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[Senate Hearing 106-503]
[From the U.S. Government Publishing Office]

                                                        S. Hrg. 106-503

     CLEAN AIR ACT: SULFUR IN THE TIER 2 STANDARDS FOR AUTOMOBILES

=======================================================================

                                HEARINGS

                               BEFORE THE

  SUBCOMMITTEE ON CLEAN AIR, WETLANDS, PRIVATE PROPERTY, AND NUCLEAR 
                                 SAFETY

                                 OF THE

                              COMMITTEE ON
                      ENVIRONMENT AND PUBLIC WORKS
                          UNITED STATES SENATE

                       ONE HUNDRED SIXTH CONGRESS

                             FIRST SESSION

                               __________

                              MAY 18, 1999
                              MAY 20, 1999
                              MAY 29, 1999

                               __________

  Printed for the use of the Committee on Environment and Public Works

_______________________________________________________________________
            For sale by the U.S. Government Printing Office
Superintendent of Documents, Congressional Sales Office, Washington, DC 
                                 20402
?

               COMMITTEE ON ENVIRONMENT AND PUBLIC WORKS

                       ONE HUNDRED SIXTH CONGRESS
                 JOHN H. CHAFEE, Rhode Island, Chairman
JOHN W. WARNER, Virginia             MAX BAUCUS, Montana
ROBERT SMITH, New Hampshire          DANIEL PATRICK MOYNIHAN, New York
JAMES M. INHOFE, Oklahoma            FRANK R. LAUTENBERG, New Jersey
CRAIG THOMAS, Wyoming                HARRY REID, Nevada
CHRISTOPHER S. BOND, Missouri        BOB GRAHAM, Florida
GEORGE V. VOINOVICH, Ohio            JOSEPH I. LIEBERMAN, Connecticut
MICHAEL D. CRAPO, Idaho              BARBARA BOXER, California
ROBERT F. BENNETT, Utah              RON WYDEN, Oregon
KAY BAILEY HUTCHISON, Texas
                     Jimmie Powell, Staff Director
               J. Thomas Sliter, Minority Staff Director
                                 ------                                

       Subcommittee on Clean Air, Wetlands, Private Property, and
                             Nuclear Safety

                  JAMES M. INHOFE, Oklahoma, Chairman
GEORGE V. VOINOVICH, Ohio            BOB GRAHAM, Florida
ROBERT F. BENNETT, Utah              JOSEPH I. LIEBERMAN, Connecticut
KAY BAILEY HUTCHISON, Texas          BARBARA BOXER, California

                                  (ii)

  
                            C O N T E N T S

                              ----------                              
                                                                   Page

                              MAY 18, 1999
                           OPENING STATEMENTS

Inhofe, Hon. Jim, U.S. Senator from the State of Oklahoma........     1
Graham, Hon. Bob, U.S. Senator from the State of Florida.........    32
Lieberman, Hon. Joseph I., U.S. Senator from the State of 
  Connecticut....................................................    27
Moynihan, Hon. Daniel Patrick, U.S. Senator from the State of New 
  York...........................................................    32
Thomas, Hon. Craig, U.S. Senator from the State of Wyoming.......     2
Voinovich, Hon. George V. U.S. Senator from the State of Ohio....     3

                               WITNESSES

Austin, James D., Assistant Commissioner, New York State 
  Department of Environmental Conservation, Albany, NY...........     6
    Charts.......................................................    64
    Prepared statement...........................................    62
    Responses to additional questions from:
        Senator Chafee...........................................    69
        Senator Graham...........................................    68
        Senator Moynihan.........................................    67
Beard, Loren K., senior manager of Materials and Fuels, Daimler 
  Chrysler Corporation, Auburn Hills, MI.........................    17
    Charts.......................................................    82
    Prepared statement...........................................    80
Ensign, Clint W., vice president, Government Relations, Sinclair 
  Oil Corporation, Salt Lake City, UT............................    21
    Charts.......................................................97-109
    Prepared statement...........................................    91
    Responses to additional questions from:
        Senator Chafee...........................................   109
        Senator Graham...........................................   110
        Senator Voinovich........................................   111
Frank, Louis J., president, Marathon Ashland Petroleum LLC, 
  Findlay, OH....................................................    15
    Charts.......................................................    73
    Prepared statement...........................................    69
    Responses to additional questions from:
        Senator Chafee...........................................    76
        Senator Graham...........................................    77
        Senator Moynihan.........................................    78
        Senator Voinovich........................................    79
Myers, Hon. Nettie H., Cabinet Secretary, South Dakota Department 
  of Environment and Natural Resources, Pierre, SD...............     5
    Charts.........................................49-51, 53, 54, 58-62
    Letters:
        Several Governors........................................ 38-47
        Environmental Council of the States......................    52
    Prepared statement...........................................    33
    Responses to additional questions from:
        Senator Chafee...........................................    57
        Senator Graham...........................................    55
        Senator Moynihan.........................................    54
    Table, Gasoline sulfur reduction analysis....................    48
Nasser, William E., chief executive officer, Energy Biosystems 
  Corporation, The Woodlands, TX.................................    23
    Article, Energy Biosystems...................................   114
    Prepared statement...........................................   113
    Responses to additional questions from:
        Senator Chafee...........................................   118
        Senator Inhofe...........................................   117
        Senator Graham...........................................   118
Stanfield, Rebecca, Clean Air Advocate, U.S. Public Interest 
  Research Group.................................................    19
    Prepared statement...........................................    87
    Responses to additional questions from:
        Senator Chafee...........................................    90
        Senator Graham...........................................    89

                          ADDITIONAL MATERIAL

Articles:
    Energy Biosystems............................................   114
    Reversibility of Gasoline Sulfur: Effects of Low Emission 
      Vehicles..................................................123-166
Statement, Catalytic Distillation Technologies...................   119
                                 ------                                

                              MAY 20, 1999
                           OPENING STATEMENTS

Bennett, Hon. Robert F., U.S. Senator from the State of Utah.....   179
Boxer, Hon. Barbara, U.S. Senator from the State of California...   177
Chafee, John H., U.S. Senator from the State of Rhode Island,....   186
Inhofe, Hon. James M., U.S. Senator from the State of Oklahoma...   167
Thomas, Hon. Craig, U.S. Senator from the State of Wyoming.......   168

                                WITNESS

Browner, Hon. Carol M., Administrator, Environmental Protection 
  Agency.........................................................   169
    Memorandum, Implementation of Revised Air Quality Standards 
      for Ozone and Particulate Matter, President Clinton........   200
    Prepared statement...........................................   193
    Responses to additional questions from:
        Senator Baucus..........................................215-218
        Senator Graham..........................................220-222
        Senator Inhofe..........................................201-215
        Senator Moynihan.........................................   219

                          ADDITIONAL MATERIAL

Article, Weird Science at the EPA, Reader's Digest...............   182
                                 ------                                

                             JULY 29, 1999
                           OPENING STATEMENTS

Inhofe, Hon. James M., U.S. Senator from the State of Oklahoma...   223
Lautenberg, Hon. Frank R., U.S. Senator from the State of New 
  Jersey.........................................................   233

                                WITNESS

Perciasepe, Hon. Robert, Assistant Administrator, Office of Air 
  and Radiation, Environmental Protection Agency.................   224
    Prepared statement...........................................   239
    Responses to additional questions from:
        Senator Bennett.........................................251-255
        Senator Inhofe..........................................255-258
        Senator Thomas..........................................246-251

                          ADDITIONAL MATERIAL

Report, Mercatus Center Regulatory Studies Program..............258-286

 
     CLEAN AIR ACT: SULFUR IN THE TIER 2 STANDARDS FOR AUTOMOBILES

                              ----------                              

                         TUESDAY, MAY 18, 1999

                               U.S. Senate,
         Committee on Environment and Public Works,
Subcommittee on Clean Air, Wetlands, Private Property, and 
                                            Nuclear Safety,
                                                    Washington, DC.
    The subcommittee met at 11:06 a.m., in room 406, Senate 
Dirksen Building, Hon. James M. Inhofe (chairman of the 
subcommittee) presiding.
    Present: Senators Inhofe, Voinovich, Bennett, and 
Lieberman.
    Also present: Senator Thomas.

          OPENING STATEMENT OF HON. JAMES M. INHOFE, 
            U.S. SENATOR FROM THE STATE OF OKLAHOMA

    Senator Inhofe. The meeting will come to order.
    I'll start by apologizing to all the panelists. Don't blame 
me, blame American Airlines. I sat on the runway in Tulsa last 
night for 4\1/2\ hours, from 6 to 10:30, and then, just as we 
arrived in Chicago, they closed the airport, and so I sat in a 
chair for the next 5 hours and had to catch one this morning, 
so I'm sorry I wasn't here.
    I know some of you have transportation concerns. We're 
going to go through this pretty fast. We have a number of other 
Members who have an intense interest in this who are going to 
be submitting questions for the record. This is very meaningful 
to people in my part of the United States, and I think the same 
for Senator Thomas.
    Today is the first of two hearings this week on the EPA's 
proposed new standards for sulfur levels in gasoline. Sulfur 
standard is a part of the new proposed Tier 2 auto emissions 
standards. These standards were proposed on May 1 and are 
expected to go final by the end of the year. I said, ``expected 
to go final by the end of this year,'' because EPA has a lot of 
work ahead of itself if they plan to accomplish this.
    For over a year, the subcommittee and my office have raised 
a number of issues with the EPA, and they seemingly have 
ignored many of our concerns and many of the issues that we 
have brought to their attention.
    At this point I'd just like to note a couple of concerns in 
hopes that the witnesses on both panels today might address 
these.
    The EPA has decided to provide very limited relief for 
small refiners, based on the number of employees of the entire 
corporation. This is, I believe, an unfair way to do it, 
because there are many corporations that have refineries as 
subsidiaries, and EPA refers to the entire corporation. The EPA 
has ignored small facilities owned by large corporations. Now, 
they have the same problems, even though they may be a small 
part of a large corporation. The numbers would still be the 
same, and it is easy for them to close down a small part of 
their total operation. I have reason to believe this might be 
the case.
    The phase-in time--the EPA has talked about phasing in 
automobile standards over a 4-year period, starting in 2004, 
yet all but the smallest 18 or 17 refineries will be forced to 
undergo their large investments well before 2004.
    In order to undertake what limited relief the small 
companies will have will probably require significant 
investments by them, as well.
    Can this be done in a less-disruptive manner? Perhaps with 
the same lead-in time given to auto manufacturers.
    Because of the effect on small refineries and small 
refiners and the lead-in time for major equipment changes, we 
can expect to see energy supply disruptions. One example is the 
availability of equipment. For the EPA's preferred technology, 
there are only two vendors to date, and they have only 
installed equipment at one refinery. Now the EPA and State 
permit process, alone, takes 1 to 2 years to complete. The EPA 
has said that they can shorten this period of time, but, I've 
heard that before.
    Those are some of the issues that I have raised to the 
Administration over the last year which have not been addressed 
in the proposed rule. Because of their failure to deal with 
these hard issues in their proposal, I have decided to move 
forward with legislation that will address sulfur levels in 
fuel. I intend to use the hearings this week to help gather 
information for our proposed legislation.
    Senator Thomas, do you have an opening statement?

