BMW Group  Chrysler Group LLC  Ford Motor Company  General Motors Company  Jaguar Land Rover

Mazda  Mercedes

- Benz USA  Mitsubishi Motors  Porsche  Toyota  Volkswagen  Volvo 1401 Eye Street, N.W, Suite 900, Washington, DC 20005

- 6562  Phone 202.326.5500  Fax 202.32 6.5567 www.autoalliance.org August 24 , 2011

ALLIANCE OF AUTOMOBILE MANUFACTURERS

WHITE PAPER:

WHY EPA TIER 3 MARKET GASOLINE SULFUR LIMITS NEED TO BE SIGNIFICANTLY LOWER, ESPECIALLY FOR

MY 2017+ VEHICLES

Introduction

EPA is preparing to propose a new Tier 3 regulation by the end of 2 011, one component of which would reduce the average level of sulfur in marketplace gasoline below the existing Tier 2 sulfur standard. The members of the Alliance of Automobile Manufacturers have been engaged with the Agency to express their vital intere st in the content of the proposal, and to underscore support for a meaningful reduction in retail market fuel sulfur content nationwide.

EPA’s current Tier 2 market gasoline sulfur standard essentially imposes three limits:

 30 ppm maximum annual averag e at the refinery gate;

 80 ppm per gallon maximum/cap at the refinery gate, measured on a batch basis;

 95 ppm per gallon maximum/cap at the retail fuel pump.

The Tier 2 gasoline sulfur regulation was promulgated in 2000. Starting in 2004, for the six years of the implementation phase in, EPA provided a generous amount of flexibility to oil companies, including: corporate

- wide averaging, inter

- refinery trading, small refiner exemptions, a slower phase

- in for Rocky Mountain region facilities, and a mec hanism for hardship waivers, among others. In the aggregate, these have had the effect of “masking” some chronically high sulfur market gasoline supplies in certain areas, which cumulatively may have adversely affected vehicle catalyst performance and dur ability, and emissions in those markets.

The specific new Tier 3 vehicle emissions limits, and changes in fuel sulfur limits, are still in development. It has been suggested that EPA is considering reducing the individual refinery annual average maximum f rom 30 ppm to 10 ppm. However, EPA is also considering the implications of retaining the existing per gallon caps (80 ppm refinery gate; 95 ppm retail pump) versus lowering them ( e.g., to 20 and 25 ppm, respectively). This White Paper explains why a

prop osal to keep the 80/95 ppm Tier 2 sulfur caps is adverse to Agency goals for the auto industry.

It is also critical that in designing Tier 3, EPA not unduly delay uniform sulfur limits at the retail pump, by providing another set of flexible compliance mea sures to refiners as were used in Tier 2. The Alliance does not oppose flexibility for the oil industry per se , but the retail gasoline provided should be compatible with Tier 3 vehicle needs in order to meet both fuel2

economy/GHG requirements [including pending new limits for MY 2017 1 ] and pending Tier 3 emissions reductions. The new lower sulfur fuel must be in the marketplace nationally for these vehicles in a timely manner to protect the vehicles, consumers, and the environment.

High sulfur cap limit s and/or over

- broad implementation flexibility ( e.g. , in calculating averages across refineries) that allow a wide and unpredictable range of actual sulfur content among different geographic areas and over time, will handicap automakers’ ability to introdu ce new advanced technology systems needed to meet the pending 2017 Fuel Economy/GHG regulations and maximize reductions in vehicle emissions. This approach would fail to treat the vehicle and the fuel as a system, and put an unfair proportion of the total regulatory burden on the auto industry.

Sulfur’s Adverse Impact on Current and Future Emission Controls

Gasoline sulfur poisons all types of vehicle emission control devices and reduces their ability to reduce tailpipe emissions. For the three

- way catal ysts (TWC) used on nearly all existing gasoline

- powered light duty vehicles in the U.S., the reduced efficiency caused by sulfur poisoning requires automakers to over

- design their vehicles (if/when possible to do so) to meet
emission standards. This over

- design often involves the increased use of expensive and scarce precious metals in the catalyst, which ultimately makes the vehicle more expensive (and prone to catalyst theft). Furthermore, if the sulfur level is high enough, such design compromises may not be possible.

In all cases, even where over

- design enables a vehicle to meet its emission standards, the actual
emissions from a vehicle with a sulfur

- poisoned catalyst will be higher than they otherwise would be. Since chronic sulfur poisoning may be only partially reversible, the impact on catalyst efficiency is cumulative. Thus, all conventional emissions

— including HC, CO, NOx, PM and
toxics

— will increase as a result, depending on the amount and duration of the sulfur exposure.
Sulfur also will a ffect the vehicle’s fuel economy and greenhouse gas emissions adversely, due to the additional energy and operational steps that need to be taken to cope with the sulfur poisoning.

The reversibility of the poisoning, especially over time, in a vehicle ch ronically exposed to higher sulfur retail gasoline, is an important issue. When the Tier 2 regulation was adopted, it was believed that the sulfur poisoning could not be reversed without physically replacing the catalyst. 2 Over time, technology improveme nts did enable some reversibility, although at a cost of lower fuel efficiency. 3 Even so, sulfur will always cause at least some permanent impairment of the catalyst, and this impairment causes increased concern as the vehicle accumulates mileage,
and as emission standards become more stringent. Under Tier 2, vehicles must continue to meet emission standards through 120,000 miles of driving, and the Tier 3 regulation is anticipated to require compliance with tougher standards of driving.

Reversing the su lfur poisoning requires very high temperature operation from time to time, but TWC subject to leaner exhaust hydrocarbon levels will have lower operational temperatures, making them easier to become and remain poisoned with sulfur. In addition, over time, repeated

1 New models are introduced during the previous calendar year, i.e. , MY 2017 vehicles are introduced during CY
2016.

2 As a compliance measure, replacing the catalyst is prohibited.

3 Removing sulfur from TWC requires increa sing the fuel

- air ratio and higher temperatures, among other things.3

burn

- off of the catalyst can damage the catalyst brick substrate, prematurely age it, and reduce catalyst durability.

