline and
diesel production.

*[Exit the NRLM Diesel Fuel Market]{.underline}*: The EPA claims that
there will be an incentive for refiners to make the investment to
desulfurize non-road diesel fuel to 500 ppm sulfur and ultimately to 15
ppm sulfur since not to do so will result in severe price penalties in
the heating oil and locomotive/marine distillate markets. The EPA also
claims that export markets for high sulfur distillate products are not
likely to offer attractive alternative market outlets. The EPA therefore
concludes that the overwhelming majority of refiners will make the
capital investments needed to supply the NRLM distillate markets.

As support for this claim they offer a January 2000 report entitled
"Alternative Markets for Highway Diesel Fuel Components" by Muse,
Stancil & Company that was undertaken at EPA's request in support of the
EPA highway diesel rule. It is not sufficient to base this claim of
"likely investment to avoid severe price penalties in the heating oil
and locomotive and marine distillate markets" on this report since Muse,
Stancil and Company did not actually analyze price differentials under
the on-highway diesel rule (let alone the proposed non-road diesel rule)
but rather [assumed]{.underline} that historical price patterns would
hold under the new regulations. There is no basis for such an assumption
and hence the EPA conclusion that potential secondary or tertiary price
penalties in high sulfur distillate markets would be sufficient to
result in the commitment of millions of dollars of capital investment to
desulfurize non-road diesel fuel is spurious.

More specifically, the Muse, Stancil & Company report clearly states on
p.13: "Consistent with the study work scope, Muse has employed what we
regard as a [qualitative analysis]{.underline} to estimate the relative
value of diverted distillates to conventional, low-sulfur on-highway
diesel. The reason that Muse, Stancil & Company characterizes their
report as qualitative is that all of their results derive from an
examination of historical cost, price and volume relationships. Their
analysis does not explicitly model or analyze what the actual movements
of these variables would be under the final highway diesel rule, let
alone the proposed non-road diesel rule. While such an analysis may shed
light on the directional movements of such variables, it cannot reliably
estimate in a quantitative way what the price or cost differentials
would be under the proposed new regulations. Hence, it is simply not
possible to infer refiner behavior using the results of the Muse,
Stancil & Company report.

The EPA offers six unsubstantiated reasons why they believe the
conclusions of the Muse, Stancil & Company report will hold under the
proposed non-road diesel rule. In addition to the problematic use of the
Muse, Stancil report by EPA as explained above, the arguments put forth
by EPA in support of Muse, Stancil vis-à-vis the EPA's proposed non-road
diesel rule lack sufficient supporting analysis. The EPA arguments
include those of market share (a significant fraction of non-road will
be part of the 500 ppm pool by 2007 anyway), technology (refiners will
have had four years to observe commercially installed technology to
desulfurize to 15 ppm), economically unattractive export markets, and
attractive domestic profit margins. However, each argument made by EPA
is incomplete and lacks sufficient supporting analysis and is more
accurately characterized as speculation. For example, ignored in EPA
arguments above are the high unit investment costs some refiners will
face to desulfurize their non-road pools (see Baker and O'Brien report
summary below) and capital constraints that refiners could face due to
the regulations. As concluded by Fitch on page 5 of the above cited
report: "A refiner's need and ability to tap the equity and debt markets
will become a key factor in completing the required (desulfurization)
investments. With the size of investments and the volatility of margins,
several refiners may be unable to meet the regulations through
continuing cash from operations. Refiners, however, are rarely able to
issue equity for investments other than growth projects or acquisitions.
... A weak balance sheet may limit a refiner's ability to complete the
necessary debt offering..." In sum, capital constraints will likely be
binding for some refiners yet this is nowhere to be found in the EPA
analysis of supply impacts. In addition, EPA's arguments fail to
recognize that U.S. refineries already export diesel fuel to Mexico and
the Pacific Rim. Given that these export operations are profitable, it
is possible that many refineries could view expansion of diesel exports
as financially preferable and less risky, than making the massive
investments required to produce ULSD.

*[Refinery Closures]{.underline}*: The EPA concludes that there will be
no refinery closures resulting from its proposed non-road diesel sulfur
rule. It argues that an analysis to determine whether a refinery would
close due to a regulation would be very difficult to undertake as it
depends upon company specific financial information as well as an
accurate forecast of product prices. Hence, EPA's conclusion that there
will be no refinery closures is apparently not based on individual
refinery analysis. It appears to be based on EPA's observation that a
refinery would not close due to the proposed non-road diesel rule since
by doing so it would forfeit all net returns from gasoline, jet fuel and
highway diesel production. Such an observation is hardly sufficient upon
which to base a sweeping conclusion that no refinery will close due to
its proposed rule. The EPA comes to a conclusion that no refinery will
close using an unsubstantiated generalization with no underlying
analysis to support its assertion. In fact, the EPA fails to even
recognize that two refineries have already been shut down and these
regulations have been officially announced as the reason for those
decisions. Also, EPA's recently announced preliminary results of its
2003 Highway diesel regulation compliance survey indicates that 12
refineries will either close or get out of the highway diesel market by
2006.

![](media/image1.wmf)Historical trends in refinery closures show that
anywhere from 1 to 8 refinery closures have occurred per year over the
last ten years (see Figure 1). The cost of complying with environmental
regulations has frequently been cited as a major contributing factor in
the decision to close these facilities. EPA does not provide any
convincing data or arguments that the rate of closures will change
significantly into the near future.

The available evidence overwhelmingly suggests that refinery closures
will in fact occur due to the EPA highway and non-highway diesel rules.
A recently released Baker and O'Brien study (submitted to EPA as part of
API comments on this NPRM) that undertook a detailed refinery by
refinery analysis concludes that EPA's proposed non-road diesel rule
will further accelerate refinery closures due to the EPA highway diesel
rule. Baker and O'Brien study projects the closure of 4 additional
refineries (representing 420 MB/CD) in 2008 due to the EPA non-road
diesel rule (in addition to the 8 refineries (504 MB/CD) projected to
close due to the highway diesel rule). By 2010, 1 additional refinery
(72 MB/CD) is projected to close relative to the 13 refineries (971
MB/CD) expected to close due to the highway rule. Hence, with respect to
refinery closures, the main impact of the EPA non-road diesel rule is to
accelerate the closure rate (make them happen earlier) of those that are
projected to close under the EPA highway diesel rule.[^5] It is worthy
of note that the Baker and O'Brien report involved an analysis of each
refinery in the U.S. that produces distillate fuels. General industry
conditions, corporate profiles, geographic considerations, and unique
refinery characteristics were considered for each refinery. Again, the
available evidence contradicts EPA's claim that no refinery closures
will occur due to its proposed non-road diesel rule.

*[**Other Factors Ignored by EPA that could Impact
Supply**.]{.underline}*

*[Engineering and Construction Risk]{.underline}*: As stated by Fitch on
page 5 of the above-cited report:" ...the true ability of a refiner to
retain the E & C firms and complete the projects has not been tested.
Given the size and scope of the investments, schedules will invariably
slip and may result in delays beyond the deadlines." This view is also
shared by the Energy Information Administration/DOE, see page 5 of the
above-cited report: "The magnitude of the ultra-low-sulfur diesel fuel
implementation workload and investments is expected to be large,
following the large investments of the low-sulfur gasoline program. The
issue is not only affordability on the part of refiners, but also strain
on the construction and engineering firms that will make the changes."

*[Operating Risk and Downgrades]{.underline}*: EPA has not given
sufficient attention to potential operational upsets or lower quality
production following maintenance turnarounds, nor were downgrades
incorporated in the EPA assessment of supply impacts.

## Summary of Supply Impacts from Baker and O'Brien Report 

# 

# This section presents a summary of the key conclusions of the Baker and O'Brien report as it relates to potential supply impacts of the proposed EPA non-road diesel rule. Table 2 displays the cases that were considered in the study. We wish to emphasize that MAP does not intend to suggest that EPA reopen its highway diesel rule to change the sulfur level or schedule. While this report demonstrates that, in the base case scenario, there could be a significant shortfall in domestic diesel fuel supply in 2008 and 2010, Baker and O'Brien did not analyze the potential for imports to make up the difference between domestic supply and demand. MAP and other companies are engaged in planning and making the investments necessary to meet the requirements of the highway rule and would opposed changes to the highway rule at this time. What we wish to point to, as the major conclusion of this report, is that the two-step approach (sensitivity case) reduces potential supply impacts of the proposed non-road rule compared to the one-step approach (study case) that EPA was also considering. We provide this information in support of EPA's proposed two-step approach. As mentioned previously, the full Baker and O'Brien report is attached as part of MAP comments on this proposed rule.

The recently released preliminary results of the first set of highway
diesel precompliance reports, although largely based on planning
assumptions, indicate refiners and importers will supply as much as 2.9
million bbls/day of highway diesel. Based on EIA projections, EPA has
estimated the need for 3.0 million bbls/day of highway fuel. The Baker
and O'Brien study projects that 12 domestic refineries will close by
2008 and 14 by 2010, under the two-step approach. As stated above, Baker
and O'Brien did not attempt to quantify imports. These factors could
partially explain the differences between Baker and O'Brien's
projections and summarized precompliance data. Since the Baker and
O'Brien study is based on projections regarding domestic production for
all uses of distillates and the EPA precompliance reports collect
information about current refiner and importer plans to supply highway
diesel, it is difficult to make meaningful comparisons between the two.