 OPENING STATEMENT OF HON. CRAIG THOMAS, U.S. SENATOR FROM THE 
                        STATE OF WYOMING

    Senator Thomas. Yes, Sir. Thank you, Mr. Chairman.
    I am not a member of this subcommittee, but you and I have 
worked on some of these things together, and I appreciate you 
holding this meeting.
    As you pointed out, the Administration has announced EPA's 
proposed gasoline sulfur reduction program. As usual, we are 
faced with this question of trying to say, ``Well, we're for 
clean air and you're not.'' That's not the issue here, as is 
almost always the case. Everyone is for clean air. The question 
is: How do we get there? I think that's really what this is all 
about, similar to our clean water hearings that we had last 
week.
    This, I think, is another effort to implement the CATO 
agreements without ratification and to put out a very severe 
and inflexible proposal, so that's what we're dealing with.
    As you know, Wyoming has some of the cleanest air in the 
United States. We have an attainment to the national ambient 
air standards. In fact, we do not have a mobile source problem 
due to our low density. So the point is that we need to deal 
with some flexibility as we go about these things, and that the 
needs are different in California than they are in Wyoming.
    We understand the need to address the mobile sector, 
studying the regional haze problem. Wyoming was very active in 
the Grand Canyon Visibility Transportation Commission and 
totally realizes that air quality is not an issue constrained 
to State borders.
    Having said that, in recognizing the need for a solution 
that crossed State borders, we also believe the severity of the 
problem varies by regions, of course. Just as I do not believe 
that one solution is appropriate for regional haze, clean 
water, or even electronic deregulation, I also believe that one 
standard here is inappropriate for gasoline.
    Domestic oil industry, of course, has been hit hard lately. 
Refineries and the oil industry are a critical sector of 
Wyoming's economy. I am pleased the refining industry came 
forward with their own tailored proposal to address these 
quality programs at reasonable cost.
    Even though the industry is willing to accept EPA's level, 
with the more-flexible time schedule, I feel it is wrong to 
impose identical standards, and so we look forward to hearing 
all of your testimony, and, again, I would say I hope we can 
recognize that one-fits-all standards don't work here.
    So thank you, Mr. Chairman.
    Senator Inhofe. I think you have observed something here, 
because it is not a matter of being for or against clean air or 
these things. You can remember during the ambient air standard 
fight--and, of course, Senator Voinovich at that time was 
chairman of the Governors' Air Committee--at that time we had 
all the auto industry and the energy industry all together. So 
we all want to achieve this; it's just sometimes the lines are 
different than they are at other times.
    Senator Voinovich.

        OPENING STATEMENT OF HON. GEORGE V. VOINOVICH, 
              U.S. SENATOR FROM THE STATE OF OHIO

    Senator Voinovich. Thank you, Mr. Chairman. I'm really 
pleased that you are conducting these hearings this week on 
EPA's proposed low-sulfur gasoline standards.
    Senator Thomas, it is really nice to know that Wyoming has 
met all of the current ambient air standards. I was sent to 
Wyoming in 1971 by Bill Ruckelshaus to encourage Rocky Mountain 
legislators that they shouldn't sacrifice their clean air and 
water for economic development, because at that time Ohio had 
some of the dirtiest air and, as you know, we almost lost Lake 
Eerie.
    I'm pleased also this morning that there is a fellow Ohioan 
joining us today on the second panel, Corky Frank, who is 
president of Marathon Ashland Petroleum in Findlay, OH. 
Marathon Ashland is the fourth-largest U.S. refiner, which 
operates seven refineries and operators over 5,400 retail 
outlets in 20 States.
    As the chairman has said, for a long time I have been 
concerned that EPA is not adequately taking costs, benefits, 
and sound science into consideration during the rulemaking 
process, particularly those involving clean air standards. 
Indeed, just recently a U.S. appeals court remanded EPA's ozone 
and PM-25 standards, ruling that EPA did not justify 
its decision with sound scientific evidence. Ohio was a party 
to the lawsuit, which began when I was Governor of the State.
    The court didn't say that EPA couldn't regulate at these 
levels, but that EPA didn't give justification for doing so. 
This has been my point all along. For a long time I've argued 
that the NAAQS standards and the NOx SIP call were 
going to be costly, and we didn't even know if making those 
investments was going to solve a problem.
    Mr. Chairman, I call these hearings, ``The Chickens have 
come Home to Roost'' hearings. EPA's inflexible and costly 
approach to the NAAQS and NOx SIP call have created 
hardships that leave little flexibility for States and 
businesses to comply with upcoming new air regulations that are 
required under the Clean Air Act.
    For instance, the proposed Tier 2 and low sulfur gasoline 
standards have pitted two industries that depend on each other 
against each other. It has put the oil and auto industries at 
odds with each other, as you pointed out, and this deeply 
concerns me.
    I want to ensure that EPA is not moving forward with 
regulations that have not been studied carefully to determine 
their effects.
    And let me say that the reason why we're even talking about 
this today--low sulfur, reducing sulfur in gasoline, putting 
more pressure on the auto companies--is because of these new 
ozone and particulate standards, which so many of us fought and 
said weren't necessary because they wouldn't really make any 
impact on the environment or on public health.
    I am not sure how this is all going to be played out, Mr. 
Chairman, but that may cause them to perhaps recalculate what 
they are proposing in both the auto and in the oil industries.
    I'd like to know the answer to the question: If we had more 
time, could the various interests that are here in this room 
work together and get it done, but do it over a longer period 
of time?
    I'm hoping, Mr. Chairman, that in these hearings we're 
talking about what the consumer has to pay. The consumer gets 
lost. And I can tell you, as one who went through emission 
testing in my State, we do emission testing, and, to put it in 
the vernacular, all hell broke out, you know. But we did it 
because we wanted to get Ohio to comply with the ambient air 
standards.
    Senator Thomas, I'm proud. Just 2 weeks ago, Cincinnati was 
the last area of the State that reached the current ambient air 
standards, but it was at great sacrifice and I took a lot of 
heat.
    There may be some environmental people in this room. I 
didn't have one bit of support from the environmental people in 
Ohio when I went ahead and made that tough decision and had to 
veto that--they wanted to override it, the Legislature, and I 
had to veto the bill to override emissions testing because that 
was the way we were going to get the job done.
    But people have to understand that there are cost/benefits, 
and we need to make sure that when we're doing these things 
that they can be justified from a cost/benefit, and that it 
really is going to make a difference in dealing with the 
environment.
    So I am interested to hear the comments from the various 
witnesses to see as to how they calculate this new ruling by 
the courts in terms of where we are with these proposed 
regulations.
    Thank you, Mr. Chairman.
    Senator Inhofe. Thank you, Senator Voinovich.
    I hope that everyone here in this room heard you say 
``sound science'' and ``cost/benefit analysis,'' because I 
think we are going to be getting to that rapidly on all these 
issues, all these proposed rule changes.
    Well, let's start with Secretary Myers. If you would like 
to make your statement, your entire statement--and this goes to 
all of the witnesses who are here today--your entire statement 
will be made part of the record, so you can make your statement 
any way that you'd like, if you'd rather abbreviate it.
    Secretary Myers.

  STATEMENT OF HON. NETTIE H. MYERS, CABINET SECRETARY, SOUTH 
DAKOTA DEPARTMENT OF ENVIRONMENT AND NATURAL RESOURCES, PIERRE, 
                               SD

    Ms. Myers. Thank you, Chairman Inhofe and members of the 
subcommittee.
    My name is Nettie Myers. I'm the secretary of the South 
Dakota Department of Environment and Natural Resources. I am 
here to testify on behalf of my State in opposition to any 
uniformly low, nationwide gasoline sulfur standard, as proposed 
by EPA on May 1.
    Letters signed by Governors and officials of at least eight 
other States are attached to this statement and are evidence 
that South Dakota does not stand alone in this regard.
    There are four reasons for our fundamental opposition.
    First, for States like South Dakota, no measurable public 
health benefit will be gained.
    Second, current gasoline sulfur levels in my State do not 
threaten public health or ambient air quality in any downwind 
States.
    Third, the proposed standard poses a serious and 
unwarranted threat to our consumer gasoline prices by harming 
refineries that supply our fuels.
    Fourth, there is a way, through vehicle maintenance, that 
is less expensive than EPA's proposal. South Dakotans and their 
neighbors do not contribute to this problem and will not 
benefit from the proposed solution. Do not make them pay with 
higher gasoline prices.
    South Dakota and the PADD-IV States have some of the lowest 
traffic densities in the country. South Dakota's stationary 
source NOx inventory is extremely low at 27,000 tons 
per year. We estimate that, at most, low sulfur gasoline will 
provide another 800 to 1,000 tons per year in reductions. With 
already low NOx and ozone levels, this additional 
reduction offers no real improvement in air quality.
    There is no harm to downwind States. Attachment five is a 
June 6, 1996, letter I received from the Ozone Transport 
Assessment Group, OTAG. That letter states:

    Based on our preliminary assessment of emissions and air quality 
data, it is our conclusion that States like Nebraska, North Dakota, and 
South Dakota will not need to install additional controls.

    This conclusion is true today and will be true in the 
future.
    Refinery closures are expensive. We are concerned that 
additional costs will result in a refinery closure and higher 
gasoline prices. The 1991 closure of AMOCO's refinery in 
Casper, WY, proves this point. Gasoline prices in PADD-IV 
cities have risen about $0.10 per gallon, compared to PADD-III, 
since 1987. This represents about $10 million per year in 
unnecessarily higher gasoline prices for South Dakota 
customers, alone. This does not include any effect on diesel 
fuel, which is so necessary to farming.
    When suppliers shut down, prices go up. We simply do not 
need another refinery closure until EPA finds a way for its 
rules to repeal the basic laws of economics.
    There appear to be cheaper alternatives. In terms of 
finding the least-expensive solution, the proposed rule appears 
to turn logic on its ear. Catalytic converter reversibility 
need not be an issue.
    It is sensible, particularly in the early years of the 
program, to require owners or industry to properly maintain 
Tier 2 vehicles by replacing catalytic converters, as 
necessary. Substituting proper vehicle maintenance for costly 
standards places the cost of regulation both on those causing 
the problem and on those who will benefit from the solution.
    In conclusion, Mr. Chairman, I present this testimony today 
to clarify for the subcommittee the negative effect of 
uniformly low gasoline sulfur standards on South Dakota and the 
neighboring region. Although they cause no air quality problems 
in other States, our citizens will pay significant costs and 
will receive no benefit under the proposed rule.
    The closure of a refinery in PADD-IV is more than possible, 
and the economic harm from such an event will be unwarranted.
    In short, South Dakotans do not have air quality problems 
prompting this rule. They do not need low-sulfur gasoline, and 
they certainly do not want to pay for it.
    Thank you for the opportunity to be here today. I'll be 
happy to answer any questions you may have.
    Senator Inhofe. Thank you, Secretary Myers.
    As I often do, I deviated from the script and neglected to 
say that we're going to try to keep our opening statements to 5 
minutes so that we can accommodate all the questions that we 
have, but you did it, anyway, so thank you so much.
    Mr. Austin is the assistant commissioner of the New York 
State Department of Environmental Conservation.
    We are delighted to have you here.

STATEMENT OF JAMES D. AUSTIN, ASSISTANT COMMISSIONER, NEW YORK 
   STATE DEPARTMENT OF ENVIRONMENTAL CONSERVATION, ALBANY, NY