Highway driving tends to produce higher exhaust temperatures than city driving, and if a vehicle is driven only in the city, it s catalyst may not see the higher temperatures needed for sulfur burn

off, and as a result its emissions will be higher. Many, if not most, of these city vehicles will be
located in ozone non

- attainment areas. EPA should consider that many consumers may drive in a manner not conducive to catalyst burn off, yet are located in areas that need the emission
reductions the most.

New technologies are under consideration as tools to help automakers meet stringent new fuel economy standards, and the significant ly more fuel efficient, lean burn gasoline engine (compared to conventional engines) is one of these. This technology requires the use of different emission control devices, such as the Lean NOx Trap, similar to those used in diesel engines, to
meet NOx e mission standards. Lean NOx traps also have lower operational temperatures and will be more easily poisoned. These devices quickly and permanently lose their ability to function as the fuel sulfur level rises above 10 ppm. 4 Some of the individual automak ers have already provided EPA with proprietary company

- specific data on this point.

Recent Support for Reducing Sulfur: SAE 2011

- 01

- 0300, D. Ball, et al., Effects of Fuel Sulfur on FTP NOx Emissions from a PZEV 4 Cylinder Applications

Test data on sulfur ’s impact on very low emitting vehicles ( e.g ., SULEV, PZEV, and Tier 2

- Bin 2) remain scarce, especially at ultra

- low sulfur levels and over a 150,000 mile compliance lifetime. This recent SAE study provides some insight. The authors measured the impact o f test fuels containing 3 ppm and 33 ppm sulfur on NOx emissions from a 2009 MY PZEV Malibu. One important aspect of the evaluation was measuring the ability of different driving cycles to reverse the catalyst poisoning, and the potential for “NOx creep”, i.e., the incremental permanent reduction in catalyst efficiency as a result of repeated sulfur exposure. As the study notes, catalyst efficiencies for PZEVs need to exceed 99.4% for HC and 99.3% for NOx through 150,000 miles, and small changes in cataly st efficiency can have a large impact on tailpipe
emissions.

The study found that sulfur levels of 33 ppm will affect “test to test” NOx stability during FTP testing, and that catalyst temperatures of 600°F, common in under

- floor catalysts, can allow
sul fur poisoning that affects NOx reduction efficiency and consistency of results. Using the US06 test cycle (high engine flow, high load) between FTP cycles, however, can increase catalyst temperature enough to help reverse the poisoning and improve “test t o test” stability. According to the study, while the US06 can help mitigate sulfur poisoning, using a 3 ppm sulfur gasoline would eliminate the need to use such a cycle

-- also, a 3 ppm fuel would reduce NOx emissions by 40% compared to the 33 ppm fuel, a nd/or allow lower levels of precious metals in the catalyst.

4 In 2000, the Association for Emissions Control by Catalyst (AECC) found: “The promising NOx adsorber technology that diesel and lean burn engines need requires sulphur levels significa ntly below 10 ppm. This will avoid compromising the lower fuel consumption and CO2 emissions by requiring frequent regeneration to remove the sulphur that is clogging the NOx adsorption capacity

. See Response to European Commiss ion Consultation on
the Ne ed to Reduce the Sulphur Content of Petrol and Diesel Fuels below 50 parts per million , July 2000, available

at http://www.aecc.eu/en/Publications/Archive.html

.4

Lessons from Tier 2 US Gasoline Sulfur Regulation

Automakers found Tier 2 vehicle emission regulations much more stringent than expected, which in turn strengthened their call for the lowest p ossible gasoline sulfur levels. The Agency’s choice of nominal 80 ppm/95 ppm sulfur caps for Tier 2 was already a much bigger compromise
than should have occurred.

In addition, EPA’s Tier 2 implementation scheme allowed sulfur levels to be significantly higher in the marketplace than the nominal legal limits for a considerable period after the rule’s adoption. Besides giving most refiners two years after the 2004 effective date to phase in to the standard, the Agency gave an additional two years to smal l refiners and those in the Rocky Mountain region, and refiners could apply for hardship waivers that would allow an additional two years to comply. Thus the rule actually allowed six years to fully phase in the new fuel quality, with no provision to prev ent local high sulfur areas during this period.

Moreover, EPA’s 30 ppm limit was reached by averaging all batches over a full year , compared to California’s low sulfur regulation (RFG Phase 2, implemented in 1996) which required averaging over a six month period. EPA imposed its 80 ppm per gallon cap at the refinery gate, and allowed retail gasoline to reach a 95 ppm cap at retail (and even this limit did not become absolute until 2011). California’s Phase 2 regulation imposed its 80 ppm per gallon cap a t retail. In its North American Fuel Survey (NAFS) the Alliance of Automobile Manufacturers was still finding U.S. retail gasoline with sulfur as high as 148 ppm in the summer of 2010. 5 While automakers would strongly welcome a significant lowering of ave rage sulfur levels, they are greatly concerned about the possibility of high sulfur “hot spots” persisting at various retail points around the country if high caps are still allowed.

It is unclear when EPA will next revisit the issue of sulfur market fuel specifications, so the Agency should propose limits that will enable nationwide introduction of all emerging vehicle technologies for the foreseeable future.

Implications of Retaining the Tier 2 Sulfur Caps

Even with a much

- needed, much lower annual sulf ur average per refinery in place by 2016 (for MY 2017 vehicles) (and assuming no Tier

- 2 type averaging flexibility), retaining the current Tier 2 sulfur caps (80/95 ppm) in Tier 3 would be extremely problematic for autos, given the challenges of the 2017

- 2 025 Fuel Economy/GHG rule and pending Tier 3 vehicle emission standards. Even if EPA reduces the refinery annual average sulfur limit considerably below the current 30 ppm, the prospect of continuing to allow up to 95 ppm sulfur retail gasoline in the

marketplace means consumers in some locations will be buying relatively high sulfur fuel for their vehicles, some of them on a regular basis.