Table 1; Summary of Non-road Diesel Regulatory Cases (ppm)

![](media/image2.wmf){width="5.736111111111111in"
height="1.7916666666666667in"}

# ***Supply Impacts***

*[2008 ULSD Supply Impacts]{.underline}*

The 1-Step approach to non-road diesel sulfur reduction (all non-road
except HHO to 15 ppm S in 2008) roughly doubles the projected
domestically supplied ULSD shortfall in 2008. The diesel highway rule is
projected to result in a domestic supply shortfall of ULSD of
approximately 360 MB/CD (roughly 16% of market consumption) in 2008. The
1-Step approach to non-road diesel sulfur reduction is projected to
increase the ULSD domestic supply deficit by 325 MB/CD resulting in a
total ULSD domestic supply shortfall of 684 MB/CD (roughly 24% of market
consumption) in 2008.

Relative to the base case diesel highway rule, the 2-Step approach
(non-road to 500 ppm S by 2008; Part 89 to 15 ppm S in 2010) to non-road
diesel sulfur reduction is projected to have no significant impact on
2008 ULSD domestic supply (see Figure 2).

Figure 1

![](media/image3.wmf){width="6.80625in" height="3.6305555555555555in"}

*[2010 ULSD Supply Impacts]{.underline}*

In 2010, the ULSD domestic supply shortfall under the highway rule is
projected to increase by 216 MB/CD resulting in a total ULSD domestic
supply shortfall of 579 MB/CD (roughly 20% of market consumption).

The 1-Step approach to non-road diesel sulfur reduction is projected to
significantly worsen the ULSD domestic by 351 MB/CD resulting in a total
ULSD domestic supply shortfall of 930 MB/CD (roughly 26% of market
consumption) in 2010.

The 2-Step will produce an incremental shortfall in ULSD of 60 MB/CD
resulting in a total ULSD domestic supply shortfall of 639 MB/CD
(roughly 21% of market consumption) in 2010, which is 291 MB/CD less
than the shortfall resulting from the 1-Step approach (See Figure 3).

Figure 2

![](media/image4.wmf){width="6.80625in" height="3.6368055555555556in"}

###  {#section-5 .unnumbered}

### *Low-Sulfur Diesel (500 ppm) Net Domestic Supply Position* {#low-sulfur-diesel-500-ppm-net-domestic-supply-position .unnumbered}

As shown in the above figure, the Base Case results in a projected
domestic supply shortfall of 500 ppm LSD of 308 MB/CD, or 62 percent of
the estimated LSD market demand in 2008. The Study Case, by
significantly increasing early regulatory demand for ULSD (reducing
demand for LSD), shrinks the LSD shortfall by almost 50 percent, to 165
MB/CD. The 2008 Sensitivity Case, by phasing the regulatory demand for
ULSD (increasing the demand for LSD), causes the net LSD shortfall to
increase to 481 MB/CD, 173 MB/CD more than in the Base Case. Although
this might seem simply like trading one deficit for another, it would
arguably be much easier to import incremental LSD than ULSD. In 2010,
small LSD domestic shortfalls of 22 MB/CD and 82 MB/CD exist in the Base
and Sensitivity Cases, respectively. However, such small volumes would
not be expected to pose a significant supply or import challenge.

While not shown in the figures, the Baker and O'Brien analysis indicates
that the overall 2008 highway diesel shortage, and in particular the
deficit of LSD, results in large part because of the 80/20 Temporary
Compliance Option (TCO) in the highway diesel rule and the limitation on
intra-PADD credit trading. Without the highway TCO rule, or with a more
flexible rule, domestic production of LSD could be increased---replacing
the higher sulfur grades---at almost no incremental cost. In addition,
the intra-PADD credit trading limitation in the TCO rule could prevent
the direct importation of LSD into PADD 1, resulting in inefficient
transportation logistics. To meet the demand in PADD 1, LSD may first
have to be imported into PADD 3, where a surplus of sulfur credits is
projected. The LSD would then be transshipped from PADD 3 to PADD 1.

### *Import Dependency*

Under any scenario, the U.S. is likely to depend to a far greater extent
on imported diesel fuels in the future. This is because the projected
growth rate in diesel fuel consumption exceeds the rate at which U.S.
refining capacity is likely to grow. The impact of this effect is
compounded by regulatory requirements, such as the current highway and
proposed non-road ULSD regulation, which will result in significantly
increased ULSD import dependency (arguably much more difficult to import
than LSD) and the closure of a significant number of U.S. refineries. In
effect, EPA's highway diesel rule and this proposed rule attempt to not
only force US refineries to make large desulfurization investments but
to also force 639 MB/CD of non-US refinery capacity to make these large
investments.

While all cases studied indicate a dependency on imports, the
Sensitivity Case (2-Step Approach) helps to significantly diminish U.S.
dependence on ULSD imports relative to the Study Case (all NRLM to 15
ppm S in 2008). ULSD import requirements are reduced by approximately
300 MB/CD in the two-step approach to non-road diesel sulfur control
(the Sensitivity Case) as compared to a one-step approach (the Study
Case) in 2008 and 2010. As a result, diesel fuel supply risk induced by
a non-road rule can be significantly diminished by adopting the two-step
approach (combined with exemption of locomotive and marine fuels) as
compared to the one-step approach.

The availability of imported ULSD in the volumes indicated in this study
is problematic at best. For example, Europe is also in the process of
implementing ULSD rules and is not expected to have any significant
volumes of ULSD available for export to the U.S. Although an analysis of
the European distillate supply balance was outside the scope of this
study, we anticipate that Europe will, as in the past, be a net importer
of all distillate fuels. Europe can be expected to compete with the U.S.
for potential ULSD supplies from Caribbean and Middle Eastern
refineries. We also believe that the Canadian refining industry will
have only very limited ULSD production available for export to the U.S.
after meeting its own domestic requirements.

**[Estimated Costs of Low-Sulfur Fuels (RIA Chapter 7)]{.underline}**

*[Comparison of Distillate Consumption Estimates in EPA and Baker and
O'Brien Analyses]{.underline}*

As part of the previously referenced work performed by Baker and O'Brien
for API, it was necessary to complete a consumption forecast for the
various distillate pools by geographic regions, end-use application, and
sulfur quality supplied in each of the distinct pools taking into
account spillover and downgrading influences. Estimates by Baker and
O'Brien include breakdown details for refinery supply volumes for the
years 2000, 2008, and 2010 under various regulatory scenarios and
assumptions typical of those being proposed by EPA.

This work was done independent of the work completed by EPA as revealed
in the RIA under chapter 7.1, where the Agency used a systematic
approach to estimate refinery supply volumes that would be impacted by
the proposed rule, these volumes being the basis for economic and
environmental benefits of the rule.

Both the Agency and Baker and O'Brien used rather elaborate means of
estimating current and future volumes with parametric adjustments
including spillover volumes and sector growth rates. The entire Baker
and O'Brien report is included with API comments. MAP strongly suggests
that EPA complete a comparative assessment between the EPA and Baker and
O'Brien work to assure that the underlying assumptions and impacted
volumes are consistent and lay a solid foundation for the final rule
adoption.

A detailed review of the methodology utilized by Baker and O'Brien in
establishing estimated volumes is included in the Baker and O'Brien
report in Appendix B. Diesel Fuel Consumption Forecast. A few
observations follow:

1.  EPA and Baker and O'Brien used the same source information for basic
    demand forecast projections, i.e. published EIA general information
    and the Fuel Oil and Kerosene Sales 2000 (FOKS) report, for
    estimating base 2000 and 2008 distillate volumes absent new NRLM
    regulatory provisions.

2.  EPA and Baker and O'Brien used different fractions for the amount of
    impacted diesel fuel for each end use sector. For example, Baker and
    O'Brien estimated 80 percent of farm distillate is in diesel fuel
    use whereas EPA estimate 97 percent is for diesel engine use. As
    well, Baker and O'Brien estimates that only 25 percent of industrial
    distillate is in diesel fuel use whereas EPA estimates this to be
    nearly 100 percent. A reconciliation of the variations should be
    completed prior to final rulemaking.

3.  EPA projects spillover by subtracting from the supplied LSD (based
    on Petroleum Supply Annual EIA data) the amount of estimated usage
    in highway segment from the FOKS report. Baker and O'Brien refers to
    this as "non-regulatory demand" and determines the historical value
    in a manner similar to the EPA analysis. The two independent
    assessments agree fairly well except for PADDs 3 and 5 where EPA
    estimates a greater historic spillover than Baker and O'Brien, 30
    and 58 percent vs. 18 and 42 percent, respectively. These historic
    spillovers on non-regulatory demands are used to forecast the future
    supply demands for refinery investments and differences in these
    PADDs described in final rulemaking determinations.