    Mr. Austin. Thank you, Mr. Chairman, members of the Senate 
committee.
    My name is----
    Senator Inhofe. Before you start, we have been joined by 
Senator Bennett.
    Senator Bennett, did you have an opening statement that you 
wished to make?
    Senator Bennett. No, Mr. Chairman.
    Senator Inhofe. All right.
    Senator Bennett. I'm just glad to be here.
    Senator Inhofe. Mr. Austin.
    Mr. Austin. Good morning. My name is Jim Austin, and I'm 
assistant commissioner of the New York State Department of 
Environmental Conservation. On behalf of the Department, I 
appreciate the opportunity to be here to testify before the 
subcommittee this morning in support of the Environmental 
Protection Agency's proposed sulfur standards for gasoline.
    We haven't come to these proceedings lightly. The 
department I work for has been investigating the effects of 
fuel sulfur in emissions for well over 20 years, and Governor 
Pataki recently allocated over $1 million in funding toward a 
joint project to look at how low-sulfur diesel fuel can 
facilitate emission reductions in transit buses.
    There is no doubt at all that New York has an air quality 
problem, and that much of this results from motor vehicles. We 
estimate that approximately half the emissions that result in 
ground-level ozone and virtually all the carbon monoxide in the 
air comes from mobile sources. New York has worked hard to 
address this problem, and we have made progress over the nearly 
three decades since the Clean Air Act was first enacted, 
implementing every mobile source control strategy required by 
the act, as well as several beyond those requirements. These 
include stringent emissions inspections for cars, vapor 
recovery at gasoline stations, and the California emissions 
standards for new cars.
    Senator Voinovich, having personally worked on the 
emissions inspection program, I definitely share your pain in 
the implementation of that program. It was very difficult.
    Last year, the Governor also signed legislation requiring 
emission inspections for diesel trucks and buses.
    New York also limits the volatility of gasoline sold in the 
State, and our analysis indicates that this has been the single 
most successful program we've ever implemented in providing 
significant and immediate improvements in ambient air quality. 
This is because there was no waiting for new technology to 
penetrate the market and work its way into New York's fleet of 
vehicles.
    Additionally, all vehicles, young or old, well-maintained 
or neglected, witnessed improved emissions performance as a 
result of controls on gasoline volatility.
    Based on our review of EPA's proposed sulfur limits and the 
science supporting it, we feel it will, likewise, provide 
immediate benefits as a critical component in achieving further 
emission reductions from mobile sources.
    Being from New York, I'm painfully aware of the role sulfur 
in fuel can play in the acidification of our lakes, rivers, and 
forests. Governor Pataki has repeatedly urged EPA to meet its 
obligations under the Clean Air Act and protect sensitive 
regions, like the Adirondacks, from acid rain.
    High-sulfur gasoline is perhaps doubly damaging. It 
directly results in emissions of extremely fine particulates 
and acidic aerosols that have been shown to lead to severe 
respiratory conditions and other ailments, no matter where you 
live, and it strips catalytic converters of their ability to 
reduce emissions of other pollutants, such as hydrocarbons, 
NOx, carbon monoxide, and a host of toxics.
    EPA analysis has demonstrated that even a single tankful of 
high-sulfur fuel can seriously degrade catalyst efficiency, and 
that this degradation is probably irreversible under normal 
operating conditions. That is why adopting EPA's proposed 
sulfur limit on a nationwide basis, rather than regionally, is 
so critical.
    There are other reasons to support low-sulfur fuel, as 
well. Unlike other potential changes to gasoline we could make, 
decreasing allowable levels of sulfur has no down side. 
Reducing sulfur levels has no negative effects on emissions, 
driveability, or durability of motor vehicles. It only reduces 
the emissions of pollutants that have been known to harm the 
environment and the people of this Nation.
    Auto makers also say that it is essential to meeting the 
proposed new emission standards for automobiles. These 
vehicles, by the way, will be certified using low-sulfur fuel, 
and they should be operated on that same fuel.
    Limiting sulfur would also be relatively inexpensive, 
painless, and a transparent way to reduce air pollution in all 
States--I was going to say ``that will be'' determined out of 
compliance with the new 8-hour standard. As we know, that 
standard is in question right now.
    For these reasons, countries in Europe, Canada, Japan, and 
Australia have already taken steps to require low-sulfur fuels, 
and it is essential that it be adopted here in the United 
States on a national basis.
    As I mentioned earlier, New York State is working with the 
Metropolitan Transportation Authority and other participants in 
a program to introduce new emissions reduction technology to 
diesel-powered transit buses. This technology has already been 
installed on nearly 4,000 buses in Europe, and has been 
demonstrated to provide dramatic reductions in emissions.
    Due to the high sulfur levels in American diesel fuels, 
this technology has previously been unavailable for use in the 
United States. Thankfully, a foresighted company was willing to 
provide the project with the low-sulfur fuel needed to perform 
the demonstration, and we have every reason to believe that the 
technology will provide the same emission reductions achieved 
on similarly equipped buses in Europe, which have been shown to 
be as clean as buses powered by compressed natural gas at a 
fraction of the cost.
    Hopefully, fuel to operate these clean buses will be 
available after the demonstration project is completed.
    Low-sulfur fuel not only reduces exposure of harmful acidic 
aerosols and particulates, but it also enables the reduction of 
pollutants. Catalysts and particulate trap technologies have 
advanced to the point where emissions from cars and trucks can 
be inexpensively reduced to a fraction of their current levels, 
yet, without low-sulfur fuels, these advanced technologies will 
only sit on the shelf collecting dust.
    We, therefore, strongly support EPA's proposal to reduce 
fuel sulfur, and we thank you for this opportunity to present 
our strong support.
    The Department will be sending detailed comments before the 
hearing record closes, and I would be happy to answer any 
questions you may have.
    Senator Inhofe. Thank you, Mr. Austin.
    I'm going to take a rather short period of questions here 
so that we can get to all of our Members, and our second panel 
is a longer panel, so we're going to try to get through this 
fairly quickly.
    Mr. Austin, in 1994 there was somewhat of a consumer 
backlash when some nine counties in New York, including, I 
believe, Buffalo, Albany--I'm not sure which ones--wanted to be 
out of this thing.
    I guess the first thing that came to my mind is, if there 
is not unanimity within the State of New York, why would this 
be good for----
    Mr. Austin. Sir, I'm not sure I understand. Wanting to be 
out of what thing?
    Senator Inhofe. The RFG program.
    Mr. Austin. The what, Sir?
    Senator Inhofe. The RFG program.
    Mr. Austin. I'm sorry. Yes, Sir. Well, the problem with the 
RFG program is exactly what we're talking about, why we're 
supporting doing this on a national basis now.
    It was proposed on a regional basis, where you could 
literally drive across a bridge from Warren to Washington 
County and not have RFG, and there was a couple of cent 
differential associated with RFG, and that 2 or 3 cents, 
because it was done on a regional basis, was very noticeable.
    Since that time, New York City gas is no more expensive 
than gas anywhere in the rest of the State of New York.
    Also, interestingly enough, the oil companies seem to be 
providing essentially the same fuels statewide, which means 
RFG.
    Senator Inhofe. Yes.
    Secretary Myers, you were talking about some of the 
negative things. What are some of the benefits that you would 
feel there in South Dakota with this program?
    Ms. Myers. We feel that there would be no significant 
benefits, whatsoever.
    Senator Inhofe. When you were quantifying the costs, the 
additional costs that you have done some calculation there, I 
think you said you have not done that with diesel. The EPA has 
said the estimate would increase gasoline prices $6.4 million 
over a period of the year in South Dakota. Is this an accurate 
figure? Do you agree with this?
    Ms. Myers. I think it's probably a very accurate figure, 
and it would be devastating to our State.
    Senator Inhofe. Thank you.
    Senator Thomas.
    Senator Thomas. Let me ask you, Secretary Myers, you know, 
each time we have one of these hearings, on whatever the 
subject, we always hear eloquently how the EPA has worked in 
partnerships. Could you tell me, has the EPA worked with you in 
your State in developing this proposal?
    Ms. Myers. No, they haven't. They worked through the 
organization of STAPPA-ALAPCO, but we were not involved in that 
and did not agree with their position, and less than 50 percent 
of the members voted for that position, so we do not support 
their position.
    Senator Thomas. Thank you.
    Mr. Austin, California I think has had--this is sort of 
patterned after California?
    Mr. Austin. Yes, Sir.
    Senator Thomas. If it is that important to you, why doesn't 
New York do what California has done?
    Mr. Austin. Well, Sir, we believe we have the statutory 
authority necessary to implement low-sulfur fuel on our own. 
That's being looked at by our attorneys. However, the main 
problem is reversibility.
    One of the great things about this country is I can get in 
my car and drive to South Dakota if I'd like. In fact, there's 
an upcoming motorcycle rally this summer I'd like to attend. 
One tankful of high-sulfur fuel would degrade the catalyst 
deficiency in my new car to the point that it is essentially 
useless and would have to be replaced. The cost of that is 
about $200 to $300, but we estimate the cost over the whole 
lifetime of the vehicle of the low-sulfur fuel program is about 
$100. So we feel this is a very cost-efficient program 
nationwide.
    Senator Thomas. You think the additional cost to consumer 
is $100 for the lifetime of their car?
    Mr. Austin. Yes, Sir. That's EPA's estimate, a little over 
$100.
    Senator Thomas. In the price of gas, and so on?
    Mr. Austin. Well, they estimate about $0.02 a gallon, and 
using modern CAFE of about 25 miles per gallon and 12,000 miles 
per year, the math works out to just about $100 over the 
lifetime of a vehicle.
    Senator Thomas. You must not drive as much as we do.
    Mr. Austin. I drive quite a bit, Sir.
    Senator Thomas. Even at $0.02--well, in any event, it just 
seems to me like the problems in New York are quite different 
than they are in Wyoming.
    Mr. Austin. Yes, Sir. No doubt.
    Senator Thomas. And there is no question but that you have 
to--and I don't think one tank of gas is going to get you to 
Wyoming, but I understand it. But I would think that you could 
move forward and, you know, do something for yourselves, 
instead of sort of laying it on the rest of us.
    In any event, thank you, Mr. Chairman.
    Senator Inhofe. Yes. And I would remind you, when you talk 
about the EPA's estimate, back when we were doing the ambient 
air thing they originally said it was going to be $6 billion, 
then the President's Economic Council came out and said it was 
going to be $60 billion, and it ended up the Reason Foundation 
in California came out with a range of $120 billion a year to 
$150 billion on ozone, alone. So I look at these estimates a 
little cautiously.
    Senator Voinovich.
    Senator Voinovich. Mr. Austin, has New York State achieved 
the current ambient air standards?
    Mr. Austin. In the upstate area, yes, Sir, we've measured 
attainment for the 1-hour standard. In the downstate area, no, 
Sir, greater New York.
    Senator Voinovich. And if the new standards are in place--
--
    Mr. Austin. The 8-hour standard would put most of New York 
State out of compliance.
    Senator Voinovich. Your feeling is that it would be better, 
from an environmental point of view and from a consumer point 
of view, to go with the low-sulfur standard?
    Mr. Austin. Sir, you pointed out the enhanced emission 
inspection program. The cost/benefit on that is a little over 
$3,000 a ton. We estimate the cost/benefit on low-sulfur fuel 
to be about $2,000 per ton. So, from our position, it looks to 
be more cost-effective and far more transparent to the 
consumers to achieve the same emission reduction, or perhaps a 
greater one.
    Senator Voinovich. In other words, if you didn't go with 
this and put it on the auto companies, the cost would be more 
to the consumer? Is that your calculation?
    Mr. Austin. Well, Sir, we've, as I said before, we've 
implemented every control strategy required under the Federal 
Clean Air Act and quite a few not required. We are, frankly, 
running out of strategies to attain our air quality goals and 
provide healthful air for our citizens to breathe.
    Now, obviously the air quality in South Dakota is far 
better than in New York, but we believe the citizens of the 
country, regardless of where they live, have--we have a 
responsibility to provide clean air for them, and I can't do 
that for South Dakota, obviously. But our analysis of this 
program is that it is one of the more cost-effective programs 
we could use.
    EPA generally cites reasonably available control 
technologies--those are technologies that include cost--at 
about $3,500 per ton. We're looking at about $2,000 per ton for 
this program, so we think it's very effective and very 
reasonable.
    Also, it is completely transparent for the public. They 
notice no difference except perhaps a penny or two.
    I'd like to point out that a liter of water costs about 
three times as much as a gallon of gas right now.
    Again, we feel it is very cost effective.
    Senator Voinovich. The numbers that I've seen are $0.06 or 
$0.07 a gallon, but your numbers are different than that.
    Mr. Austin. Again, I'm using EPA's numbers for the $0.02. I 
do have personal experience, when we implemented reformulated 
gas in New York, and over a decade ago when we implemented low-
volatility gasoline, oil industry predictions were quite a bit 
higher than what actually came true.
    Our analysis of RFG is that there is no differential 
between New York City gas that has RFG and upstate New York gas 
that doesn't.
    So we've heard those very high cost estimates before, and, 
in retrospect, they haven't held up.
    Senator Voinovich. If this were adopted, do you think that 
New York City would be able to achieve the current ambient air 
standards?
    Mr. Austin. We currently, under the existing EPA modeling, 
demonstrate attainment in 2007. Last year I believe we only 
exceeded the ozone standard twice. In 1979 we exceeded it over 
200 times. So we are hopeful that we're moving in the right 
direction.
    One of the things about the 1-hour standard is that it is 
very temperature sensitive, and temperature is something we 
haven't figured out how to control yet.
    Senator Voinovich. But you think that if this were put in, 
that you would be--that it would make it--you'd achieve it 
sooner than----
    Mr. Austin. We're hopeful of that. Yes, Sir.
    Senator Voinovich. But you're not sure?
    Mr. Austin. Well, as I said, we're basing this on computer 
modeling at this point, so----
    Senator Voinovich. And it is your understanding that the 
reason why these regulations are coming out is in anticipation 
of the new ozone standard and the 2.5 particulate?
    Mr. Austin. I would think that was certainly a motivation 
behind it.
    As I said, for a control strategy that appears to be this 
cost effective, it is, in our opinion, certainly worthwhile to 
do it, regardless of whether or not the 8-hour standard is 
approved.
    Senator Voinovich. Thank you.
    Secretary Myers, you're here for two reasons. One is that 
you don't want to pay more for gasoline, and if this--let me 
ask you this: do you think that this will do anything to make 
your air cleaner in South Dakota if this goes into effect?
    Ms. Myers. No, it won't, because we really don't have an 
ozone problem. I don't think we'll have any trouble with the 
new 2.5 standard. Our problem--and it is only in the Rapid City 
area--is dust. When the wind blows and it is dry, it stirs up 
dust. Other than that, we really do not have air quality 
problems, so this will not help us.
    Senator Voinovich. Another reason why you're here is--have 
you calculated the economic impact that this would have on your 
State in terms of jobs?
    Ms. Myers. We think it would have a big impact, a very big 
impact.
    Senator Voinovich. Any idea of how many jobs lost?
    Ms. Myers. No, I can't answer that question, but I 
certainly could get you that information if you'd like.
    Senator Voinovich. I think one of the things that so often 
happens is that we talk about loss of jobs and these kind of 
things, and I think it is important, if you can kind of 
calculate them in terms of estimate in terms of people and the 
economic impact to the companies that you have.
    Thank you.
    Senator Inhofe. Senator Bennett.
    Senator Bennett. Thank you very much, Mr. Chairman.
    It is obvious that the two witnesses on this panel have 
rather differing views, and that is, of course, why we have 
them, and that is why we on the committee are going to have to 
make some kind of decisions.
    Looking at the testimony that we will be hearing shortly 
from one of my constituents--naturally, like every Senator, I 
pay more attention to somebody from my home State than I do any 
place else--he, in his prepared statement, quotes USA Today 
talking about California screaming, rather than California 
dreaming, and they're screaming about high gasoline prices. It 
is clearly not 1.8 cents a gallon.
    Senator Boxer has asked the Federal Trade Commission to 
examine why California always pays more than anybody else in 
the United States for gasoline.
    Premium in California recently was at $2 a gallon. 
Secretary Myers, what is premium in South Dakota?
    Ms. Myers. I believe it is about $1.25 or $1.20.
    Senator Bennett. Now, you are, in effect, backing the idea 
that the California standards become nationwide, Mr. Austin, 
but you are telling us there is no financial impact in New 
York. What is premium in New York?
    Mr. Austin. Right now it is about $1.30.
    Senator Bennett. So it is about $0.10 more than it is in 
South Dakota.
    I'm afraid you've closed down some of these refineries, 
small refineries, as this proposal would do, and in our State 
you're going to start to see those kinds of impacts. I don't 
want to see Utah screaming now.
    At the same time, I obviously don't want to poison any of 
my citizens. If, in fact, people are being poisoned by this and 
there are serious health effects, I'd say pay the extra $0.10 
or $0.15. Frankly, I think the market tells us it will be $0.10 
to $0.15. I don't know that the folks at EPA pay too much 
attention to the realities of the marketplace. I think the 
realities of the marketplace say it's going to be that kind of 
a premium, because California has proven that in real world.
    Are the health benefits worth that, Mr. Austin, based on 
your experience in New York?
    Mr. Austin. May I respond to a couple things you said, to 
begin with?
    Senator Bennett. Sure.
    Mr. Austin. First of all, there are many constituents to 
California reformulated gasoline that's different. Sulfur is 
just one component of that, and that's all we're looking at 
picking up is the sulfur component.
    Senator Bennett. Yes. I think that's a fair correction. I 
accept it.
    Mr. Austin. Second of all, the $2 premium you're referring 
to is because of an incredibly large refinery fire that took 
out about one-quarter of California's capacity.
    One of the things I'd like to point out is that if they had 
a national fuel they would have been able to get fuel from 
another source, but, because they have a regional fuel, they 
suffered very high prices when part of their capacity went 
down.
    Senator Bennett. I accept that, too, but I see--you're 
talking about the loss of supply here being part of the reason 
the price went so high. I see the EPA creating a loss of 
supply. I see it shutting down refineries in the West in 
Senator Thomas' State and in my State, and I'm not sure that 
makes a lot of good sense to say we're going to deal with the 
problem by cutting down the supply, and thereby artificially 
driving up the price.
    Mr. Austin. I can't personally respond to that. I know an 
organization called ``Math Pro'' was hired by the automobile 
industry, which obviously supports this proposal, but the Math 
Pro study found that there would be no closure, no refinery 
closure resulting in PADD-IV, which is your part of the 
country, Sir.
    Senator Bennett. Yes. I'd rather hear from the refineries 
who are facing closure----
    Mr. Austin. Yes, Sir.
    Senator Bennett [continuing]. Than from somebody who has a 
position otherwise. I think, based on the evidence and the way 
EPA would administer this, we would probably see closure of 
refineries and the drying up of supply.
    If I understood, Secretary Myers, you made that point, did 
you not, that there was a refinery closed?
    Ms. Myers. We anticipate that one in Wyoming might close if 
this rule goes forth nationally.
    Senator Bennett. That's my anticipation, as well, and that 
would affect you and the prices.
    Ms. Myers. It certainly would, because they supply the 
western one-third of South Dakota.
    Senator Bennett. I don't want to delay this further, Mr. 
Chairman. These are, obviously, issues we're going to have to 
grapple with. We have to make decisions that are good for the 
health of our citizens, and we, at the same time, have to 
recognize the realities of the marketplace, and don't end up in 
the name of a headline for health, creating serious problems 
that damage everybody.
    Thank you.
    Senator Inhofe. Thank you, Senator Bennett.
    I'll just ask one thing, Mr. Austin. There are no 
refineries in New York?
    Mr. Austin. No, Sir.
    Senator Inhofe. Well, there are 5 in Oklahoma, there are 20 
in Texas. If you had 20, would you still be supporting the 
EPA's proposal for 2004?
    Mr. Austin. Well, Sir, we do have some businesses in New 
York, and we've regulated them out of necessity far, far beyond 
what is required by the Clean Air Act in many other 
circumstances.
    Senator Inhofe. Do you think the New York environmental 
officials would be able to comply with the approval of 20 
permits in that timeframe?
    Mr. Austin. It is difficult to say, Sir. I have no personal 
experience in permitting refineries. I can tell you that we 
have over 1,000 title five permits to do, and we're well ahead 
of the national curve in succeeding that.
    Senator Inhofe. We're going to move along to the next 
panel.
    Do you have any further questions?
    Senator Voinovich. No.
    Senator Inhofe. All right. Thank you very much for being 
here.
    We now ask for our second panel to come forward to the 
witness table. Panel II includes: Mr. J. Louis Frank, president 
of Marathon Ashland Petroleum; Dr. Loren Beard, senior manager 
of Materials and Fuels in the Daimler Chrysler Corporation; Ms. 
Rebecca Stanfield, clean air advocate with the U.S. PIRG; Mr. 
Clint Ensign, vice president for government relations with 
Sinclair Oil; and Mr. William Nasser, CEO of Energy BioSystems 
Corporation.
    So why don't we start, and we'll try to abbreviate our 
opening statements, if you would. Mr. Frank.
    Senator Bennett. Before we start, could I simply welcome 
Mr. Ensign to the committee.
    Senator Inhofe. Yes, of course.
    Senator Bennett. He is a constituent. The parent company--
although his refinery is in Wyoming, the parent company is in 
Salt Lake City, and one of our outstanding corporate citizens, 
and I want him to know I've read his testimony carefully, and I 
appreciate the thoughtful way in which he has addressed this.
    I may not be able to stay for his testimony, so I wanted to 
get that on the record in advance.
    Senator Inhofe. All right. Senator Voinovich, did you want 
to get on the record with your constituent out here?
    Senator Voinovich. Corky, it is nice to have you here 
today.
    Mr. Frank. Thank you, Sir.
    Senator Thomas. Let me get on the record, as well. The 
refinery is in Wyoming, and we appreciate that, and Marathon, 
of course, is the big holder in Wyoming.
    At any rate, we appreciate all of you coming.
    Senator Inhofe. And so do I.
    All right, Mr. Frank.