In addition, automakers are very concerned about repeated exposure of such vehicles to high sulfur levels, because the accumulation of sulfur on their catalysts over time and miles will put them at an unfair (and unpredictable) disadvantage for in

- use compliance testing. Under Tier 2

5 T he Alliance of Automobile M anufacturers North American Fuel Survey (NAFS) conducted in the s ummer of 2010 found regular gasoline in Kansas City containing 148 ppm sulfur . However, the first NAFS survey for 2011 (conducted in January 2011) showed all gasoline samples apparently compl iant with the 95 ppm sulfur retail
standard.5

standards, vehicles must comply with emission standards for 120,000 miles of driving (and many vehicles are in Sec. 177 states requiring California emissions limit compliance for 150,000 miles, but which are exposed to federal fuels rather than the benefit of California fuels). Under the Tier 3 rule, automakers anticipate that all vehicle s will be required to comply with tighter emissions standards. Many will need to comply with the longer California useful life criterion. In addition, long

- term usage patterns (e.g., predominantly urban driving versus high

- load highway driving) will diff erently affect catalyst performance and durability. Adding the element of unpredictable levels of market fuel sulfur (geographically and over time) could affect future
in

- use testing results, especially if no sulfur preconditioning steps are applied.

Veh icles have reduced catalyst efficiencies during and after chronic higher sulfur exposures, and this can cause significantly higher emissions. Poor or incomplete reversibility will cause ongoing higher emissions wherever the vehicle travels, including ozone non

- attainment areas. Furthermore, future gasoline is likely to contain more ethanol, which contributes to higher NOx emissions, so higher sulfur gasoline will exacerbate the likelihood of an emissions increase.
These combined effects would set back sta te efforts to meet stringent ozone ambient air quality standards. Importantly for the states and the general public, even occasional vehicle exposures to sulfur levels as high as 95 ppm will cause significantly higher HC, NOx, PM and toxic emissions
than the design capability of vehicles. As a result, EPA will risk failing to prevent air quality backsliding, which Congress required EPA to study specifically out of concern about ethanol’s impact on emissions. 6

Allowing retail sulfur levels as high as 95 p pm also will inhibit the introduction of new fuel efficient, lean burn gasoline engine technology, as already publicly noted by some automakers. These engines are capable of providing significantly improved fuel economy and greenhouse gas benefits compare d to conventional engines, but they require emission control devices that are quickly poisoned as the fuel sulfur level rises above 10 ppm.

Countries and regions that have capped gasoline sulfur at 10 ppm (for example, Europe and Japan) have been able to enjoy the benefits of lean burn technology over the past decade. If EPA retains the 95 ppm retail cap, U.S. consumers will continue to be deprived of this fuel efficient option, and they will continue to wonder why other countries seem to have more advan ced and a greater diversity of fuel efficient technologies than the United States.

Maintaining a 95 ppm retail sulfur cap would be damaging to the U.S. reputation as a leader in air pollution control because so many other countries and some cities have al ready achieved
ultra

- low sulfur levels in their gasoline. 7 In Canada, for example, according to the Alliance’s North American Fuel Survey, the highest sulfur level recorded last summer (2010) was 32 ppm for regular grade and 20 ppm for premium, and since 2007, the levels there have been consistently below 40 ppm. In Mexico all premium grade samples in the Alliance surveys have had less than 52 ppm sulfur since 2007. In half of the cities sampled, regular grade samples have had less than 80 ppm sulfur sin ce 2009.

6 . See 42 USC 7545(q). Though due in draft form by 2009, this analysis has not yet been published. EPA expects to work on this analysis in parallel with drafting the Tier 3 Proposed Rule.

7 According to Hart’ s International Fuel Quality Center, as of May 2010, Japan, South Korea, Iceland, Greenland, and the countries of the European Union require less than 10 ppm sulfur gasoline. The U. S. ranks 44 th in a ranking of the top 100 countries by gasoline sulfur standard stringency. See PR Newswire, “IFQC Ranks Top 100 Countries by Gasoline Sulfur Standards: Europeans’ Major Progress Bumps U.S. to 44 th Place,” May 5, 2011, and IFQC, http://www.ifqc.org/NM_Top 5.aspx.6

Automakers that engineer vehicles for the U. S. have waited a long time for lower fuel sulfur levels that harmonize with foreign standards, enable lean

- burn technology, and make full use of advanced technologies. Maintaining existing U.S. high su lfur caps would inhibit needed technology and international harmonization of fuels and vehicle design, and waste scarce economic and commodity resources on over

- sophisticated emission control systems.

Flaws in the Purported Reasons for Retaining the Tier 2 Sulfur Caps

The main argument against more stringent sulfur limits boils down to concern that a few, perhaps older or small refineries that supply U. S. retail gasoline might be unable to consistently produce a lower sulfur product.

This argument seem s weak, given how long refiners have known about sulfur’s effects and have been producing lower sulfur gasoline. As noted, California began requiring a low sulfur gasoline in 1996. In 1998 EPA imposed Federal RFG Phase 2 requirements

— affecting about one third of the country’s gasoline market. To comply with federal RFG2’s required NOx reductions, refiners needed to substantially reduce sulfur. As a result, by 2000, refiners were well on their way to producing Tier 2 compliant gasoline, as shown in EPA’s Fuel Trends Report 2008, which studied retail sulfur levels from 1995 to 2005. By 2005, several years after Federal RG2 implementation and one year after Tier 2 implementation, the Federal RFG summer retail average had already dropped to about 70 ppm fro m about 200 ppm in 1998. The annual average for all gasoline in 2005 was 92 ppm. It is very difficult to conclude that a lower sulfur retail limit would not be feasible in the U.S. A few stressed refineries should not drive the universally applicable p rospective federal limits.

A second argument is that contamination during distribution through the finished product pipeline infrastructure contributes to retail gasoline sulfur levels and that this contamination
cannot be further controlled. The Allianc e would appreciate the opportunity to see what current data EPA or other stakeholders have, including any comparisons of past versus current samples showing the relative magnitude of sulfur contamination levels, or that support the need for a 95 ppm sulfur retail cap.