4.  EPA and Baker and O'Brien impacted volume estimates for 2000
    generally agree across PADD and total. However, PADD 3 has the
    greatest discrepancy with Baker and O'Brien estimating that
    approximately 50 kbpd of distillate (fuel oil) would not be impacted
    by the rule whereas EPA estimates that over 60 kbpd would not be
    impacted. The total volume of distillate for PADD 3 is likewise
    estimated larger by EPA of approximately this same amount, i.e. 650
    kbpd by EPA vs. 639 kbpd by Baker and O'Brien.

![](media/image5.wmf){width="4.788194444444445in"
height="2.1555555555555554in"}

5.  The Baker and O'Brien analysis was made prior to the EPA proposing
    the non-road rule. Thus, exemptions for small refiners were not
    included in the Baker and O'Brien report, whereas, EPA generally
    exempted their supply volumes during the proposed applicable
    periods. Ability for small refiners to utilize these exemptions
    relative to existing markets and infrastructure has not been
    examined.\
    ![](media/image6.wmf){width="5.159722222222222in" height="3.1625in"}

6.  Both Baker and O'Brien and EPA used EIA's Annual Energy Outlook for
    determination of growth factors for end use sectors. These
    substantially agree between the two independent assessments relative
    to the major categories considered.

7.  The total 2008 estimated distillate supply/consumption volumes
    associated with growth and spillover tie fairly well between Baker
    and O'Brien and EPA with Baker and O'Brien estimating only slightly
    less total distillate volume needed (ULSD + 500ppm + HS + FO), 17
    kbpd. Likewise, the estimated U.S. consumption of 15 and 500 ppm
    diesel fuel in 2008 match to within 4 kbpd absent new NRLM controls.
    However, there are differences in the quality demand of this volume
    with Baker and O'Brien estimating a greater demand for ULSD than EPA
    by some 242 kbpd. This difference could be associated with the EPA
    presumptions concerning the small refiner exemptions and ability for
    industry to utilize the temporary compliance option associated with
    the highway rule. The Baker and O'Brien report further addresses
    this point in its report
    discussions.![](media/image7.wmf){width="5.159722222222222in"
    height="3.1625in"}![](media/image8.wmf){width="4.911111111111111in"
    height="2.2111111111111112in"}

8.  EPA's underestimate of the 15 ppm production volume of nearly 250
    kbpd in 2008 appears to be based on PADD 3 and 4 estimates. This
    estimate is the basis for all additional calculations of impacted
    volumes and the amount of desulfurization installation needed. We
    strongly recommend the EPA make a very thorough review of the
    difference between its estimate and that made by Baker and O'Brien
    to affirm the accuracy of assumptions and analysis used in the RIA.

## *Desulfurization Technology and Refining Costs*

The EPA assumptions and methodologies for calculating industry capital
costs are detailed in RIA section 7.2 (Refining Costs). EPA makes
estimates for both grassroots and revamp capital costs for conventional
hydrotreating. EPA also estimates the costs for two new sulfur reduction
technologies, Phillips SZorb and Linde Isotherming. EPA assumes that
conventional hydrotreating will be used to produce NRLM at the 500 ppm
level. For production of 15 ppm NRLM, EPA assumes a mix of technology
investment in the ratio of 80% new technology and 20% conventional
hydrotreating.

As a basis for comparison, the Baker and O'Brien study can be used to
comment on EPA's assumptions for capital cost estimates. The Baker and
O'Brien study focuses on conventional hydrotreating to estimate industry
capital cost requirements for the NRLM regulations. The Baker and
O'Brien study states that "catalytic hydrodesulfurization (HDS) is still
expected to be the dominant technology selected for compliance with
current and anticipated regulations." Baker and O'Brien does not make
capital cost estimates for the new sulfur reduction technologies.

EPA collected information from technology and catalyst vendors for
capital cost estimating. Baker and O'Brien used a diesel hydrotreater
investment methodology developed by EIA and the National Energy
Technical Laboratory as the basis for their capital estimates. Using
conventional hydrotreating as a common technology, a comparison of the
EPA and Baker and O'Brien capital cost estimating methods can be
performed.

Regarding grassroots investment in conventional hydrotreating, the EPA
and Baker and O'Brien estimates are very similar. Baker and O'Brien
estimates an ISBL cost (including catalyst) of \$42.8 million for a 30
MB/SD unit feeding Straight Run Distillate (Figure 9). EPA's estimate
for a straight run grassroots hydrotreater is approximately \$44 million
(Table 7.2-7, ISBL plus catalyst, adjusted for 30 MB/SD feed rate).

A similar comparison for a 30 MB/SD grassroots hydrotreater with cracked
feedstock (FCC Light Cycle Oil and/or Coker Gas Oil) shows an estimate
of \$55.8 million from Baker and O'Brien and \$60 to \$64 million from
EPA. Differences in reactor size, operating condition, and feed property
assumptions between Baker and O'Brien and EPA contribute to the
variation in capital cost estimates. Still the comparison is very good.

EPA also estimated the cost of a diesel hydrotreater revamp to be
approximately 55-60% of the cost of a grassroots unit (from Tables 7.2-6
and 7.2-7). This compares favorably with Baker and O'Brien's cost
assumption of 50% of grassroots for a hydrotreater revamp and 70% of
grassroots for a more complicated reactor replacement modification.

Despite these similarities, MAP believes that the EPA has significantly
understated refiner cost to comply with this proposed rule as explained
below.

EPA has continued its tendency to underestimate costs. In Section
7.2.1.2.4 of the RIA, EPA points out that there are multitudes of
reasons why the vendor capital cost estimates should be optimistic. None
of these points are persuasive and, in fact, most studies, including the
NPC study have found that vendor quotes are normally low and on unproven
technology tend to grow substantially as real world process requirements
become better known.

In Section 7.2.1.4.1 of the RIA, EPA admits that some capital costs
associated with equipment are not included in the vendor estimates. The
general off-site costs are also not included. To adjust for these other
capital costs such as amine and sulfur plants and sulfur analyzers etc.,
the capital costs were increased by 15% in the RIA. Another 3% was
included for start-up. These adjustments are far below acceptable
engineering practices for cost estimation. The NPC study used a factor
of 40% to get the on and off site cost. MathPro used a factor of 50% to
do this. Thus, it would appear that the EPA has significantly
underestimated the cost of hydrotreating by the conventional and
advanced technologies.

EPA uses a technology mix of 60% conventional and 40% advanced
technologies for 2008, which is the same as the NPC assumptions (page
7-107 and 7-108). However, the NPC study assumed that by this time,
advanced technologies would have been commercially demonstrated. As of
the time of these comments, both of the advanced technology concepts
espoused by EPA still have not been demonstrated commercially in the
production of ULSD. At this stage, it is unlikely that a significant
number of refineries will risk the unknowns with either of these
advanced technologies and thus they are likely to represent much less
than the 40% market share EPA has estimated. The advanced
Desulfurization technologies should be given a risk factor adjustment to
compensate for as yet unknown and undefined required additions to the
capital costs. For capital costs, the appropriate risk adjustment would
be 40% and for operating costs, it would be 30%.

In Table 7.2-26, to estimate the hydrogen production cost, a natural gas
cost of \$2.75/MMBTU was used. This is no longer valid and the current
natural gas price is in the range of \$4.50 to \$6.00 per MMBTU and is
projected by EIA to remain in this range for the foreseeable future.
This increase in natural gas cost could result in a minimum of a 50%
higher hydrogen cost than EPA has estimated. This factor alone will
increase EPA's cost estimates for ULSD by 1 to 1.5 cents per gallon.

In addition to the cost of hydrogen, another important factor in
estimating the cost of diesel desulfurization is the hydrogen
consumption. It is difficult to estimate the hydrogen consumption for
the advanced technologies with any degree of accuracy although
correlations may exist. For a 100 SCFB change in hydrogen consumption,
the operating costs will change by about one cent per gallon. Hydrogen
consumption in the range of 360 to 375 SCFB has been referenced for the
various technologies both for revamp and grass roots options. If cracked
stocks are present in the feed this number will shoot up into the
thousand SCFB range. EPA has assumed a low hydrogen consumption value
based on the assumption that all non-desulfurization reactions that use
hydrogen can be eliminated. In the real world, this optimistic
projection can not be achieved.

EPA has continued to base its design case on average HDS feed
properties. In reality, each refinery must base its HDS design on the
worst possible HDS feed it will have to process. Even then, given the
difficulty in achieving a 7 ppm sulfur target, refineries will have to
design in additional HDS capability to ensure that the target
specification is achieved. EPA has failed to recognize these realities
in their cost estimates.