   STATEMENT OF J. LOUIS FRANK, PRESIDENT, MARATHON ASHLAND 
                   PETROLEUM LLC, FINDLAY, OH

    Mr. Frank. Thank you. My name is Corky Frank. I'm president 
of Marathon Ashland Petroleum, which is the fourth-largest 
refiner in the United States. I also currently serve as 
chairman of the American Petroleum Institute's Downstream 
Committee, which establishes policy for the petroleum industry.
    I am here today on behalf of my company to talk about EPA's 
recently announced Tier 2 proposal. EPA's primary basis for 
this proposed rule lies in meeting the national ambient air 
quality standards which were recently tightened.
    While it is not the subject of my comments today, I 
understand that a court has recently overturned EPA's broad and 
aggressive interpretation of the Clean Air Act in establishing 
these new standards. The outcome of this case will impact this 
and other proposed regulations as they develop.
    This very expensive low-sulfur gasoline program EPA has 
proposed will only be workable if certain modifications are 
made.
    First, it imposes a national solution for a problem that is 
uniquely regional, a one-size-fits-all approach. As you heard 
about from the previous panel, the ``solution'' is not 
appropriate, because air quality problems vary dramatically 
across the Nation. A regional approach, reducing sulfur along 
the east coast, would avoid forcing consumers to pay for costly 
programs not needed in the central heartland.
    A rancher, for example, in Oklahoma, where air quality is 
good, should not have to pay the same higher cost as a stock 
broker in New York City, where the air quality is bad.
    Our estimate of $0.05 per gallon of additional consumer 
cost for the lower-sulfur gasoline EPA is proposing may not 
seem like a lot of money to some, but it is $5.7 billion 
annually.
    To industry, the cost would total more than $7 billion in 
new investments and substantially increased operating expense. 
Over this decade, the refining industry's return on capital has 
averaged only 3 percent, while operating at maximum capacity, 
while operating margins have been increasingly consumed by 
environmental mandates that have not been recovered in the 
marketplace.
    For some refiners, EPA's proposed regulation will be the 
straw that broke the camel's back. Facilities will close and 
jobs will be lost.
    The Agency claims that the benefits of its proposed program 
are as much as five times the cost, and they are wrong. EPA's 
cost estimate is based on the use of desulfurization technology 
that is not yet commercially proven. Their benefit estimates 
are based on data that have not been publicly released. Secret 
science, or science that is not available for peer review, must 
not be the basis for Federal regulation.
    My industry has long recommended that cost-effectiveness be 
one of the primary considerations when evaluating environmental 
regulations.
    The Clean Air Act requires EPA to use cost-effectiveness to 
develop the proposed Tier 2 standards, yet the cost of the 
proposed gasoline standards is more than triple the cost of 
making vehicle modifications.
    Further, the proposed changes are 15 times more costly than 
EPA's NOx SIP call proposal for NOx 
reductions from utilities, and 7 times more costly than the 
inspection and maintenance controls on cars.
    Furthermore, the nearness of the 2004 deadline raises 
significant concerns about whether we will be able to use the 
new, most cost-effective desulfurization technology that has 
not been commercially proven but offers savings of up to 50 
percent over current technology that is being used today.
    As chief executive, I must face a difficult choice on 
behalf of my company and my shareholders. Do I rely on more 
costly, older, but proven technology, or do I risk investing 
large sums of money in emerging technology that may not perform 
as required?
    An additional concern is that the proposal treats refiners 
differently by putting some smaller refiners on a different 
implementation schedule, and all we ask is that the EPA give us 
a fair chance to compete on a level playing field.
    The establishment of a banking and trading program 
introduces other undesirable consequences, such as providing 
foreign refiners with a competitive advantage over domestic 
refiners by allowing them to manipulate blend stocks, sell them 
to the United States, and play games with baselines, as we 
experienced during reformulated gasoline introduction.
    In conclusion, we all support the goal of reducing 
emissions; however, certain key elements of the Agency's 
proposal must be modified.
    As a company, Marathon Ashland Petroleum embraces a strong 
commitment to continued environmental progress. As its chief 
executive, it is my job to ensure the requirements of this rule 
respect the need to balance cost with benefits, a principle 
that the EPA tends to overlook.
    We will be proud to be a partner in ensuring a cleaner 
environment. We look forward to working together to address 
these and other issues, provided that good science, common 
sense, and cost effectiveness are the building blocks used to 
achieve solutions that are workable.
    Thank you very much, Mr. Chairman.
    Senator Inhofe. Thank you, Mr. Frank.
    Dr. Beard.