The same contamination concerns were voiced when EPA was developing the ultra

- low sulfur diesel (ULSD) fuel standard in 2002. Yet the country has successfully converted to retail 15 ppm sulfur diesel fuel nationwide, using the same pipeline s to distribute the fuel as used for gasoline. Further, since the 2002 ULSD rule, EPA has greatly reduced the sulfur levels in other petroleum products that move through the pipelines. Non

- highway diesel fuel and fuel used for locomotive and marine appli cations will have to meet the same 15 ppm sulfur limit by 2014, before Tier 3 is implemented. Thus, it should be much easier to move ultra

- low sulfur gasoline in pipelines in 2016

- 17 than it was in 2006, when ULSD began its phase

- in. In addition, since

m ost gasoline today contains 10% ethanol, the sulfur levels are further reduced (diluted) during blending after the fuel leaves the pipeline, which also provides refiners with some flexibility.

EPA Opportunity to Promote International Harmonization Regard ing Sulfur Levels

The 2000 edition of global automakers’ Worldwide Fuel Charter stressed the need for sulfur

- free gasoline. Shortly afterward, Europe and Japan started moving toward a 10 ppm maximum sulfur
standard. Both of these markets have now had ult ra

- low sulfur gasoline for several years. Other countries, including Canada and Mexico, also are moving to well below 80 ppm 8 consistent with

8 Based on retail sulfur levels measured through the Alliance North American Fuel Survey, 2007

- 2011.7

the goals of the UNEP

- managed Partnership for Clean Fuels and Vehicles, in which both EPA and the oil industry pa rticipate. 9 In 2005, the PCFV conservatively recommended a 50 ppm sulfur limit for all countries, even those in Africa, while recognizing the benefits of further reduction, but keeping in mind the challenge presented for developing countries.

Conclusio n
EPA should use its opportunity in Tier 3 to provide a strategy toward achieving a 5

- 10 ppm cap on sulfur in U.S. retail gasoline. Any issues relating to particular refinery capability, pipeline, or
other sulfur contributions should be addressed indivi dually, as part of the larger strategy to achieve this goal, but should not be used to change the goal itself. Allowing sulfur caps as high as 80 ppm at the refinery gate and 95 ppm at retail pumps to continue indefinitely in the US marketplace is unwarr anted, would handicap maximizing vehicle emission reductions and achieving fuel economy and GHG standards, and would inhibit development and use of cleaner, more efficient combustion technologies.

The Alliance looks forward to additional opportunities to w ork with EPA and other stakeholders on the gasoline sulfur reduction challenge.

***

For additional information, please contact:

Valerie Ughetta, Director, Automotive Fuels
Alliance of Automobile Manufacturers vughetta@autoalliance.org

9 See Partnership for Clean Fuels and Vehicles, http://www.unep.org/transport/pcfv /partners/partners.asp ); and Low Sulphur Campaign, http://www.unep.org/transport/pcfv/corecampaigns/campaigns.asp#sulphur ). In 2005, the Partnership recommended

t hat countries aim “To reduce sulphur in vehicle fuels to 50 ppm or below worldwide, concurrent with clean vehicles and clean vehicle technologies, with roadmaps and timelines developed regionally and nationally”. See Summary of the Fourth Meeting of the Global Partnership for Clean Fuels and Vehicles, UNEP Headquarters, Nairobi, Kenya, 14

- 15 December, 2005, available at http://www.unep.org/transport/pcfv/PDF/4GPM

- report

final.pdf.Alliance of Automobile Manufacturers, Appendices to W hite Paper on Tier 3 Sulfur 8/24 /11

1

A PPEN D IX 1 : Overview of Pertinent Studies on Sulfur’s Impact on Vehicle Emissions

1. According to EPA staff, a new EPA

- designed and managed sulfur test program has been
conducted. Results not yet publicly available.

2. SAE 2011

- 01

- 0300, D. Ball, et al

. , Effects of Fuel Sulfur on FTP NOx Emissions from a PZEV 4 Cylinder Application

.

The authors measured the impact s of test fuels containing 3 ppm and 33 ppm sulfur on NOx emissions from a 2009MY PZEV Malibu. An important aspect was the evaluation of the ability of different driving cycles to reverse the catalyst poisoning and the potential for ―NOx

creep ,” i.e., the incremental permanent reduction in catalyst efficiency as a result of repeated
sulfur exposure. Test d ata on sulfur’s impact on very low emitting vehi cles (e.g., SULEV

, PZEV, Tier 2 Bin 2 ) are scarce , especially at ultra

- l ow sulfur levels and over a 150,000 mile compliance lifetime

, so these data begin to fill an important gap. As the study notes, catalyst
efficiencies for PZEVs need to exceed 99.4% fo r HC and 99.3% for NOx through 150,000 miles, and small changes in catalyst efficiency can have a large impact on tailpipe emissions.

The study found that s ulfur levels of 33 ppm will affect test to test NOx stability during FTP testing , and that c atalys t temperatures of 600°F, common in under

- floor catalysts, can allow sulfur poisoning that affects NOx reduction efficiency and consistency of results

. Using the US06 test cycle (high engine flow, high load) between FTP cycles , however, can increase cataly st temperature enough to help reverse the poisoning and improve test to test stability. According to the study, w hile the US06 can help mitigate sulfur poisoning, using a 3 ppm sulfur gasoline would eliminate the need to use such a cycle

– a lso, a 3 ppm fu el also would reduce NOx emissions by 40% compared to the 33 ppm fuel

, and/or allow lower levels of precious group metals in the catalyst.

3. Pembina Institute, Fuel Quality in Canada

, prepared for the Association of International
Automobile Manufacturers o f Canada, November 26, 2008.

This report concluded that reducing gasoline sulfur would lead to a direct reduction in SOx emissions. Additionally, it discussed other studies that found sulfur reduces the performance
of three

- way catalysts (TWC) and other a fter

- treatment devices. By reducing s ulfur content, these devices can work more effectively, leading to reductions in the emissions of VOCs,
NOx and CO.

4. SAE 2008

- 01

- 0628. Y. Shen et al., Effects of Gasoline Fuel Properties on Engine Performance

.