ULSD reactions and kinetics are not that straight forward as the EPA
would like us to believe. The design target of the desulfurization
process should be around 7 ppm or less. At these very low levels, the
reactor will have to perform ideally and continuously. Even under these
assumptions, many sulfur species will fail to react with hydrogen. The
recalcitrant sulfur molecules such as the 4,6-DMDBT may be present in
such a quantity that the residence time and catalyst volume required to
remove them completely would not be cost-effective. In addition, there
is the real world phenomenon called "sulfur floor". The sulfur floor is
the lowest level of sulfur a given feed and reactor configuration can
achieve. At this point increasing reactor temperature will not decrease
the sulfur in the product. The aromatic saturation reaction is
thermodynamically limited and increasing the temperature above the
thermodynamic limit favors the reverse reaction and the rate of
desulfurization of these stearically hindered compounds decreases. It is
to be remembered that there is no commercial desulfurization unit short
of hydrocracking exists that produces ULSD at these low sulfur levels
from cracked full boiling range feed stocks on a continuous and
economical basis.

Minimization of flow maldistribution through proper design of reactor
internals including distributors and bypass tubes, choice of optimum
mass velocity and careful loading of catalyst are critical as there is
almost no margin for error. Heat exchanger leaks, process upsets, and
inadvertent refinery sulfur contamination, will immediately result in
off-specification ULSD. Reprocessing of off-specification product will
be very expensive since it will probably involve backing down of crude
and FCC operational rates.

*[Estimates Of Distribution Costs]{.underline}*

In its estimates of distribution costs, EPA ascribes costs to the
transport of additional volumes of diesel fuel as a result of reduced
per gallon energy content of desulfurized product. The agency also
attributes extra costs, in the form of new tanks, for the storage of 500
ppm non-road diesel and for the modification of tank trucks to handle
lower sulfur products at bulk plants. We have no significant complaints
regarding the assumptions and calculations made by EPA in characterizing
costs for bulk plant operators. However, EPA\'s assumption that a single
tank truck would service a bulk plant is probably not accurate. We
suggest the number is likely much greater than that, which would push
EPA\'s cost estimate upward, but not by a significant amount.

EPA has reasoned that pipelines and terminals will not incur any
additional costs for storage, handling downgrades of 15 ppm NRLM or
handling transmix or interface volumes. While it is possible that the
investments made to meet the highway diesel requirements will minimize
additional distribution costs, we think it is likely that some of the
pipelines and terminals will need to build extra capacity to handle
these volumes.

For the proposed 2007 reduction of diesel sulfur to 500 ppm or less, if
the agency provides a method to allow the fungible shipment of highway
and non-road 500 ppm diesel, the incremental costs associated with
additional storage and delivery would be significantly less and could
virtually disappear, as the highway rule will have already introduced a
500 ppm sulfur grade of diesel into the distribution systems and if a
plant deals in 500 ppm diesel already, there would be little or no need
for additional tankage to handle the new non-road fuel. The costs of
moving additional volumes of lower energy content diesel would still be
realized.

*[Costs of ULSD For Locomotive and Marine Engines]{.underline}*

EPA's analysis (option 4) reveals that the incremental cost per ton to
further lower sulfur levels in LM diesel fuel from 500 ppm to 15 ppm are
much higher than the proposal's cost per ton estimates. EPA determines
option 4's costs to be \$64,000/ton for PM and \$10,300/ton for SO~2.~
This compares to the proposal's estimated costs of \$8,700/ton of PM and
\$200/ton of SO~2~. While MAP has previously commented on EPA's tendency
to overestimate benefits and underestimate costs, as long as the
overestimation and underestimation were done consistently, the relative
relationships would be expected to remain about the same. In other
words, if LM diesel fuel is required to meet ULSD requirements, the PM
costs would be 7-8 times greater and the SO~2~ costs would be about 50
times greater than the proposal.

We note that EPA has arbitrarily split the incremental \$1.8 billion in
fuel costs between PM and SO~2~. Since the PM reductions under the
proposal are more costly than SO~2~ reductions, a 4 to 1 prorating of
the increased fuel costs might be more appropriate. This would result in
a nearly \$160,000/ton cost for PM and a \$3,100/ton for SO~2~. On this
basis, it is obvious that both incremental costs for LM ULSD are at
least 15 times larger than those in the proposal.

[The EPA Methodology For Determining Cost-Effectiveness (Cost Per Ton of
Pollutant) In The Non-Road NPRM Is Problematic]{.underline}

EPA has employed two different methodologies for estimating (a) the
emissions/fuel consumption impacts of the non-road NPRM and (b) the
associated cost impacts. Chapter 3 of the RIA presents the emissions
inventory and fuel consumption impacts of the proposed rule. These are
derived using EPA's draft NONROAD model. The draft NONROAD model
projects baseline 50-state land-based non-road diesel engine fuel
consumption to grow from 10.5 billion gallons in 2000 to 22.4 billion
gallons in 2040 at a compound annual rate of 1.9%. (See Table 3.1-8.)
Chapter 7 of the RIA presents projections of 50-state land-based
non-road diesel fuel that are used to develop the costs of the proposed
program to reduce the sulfur content of non-road diesel fuel. In Chapter
7, EPA develops estimates of diesel fuel use by end-use sector for the
year 2000 based upon an analysis of data from the EIA report entitled
*Fuel Oil and Kerosene Sales 2000*. The year 2000 fuel consumption
estimate for land-based non-road diesel engines as derived using the
Chapter 7 methodology is **[27.1% lower]{.underline}** than the fuel
consumption estimate developed in Chapter 3 using the NONROAD model. EPA
then applies the 1.9% annual growth rate developed from the NONROAD
model projections in Chapter 3 to forecast land-based non-road diesel
fuel consumption through 2040 for the purpose of estimating fuel volumes
for the cost of sulfur reduction in Chapter 7. (See EPA RIA, Table
7.1-22.)

There are several issues associated with this discrepancy in estimates:

-   EPA provides no rationale to support the use of a 1.9% annualized
    growth rate in fuel consumption as opposed to the significantly
    lower annualized growth rate of 0.9% derived from the EIA *Annual
    Energy Outlook 2002* (and also presented in Appendix Table 7.B-1 of
    the RIA). One would be more inclined to accept the EIA-based growth
    rate which is sensitive to assumptions concerning future economic
    activity as opposed to the NONROAD model growth rate which is based
    simply on a linear extrapolation of historical data from the period
    1989-1996.

-   EPA states that the fuel consumption estimates in chapter 3 and
    Chapter 7"...differ by a relatively small amount, approximately 15%
    in 2030..." (See RIA, page 3-22). It is not clear where this 15%
    comes from. Analysis of the data in Chapters 3 and 7 suggests that
    the discrepancy is nearly twice as large as that stated by EPA. (See
    Figure 4 above.)

-   The emissions inventory estimates are determined by many of the same
    factors that influence fuel consumption (namely, activity,
    population, load factor, etc.) SOx emissions, in particular, (which
    exhibit the greatest reductions from lower non-road diesel fuel
    sulfur content) are determined largely by fuel consumption. If one
    accepts that the NONROAD model-based emissions estimates are
    potentially overstated by 27%, this implies that EPA's estimates of
    the cost per ton of pollutant reduced (as presented in Chapter 8 of
    the RIA) are substantially [understated]{.underline}.

## Cost-Benefit Analysis (RIA Chapter 9)

*[assessment of Air Quality/Emissions Inventory impacts]{.underline}*

EPA used inaccurate data and flawed methodology to show the potential
"risk" that several metropolitan areas may fail to achieve or maintain
the National Ambient Air Quality Standards (NAAQS) for ozone and
particulate matter (PM) in 2030 if the proposed non-road diesel engine
and non-road diesel sulfur reduction program is not adopted. The models
used to support the NPRM, result in emissions inventory benefits that
are grounded upon overly optimistic projections of some aftertreatment
control technologies and which may possibly be significant in thirty
years but are miniscule in the near term. Yet it is the near term that
is of most concern to states and localities currently in non-attainment
with the national ambient air quality standards for ozone and
particulate matter.

*[EPA's Demonstration of the Air Quality Need for the Proposal is
Inadequate]{.underline}*

The results of EPA air quality modeling performed to support EPA's
proposal show that it would only reduce ozone design values by 1.6 ppb
on average in 2020 and 2.6 ppb in 2030. Given the inherent uncertainties
and inaccuracies in ozone modeling[^6], this level of benefit does not
appear to provide sufficient basis for concluding that additional mobile
source controls are necessary for attainment of the NAAQS.

EPA's NPRM and supporting documentation point to the potential "risk"
that several metropolitan areas may fail to achieve or maintain the
NAAQS for ozone and PM in 2007 or later if its proposal is not adopted.
EPA measures this risk by counting the population in the aforementioned
non-attainment areas and providing these statistics as support for its
proposed regulations. However, these statistics are somewhat misleading
in that often the non-attainment status of an area is driven by only one
out of an extensive set of monitors placed in a metropolitan area. These
monitors are often downwind of the urban core and register readings that
are significantly higher than the other monitors. EPA should not cite
population statistics but instead should develop measures that would
more accurately characterize population exposure. In addition, EPA
should conduct exposure modeling to assess the effectiveness of the
proposed rule in reducing exposures to criteria pollutants.