  STATEMENT OF LOREN K. BEARD, DAIMLER CHRYSLER CORPORATION, 
    SENIOR MANAGER OF MATERIALS AND FUELS, AUBURN HILLS, MI

    Dr. Beard. Good morning. My name is Dr. Loren Beard. I'm 
the senior manager for fuels technology at Daimler Chrysler. I 
am here representing the Alliance of Automobile Manufacturers 
and its member companies regarding the Nation's need for 
cleaner-burning fuel.
    I want to thank the members of the subcommittee for 
inviting me here today to give the auto industry's perspective 
on the sulfur standard for gasoline contained in the proposed 
pier two standards for automobiles.
    The auto industry agrees in principle with the clean air 
goals of the EPA's proposed rule governing the next round of 
new vehicle and fuel standards, known as Tier 2. We agree that 
the American people in all 50 States want and deserve clean 
air; however, we are certain that we cannot meet these goals 
unless clean fuels are widely available to ensure the 
performance potential of new vehicle hardware is realized.
    If the Nation is to achieve its clean air goals, it needs 
to apply all of the available tools, including, as some as-yet 
unproven vehicle technology.
    We are committed to providing the cleanest-running vehicles 
in the world; however, if exposed to the gasoline sulfur levels 
found in the U.S. market today, or even to the 30 PPM sulfur 
levels proposed by EPA, consumers will have wasted their 
investment in new technology, which will be rapidly and 
irreversibly rendered ineffective.
    While we are committed to developing new, yet-unproven 
vehicle technologies for clean air, we need a partner in the 
oil industry to apply proven, available, cost-effective 
technology to reduce sulfur in gasoline to five parts per 
million maximum.
    We have arrived at a stage in automotive emissions control 
technology where every available resource must be applied.
    EPA's proposed 30 part per million maximum sulfur standard 
would reduce ozone precursors by 160 percent more than API's 
proposal, as you can see on the slide here. Going to a five PPM 
cap on sulfur would result in 250 percent more reductions than 
the API proposal. This is in tons of ozone precursors.
    The next slide shows that the rest of the world has 
recognized the serious problem of exhaust catalyst poisoning by 
sulfur and has taken steps to reduce sulfur levels. The United 
States lags well behind the rest of the developed world, and 
even some nations in the developing world, in controlling 
gasoline sulfur levels.
    As the next slide shows, the price of a gallon of gasoline 
is dominated by the cost of crude oil and taxes. The cost to 
the consumer for sulfur reductions proposed by the auto 
industry will be small compared to the normal variations in 
gasoline resale prices at the pump.
    In the United Kingdom, Sweden, and Finland, the governments 
offer small incentives to refiners for the early introduction 
of ultra low sulfur gasoline and diesel fuel. Refiners rushed 
to take advantage of the incentives, and, in the case of the 
United Kingdom, virtually all fuel in the country moved to low 
sulfur in a period of about 6 months. Clearly, the cost of 
removing sulfur could not have been higher than the small 
incentives offered, or refiners would not have moved so 
quickly--in fact, 5 years ahead of regulation.
    The rest of Europe is rapidly using this approach. If we do 
not move quickly to very low sulfur levels, North America will 
become the natural dumping ground for high-sulfur fuels, which 
will become economically non-viable in the rest of the 
developed world.
    With very stringent emission standards, catalysts must 
operate at 98 to 99 percent efficiency for all driving cycles. 
As this next slide shows, even reduction in catalyst efficiency 
caused by an increase in gasoline sulfur from 5 to 30 parts per 
million can lead to a doubling in exhaust emissions.
    EPA has set the course with very low NOx 
standards in Tier 2, and NOx emissions are the most 
sensitive to sulfur in fuel.
    Some may argue that many States in the United States, 
mostly in the West, already enjoy clean air and don't need low-
sulfur gasoline to protect their environment. The auto industry 
has noted that the people in these States see clean air as a 
valuable asset. With its voluntary national low emissions 
vehicle program, or NLEV, the auto industry has voluntarily 
agreed to provide the same clean-running vehicles to all 50 
States that we currently sell in California. Commitments to 
even tighter national standards demand that sulfur-free 
gasoline be in place.
    Under the new national ambient air question standards, or 
NAAQS, for ozone and particulate matter, 43 U.S. States are 
projected to have areas which are not in compliance with 
national clean air goals, as you can see in slides five and six 
for particulate matter and ozone.
    These States will be required, under the Clean Air Act, to 
take some action to reduce emissions. In addition to the new 
clean-running vehicles provided by the auto industry, these 
States will find that low-sulfur gasoline is a cost-effective 
means of achieving these goals.
    Aside from the compliance with ozone and PM standards, 
several of the remaining seven States will be called upon to 
reduce regional haze under other Clean Air Act provisions. 
While power generation stations and natural sources are the 
prime sources of emissions that eventually result in haze, 
taking the sulfur out of fuel will be of great benefits to 
States that must introduce programs to reduce haze.
    Through their partnerships for the next generation of 
vehicles, known as PNGV, the U.S. auto industry is working 
together with the Federal Government to develop more fuel-
efficient vehicle technologies, in part to help reduce the 
Nation's reliance on imported oil and to address global climate 
issues.
    New fuel-efficient technologies, including direct-
injection, lean-burn gasoline engines, and gasoline fuel cells 
will require low-sulfur fuel. Advanced technology vehicles are 
extremely sensitive to sulfur contamination.
    The failure to control sulfur in gasoline will inhibit the 
introduction of more fuel-efficient technologies, delaying the 
auto industry's efforts to reduce greenhouse gas emissions. In 
essence, reducing the sulfur level in gasoline will not only 
benefit our environment now----
    Senator Inhofe. Dr. Beard, you're going very, very fast, 
but you're going to have to conclude here.
    Dr. Beard. I've got about 30 more seconds.
    Senator Inhofe. All right.
    Dr. Beard. Thank you.
    It will facilitate a transition to cleaner future 
technologies which will help address global climate issues.
    In summary, sulfur is a poison that eventually renders 
emissions control equipment ineffective. The auto industry is 
committed, through a proposal to EPA, to work to reach 
extremely low emissions. To get there, we need to use all the 
vehicle hardware tools available, some that have not yet been 
invented. This includes a commitment from the oil refiners to 
step up to the challenge of very clean, sulfur-free fuels, 
using available, proven, cost-effective refinery technologies. 
With all the right tools in place, vehicle owners will use and 
not waste the investment they have made in emissions control 
hardware, and citizens will benefit from cleaner air.
    This concludes my statement. I will be happy to take any 
questions.
    Thank you.
    Senator Inhofe. Thank you, Dr. Beard.
    Ms. Stanfield.

STATEMENT OF REBECCA STANFIELD, CLEAN AIR ADVOCATE, U.S. PIRG, 
                         WASHINGTON, DC

    Ms. Stanfield. Good morning. My name is Rebecca Stanfield, 
and I'm the clean air advocate for U.S. Public Interest 
Research Group, or U.S. PIRG. U.S. PIRG is a national lobby 
office for the State PIRGs, which are consumer and 
environmental watchdog groups active across the country.
     I greatly appreciate the opportunity to speak to the 
subcommittee on this important and timely issue.
    Air pollution impacts the health of over 117 million 
Americans who live in areas where air quality is often 
unhealthful. Each year, tens of thousands of Americans are 
rushed to hospital emergency rooms due to asthma attacks 
brought on by smog pollution. Millions more miss work, miss 
school, or are forced to stay indoors instead of playing 
outside, or experience loss of lung function. More than 40,000 
people this year will die prematurely as a result of air 
pollution.
    An anecdote may serve to more clearly illustrate the 
magnitude of this problem. In one New Jersey Episcopal 
congregation, more than half of the children carry inhalers to 
Sunday School, and the risks of an attack are so high that the 
minister keeps a nurse on call on smoggy summer days when 
children are at church for activities.
    Stories like this one are becoming more and more common as 
the number of Americans with asthma rises even above its 
current number of 15 million victims, including over 5 million 
children.
    Air pollution is not just a northeastern or a California 
problem, as it was once believed to be. During the 1998 smog 
season, over 5,200 violations of the smog standard occurred in 
41 States across the Nation, including the home States of every 
member of this subcommittee.
    The EPA has proposed regulations that will save lives by 
reducing air pollution from one of its largest sources, the 
automobile. Reducing the extremely high levels of sulfur in 
gasoline sold throughout the United States will vastly improve 
the performance of pollution control equipment in current and 
future models of automobiles, cutting smog and soot pollution, 
as well as hydrocarbons, carbon monoxide, sulfur dioxide, and 
air toxics.
    Even in existing cars, clean gasoline can cut pollution 
levels by up to 20 percent. In new, low-emission vehicles which 
will soon be available across the Nation, pollution levels are 
more than double when using high-sulfur gasoline, as compared 
to with clean gasoline.
    Studies show that EPA's sulfur proposal would have the same 
air quality benefits of removing 54 million cars from the roads 
entirely.
    EPA's proposal is a cost-effective pollution reduction 
measure which has already been implemented in Japan, Finland, 
Thailand, Canada, Hong Kong, Taiwan, and the European Union and 
California.
    EPA estimates that the program will cost just $0.01 to 
$0.02 per gallon of gasoline. For the typical driver, that adds 
up to about $12 per year. This added cost is well within what 
the American public is willing to pay for cleaner air.
    Earlier this year the American Lung Association 
commissioned a poll saying that 90 percent of Americans would 
pay $0.03 per gallon more for clean gasoline, while 70 percent 
would pay $0.05 more per gallon. These are, you know, costs 
well above what EPA estimates would be the cost of this 
program.
    We agree with EPA that it is critical to adopt a national 
uniform standard rather than regional standards advocated by 
the petroleum industry for several important reasons.
    First, as I mentioned before, air pollution is a nationwide 
problem, with violations of the soot and smog standards 
occurring in four out of five States last summer.
    Second, high-sulfur gasoline sold in one State is very 
likely to have pollution consequences in many States. The 
reason is that Americans drive from State to State and from 
region to region, fueling their vehicles along the way with 
whatever type of gasoline is sold in that State.
    A traveler filling up his gas tank with dirty fuel while 
passing through a State with less-stringent standards will 
damage the pollution control equipment in the car, about half 
of which damage is irreversible. Thus, the car will continue to 
be more polluting, even after returning to its home State.
    Such an approach to gasoline sulfur standards would 
seriously undermine the effectiveness of the entire clean car 
program.
    EPA's proposal strikes a balance between achieving 
necessary pollution reductions and allowing the industry ample 
time and flexibility to meet the new standards.
    First, EPA allows the industry to use an averaging system 
to meet the standard.
    Second, EPA allows the oil refiners to meet the standards 
through the use of credits generated as early as 2000.
    Third, EPA is allowing less-stringent caps to be met in the 
years 2004 and 2005.
    And, finally, EPA allows small refiners to meet less-
stringent standards through the year 2007.
    We believe, in fact, that EPA's proposed gasoline sulfur 
standards allows too much time to pass before significant air 
pollution benefits can be expected.
    In 2001, auto makers will begin nationwide marketing of 
low-emission vehicles under the voluntary national low-emission 
vehicle program. The effectiveness of the emission control 
technology used in these vehicles will be compromised by the 
sulfur that will remain at high levels until 2004 to 2006 under 
EPA's proposal.
    Moreover, under EPA's proposal, gasoline containing sulfur 
at levels up to 300 parts per million will be continued to be 
sold in 2004, the year that EPA is requiring 25 percent of new 
cars to be significantly cleaner.
    Again, the technological advances made in these vehicles 
will be undermined by the use of high-sulfur fuel in 2004 and 
2005. We believe that a better approach would be to begin 
phasing in clean gasoline earlier, so that most, if not all, 
gasoline sold in 2004 is clean.
    Thank you, again, for the opportunity to address the 
subcommittee. I hope that you will agree that the timely phase-
in of a nationwide clean gasoline program is an important 
public health protection that should be adopted immediately.
    Senator Inhofe. Thank you, Ms. Stanfield.
    Mr. Ensign.