This s tudy aimed to provide technical support for automotive gasoline fuel quality standards to match new vehicle emission standards in Beijing, China. While the study found sulfur had little impact on the conversion efficiency of fresh catalysts, it did have a n influence on the conversion efficiency of aged catalysts. Catalysts aged up to 100 hours with 50 ppm or 150 ppm sulfur gasoline increased the catalyst light

- off temperatures, and when operated at high temperature, catalyst performance recovered only par tly.Alliance of Automobile Manufacturers, Appendices to W hite Paper on Tier 3 Sulfur 8/24 /11

2

5. Joint EPA

- Automobile Industry Tier 2 Vehicle Fuel Effects Tes t Program (― MSAT Study ‖),
2006 ; results presented as a Poster at the 17th CRC On

- Road Vehicle Emissions Workshop,
March 31

- April 2, 2007

.
EPA and several automobile manufacturers cooperati vely undertook the so

- called MSAT Study to assess the emissions sensitivity of lower emission vehicles (Tier 2 or LEVII) to
various fuel properties, primarily RVP, benzene and sulfur

. The stu dy tested five gasoline
blends on nine Tier 2 vehicles with a fl eet average emissions level below the Tier 2 Bin 5 standard (0.07 g/mi of NOx and 0.09 g/mi of NMOG). Four of the test fuels contained ultra

low sulfur levels (6 ppm for the base fuel and base fuel adjusted for RVP and benzene, and 5 ppm for the non

- oxyge nated commercial California fuel). The fifth test fuel was a 50th percentile commercial federal fuel containing 32 ppm sulfur.

The study found t he California test fuel was the best overall performer, significantly lowering benzene, NMHC and NOx emission s , and this was the only test fuel that caused a significant drop in tailpipe NMHC emissions

. Sulfur could not have been the deciding factor in the NMHC results, however, because most of the test fuels had similar sulfur levels. Sulfur was the key factor in the NOx emission results , however , since the f ederal commercial fuel (with 32 ppm sulfur) had significantly higher average composite NOx emissions than all the other
fuels tested (which contained either 5 or 6 ppm sulfur ) . The emission differences wer e quite large, representing emission decreases of 3 0 % to 3 8 % from the federal fuel’s high mean of 0.056 g NOx/mi . Looked at another way, increasing the sulfur from 5 or 6 ppm to 32 ppm
resulted in emission increases of 4 3 % to 6 3 %

.

6. Worldwide Fuel Charter, 2006 Edition, available at www.autoalliance.org ( c lick on Environment and Energy, to Clean Fuels )

.
This document, produced by ACEA, the Alliance of Automobile Manufacturers, EMA and
JAMA

, and endorsed by automobi le manufacturers from around the world, summarized several sulfur impact studies available at th e time of publication

.

7. CRC Project E

- 60, The Effect of Fuel Sulfur on NH3 and Other Emissions from 2000

- 2001
Model Year Vehicles , May 2003.

This study, which w as designed to measure NH3 production at the catalyst under the US06 and FTP test cycles using gasoline with 5, 30 and 150 ppm sulfur gasoline, also examined other emissions and found significant reductions of common criteria pollutants as well as

N 2 O as t he sulfur was reduced. The impact of lower sulfur on aged catalysts (from in

- use vehicles), especially for NOx and NHMC, was even bigger than on fresh catalysts.

8. Alliance of Automobile Manufacturers/Association of Internati onal Automobile Manufacturers, Gasoline Sulfur/Oxygen Impacts Study

, conducted for the California Air Resources Board, 2001, available at www.autoalliance.org

.
This study examined the impact of sulfur levels at 1 ppm, 30 ppm and 100 ppm on LE V and SULEV technology vehicles. While the reductions for 1 ppm sulfur were less than predicted,
the study did indicate greater sulfur sensitivity as the sulfur decreased below 30 ppm, and it provided support for modify ing CARB’s Predictive Model for newe r vehicle technologies.Alliance of Automobile Manufacturers, Appendices to W hite Paper on Tier 3 Sulfur 8/24 /11

3

9. Association for Emissions Control by Catalyst (AECC), Response to European Commission Consultation on the need to reduce the Sulphur Content of Petrol and Diesel Fuels below 50 parts per million, July 2000, available at http://www.aecc.eu/en/Publications/Archive.html

.
This report by manufacturers of emission control equipment summarized the findings of several studies into the impact of sulfur on catalyst performance. The report included these comments on various studies relating to sulfur’s impact on lean

- burn gasoline engines and on
three

- way catalysts (as excerpted from the report) :

 Quissek et al

. (ADA) showed DaimlerChrysler data showing >80% NOx conversion [with a lean NOx trap] on a DI petrol engine for 10 000 km on the EU III hot test on 8 ppm sulphur fuel but falling to <30% with 50 ppm sulphur fuel.

 Hachisuka et al

. (Toyota Motor Corp.) describe a new NOx storage

- reduction (NSR) system for lean burn petrol engi nes being introduced into the Japanese market where sulphur levels in petrol are much lower. The first generation of NSR catalyst introduced by Toyota gave (after 100 hours of aging on fuel containing 500 ppm sulphur) NOx conversion one

- eighth of the level obtained with a fuel sulphur of 30

ppm

- but even at this level NOx conversion efficiency gradually decreases. Improvements of NOx conversion of 50% in the new catalyst still give limited application in Europe because of fuel sulphur levels. Toyota say s ― it is critical that sulphur content in fuels be reduced‖.

 Johnson (Corning Inc.) published a comprehensive review of 1999 SAE papers on
―Gasoline Vehicle Emissions ‖. He cites the conclusion of Asunama et al (Toyota) that increased sulphate grain size re sults from higher petrol sulphur levels and this makes NOx trap desulphation more difficult. After aging for 16 000 km at various sulphur levels they showed that at 8 ppm fuel NOx conversion efficiency could be instantly returned to >90% by regeneration at 620°C whereas at 500 ppm sulphur 30 minutes regeneration restored conversion from <20% to only 50%. At 30 ppm sulphur 30 minutes regeneration restored NOx conversion from 75% to <90%.

Regarding sulfur and three way catalyst research generally:

 Most of the studies compare the tailpipe emissions using fuels with different sulphur levels and all conclude that the lower the sulphur level the lower the emissions on fresh or aged catalysts. There is however some evidence of a non

- reversible
interaction betw een the washcoat components and sulphur.

From the report’s conclusions:

 For the existing fleet of vehicles lowering sulphur levels in petrol to below 10 ppm would give a reduction in emissions from all three

- way catalyst equipped vehicles of up to 20%. US data indicates an enhanced effect on emissions at 30 ppm sulphur and it is known that sulphur affects catalyst performance all the way down to 0 ppm.