*[The Models Used By EPA to Estimate PM Air Quality Benefits Are Subject
to Large Uncertainty]{.underline}*

EPA has projected substantial reductions in the populations exposed to
violations of the PM2.5 annual air quality standard in 2020 and in 2030
as a consequence of its proposal.[^7] It is important to note, however,
that the modeling used to support these projections is subject to
significant uncertainty which EPA itself acknowledges in an assessment
of model predictions versus actual ambient PM2.5 air quality data. For
instance, the model (REMSAD) under predicts PM2.5 mass by 32%
nationwide, 15% in the eastern US, and nearly 50% in the western US. It
is difficult to reconcile this magnitude of under prediction with
subsequent EPA statements to the effect that "...the performance of this
air quality modeling is encouraging..."[^8] In contrast, these values
suggest that the model performance appears to be quite bad. This view is
confirmed by a recent scientific assessment of chemical transport models
used to model PM conducted by NARSTO. That study concluded that "very
low" levels of confidence characterize the simulations of ultra fine
particulate matter performed by available chemical transport models.[^9]

*[Emission Reductions In Non-Transport Attainment Areas Have No
Value]{.underline}*

In discussing the air quality modeling performed for the NPRM, EPA
clearly implies that the public health impacts of emission reductions in
attainment areas are counted as benefits. The validity of this practice
is questionable. Since by definition the NAAQS levels are set at a point
to protect public health with an adequate margin of safety EPA cannot
claim additional public health benefits for ozone and PM reductions in
attainment areas. Moreover, such an analysis is clearly contrary to
section 211(c), which limits EPA's authority to regulate fuels to
situations where emissions cause, or contribute to air pollution that
may reasonably be anticipated to endanger the public health or welfare,
or where emissions significantly impair the performance of pollution
control devices. Therefore the claimed public health benefits in
non-transport attainment areas cannot be used as benefits in the
Benefit-Cost Analysis nor used to justify the proposed rule. Also,
reductions of criteria pollutants below the levels necessary to achieve
the NAAQS cannot be justified in either attainment or non-attainment
areas.

*[The Timing of Air quality "Need" is Not Matched to the Generation of
Emissions Benefits from the Proposal]{.underline}*

The timing of the air quality "need" as assessed by the Agency is
mismatched with the timing of the projected emissions benefits of the
proposal. The assessment of need focuses on the ability of certain urban
areas to attain or maintain the ozone and PM NAAQS in the 2007-2014 time
frame. However, the EPA inventory projections show that the emissions
benefits from the proposal are relatively small in 2007-2014 and do not
begin to significantly accrue until well after the year 2020. (68 FR
28353-28357.) For example, nationwide NOx reductions from the proposal
are predicted to be 1,015 tons in 2010 and 506,815 tons in 2020. This
will do little, if anything, to help those areas that are required to
demonstrate attainment with the NAAQS in the 2007-2014 timeframe.

*[The Emissions Inventories Calculated By EPA to Support the Proposal
Ignore the Fact that Ozone is a Summertime Urban Problem]{.underline}*

The projections of non-road emissions inventories that are presented in
the NPRM are a misleading representation of the air quality benefits of
the rule -- particularly with respect to ozone. This is because the
inventories calculated by EPA are nationwide and annual which ignores
the fact that ozone is primarily a summer [urban]{.underline} problem.
Consequently, the absolute emissions inventory benefits may be
overstated by at least a factor of three if one adjusts from an annual
basis to a summer ozone basis. EPA's projections of the
[urban]{.underline} impact of its proposal should be reduced even
further to reflect the fact that roughly 41% of the total 1996 non-road,
land-based diesel equipment population is located on farms which are
presumably and predominantly in rural areas.

*[EPA Should Incorporate Estimates of Uncertainty into the Projections
of the Emissions Inventory Benefits of its Proposal]{.underline}*

EPA's latest draft non-road emissions inventory model (NONROAD2002)
projects non-road equipment populations from 1996 to 2030 by
extrapolating historical growth rates calculated from 1989 through 1996
statistics. The growth rates are linear for diesel equipment, but vary
by sector (e.g., agricultural, construction).

We understand that in prior versions of the NONROAD model, EPA had based
projections of population growth upon forecasts of economic indicators
of activity by sector provided by the US Department of Commerce, Bureau
of Economic Analysis (BEA).[^10] EPA switched to the method of
estimating future populations based on extrapolation of historical
population growth rates because BEA discontinued the forecasts of
economic activity by sector. EPA also attempted to justify the decision
to switch methodologies by claiming that "economic indicators may not be
able to adequately predict the effects of substitution of equipment for
labor in the market..." and "... economic models in recent years have
tended to under-predict growth in the national economy."

We do not want to initiate a debate over the pros and cons of developing
emissions inventories for 27 years into the future based upon simple
extrapolation of 7 years of recent equipment population history versus
one that is based upon projections of economic indicators. Given the
time frame of the projection in question, such a debate is fruitless. It
is sufficient to note that [nobody]{.underline} can predict the future
-- particularly one that is 27 to 37 years from the present \-- with
100% certainty! Yet, this is precisely what EPA has done, and, because
of the longevity of non-road diesel engines and slow equipment turnover
rates, the benefits of its proposal do not begin to significantly accrue
until 20+ years in the future. EPA's estimates of emissions benefits
should include some element to account for uncertainty. For instance,
the EPA proposal estimates the benefits of its proposal in calendar year
2025 for diesel powered agricultural equipment (which accounted for the
largest category or \~41% of the total non-road diesel population in
1996) based upon the assumption that this sector would grow at an annual
rate of 2.9% from 1996 onward. If instead, EPA had based its projections
on a forecast of farm-based economic indicators such as the 1.3%
annualized rate of change in "Value of Agricultural Shipments" shown in
Table 32 of the EIA, 2003 Annual Energy Outlook, the estimate of the
emissions benefit of its proposal for this class of equipment would have
been reduced by \~25% in 2025! This degree of uncertainty in the
emissions benefits should be incorporated into EPA's overall assessment
of the social costs and benefits of its proposal.

Two factors likely contribute to the relatively large future growth in
total activity estimated by the NONROAD model. These are the assumptions
that equipment hours of use per year and load factor are a function of
equipment type and do not vary with age.[^11] These assumptions run
counter to numerous motor vehicle-related studies in the literature that
have demonstrated that consumers tend to use older vehicles less
intensively than newer ones. It seems logical that this pattern of usage
of highway vehicles would also be characteristic of non-road engines.

*[The EPA NONROAD Model Used to Estimate Emission Benefits of the
Proposal Overstates Historical Trends in Non-Road Activity as Measured
by Diesel Fuel Demand]{.underline}*

One of the key measures used to judge the accuracy of projections made
by an inventory model such as NONROAD is to assess how well it
represents historical trends in the factors that influence emissions.
The two primary factors include: total activity and fleet average
emissions per unit of activity. In the highway sector, the metric most
commonly used to measure activity are the total vehicle miles of travel
(VMT) statistics collected by the Federal Highway Administration. The
closest analogy to VMT in the non-road sector are the total diesel fuel
consumption statistics collected by the US Energy Information
Administration (EIA) and reported in the series of annual reports
entitled *Fuel Oil and Kerosene Sales*.

Examination of the EIA data shows that the EPA NONROAD model falls short
in representing historical trends in activity. Figure 5 (below) compares
the diesel fuel consumption output of the NONROAD model versus the
aforementioned EIA data for 1995 through 2001. The comparison shows that
the NONROAD model consistently over-predicts non-road diesel fuel
consumption relative to the EIA data in every year (by as much as 2
billion gallons or 22 % in 1999). Moreover, the NONROAD model also
overstates the historical [trend]{.underline} in non-road diesel fuel
use. As shown in a comparison of the slopes of simple linear trends
fitted to the EIA and NONROAD model data in Figure 5, the latter
over-predicts the rate of growth in non-road diesel fuel consumption
between 1995 and 2001 by about 60 %. While this divergence between the
EIA data and the NONROAD model does not [appear]{.underline} in the
figure to be substantially different over the short (1995-2001) time
period analyzed, it has a significant impact on long-term inventory
projections because of the approach used by EPA to extrapolate activity
based on historical trends.

> Figure 4

![](media/image9.wmf)

Given the above, MAP strongly urges EPA to improve the input data and
methodologies used to determine estimates of total activity in the
NONROAD model.

*[EPA Employs Methodologies to Estimate the Emissions Benefits of its
Proposal Which are Not Consistent Across Engine/Equipment
Sectors.]{.underline}*

As noted above, EPA relied upon the extrapolation of historical
(1989-1996) trends in population size in order to project the emissions
inventories and benefits of its proposal for non-road land based diesel
engines using its draft NONROAD2002 model. However, for the railroad
locomotive equipment sector, EPA developed estimates of emissions
inventories and proposal benefits based upon fuel consumption
projections and growth rates drawn from Table 7 of the EIA Annual Energy
Outlook 2002. [^12] The latter were derived by EIA through correlations
of fuel use with key economic indicators. It is inconsistent and,
indeed, contradictory, for EPA to debunk the use of economic indicators
for growing the population of one segment of the non-road diesel engines
affected by this rule while wholeheartedly endorsing and applying this
method for another segment.