   STATEMENT OF CLINT W. ENSIGN, VICE PRESIDENT, GOVERNMENT 
   RELATIONS, SINCLAIR OIL CORPORATION, SALT LAKE CITY, UT; 
   ACCOMPANIED BY KEVIN BROWN, VICE PRESIDENT, SINCLAIR OIL 
                          CORPORATION

    Mr. Ensign. Mr. Chairman, my name is Clint Ensign. Thank 
you for the opportunity to be here today and comment. With me 
is Kevin Brown, also a vice president with Sinclair.
    My views are from the perspective of a small, rural refiner 
in the West.
    Last year the U.S. refining industry proposed very large 
cuts in gasoline sulfur limits--70 percent in the East, 55 
percent in the West. With these reductions we felt that the 
Tier 2 cars could be twice as clean as the Tier 1 cars. This 
was a huge offer. It gave EPA unanimous consent to regulate 
refiners on gasoline sulfur on a regional basis.
    We also offered to meet with auto makers, because there 
were several key issues that remained in dispute, especially 
with the issue of reversibility. But they refused to meet with 
us, and in the end, despite our good faith efforts, EPA 
rejected our proposal.
    But there were nine Governors in the rural States west of 
the Mississippi that did accept the regional concept. What is 
so unique is that all these nine States join each other in a 
large, contiguous block. They have good air quality, as we've 
heard today, and they rely on small refineries for supply.
    But the views of this block of Governors did not even make 
it into the preamble of the proposed regulation. So essentially 
now what we have is a national proposal where there is a gaping 
hole in the middle of America where severe gasoline sulfur 
standards don't work and where they are not supported by the 
Governors.
    Another disappointing aspect of the proposal was how 
harshly it treated small refineries. EPA used a definition so 
narrow that only a few get help. Companies like Sinclair and 
Flying J and Giant and Cenex, a farm co-op, have all been left 
out in the cold.
    Now, back in 1990, Senator Chafee, Senator Reid, Senator 
Baucus, Senator Simpson, and many other Senators supported 
incentives to help small refineries make low-sulfur diesel 
fuel. Why wasn't that small refinery definition, which is part 
of the Clean Air Act, used in this rulemaking.
    Now, as we talk about California regulation, we should talk 
about California impacts. Here is a copy of the USA Today that 
Senator Bennett referred to that has pictures of pump prices of 
$2 a gallon in California, and the caption is, ``California 
Screaming.'' And he referenced how Barbara Boxer had asked the 
FTC to investigate why prices are so high.
    I don't know what FTC will conclude, but this much we do 
know in California: that since 1990, eight refineries have 
closed, 15 percent of the refinery capacity has been lost, and 
they've lost their entire small refiner segment. It's gone. And 
so, when you have a compression of the industry like that, you 
get these kinds of effects when there's relatively small supply 
problems in the market.
    As far as our company is concerned, we have been long 
concerned that California regulation will have California 
impacts on a national scale. For one of our refineries in 
Wyoming, we're very concerned that the proposal could very well 
threaten the future of that refinery.
    Let me talk briefly about the two desulfurization 
technologies that are open to us. One is the conventional 
approach. It's very expensive. It costs $0.05 to $0.08 a 
gallon, $6 billion to $9 billion a year for the country. The 
other is a new approach that, as has been mentioned, has not 
been commercially proven as yet.
    EPA has based all of their estimates off this new 
technology. So refiners face a difficult choice. Do you go with 
the technology that is unproven, where you're not sure what the 
results will be? Our experience has been with the processes 
that we license, that the guaranteed results are less than what 
has been advertised.
    So do you go with that uncertainty, or do you go with a 
conventional process where you are guaranteed poor returns and 
high costs? It puts refineries in a bind, and that's why we 
offered for a phased approach into these new standards, so that 
we would have time to see what this new technology can do.
    Let me also just simply say we feel that for the autos and 
the refiners, the implementation schedules for gasoline sulfur 
and for the Tier 2 car ought to come in at the same time. There 
should not be a difference or unfair schedules between the two.
    Let me just simply conclude by looking at the box score. We 
have a regional proposal that we offered in good faith that has 
been rejected. You have a block of rural Governors whose wishes 
in this matter have been rejected. We have small refineries 
that have been rejected. We have a regulation where EPA is 
asking for California standards, which could have California's 
implications elsewhere. And they are basing their proposal 
entirely on an unproven technology. That raises some very 
troubling concerns to us.
    Mr. Chairman, my written statement includes more than that, 
but thank you for the chance to be here today.
    Senator Inhofe. Thank you, Mr. Ensign.
    Mr. Nasser.

        STATEMENT OF WILLIAM E. NASSER, CHIEF EXECUTIVE 
   OFFICER, ENERGY BIOSYSTEMS CORPORATION, THE WOODLANDS, TX

    Mr. Nasser. I want to thank you, Mr. Chairman, and the 
members of the panel for inviting me to speak here today and 
testify.
    Energy BioSystems is a biotechnology company whose aim is 
to address major environmental and industrial issues through 
the recent advances in microbiology, genetic engineering, and 
bioengineering.
    Most people are aware of the significant advances that have 
been made in the pharmaceutical and agricultural industries 
with respect to bioengineering and biotechnology. Our position 
in our company is a little different. It is to be the leader in 
applying biotechnology in the third wave of this revolution, 
and that's in the chemical and energy industries.
    I'm not here today to validate, support, or criticize the 
proposed EPA regulations of lowering sulfur standards in 
gasoline and diesel fuel. Indeed, it is up to you in Congress 
to determine whether that standard is necessary, to what level, 
and to what time table; however, I am here to talk about 
alternatives to achieving sulfur reductions in fuel that are 
being developed by our company.
    There is, no doubt, current technology, which you've heard 
about--hydrodesulfurization, or HDS, which is now used to 
reduce sulfur content in fuels. Unfortunately, HDS has many 
disadvantages, including it's an old technology, having been in 
existence for at least 40 years, it is enormously energy 
intensive, as it requires high temperatures and pressures.
    Because of its large appetite for energy, it results in 
large greenhouse gas emissions. It is enormously costly to 
install and very costly to operate. Others have already 
testified to that.
    I can understand, frankly, the reluctance of the refining 
industry, whose margins are thin, to invest the billions of 
dollars to install such old technology with so many adverse 
consequences. In fact, for small refiners, we believe 
prohibitive costs of installing and operating this technology 
may very well force them to close.
    I also find it rather ironic that the EPA's goal of 
decreasing sulfur in fuels will result in a direct and adverse 
impact on the Administration's goal of reducing greenhouse gas 
emissions that are going to be increased at the refineries.
    We at EBC have developed a new process which also promises 
to lower sulfur in gasoline and diesel fuel, but at half the 
cost and without the huge increase in emissions inherent in the 
current technology.
    Our process is called ``biodesulfurization,'' or BDS. 
Basically, we have identified a microorganism naturally 
occurring in the soil that can be genetically engineered and 
enhanced to eat sulfur out of gasoline and diesel fuels. The 
organism can also be enhanced to eat sulfur out of coal and 
crude oil, which current HDS technology has no possibility of 
doing.
    The benefits of this BDS technology are several. The 
headline on a DOE fact sheet issued in January of this year 
states that biodesulfurization will yield lower sulfur gasoline 
at lower production costs.
    Our studies show that capital costs for our technology will 
be up to half of that of current technology, and that the 
operating costs will be about some 20 percent lower.
    In addition to cost savings, BDS will result in to up to 80 
percent less greenhouse gas emissions over current technology. 
This is because our process operates at essentially room 
temperature and pressure. HDS requires large increases in both 
temperature and pressure to reduce sulfur further.
    Another benefit is that our process yields beneficial and 
commercially viable byproducts. We can alter the enzymes to 
produce surfactants from the sulfur, which are currently 
selling for about $0.50 per pound and are used in detergents 
worldwide. Other byproduct applications may include resins, 
polymers, and other usable products. HDS produces either large 
amounts of elemental sulfur or sulfuric acid.
    A final benefit of our technology is its flexibility. It 
can be inserted at various stages of the refining process and, 
in addition, it can be used in conjunction with HDS. Large 
refiners with HDS operations presently in use can tap our 
technology to complement its current operations to reach ultra-
low sulfur levels.
    Our pilot projects have already demonstrated the ability of 
our technology to reach sulfur levels of 75 parts per million. 
We believe we can easily achieve 30 parts per million and 
commercial viability within the next 3 years. In fact, we are 
convinced that ultimately we can reach zero.
    While our technology is extremely promising, Mr. Chairman, 
there remain hurdles, the primary hurdle being investment in 
research and development. With oil prices low and refining 
margins practically non-existent and small capitalization 
stocks battered, we face an enormous difficulty in raising 
capital to complete our technology. We've spent close to $70 
million to date. Only about $3 million of that has come from 
support from the Federal Government.
    The proposed rule will require enormous investment, and, 
because of the short amount of time in which to reach it, we're 
afraid that the refiners are going to get locked into the old 
technology and waste both money and energy.
    We believe that the Federal Government and the rulemaking 
bodies should help us develop this alternative technology. 
Refiners will be beneficiaries, as well as the public, as well 
as the environment and fuel consumers.
    Thank you, Mr. Chairman. I'll be pleased to answer any 
questions you might have.
    Senator Inhofe. All right, Mr. Nasser. Thank you very much.
    I come from a bit of a prejudiced perspective, being from 
Oklahoma, but I hear quite often that the oil industry really 
hasn't done very much to clean up the air. Let me, Mr. Frank, 
ask you: what has the oil industry done that you could share 
with us on their own volition to clean up the air?
    Mr. Frank. Mr. Chairman, throughout the time, going back to 
1970, the industry has removed lead from gasoline; it was 
phased out beginning in 1970. We produced a low-evaporation 
gasoline in 1989. We produced a winter oxygenated gasoline in 
1992, along with the Clean Air Act; diesel fuel with an 85 
percent less sulfur content in 1993; Federal reformulated 
gasoline in 1995; and then the California cleaner-burning 
gasoline in 1996.
    Senator Inhofe. Now, those are six things that you've 
outlined. Of those six, which were mandated?
    Mr. Frank. Essentially, they were either all mandated or in 
cooperation with the clean air initiative by the industry.
    Senator Inhofe. All right.
    Mr. Frank. And we spent over $30 billion in this regard. 
We're not opposed to cleaning up the air, as I said earlier; we 
just think that it needs to be done on a cost-benefit basis.
    What the industry has proposed, as compared to what the EPA 
has proposed, the oil proposal would achieve 91 percent of the 
effective reduction by 2010 that is proposed by the EPA. The 
cost of the EPA sulfur removal program is, in our calculations, 
much different than represented by the gentleman from New York 
earlier. It is estimated to be $23,000 per ton, as opposed to 
the industry proposal being $14,500, in that the EPA cutoff for 
acceptable cost-effectiveness is $10,000 per ton, as they 
stated. So both of these far exceed what the EPA has said.
    Senator Inhofe. Ms. Stanfield, you had said in your 
testimony that it appears that there is ample time--I guess 
you're referring to both the auto industry and the energy or 
the oil industry--in accordance with the time line that is 
promulgated by the EPA. Is that what you're referring to?
    Ms. Stanfield. Yes. In fact, we believe that EPA is giving 
too much time between the time that the phase-in begins and the 
time that we are fully phased in to clean gasoline.
    Senator Inhofe. Well, this chart up here shows the 
disparity between the auto industry and the oil industry in 
terms of compliance. I'd like to start with you, Ms. Stanfield, 
and get your comments and feeling why this disparity is fair, 
and then have each one of you who wants to comment on this feel 
free to do so.
    Ms. Stanfield.
    Ms. Stanfield. Sure. As I said in my comments, EPA has 
proposed a number of flexibilities in the program to allow for 
phase-in of the sulfur standards. Under EPA's proposal, 100 
percent of the gasoline would actually not be meeting the 30 
parts per million standard until, on the outside I believe it 
is 2008 for small refineries who fit the definition of small 
refineries.
    In the early years, the cap on the dirtiest fuel is 
actually 300 in the year 2004; 150, I believe, in the year 
2005; and then going down to 80 in the year 2006.
    Senator Inhofe. [Referring to chart.] I guess what I'm 
getting at is that by the year 2004 the oil industry would have 
to be complying, and yet there are 4 more years before the auto 
industry would have to. I'm just wondering what you feel about 
that particular disparity? Again, just very briefly, because I 
want to ask the rest of them the same thing.
    [The chart follows:]