 The promising NOx adsorber technology that diesel and lean burn engines need requires sulphur levels signi ficantly below 10 ppm. This will avoid compromising theAlliance of Automobile Manufacturers, Appendices to W hite Paper on Tier 3 Sulfur 8/24 /11

4 lower fuel consumption and CO2 emissions by requiring frequent regeneration to remove the sulphur that is ―clogging‖ the NOx adsorption capacity.

 The best option to allow the unconstrained development and introduction of new emission control technologies is to set a specification for sulphur levels at below 10 ppm for introduction as soon as possible. This will allow Member States to introduce tax incentives and for market forces to bring the ultra

- low sulphur fuels to the market to allow the early introduction of the new technologies.

 Ultra low sulphur fuels are shown to reduce greenhouse gas emissions by:

o Reducing CO2 emissions by allowing low fuel consumption vehicles, e.g. diesel and lean burn/pet rol fuel injection, to flourish

o Reducing emissions of greenhouse gases such as methane (CH4) and nitrous oxide (N2O) by allowing catalysts to more efficiently remove them.Alliance of Automobile Manufacturers, Appendices to W hite Paper on Tier 3 Sulfur 8/24 /11

5

APPENDIX 2 : Additional Background on the History of Market Sulfur Regulation

In t he early 1990s, the auto and oil industries produced significant new research documenting the adverse impact of gasoline sulfur on the effectiveness of three way catalysts. 1 The State of California acted on these findings by adopting the ―Phase 2 Reformul ated Gasoline‖ ( California RFG2) regulation, which reduced gasoline sulfur levels across the state. 2 The California RFG2 sulfur standard, which was implemented in 1996, allowed refiners to meet either a flat limit of 40 ppm sulfur per batch or a 180

- day a verage limit of 30 ppm sulfur. 3 In no case could the gasoline exceed an absolute per gallon cap of 80 ppm sulfur. California RFG2 proved highly effective not only at reducing vehicle emissions but also causing measurable reductions in ambient ozone
level s. 4 Soon after, other states became interested in this achievement, leading the Ozone Transport Assessment Group to recommend that EPA adopt a regulation to reduce sulfur across the country. 5

EPA agreed that reducing sulfur below the then current retail average of about 330 ppm sulfur and maximum retail level of 1000 ppm 6 would yield significant air quality benefits. Sulfur, in fact, was one of the key tools that was already being used in the late 1990s to improve the NOx performance of Federal RFG Phas e 2. 7 As a result, in 1999 the Agency adopted nationwide gasoline sulfur controls in conjunction with Tier 2 vehicle emission standards, to be phased

- in
between 2004 and 2006. 8 EPA further modified the rule in connection with the 2002 ultra

- low
sulfur di esel fuel regulation (phased

- in between 2006 and 2010), whereby it offered refiners additional flexibility in implementing the gasoline sulfur rule as an inducement to reduce sulfur in diesel fuel more quickly. 9 The specific sulfur limits adopted by EPA w ere somewhat more
relaxed than in California RFG2, however, and by the time the federal limits were adopted in 1999, California already was well on the way to tightening sulfur further to a 30 ppm cap

. A ctual sulfur levels in that state have been driven e ven lower through the use of the Predictive
Model.

1 See Coordinating Research Council, ―Auto

- Oil Emissions Program,‖ found at http://www.crcao.com/reports/auto

oil/default.htm

. 2 For background on California’s ―Phase 2‖ gasoline rulemaking, see http://www.arb.ca.gov/fuels/gasoline/carfg2/carf g2.htm

. 3 Refiners also could meet alternative limits if they could show the fuel would produce at least the same amount of
emission benefits. See http://www.arb.ca.gov/fuels/gasoline/pub/ pub.htm

. 4 For one analysis of the rule’s impact on air quality, see, e.g., Larson, ― An assessment of the impact of California's Phase 2 Reformulated Gasoline on ozone air quality ,‖ J Air Waste Management Assoc

. 2001

, Jan;51(1):37

- 48.

5 See OTAG’s source specific recommendation for gasoline at http:// earth1.epa.gov/ttn/naaqs/ozone/rto/otag/finalrpt/chp6/final.htm

. 6 These commercial levels might have been higher but for various constraints imposed through pipeline contract limits and ASTM D4814 gasoline specifications, which are adopted by many states

. 7 EPA requires states to use Federal RFG2 in certain ozone non

- attainment areas; much of the fuel sold on the east coast, west coast, Chicago and certain other limited areas is federal RFG2.

8 EPA finalized the rule on December 21, 1999 and published i t in the Federal Register on February 20, 2000 ( see http://www.epa.gov/tier2/finalrule.htm ). It was further corrected and amended several times between 2001 and 2006 ( see http://www.epa.gov/tier2/amendments.htm ). In 2000, California reduced sulfur levels further to a 30 ppm per gallon cap; while this limit fell short of the 10 ppm cap advocated by automakers, the state’s regulatory approach (usin g a Predictive Model ) in combination with increase d ethanol levels has driven the maximum sulfur found in the Alliance surveys to well below 1 6 ppm since 2009 and below 12 ppm since 2010, with the averages approaching
zero in some cases

. 9 Ibid.Alliance of Automobile Manufacturers, Appendices to W hite Paper on Tier 3 Sulfur 8/24 /11

6

APPENDIX 3: Executive Summary National Clean Gasoline: An Investigation of Costs and Benefits , Alliance of Automobile Manufacturers, June 2009

Introduction
The Alliance of Auto mobile Manufacturers (All iance) 10 recently commissioned two studies examining the costs and benefits of introducing a cleaner national gasoline, defined as a Clean Air Act regulatory standard, into the U.S. market. The first study, conducted by Math Pro , Inc., investigated the refi ning costs of producing the proposed fuel standard, and the second study, conducted by Air Improvement Resources, Inc., investigated the standard’s impacts on emissions
from on

- road gasoline

- powered vehicles (excluding motorcycles). The Alliance designed the gasoline standard to reduce vehicle emissions and, importantly, to enable lean burn gasoline engines, which are a new, fuel efficient vehicle technology. The Alliance also sought to create a standard that could be used as a single national gasoline, e ventually replacing the so