*[The Uncertainty Associated with the use of "Transient Adjustment
Factors (TAFs)" in the EPA NONROAD Model Should Be
Quantified]{.underline}*

As documented in one of the technical reports accompanying the recent
release of the draft NONROAD2002 model, the EPA incorporates a
multiplicative factor to adjust stead-state-based estimates of non-road
emissions factors to account for transient operation. [^13] These
adjustments are applied to Tier 0,1, and 2 steady-state emission factors
through the use of "Transient Adjustment Factors" (TAFs) that were
developed from a very limited dataset of tests on non-road engines. EPA
arbitrarily increased the Tier 2 TAFs for NOx and PM by 10% and 20%
respectively citing the lack of sufficient test data) and applied the
resultant TAFs to the Tier 3 steady-state emission factors in the model.
Tier 4 engines are assumed to have a TAF of 1.0 since EPA is proposing
to certify these engines on a transient test cycle.

MAP is concerned about the degree of uncertainty associated with the use
of these TAFs. The TAFs for PM range from 1.00 to 2.37 while those for
NOx range from 0.95 to 1.21. EPA has not fully documented the criteria
used to assign specific TAFs by non-road equipment category. This
assignment can have a significant impact on the non-road emissions
inventory but it is not clear what the overall net effect of the TAFs
is.

*[The EPA NONROAD Model Has Never Been Formally Peer
Reviewed]{.underline}*

EPA issued a first draft of its NONROAD emissions inventory model in the
1997 time frame and has used several subsequent model versions in the
generation of non-road emissions inventory estimates to support
regulations such as the Tier 2/gasoline sulfur rule and the highway
diesel sulfur rulemaking. However, although the model has been presented
and discussed at several public workshops, it has never been subject to
formal peer review by an independent panel. The current version
(NONROAD2002) is still in draft form and EPA has acknowledged that there
are significant data gaps that remain to be filled until this model can
be finalized. For instance, the model does not provide estimates of hot
soak or running loss VOC emissions. While this is not a significant
concern for non-road diesel engines that are the subject of EPA's
current proposal, it is an issue with respect to properly reflecting the
impact of the proposal on the [entire]{.underline} non-road VOC
emissions inventory. The model also does not incorporate estimates of
non-road mobile source air toxics. In fact the non-road mobile source
air toxics estimates that are presented in the Preamble and the RIA for
the proposal appear to be based on just a handful of test engines and
fuels. It is highly inappropriate to finalize a rule based on benefits
that are subject to such uncertainty.

***[Health Effects: Concentration/Dose Response]{.underline}***

# *Diesel Exhaust Health Assessment Document*

At some level, well above ambient concentrations, diesel exhaust causes
adverse health effects in animals, and presumably humans. However, the
specific component(s) of diesel exhaust that significantly contribute to
health risk are not adequately defined at this point in time. Although
several constituents, such as particulate matter (PM~10~), nitrous
oxides (NOx), ozone and air toxics (*e.g.* benzene, formaldehyde,
dioxins, acrolein), as well as whole diesel exhaust, have been
associated with adverse health effects, it has been at concentrations
greater than those found in ambient air. It is also unclear whether the
rat carcinogenicity observed experimentally at high concentrations
decreases in a linear fashion as related to dose, or if, in fact, there
is a practical threshold, below which additional health benefits are
unlikely. This lack of understanding of a mechanism of action or shape
of the dose response curve confounds the use of existing carcinogenicity
data for quantitative risk/benefit assessment of relatively small
decreases in specific components or diesel exhaust as a whole.

Two independent expert review panels have recognized the
non-quantitative aspect of the relationship of diesel exhaust to
increased risk of lung cancer. In the June, 1999 Health Effects
Institute (HEI) Research Special Report of the Institute's Diesel
Epidemiology Expert Panel[^14], the HEI Panel recommends against using
existing human epidemiology studies (specifically the Garshick railroad
worker studies and the Steenland trucker study) for quantitative risk
assessment of diesel exhaust. The second expert panel to endorse a
similar view is the Clean Air Scientific Advisory Committee (CASAC) of
EPA's Scientific Advisory Board. The CASAC forwarded this opinion to EPA
in their recent review of the EPA Health Assessment Document for Diesel
Emissions (EPA 600/8-90/057D and EPA 600/8-90/057E).

*[EPA continues to overstate the certainty that PM alone is causing
mortality and morbidity.]{.underline}*

In order to fill significant data gaps in our knowledge of the health
effects of PM, in 1998, the National Academy of Sciences recommended a
comprehensive long-term research program lasting 10+ years at a total
cost of over \$400 million. Over the last few years Congress has
provided funding for this program at a level of over \$40 million/year.
While some new data has been provided as a result of these efforts, it
is clear that much more new scientific data are needed on the health
effects of particulate matter. In previous comments on the proposed PM
NAAQS and more recently on EPA\'s proposed Tier 2 Motor Vehicle Emission
Standards and Gasoline Sulfur Control Requirements, MAP has provided
extensive comments on the EPA PM health risk assessment. MAP continues
to express concern that the current database does not allow for an
accurate assessment of the health effects of PM. We also continue to
express concern for the validity of the key ecological studies EPA is
relying on and the economic valuation of benefits of reducing ambient PM
the agency has performed, which is based on these studies. As outlined
in our previous comments on Tier 2 Benefit-Cost Analysis (which we
incorporate by reference), we believe that EPA has not provided a
complete or balanced health effects review, the EPA analysis
over-estimates the benefits of reducing ambient levels of PM and the
mortality valuation is likely biased upwards.

***[Economic Values For Health Outcomes]{.underline}***

*[EPA should use the draft reference concentration (RfC) for non-cancer
endpoints for any quantitative health benefit analysis]{.underline}.*

The current EPA draft RfC for diesel exhaust health effects is 5
μg/m^3^. In consideration of the CASAC expert opinion against the use of
existing diesel exhaust lung cancer epidemiological data in quantitative
risk assessment, MAP urges EPA to use the reference concentration (RfC)
for non-cancer endpoints in quantifying the health-related benefits of
diesel emissions reductions.

*[MAP does not support the use of PM~2.5~ and O~3~ health effects data
for quantifying health benefits.]{.underline}*

Although MAP does not support the use of PM and ozone for calculation of
non-road diesel exhaust health benefits, MAP does support the use of
prospective case cohort studies for determining PM health benefits, if
PM is used. MAP also agrees with the Agency's decision not to use
results from the NMMAPS study in benefits calculations.

*[EPA has inappropriately assumed that health effects will occur at PM
levels below the NAAQS as a basis for supporting the non-road diesel
NPRM.]{.underline}*

It is unclear why EPA states in the NPRM that health effects are
occurring at levels below the current PM standards. Since EPA clearly
established these standards to be protective of public health, it is
inappropriate for the agency to now allege that serious effects occur
below the standards, and use this as a rationale to support the diesel
NPRM.

*[EPA's assumption that there is no health effects threshold for PM
health effects is overly conservative and not scientifically
defensible.]{.underline}*

The current EPA reference concentrations (RfC) for PM and Diesel exhaust
are 15 g/m^3^ and 5 g/m^3^, respectively. These values are supported
by many studies, and have undergone rigorous peer review. The EPA
definition of an RfC is:

> *[Reference Concentration (RfC)]{.underline}: An estimate (with
> uncertainty spanning perhaps an order of magnitude) of a continuous
> inhalation exposure to the human population (including sensitive
> subgroups) that is likely to be without an appreciable risk of
> deleterious effects during a lifetime. It can be derived from a NOAEL,
> LOAEL, or benchmark concentration, with uncertainty factors generally
> applied to reflect limitations of the data used. Generally used in
> EPA\'s noncancer health assessments*[^15]*.*

By EPA's own RfC definition, it is not appropriate to assume no
threshold for the non-cancer cardiac and respiratory health effects used
to calculate benefits for this proposed rule. MAP urges EPA to use the
current diesel exhaust RfC of 5 g/m3 as the threshold for benefits
calculations.

*[EPA should acknowledge that current, worst-case estimates of diesel
particulate matter are well below EPA's proposed RfC for diesel
exhaust.]{.underline}*

EPA has failed to acknowledge that in most cases, even using worst-case
estimates of mobile source diesel contribution to ambient PM, the
resulting estimates for diesel particulate matter are well below the
proposed RfC of 5.0 μg/m^3^ Worst-case estimates by California EPA of
annual average exposure concentrations to DPM from on-road and off-road
diesel engines are well below the 5.0 μg/m^3^ RfC. These estimates for
years 1990, 2007 and 2020 were 1.5, 1.3 and 1.2 μg/m^3^,
respectively.[^16]

*[Calculations of benefits from health endpoints derived from time
series studies should be deleted from the RIA.]{.underline}*

In light of the recently discovered flaws in the analytical software
used in many PM time series studies, and EPA's acknowledgement that "In
most cases, the concentration-response relationship may be
overestimated; in other cases, it may be underestimated." (Section
9A.3.5.1 of the Draft Regulatory Impact Analysis), MAP does not support
the use of any concentration-response (C-R) functions derived from time
series epidemiology studies. Calculations of benefits from health
endpoints derived from time series studies should be deleted from the
RIA until such time that affected data are reanalyzed and peer reviewed
to correct the Generalized Additive Models errors in default
"convergence criteria," and underestimation of standard errors, as well
as reanalysis of co-pollutant effects on PM health effects. The
underestimation of standard errors is of great importance as a
potentially large source of uncertainty in the C-R function and overall
health benefits calculated from the time series epidemiology studies.
Consequently, MAP is not in favor of the majority of the alternative
health benefit calculations, since they are based on a broader number of
time series studies than are currently included in the base benefit
calculations.