                                            No Phase In For Refiners
----------------------------------------------------------------------------------------------------------------
                                     Required Percentage of    Required Percentage of
                                      Complying Light-Duty     Complying Heavy Light-    Required Percentage of
            Model Year              Vehicles and Trucks  [In     Duty Vehicles  [In       Gasoline Sulfur  [In
                                            percent]                  percent]                  percent]
----------------------------------------------------------------------------------------------------------------
2004..............................                       25                         0                       100
2005..............................                       50                         0                       100
2006..............................                       75                         0                       100
2007..............................                      100                         0                       100
2008..............................                      100                        50                       100
2009..............................                      100                       100                       100
----------------------------------------------------------------------------------------------------------------

    Ms. Stanfield. Well, I guess I disagree with your chart. In 
fact, 100 percent of the gasoline will not be meeting the 
standards until 2006, and then 2008 for the smaller refineries, 
while, on the other hand, the national low-emission vehicle 
program starts to put cleaner cars on the road in 2001.
    So the new cars that will be on the road in 2001, as well 
as the first Tier 2 cars you'll see on the road in 2004, 
there's a very significant chance that those cars will be 
powered by gasoline well above the 80 parts per million capital 
that is eventually in effect.
    Senator Inhofe. Mr. Ensign, will you comment as to your 
feeling about the accuracy of the chart?
    Mr. Ensign. From what I can tell, I believe that that is 
accurate.
    The problem that we have with the phase-in is that for 
refiners the date is 2004. If they do something before then, 
they do get a restricted 2-year extension. But they must go 
below the standard prior to 2004, to have a 2-year phase-in.
    The autos start with half of their fleet start in 2004 and 
phase in between 2004 and 2008. The other half, it is my 
understanding, is between 2008 and 2010. That is far different 
than what will be put on the oil industry.
    Senator Inhofe. Any other comments insofar as this chart is 
concerned? Dr. Beard.
    Dr. Beard. Yes. I guess I'm a little confused about what 
this far right column says as the required percentage of 
gasoline sulfur, because we shouldn't take that to mean that 
that's the percentage of gasoline that will be at 30 parts per 
million.
    I think a better representation of the phase-in schedule 
proposed by EPA is found in the NPRM at chapter 4, page 49, 
where they give a phase-in schedule which shows that, indeed, 
the 30-part-per-million average is not phased in until 2006 
with an extension for smaller refineries until 2008.
    Most of these effects in 2004 will be credits that are 
earned prior to 2004 that will be applied to the refinery pool 
in 2004.
    So I again would refer you to chapter 4, page 49, of the 
NPRM for a more accurate depiction of what really is the phase-
in schedule.
    Senator Inhofe. We'll look at that.
    We have been joined by Senator Lieberman.
    We're delighted to have you here. We've already dismissed 
the first panel, but we have this panel, and if you'd like to 
have an opening statement or any questions, feel free to do so.

        OPENING STATEMENT OF HON. JOSEPH I. LIEBERMAN, 
           U.S. SENATOR FROM THE STATE OF CONNECTICUT

    Senator Lieberman. Thanks, Mr. Chairman. Thanks for holding 
the hearing to review EPA's recently proposed national gasoline 
sulfur standard. I apologize to you and the witnesses that I 
had a conflict in my schedule so I couldn't get here until now.
    Just very briefly, I draw from my opening statement and 
then ask two questions. I appreciate your courtesy.
    My State, the State of Connecticut, strongly supports the 
proposed Tier 2 emission standards for vehicles and gasoline 
sulfur standards for refineries. On a national level, emissions 
from mobile sources continue to be major contributors to air 
quality problems.
    It seems to me that, in order to effectively address air 
pollution from the transportation sector, we need to reduce 
pollutants in the fuels and improve vehicle emission control 
technology, so I'm pleased that the Administration has offered 
these proposed standards as a package, including flexibility 
provisions and phase-in requirements to achieve substantial 
cost-effective air pollutant reductions.
    Having made that general statement, I'm simply going to ask 
that the rest of my opening statement be printed in the record 
as if read.
    Senator Inhofe. Yes.
    [The prepared statement of Senator Lieberman follows:]
     Statement of Hon. Joseph I. Lieberman, U.S. Senator from the 
                          State of Connecticut
    Thank you, Mr. Chairman, for holding this hearing to review the 
EPA's recently proposed national gasoline sulfur standard. The State of 
Connecticut strongly supports the proposed Tier 2 Emission Standards 
for Vehicles and Gasoline Sulfur Standards for Refineries. On a 
national level, emissions from mobile sources continue to be major 
contributors to air quality problems.
    Currently, mobile sources account for roughly half the nitrogen 
oxide pollution (NOx), more than 40 percent of hydrocarbon 
emissions, 80 percent of carbon monoxide emissions, and a quarter of 
particulates. In order to effectively address air pollution from the 
transportation sector, we need to reduce pollutants in the fuels, and 
improve vehicle emission control technologies. I am pleased that the 
Administration has offered these proposed standards as a package, 
including flexibility provisions and phase-in requirements, to achieve 
substantial, cost-effective air pollutant reductions.
    The health and air quality benefits that would result from the 
proposed standards are not only significant, they are surprisingly 
impressive. A recent study by the State and Territorial Air Pollution 
Program Administrators and the Association of Local Air Pollution 
Control Officials (STAPPA-ALAPCO) found that factoring in transport of 
air pollution, reducing gasoline sulfur levels to 40 parts per million 
(ppm)--slightly above the current proposal--would yield an air quality 
dividend equivalent to removing nearly 54 million vehicles from 
America's roads. Nationally, that's an air quality benefit of removing 
one in four cars from our highways. Described locally, for citizens of 
the New Haven region in Connecticut, the new sulfur standard would 
translate into air quality benefits equivalent to removing 
approximately 264,000 cars from their streets.
    Reducing sulfur in gasoline decreases emissions of hydrocarbons and 
NOx which will in turn lead to a decrease of ground level 
ozone. Together, these pollutants worsen respiratory illnesses such as 
asthma, emphysema, and bronchitis. In addition, cleaning the sulfur out 
of gasoline will lead to lower emissions of particulate matter and 
carbon monoxide, improve visibility, help address the acid rain 
problem, and reduce greenhouse gas emissions.
    Although sulfur occurs naturally in petroleum, it is a detriment to 
engine performance. In fact, I don't think that anyone would argue that 
sulfur is good for gasoline. On the contrary, sulfur is a contaminant 
that poisons the catalytic converters that are the heart of modern 
automobile pollution control systems. Sulfur is particularly harmful to 
the operation of low- and ultra-low-emissions vehicles. For example, 
the NOx emissions from low- and ultra-low-emissions vehicles 
that burn high-sulfur fuel range from 61 percent to 251 percent higher 
than similar vehicles running on low-sulfur fuels. To capitalize on the 
great pollution prevention promise of low- and ultra-low-emissions 
vehicles, we must ensure they have the clean gasoline they need to 
operate effectively.
    The presence of sulfur in gasoline increases emissions of 
NOx and other pollutants by degrading catalytic converter 
performance. Unfortunately, much of the harm caused to catalytic 
converters by high-sulfur gasoline is irreversible. Once the damage is 
done, even returning to low-sulfur gasoline will not completely repair 
the pollution prevention system. Recent studies have shown using high-
sulfur gasoline even briefly causes permanent reductions in catalyst 
performance as high as a permanent 15 percent catalyst efficiency loss 
for NOx and about 20 percent catalyst efficiency loss for 
carbon monoxide.
    The irreversibility of catalyst poisoning is one of the most 
compelling reasons why the EPA's nationwide gasoline sulfur standard 
approach is the right strategy. We can't allow bad gas to ruin good 
engines. In the 1970's, we fought to remove lead from gasoline to make 
possible the introduction of catalytic converters. We didn't remove 
lead from gasoline only in areas with extremely high incidence of lead 
poisoning; we removed lead from all gasoline because it was the right 
thing to do for the health of all Americans across the country. Until 
recently, we did not appreciate that sulfur is a catalyst poison, too. 
Aside from California where they've had clean gasoline since 1996, all 
vehicles on American roads that benefit from catalytic converters--the 
vast majority of vehicles--produce substantially more pollution than 
they would if they were burning low-sulfur gasoline.
    All Americans will benefit from the cleaner air that will result 
from cleaning our gasoline. A study by the State and Territorial Air 
Pollution Program Administrators recently found that the EPA's gasoline 
sulfur standard offers marginal attainment areas more than 14 times the 
air quality benefits of the petroleum association's regional program. 
The national sulfur standard will likely keep these marginal attainment 
areas from exceeding new ground level ozone or particulate matter 
standards.
    The EPA's proposed standard is cost-effective--estimated to cost 
only one to two cents per gallon--and it is achievable, as demonstrated 
by the experience of California. We must achieve this standard 
nationwide. Providing clean gasoline nationwide is one very important 
step that will help reduce pollution immediately and pave the road for 
the low- and ultra-low-emissions vehicles of the future. I applaud 
EPA's effort to clean our gasoline and, in turn, clean our air and 
improve our quality of life. The new gasoline sulfur standard will make 
it easier for all of America to achieve and enjoy clean air.