- called boutique gasolines being sold in parts of the U.S. to reduce emissions. For study purposes, the Alliance named its proposed fuel ―National Clean Gasoline‖ (NCG). Fuel quality plays a critical role in vehicle operation a nd emissions because it affects the combustion process and can interact with vehicle components, including, but not limited to, emission control systems. Certain gasoline compounds

— especially those containing sulfur

— reduce the effectiveness of emission co ntrol systems, thereby causing vehicle emissions to
increase. 11 As another example, gasoline’s distillation characteristics affect combustion efficiency and smoothness, and its vapor pressure affects evaporative emissions. Depending on the property or con taminant, effects may occur immediately, build up gradually over time or be irreversible. Most importantly for policymakers, fuel quality may affect a vehicle’s ability to comply with emission standards, deliver planned fuel economy, use certain technolog ies or satisfy customers. This is why vehicles and fuels must be viewed as a system.

Quality of National Clean Gasoline In specifying NCG, the Alliance capped sulfur at 10 parts per million (ppm), which is significantly low er than current federal limi ts. 12 As noted, sulfur reduces the effectiveness of catalytic converters used to meet stringent U.S. and California vehicle emission standards. Manufacturers have been able to build compliant vehicles despite the sulfur levels found in federal gasoline, b ut vehicle emissions would be much lower if the sulfur levels were lower. As EPA seeks to reduce smog

- forming emissions further, reducing gasoline sulfur levels would be a helpful control strategy. It would also help reduce emissions in California where sulfur levels

10 The Alli ance is a trade association of eleven car and light truck manufacturers

— BMW Group, Chrysler, Ford Motor Company, General Motors, Jaguar Land Rover, Mazda, Mercedes

- Benz, Mitsubishi Motors, Porsche, Toyota and Volkswagen.

11 Metallic additives also reduce the effectiveness of emission controls, but the federal government and California prohibit their use in federal and California reformulated gasolines, respectively, and virtually all U.S. refiners refrain from using such additives in conventional gasolines

. 12 EPA regulations require gasoline produced for sale outside of California to have an annual average of no more than 30 ppm sulfur at retail with a per gallon cap of 80 ppm, but the EPA test tolerance limit allows an individual gasoline sample sold at r etail to contain as much as 95 ppm sulfur. California rules require sulfur to be no more than 30 ppm, and the average today is about 9 ppm, which is better than the federal limit but still not as clean as gasoline standards in Europe and Japan, which allo w a maximum of 10 ppm sulfur. Under its ―Phase 3‖ gasoline regulation,
California is scheduled to reduce its maximum per gallon sulfur limit to 20 ppm on December 31, 2011, and the average is expected to decline further.Alliance of Automobile Manufacturers, Appendices to W hite Paper on Tier 3 Sulfur 8/24 /11

7

are relatively low, even if the state did not adopt NCG, because vehicles coming into the state would be cleaner than they are now. Sulfur is also important because certain new technologies require different emission control systems that are more sensitive to sulfur. Like diesel engines, lean

- burn gasoline engines are very efficient at burning hydrocarbons, which improves the vehicle’s fuel economy compared with similar vehicles using conventional spark ignition engines. Lean burn gasoline e ngines, however, are optimized for fuel economy, which can lead to higher engine

- out NOx emissions, also like diesel. The higher NOx emissions require new, advanced emission control systems similar to those used in diesel vehicles to enable compliance wit h stringent U.S. and California emission standards, but the systems are quickly poisoned by sulfur. Lean burn gasoline technology can work acceptably only with gasoline containing less than 10 ppm sulfur (also
called ultra

- low sulfur gasoline or ULSG).

T he Alliance constrained additional gasoline properties either to match existing federal or voluntary ASTM standards (e.g., benzene, driveability index), the lowest level acceptable for vehicle operation across the U.S. (e.g., vapor pressure) or to comply w ith EPA’s Complex Model constraints (e.g., aromatics, olefins). Ethanol content was set at 10% by volume (the limit under existing federal regulations) to reflect the national ethanol mandate volumes required under the Renewable Fuel Standard in the Energ y Independence and Security Act of 2007.

Table 1: Proposed National Clean Gasoline Specifications
Property Units Limit Comments

Sulfur ppm 10 max Reduces emissions from the existing fleet and enables fuel efficient lean burn technologies. Regulated by EPA and California.

RVP psi 7 max Selected to match the lowest emitting value while maintaining acceptable vehicle operation. Regulated by EPA and some states.

Benzene % v/v 0.62 avg New EPA national toxics standard (―MSAT2‖).

Ethanol % v/v 10 max Current federal maximum.

Octane Regular
Premium (R+M)/2 87 min
93 min Based on industry practice. Limits

apply at all altitudes. 13

13 In general, refiners select oc tane levels to meet consumer demand. The Alliance believes it is acceptable for Premium gasoline to be defined as having a minimum 91 octane ((R+M)/2).Alliance of Automobile Manufacturers, Appendices to W hite Paper on Tier 3 Sulfur 8/24 /11

8

Property Units Limit Comments

ASTM Driveability
Index 14 * 1250 max The ASTM voluntary standard,
which is enforceable in some states. DI is important f

or engine calibration, engine performance
and emissions.

Alliance Distillation
Index 5 * 1200 max For sensitivity analysis (preferred Alliance DI limit).

Aromatics, Olefins, E200, E300 * Unconstrained for NCG but indirectly regulat ed through EPA’s Comple x Model, which is used to certify gasoline compliance.

* No units apply but, in this context, temperatures are measured in degrees Fahrenheit.

Approach

The studies targeted 2010 as the earliest possible year for implementing the NCG specifications.
The re fining economics study was completed first, to provide baseline data for the emissions analysis. The study modeled NCG costs to reflect a phased rollout: first, it introduced NCG in current federal RFG areas; second, it replaced all low RVP gasolines wit h NCG; and third, it replaced all conventional gasoline with NCG. This sequence begins with the least

- cost fuel replacement and moves on to progressively more costly fuel replacements. The study area covered most of the U.S. (PADDs 15 1

- 3) and its gasoline pool but excluded the Rockies and West Coast states (PADDs 4 and 5) for reasons explained in the study.