[EPA Cost-Benefit Analysis of its Proposed Non-Road Diesel Rule (Chapter
9 of RIA)]{.underline}

The EPA base estimates of benefits and costs show net benefits of
approximately \$42 billion in 2020 growing to \$79 billion in 2030 (see
Table 7). EPA argues that the benefits are likely understated as only PM
related benefits were monetized and not those related to ozone, CO, VOC
and air toxics. The EPA concludes unequivocally that benefits vastly
exceed costs and hence that societal welfare will be improved through
the adoption of its proposed non-road diesel engine and fuel rule.
However, a careful examination of the uncertainty associated with the
EPA point estimates reveals that such a definitive conclusion is not
supportable.

![](media/image10.wmf){width="3.0381944444444446in"
height="1.7791666666666666in"}

The false sense of certainty conveyed in Table 7, and from table 9-17 in
the RIA from which it was taken, is troubling. Lacking in these tables
is any indication of the uncertainty (error bands) associated with the
EPA point estimates. This makes it virtually impossible to assess the
EPA conclusion that societal welfare will unequivocally be improved with
the implementation of this rule. MAP recommends that all tables listing
total benefits and costs of a proposed rule include error bands
associated with the point estimates of benefits and costs.

#### *[EPA Treatment of Uncertainty is Disjoint, Incomplete and Understated]{.underline}*

## *The Relationship of PM2.5 Concentrations and Health Impacts*

The vast majority of the estimated benefits (92% in the base estimate)
associated with this proposed rule stem from reduced mortality due to a
reduction in PM2.5 concentrations. The EPA states on page 9-11 referring
to methodology used to estimate benefits associated with its proposed
rule: "Time and resource constraints prevented us from performing
extensive new research to measure either the health outcomes or their
values for this analysis." The EPA is relying upon studies such as
Harvard Six Cities and American Cancer Society Studies (and their
reanalysis sponsored by the Health Effects Institute) to establish and
quantify the long-term relationship between PM2.5 concentrations and
health impacts (see, for example, page 9-119 of the RIA).

Yet, as stated by the White House Office of Science and Technology
Policy: "...the database for actual levels of PM~2.5~ is also very poor,
and only a handful of studies have actually studied PM~2.5~ effects, per
se. And current data do not support clear associations...so that
causality for the observed mortality and morbidity effects cannot be
established."[^17] Also, these studies (the so called Harvard Six Cities
and American Cancer Society studies) cited by EPA as evidence in support
of a PM~2.5~ standard, as well as the reanalysis of those studies by the
Health Effects Institute, failed to adequately assess the potential
impacts of cofactors such as ozone or sulfur dioxide.[^18]

Further illustrating the inherent uncertainty in EPA's benefit estimates
is the fact that EPA's Health Assessment Document for diesel engine
exhaust (EPA 6000/8-90/057F) does not provide an adequate uncertainty
analysis for use in risk assessment and rulemaking.

The health assessment provided conflicting messages to decision-makers
for lung cancer risk by providing both a qualitative and quantitative
assessment of cancer risk assessment. The qualitative risk stated that
DE is "likely to be carcinogenic to humans by inhalation." The
quantitative estimate of risk was presented as " . . .an exploratory
risk analysis \[of diesel exhaust\] shows that environmental cancer
risks possibly range from 10^-5^ to nearly 10^-3^, while a consideration
of the numerous uncertainties and assumptions also indicates that lower
risk is possible and zero risk cannot be ruled out." This is an
extremely large range of uncertainty, with the risk of excess cancers
ranging from none (0) to 1 excess cancer in 1000 people. Such a large
range of risk needs to be reflected in EPA benefit estimates.
Furthermore, as is typical when presented with a range of risk, EPA and
other agencies and states almost invariably select the most conservative
risk estimate, in this case 10^-3^.

The EPA admits to this uncertainty in risk estimates (see page 9-129) by
stating that causality between elevated PM concentrations and increased
mortality rates has not been proved (though correlation among these
variables seems to be borne out by the data). Hence, the vast majority
of all benefit estimates associated with the EPA Non-Road Diesel
Rulemaking are based upon assumed (not proved) causality.

Clearly, given the large amount of uncertainty surrounding PM2.5
concentrations and health impacts, it necessarily follows that very
significant uncertainty exists surrounding the benefit estimates
associated with PM2.5 reductions. This uncertainty needs to be
quantified, e.g. expressed as error bands associated with the point
estimates of benefits, and presented together with the point estimates.

## *Estimates of Value of Statistical Life*

Another source of uncertainty is that surrounding the EPA estimates of
value of statistic life (VSL). The EPA uses a central estimate of VSL of
\$6.3 million (1990 income level expressed in \$2000). The EPA notes
that "most of the reasonable estimates of the value of life are
clustered in the \$3.8 to \$8.9 million range (see page 9-144 of RIA).
However, this estimate is based upon the mean VSL estimates from 26
studies that may or may not be appropriate for use with the populations
impacted by this proposed rule.

The EPA also states that, theoretical considerations aside, "the EPA
prefers not to draw distinction in the monetary value assigned to the
lives saved even if they differ in age, health status, socioeconomic
status, gender or other characteristics of the adult population" (page
9-144 of RIA). Yet EPA undertook a sensitivity case that did just that.
In the sensitivity case, the VSL applied to statistical deaths avoided
in populations 70 and over were set at 65% of the VSL for avoided deaths
in populations under 70 years of age. Rationale for this assumption
stems from an analysis by Krupnick et al (2002) that found a 35%
reduction in VSL for respondents over age 70. The EPA estimated benefits
of \$36 billion in 2020 using VSL estimates that vary by age, and
benefits of \$63 billion in 2030. These compare with EPA base estimates
of \$43 billion in 2020 and \$81 billion in 2030. MAP endorses the use
of the best available science throughout the policy making process. That
being said, given the uncertainty associated with the relationship
between VSL and age, and the potential for misunderstanding of the use
of this type of analysis, MAP does not endorse this type of analysis.
Rather, MAP believes that more research is needed in the derivation of a
defensible base estimate for the value of a statistical life. Estimates
of VSL need to accurately reflect the risk preferences of the target
population. This is not the case with the use of the \$6.3 million
estimate used by EPA. The studies from which this estimate is derived
targeted the middle-aged working population yet the most vulnerable
population segments to air pollution are the elderly (in fragile health)
and the very young. Also, the type of risk being valued in the 26
studies, typically job related risk, is very different from the risk
associated with increased air pollution. Little, if any, confidence can
be placed in the appropriateness of the \$6.3 million VLS estimate for
use in valuations of reduced mortality due to decreases in air
pollution. This is a critical point since this parameter is a major
driver in the benefit estimation in this RIA. Hence, it is likely that
the benefit estimates are seriously flawed.

## *Concentration-Response Functions: No Threshold Assumption*

The EPA in its benefit calculation assumes that benefits of PM2.5
reductions accrue down to background levels, i.e., an assumption of no
thresholds. This is at odds with the NAAQS for PM2.5 of 15 μg/m^3^,
presumably set to provide an adequate margin of safety for the public
health. The EPA undertook a sensitivity analysis showing that if there
were no benefits of reducing PM concentrations below the PM2.5 standard
of 15 μg/m^3^, which reduced mortality benefits by 70%.

## *Lag Structure Assumed by EPA: No Scientific Basis*

The EPA assumed five-year lag structure between premature mortality and
a given change in PM exposure with 25% of premature deaths occurring in
the first year, 25% in the second year, and 16.7% percent in each of the
remaining three years. This lag structure is not supported by any
scientific literature on PM-related mortality (see page 9-186 of RIA).

## *Emissions Estimates*

As noted by EPA, uncertainties in certain variables, e.g., emission
inventories, will be propagated throughout the entire benefit analysis
resulting in large error bands associated with the benefit estimates. To
assess the uncertainty in emissions associated with its proposed rule,
the EPA arbitrarily assumed a plus or minus five percent change in the
amount of emission reduction produced by the proposed rule. No basis
exists to support this assumption of plus or minus five percent change
in emission reduction. The EPA applies these assumptions to produce a
range of benefit estimates and concludes that the benefit estimates are
not meaningfully changed (see table 9-21). This type of analysis, which
is representative of EPA attempts to address uncertainty of its benefit
estimates, adds no value to its analysis since it is based on arbitrary
assumptions without supporting evidence.

## *Estimation of Benefits and Costs Streams*

EPA's methodology to compute benefits over time is based upon
unrealistic and unsupportable assumptions. The EPA assumes no
interactions between NOx, SO2 and direct PM in the formation of PM2.5.
Clearly, the contribution to PM2.5 of an increase in a particular
species depends upon emissions and concentrations of associated species
including ammonia and those listed above. These non-linearities in
atmospheric chemistry are not captured in the EPA analysis and are one
reason that EPA's estimation of benefit streams appear as linear through
time (see figure 9-1) though in reality it is highly likely that they
are not. Also, EPA unrealistically assumes that emission inventory
shares remain constant across years, which is highly unlikely.

Also, adjustment factors (due to real income growth) to adjust current
estimates of willingness to pay (WTP) for avoidance of adverse health
incident are based upon incorrect methodology. EPA uses an adjustment
factor of 1.09 for minor health effects, 1.33 for severe and chronic
health effects, 1.29 for premature mortality and 1.79 for recreational
visibility to adjust WTP estimates from 1990 to 2030. These adjustment
factors were derived from cross-sectional data. This methodology is
incorrect as it is necessary to derive the income elasticities from time
series data for use in this manner.

Hence, the representation of benefit streams through time, such as is
illustrated in figure 9-1, are based upon unsupportable assumptions and
faulty methodology. It therefore follows that all net present value
estimates of benefits in the RIA are flawed. MAP recommends that EPA
re-estimate benefit streams and net present value estimates based upon
defensible assumptions and appropriate methodology.

## *Short-Term Concentration-Response Functions*

The EPA derived a set of alternative estimates that postulate a short
term daily relationship between PM2.5 and premature mortality. These
alternative estimates reduce the base benefit estimates from \$41
billion to \$9 billion in 2020, a roughly 80% reduction, and from \$76
billion to \$17 billion in 2030, a 78% reduction. The Health Effects
Institute has recently reported problems with the statistical methods
used to estimate short-term exposure to air pollution and health
effects. Researchers have found that standard errors associated with
these estimates may be larger than originally reported and that reported
health impacts may be biased upwards (see page 9-112 of the RIA).

## *Additional Sources of Uncertainty in the EPA Benefit Analysis*

Additional sources of uncertainty not accounted for in the EPA benefit
estimates (as listed in table 9A-17) include but are not limited to
uncertainties in air quality models, in baseline incidence rates, in
concentration-response functions, in economic valuations, in future
population by age category, in affected populations.

## *Treatment of Uncertainty for Costs*

Analogous to its treatment of uncertainty in emissions, the EPA
arbitrarily applies error bands of plus and minus 20% to its base cost
estimates. This yields a cost range of \$1.1 - \$1.6 billion in 2020 and
a range of \$1.2 - \$1.8 billion for 2030. There is no basis for this
assumption of a plus or minus 20% adjustment factor. Hence, not only are
the EPA central estimates of costs significantly understated, the
treatment of uncertainty is wholly inadequate. The EPA base estimates of
refiner costs are likely significantly understated as EPA relied upon
vendor quotes which are normally low, excluded some capital costs, was
too optimistic in its assumptions regarding new technology use, and
understated required hydrogen consumption and cost. See MAP comments on
cost and technologies for a fuller discussion of these issues.

It is also important to note that EPA has assumed that implementation of
the non-road diesel sulfur rule will have no adverse supply impacts nor
allowed for the possibility that it could set the stage for such impacts
in the event of refinery outages, distribution problems or colder than
normal winters. Considerable consumer costs could be incurred should
such conditions develop. These were not taken into account in the EPA
estimation of societal costs. This is a significant and serious
omission.

### *Comprehensive Uncertainty Analysis Is Needed*

While EPA undertook a limited amount of uncertainty analysis, it is
disjointed and falls vastly short of portraying the true amount of
uncertainty associated with its benefit and cost estimates. Even this
disjointed assessment by EPA, however, reveals considerable uncertainty,
e.g., a 70% reduction in benefits if the C-R function has a lower bound
in accordance with the NAAQS for PM2.5. A comprehensive assessment of
the uncertainty associated with the benefit estimates, e.g., a Monte
Carlo analysis that captured the true extent of uncertainty associated
with the health impacts of PM2.5 concentrations in addition to the other
major sources of uncertainty listed above, would likely show a
distribution of benefits so disperse as to make any definitive
conclusions regarding benefits and costs impossible. MAP recommends that
the EPA move to a comprehensive assessment of uncertainty in its
benefit-cost analyses so as to reflect the true uncertainty associated
with its net benefit estimates. The disjointed and partial assessment of
uncertainty currently undertaken by EPA conveys a misleading sense of
certainty to its net benefit estimates and provides only limited (if
any) value to policy deliberations.

It also follows that EPA's unequivocal assertion that societal benefits
vastly exceed societal costs is not supportable when uncertainty of the
point estimates is taken into account.

##### *[EPA Should Report Emission Reductions As A Percentage Of Total Emissions]{.underline}*

EPA in Table 9-4 reports emission reductions attributable to its
proposed rule of NOx, SO2, VOC and PM2.5 from baseline non-road diesel
engine emissions of these species. It would be informative and helpful
if EPA would report both absolute and percentage reduction of these
species from [total]{.underline} emissions (not just non-road diesel
engines but highway, stationary sources, natural emissions as well) so
as to provide an indication of the likely effectiveness of the proposed
control measures.

Underestimates of Cost, Overestimates of Benefits and Inadequate
Treatment of Uncertainties Suggest That EPA Should Consider Granting
Maximum Flexibility

As discussed above, there are significant uncertainties associated with
EPA's analysis of the costs and benefits of this proposed rule. While
the provisions of this proposal are generally desirable and feasible,
EPA should include the flexibilities laid out in these comments in the
final rule, in order to reduce the potentially greater than projected
costs of compliance.

[^1]: See API comment Attachment 1, \"An Assessment of the Impact of
    Non-road Diesel Fuel Sulfur Regulation On Distillate Fuel Production
    and Availability In The U.S.\", Baker and O\'Brien, Inc., July 2003.

[^2]: Baker and O'Brien, Inc., *An Assessment of the Impact of Non-Road
    Diesel Fuel Sulfur Regulation on Distillate Fuel Production and
    Availability in the U.S.*, July 2003.

[^3]: Fitch Special Report*, "What a Smell of Sulfur!" Impact of Low
    Sulfur Regulations on the U.S. Refining Sector*, July 1, 2003.

[^4]: Energy Information Administration, Department of Energy, *Timing
    of Startups of the Low-Sulfur and RFS Programs*, page 6, September
    2002.

[^5]: The two-step approach,

[^6]: See Hanna, S.R., J.C. Chang, M.E. Fernau, *Monte Carlo estimates
    of uncertainties in predictions by a photochemical grid model
    (UAM-IV) due to uncertainties in input variables*, [Atmospheric
    Environment]{.underline} [32
    (21)](../../../../../../../../cdweb/journals/13522310/viewer.htt%3Fvol=32&viewtype=issue&iss=21#S135223109700419)
    (1998) pp. 3619-3628.

[^7]: EPA, *Draft Regulatory Impact Analysis: Control of Emissions from
    Non Road Diesel Engines*, April 2003, pp. 2-26-2-29

[^8]: EPA, *Draft Regulatory Impact Analysis: Control of Emissions from
    Non Road Diesel Engines*, April 2003, pp. 2-25

[^9]: NARSTO, *Particulate Matter Science for Policy Makers -- A NARSTO
    Assessment*, February 2003, p. S-25

[^10]: US Environmental Protection Agency, *Nonroad Engine Growth
    Estimates*, EPA420-P-02-018, May 2002

[^11]: US Environmental Protection Agency, *Median Life, Annual Activity
    and Load Factor Values for Nonroad Engine Emissions Modeling,*
    EPA420-P-02-014, December 2002.

[^12]: EPA, Draft Regulatory Impact Assessment, Chapter 3, p. 3-15.

[^13]: EPA, *Exhaust and Crankcase Emission Factors for Non road Engine
    Modeling -- Compression-Ignition*, EPA420-P-02-016, November 2002

[^14]: Health Effects Institute (1999), Diesel Emissions and Lung
    Cancer: Epidemiology and Quantitative Risk Assessment. Available at
    www.healtheffects.org.

[^15]: http://www.epa.gov/iris/gloss8.htm#r

[^16]: California EPA (1998) Proposed Identification of Diesel Exhaust
    as a Toxic Air Contaminant Appendix III Part Q: Exposure Assessment.
    California Environmental Protection Agency. California Air Resources
    Board April 22, 1998. Available at
    http://www.arb.ca.gov/toxics/diesel/diesel.htm.

[^17]: Memorandum from Rosina Bierbaum, Acting Associate Director at the
    White House Office of Science and Technology Policy, to Sally
    Katzen, OMB, entitled "OSTP Questions for EPA On Its Proposed
    Revisions to the Ozone and Particulate Matter Air Quality Standards,
    " November 15, 1996.

[^18]: See Jones and Lieberman, "The Ongoing Clean-Air Debate: The
    Science Behind EPA's Rule on Soot", 2001