The refining economics study estimated the refining costs of producing the specified new fuel in volumes consistent with the three implementation pha ses. This analysis was limited to examining refining costs; it did not include analyzing NCG’s possible impacts on fuel distribution, price (which is determined by market forces) or other non

- refinery factors. The primary analysis assumed a crude oil pri ce of $51.20/barrel, which was the reference case projection derived by the Energy Information Administration for its 2007 A nnual Energy Outlook (AOE2007). 16 The unprecedented rise in crude oil prices during 2008, however, led the
Alliance to conduct a sen sitivity analysis using a crude oil price of $125/barrel.

The emissions study used fuel quality estimates from the refining economics study as inputs to
well

- accepted and publicly available emissions modeling tools. For public policy purposes, it is
ins ufficient to know how emissions change for one vehicle; models must be used to estimate the
fleet

- wide emission impacts, to accommodate variations in vehicle type, age, usage and other

14 The Alliance used the ASTM Driveability Index limit, which applies at the refinery gate, as the basis for the study instead of its preferred Distillation Index, which applies at the retail pump, because recent changes have brought the ASTM limit much closer to the Alliance recommendation and because refiners are using the ASTM limit in the
market. To det ermine the impact of imposing the Alliance Distillation Index with a tighter limit, a sensitivity analysis was conducted.

15 ―PADD‖ means Petroleum Administration Defense District; see www.eia.doe.gov for a map. Roughly, PADD 1 corresponds to the east coas t, PADD 2 corresponds to the Midwest and PADD 3 corresponds to the gulf coast states.

16 Energy Information Administration, ―Annual Energy Outlook 2007 with Projections to 2030,‖ Report
#:DOE/EIA

- 0383(2007), February 2007, available at http://www.eia.doe.go v/oiaf/archive/aeo07/index.html (May 21, 2009).Alliance of Automobile Manufacturers, Appendices to W hite Paper on Tier 3 Sulfur 8/24 /11

9

factors, including fuel quality. Emissions also change year to year; t his study looked at the emission changes between 2010 and 2020 for the same geographic area covered by the cost study. Recent results from an EPA study of toxic emissions from Tier 2 vehicles were included as part of a sensitivity analysis.

Findings

Refi ning Economics . The estimated average cost of producing the full volume of NCG, using the AEO2007 crude oil reference price estimate, is 2.75¢/gallon; the estimates are slightly lower for PADDs 1 and 2. The estimated marginal cost of introducing the last increment of NCG is about 3.9¢/gallon and slightly higher in PADDs 1 and 3. Improving the distillation index by using the Alliance’s preferred Distillation Index equation and limit of 1200

— i.e., tightening the distillation
constraints further

— would incre ase average refining cost by about 1¢/gallon in PADD 1 only; other regions would see no impact on average refining costs because their gasoline already meets this limit. The estimated marginal cost for the last increment of NCG is about 5¢/gallon, also

on ly in PADD 1. These estimates pertain to average refining costs, and as such, they do not indicate costs that would be incurred by any individual refineries.

The sensitivity analysis using a higher crude oil price indicates that large increases in crude oil prices lead to moderately higher refining costs for producing NCG. With crude oil at $125/barrel, the estimated average cost of producing the full volume of NCG is about 4.5¢/gallon, an increase of 1.75¢/gallon compared with the estimates based on cr ude oil priced at $51/barrel. The corresponding estimated marginal cost of producing the last increment of NCG is about 6.5¢/gallon, which is an increase of about 2.5¢/gallon. Assuming no change in electricity and natural gas prices, each $10 change in t he price of crude oil would lead to a change of about 0.24¢/gallon in the average cost of producing NCG.

Table 2. Estimated Refining Cost Changes

Estimated Average Refining Cost,
at Two Crude Oil Prices Cost Impact of Higher Crude
Price Refining Cost o f NCG units $51/bbl $125/bbl
Average cost ¢/gal 2.75 4.5 1.75
Average cost (Alliance DI sensitivity case) ¢/gal 3.75 (PADD 1 only) * *

Incremental cost ¢/gal 4 6.5 2.5

Incremental cost (Alliance DI sensitivity case) ¢/gal 8.75 (PADD 1 only) * *

*No t estimated.

Emissions . The emissions investigation found that NCG would have significant impacts on evaporative hydrocarbon (HC) and exhaust nitrogen oxides (NOx) emissions. Between the study years of 2010 and 2020 and on a per

- PADD basis, evaporative HC reductions ranged from 12% to 19%, and exhaust NOx reductions ranged from 10% to 14%. Exhaust HC emissions also declined, ranging from 1% to almost 4% from their already very low baseline. The sensitivity analysis using newer Tier 2 emission impacts s uggests these vehicles are more sensitive to fuel sulfur effects than the existing models indicate. Compared to the national on

- road HC and NOx emissions inventory, these reductions are significant, especially if the estimates are conservativeAlliance of Automobile Manufacturers, Appendices to W hite Paper on Tier 3 Sulfur 8/24 /11

10

as the sens itivity analysis suggests. This finding could be very important to states trying to meet more stringent ozone ambient air quality standards.

Table 3. Summary of Emission Reductions due to NCG

2010 2015 2020

Exhaust HC 1

– 3% 1.5

– 3.5% 1.75

– 3.75%

Evaporative HC 12

– 19.5% 11.5

– 18.5% 11

– 18.5%

NOx 10

– 11% 12

– 13% 13

– 14%

Conclusion These studies highlight the potential benefits and costs of improving national gasoline quality. The estimated costs are reasonable, even when crude oil prices a re high. The emission benefits would be substantial. Additional benefits to gasoline supply accrue simply by eliminating the many boutique gasolines introduced over the years for air pollution control purposes. Introducing an ultra

- low sulfur gasoline nationwide would enable automakers to introduce a new fuel efficient vehicle technology

— lean burn gasoline engines

— increasing the options for improving fuel economy for both automakers and consumers. All of these factors support improving fuel quality on a national basis as a feasible emissions control strategy that will also help the country meet other important national objectives.