    Senator Inhofe. I'd just ask two questions.
    First, to you, Ms. Stanfield--and perhaps in a way I'm 
asking you to summarize your testimony, as I've looked at some 
of it--but I'd ask why would a nationwide gasoline sulfur 
standard, such as proposed by EPA, be better for human health 
and the environment than a regional rule such as the one 
proposed by the petroleum industry?
    Ms. Stanfield. I think there are two really important 
reasons that we must have a nationwide standard. The first is 
that we have a nationwide air quality problem. As I said in my 
remarks, last year during the smog season there were 5,200 
violations of the smog standard, and those occurred in 41 
States, so literally more than 4 out of 5 States had a 
violation of the smog standard andy would benefit from this 
strategy to clean up the air.
    The second important reason is because, as I said before, 
Americans get in their cars and they drive from region to 
region. I was thinking, as the gentlewoman from South Dakota 
spoke, how many times I drove through South Dakota on my way 
from home to law school in Oregon--my home was in Illinois--and 
I always wanted to go where I could see the Badlands, and if I 
had, you know, been in a State with clean gasoline, driving 
through South Dakota with dirty gasoline, the catalyst in my 
car would have been permanently damaged by up to 50 percent. So 
when I go back then to my State, the increased air pollution 
from my automobile would continue.
    So those are the two main reasons why a national standard 
is very important.
    Senator Lieberman. Mr. Ensign or Mr. Frank, do you want to 
respond?
    Mr. Frank. Yes. I'd like to say that over 5 years ago the 
auto and the oil industry embarked on a joint research program 
to test cars for emissions, catalyst reversibility, catalyst 
decay, and that program was quite extensive.
    The test data showed that there were several cars, in fact, 
that met the Tier 2 standards on emissions on the current 
gasoline that was in use and, further, that there were numerous 
vehicles that were 100 percent reversible on catalyst 
poisoning. That's saying that, with regard to Ms. Stanfield's 
example, that you could drive outside into a high-sulfur area 
and return and not have your catalyst have to be replaced, that 
it would regenerate itself.
    Numerous of those cars were from overseas manufacturers. 
Some were available here in the United States. The example 
that--the interpretation of the data, we asked the autos and 
the EPA, along with us, to submit this test data for peer 
review, to have an independent third-party evaluator voice an 
opinion as to the conclusions that could be drawn from the 
data.
    Both of the other organizations declined to submit the data 
for peer review. We went ahead and did it, as the petroleum 
industry. The results that came back were that the technology 
and capability did exist to produce a 100 percent reversible 
catalyst in the vehicles today.
    Senator Lieberman. Dr. Beard, maybe I should invite you to 
get into the discussion, from the auto industry.
    Dr. Beard. Yes. I'm familiar with that program, as well as 
another program. There is a program from the Coordinating 
Research Council--and we would be glad to make a copy of that 
available for the record--which concludes that the poisoning of 
catalysts by sulfur for NOx emissions control is not 
reversible across the fleet of cars that were studied in the 
CRC program.
    Senator Lieberman. Yes.
    Dr. Beard. We'd be happy to make a copy of that available.
    It is interesting that the API says that they showed that 
vehicles could be certified to Tier 2 standards 5 years ago 
when we didn't know what the Tier 2 standards would be 5 years 
ago, and that certification--what they actually did was run a 
few cars on a few FTP tests at low mileage levels and said that 
they met Tier 2 standards, which is not the way the vehicles 
are certified, at all.
    Senator Lieberman. Mr. Ensign, I see that you'd like to add 
to this.
    Mr. Ensign. Yes, Senator Lieberman. I was just going to 
say, as you can see, the issue of reversibility is very much in 
dispute.
    Senator Lieberman. Yes.
    Mr. Ensign. And the oil industry, the refiners, with the 
help of Carol Browner, approached the autos and said, ``Let's 
get together.''
    Senator Lieberman. Right.
    Mr. Ensign. ``And let's try to see and work out this 
dispute and check data, and so forth,'' but the autos did not 
want to meet with us. So we made that good faith effort to try 
to resolve some of those questions.
    Senator Lieberman. Is that as you experienced it, Dr. 
Beard?
    Dr. Beard. I think, as I experienced it, the Coordinating 
Research Council is a joint research consortium between the 
auto and oil industries, and we conducted a research program to 
study exactly that--the reversibility of the poisoning of 
catalysts by sulfur. And we found that in the fleet it is not 
reversible for NOx emissions.
    Senator Lieberman. Right.
    Dr. Beard. And that's the conclusion from the study. It is 
irrefutable, and we can make a copy of it available to the 
committee.
    Senator Lieberman. OK. I'd appreciate that. Thank you very 
much.
    Let me ask you, Dr. Beard, a different kind of question, 
which is how a nationwide sulfur rule would contribute to the 
ability of Daimler Chrysler to produce low- and ultra-low-
emission cars for the global marketplace.
    Dr. Beard. Well, we think that the most promising future 
technologies for improving fuel efficiency, which is a real big 
issue these days, are direct-injection lean-burn gasoline 
engines, and in order to do that you need catalysts that can 
reduce NOx under lean conditions, and so far all the 
catalyst candidates for that kind of technology are shown to be 
extremely sensitive to sulfur, even down to the five-part-per-
million level.
    Senator Lieberman. Right.
    Dr. Beard. So, to the extent that we are to develop and 
market those vehicles both in the United States, to help ease 
our reliance on imported oil and reduce emissions of 
CO2, but also to sell them worldwide, we need to 
have that kind of low-sulfur fuel available worldwide.
    We would point out that places like Japan and Europe are 
moving rapidly in that direction.
    Senator Lieberman. Yes. That's what I had in mind. Thanks 
very much. My time is up. Thanks, Mr. Chairman.
    Senator Inhofe. Thank you, Senator Lieberman.
    During my opening statement I commented on what I thought 
was a very confusing way of defining small refineries. When 
some of them may be owned by a corporation that has a lot of 
other interests, obviously, the same economies to scale would 
apply to a refinery that is owned, and yet they are thrown in 
with the large corporation.
    I just have always wondered--and maybe you can enlighten 
me--as to why we don't just use volume for determining factor 
in determining small refineries. This is the way the Department 
of Energy has done it. That's my understanding. I'd like to 
hear from each one of you, because I can't seem to get any 
response from the EPA as to why that is not a reasonable 
methodology of determining small refineries.
    Mr. Frank. I guess I could understand why they wouldn't 
respond to it. I can't see any reason for basing it on the size 
of a corporation that may be involved in many diverse 
businesses and have only one small refinery but still not be 
able to qualify for the small refinery exclusion. I would think 
volume would be a much better way to do it.
    Senator Inhofe. Dr. Beard, is this one area we might find 
agreement?
    Dr. Beard. I'm not sure if we find agreement or not. I 
would point out that there are small refineries that are 
producing gasoline today in the 30-part-per-million sulfur 
range in the PADD-IV. Maybe size isn't the right way to do it, 
but we would point out that----
    Senator Inhofe. But my point is yes, there are, but these 
are owned by other corporations. They may be in the hotel 
business or something else, and yet----
    Dr. Beard. Not necessarily, but----
    Senator Inhofe. Not necessarily. That's true.
    Does anyone else want to comment on that?
    Mr. Ensign. I believe that you are exactly right--that if 
you're going to have a small refinery standard, that size 
should be the sole determinant. A company will make a decision 
on whether or not to invest based on how that unit is 
performing, not on how well hotel or ranches or something else 
might be doing.
    The key in this rulemaking is to try to get every refinery 
in the country to invest in desulfurization equipment. So the 
standards for small refineries should be uniform and across the 
board.
    Senator Inhofe. I noticed yesterday--you may have seen 
this, Senator Lieberman--that Ford announced that they will be 
producing the low-emission pickup trucks next year that will 
meet the 2004 standards, and that's with using today's high-
sulfur gasoline. In their announcement they state that it is 
because of their industry-leading emissions control technology 
and catalyst research.
    Is this something that Chrysler doesn't have, Dr. Beard?
    Dr. Beard. I would point out that Ford is fully in support 
of the alliance proposal for Tier 2, which includes the low-
sulfur fuel. The standard that they're talking about is a LEV 
standard. It's not the Tier 2 standard that is in the NPRM.
    Senator Inhofe. Well, it is talking about the 2004 
standards, which, it would seem to me that if they're making 
advances like that, then perhaps the proposed sulfur standard 
may not be necessary. Just an observation.
    Senator Lieberman, do you have any more questions to ask 
this panel?
    Senator Lieberman. I do not, Mr. Chairman. Thanks for your 
courtesy.
    Senator Inhofe. Senator Voinovich said he has many 
questions to submit to each one of the five of you, so you will 
be receiving these. And I'm sure there are others who are on 
the committee that will have questions for you, also.
    I appreciate very much your tolerance in allowing us to 
start a little bit late, and your presence here today. Thank 
you so much.
    [Whereupon, at 12:38 p.m., the subcommittee was adjourned, 
to reconvene on Thursday, May 20, 1999.]
    [Additional statements submitted for the record follow:]
  Statement of Hon. Bob Graham, U.S. Senator from the State of Florida
    Mr. Chairman, thank you for the chance to speak briefly regarding 
our hearings this week on the EPA's proposed regulations relating to 
sulfur content in automobile fuel.
    As you know, Title IV of the Clean Air Act Amendments of 1990 set 
tailpipe emissions standards for cars and light trucks beginning with 
the 1994 model year, known as Tier I standards. The 1990 Amendments 
also required the EPA to study whether future emission reductions from 
vehicles were necessary, known as Tier II standards which would take 
effect in the 2004 model year.
    On May 1, 1999, President Clinton proposed the Tier II standards 
for automobile emissions and included a national standard for the level 
of sulfur in gasoline. I understand that the Administration is 
currently collecting comments on this rule and will begin compilation 
of a final rule in August.
    The proposal in the EPA's rule is significant. It is a national 
standard that would impact virtually every citizen in the Nation by 
modifying the fuel used in our automobiles. The modified fuel would 
reduce air emissions by improving the performance of catalytic 
converters.
    I am aware that there are differing view points on the degree to 
which sulfur levels in gasoline impede performance of the catalytic 
converter. I am aware that there are differing view points on the cost 
of adopting a national standard for fuel sulfur levels. I look forward 
to hearing from today's witnesses with your viewpoints on each of these 
issues. Thank you.
                                 ______
                                 
Statement of Hon. Daniel Patrick Moynihan, U.S. Senator from the State 
                              of New York
    Mr. Chairman, I thank you for holding this hearing on the 
Environmental Protection Agency's (EPA) proposal to regulate the sulfur 
content of gasoline. I am pleased to note that the rule models the 
provisions of my bill, the Clean Gasoline Act of 1999, by reducing the 
sulfur content in gasoline to an average of 30 parts per million, year 
round and nationwide.
    We have come a long way since the Clean Air Act Amendments of 1990. 
Since that last reauthorization effort, we have successfully and 
economically made major reductions in emissions of air pollutants and 
tremendously expanded our understanding of the causes and effects of 
environmental problems such as acid deposition, ozone pollution, 
decreased visibility, and eutrophication of coastal waters. We can be 
proud of these accomplishments, but we still have a long way to go. And 
first on our priority list should be action on the evidence that 
nitrogen oxides (NOx), which we largely ignored 9 years ago, 
are significant contributors to air quality deficiencies.
    The 1990 Amendments did not go far enough to prevent continued 
human health and ecosystem damage from NOx. In particular, 
we now know that ozone pollution, caused in large part by 
NOx emissions, can have a terrible effect on human 
respiratory functions. A 1996 study of ozone pollution by the Harvard 
University School of Public Health established a strong link between 
ground level ozone pollution and 30,000-50,000 emergency room visits 
during the high ozone seasons of 1993 and 1994. Nearly 9,000 of those 
visits occurred in New York City alone, during the summer of 1994. And 
of course the ecosystem effects of NOx--coastal 
eutrophcation, acid deposition and nitrogen saturation--are well-
documented. Clearly, any serious effort to address this problem must 
address NOx emissions. Fortunately, we have identified an 
unusual opportunity to make enormous NOx reductions at a 
minimal cost--through a simple reduction in gasoline sulfur content.
    The Clean Gasoline Act of 1999, and the EPA rule, address ``mobile 
sources'' (mainly cars and trucks) of NOx and other tailpipe 
emissions. Mobile sources account for 50 percent of US NOx 
emissions. By establishing a national, year-round cap on the sulfur 
content of gasoline sold in the United States, the EPA proposal would 
dramatically and immediately reduce NOx emissions from the 
very largest single source.
    And this is how:
    The presence of sulfur in gasoline increases vehicle emissions by 
``poisoning'' the catalytic converter used to capture tailpipe 
emissions. In essence, particles of sulfur coat the surface of the 
catalytic converter and render it partially ineffective. In the 1970's, 
we removed lead from gasoline to make possible the introduction of 
catalytic converters. Now we have learned that sulfur is a catalyst 
poison in much the same way. All vehicles in the Nation with catalytic 
converters--virtually all vehicles--produce higher levels of 
NOx because of the high levels of sulfur in the gasoline 
they burn. By reducing the amount of sulfur in gasoline, we will allow 
our national fleet to immediately realize reductions in tailpipe 
emissions.
    The cost of gasoline would rise under this proposal--by less than a 
nickel a gallon at the retail level. For a car driven 15,000 miles per 
year that achieves 15 miles per gallon, the cost of the proposal would 
be less than $50 annually. Keep in mind, however, that gasoline prices, 
adjusted for inflation, are cheaper now than they have been at any time 
since 1950, the beginning point of our analysis. And the benefits to 
human health and the environment of reducing gasoline sulfur far 
outweigh this modest cost.
    A recent study by the State and Territorial Air Pollution Program 
Administrators and the Association of Local Air Pollution Control 
Officials (STAPPA-ALAPCO) found that reducing gasoline sulfur levels to 
40 parts per million, the California standard, will bring an air 
quality benefit equivalent to removing nearly 54 million vehicles from 
our national fleet. New York City alone would have a benefit equal to 
removing 3 million vehicles from its streets. We must not pass up the 
opportunity to make such large gains in emissions reductions for such a 
minor cost.
                                 ______
                                 
  Statement of Nettie H. Myers, Secretary, South Dakota Department of 
                   Environment and Natural Resources
    Chairman Inhofe and members of the Subcommittee: My name is Nettie 
Myers. I am the Secretary of the South Dakota Department of Environment 
and Natural Resources. My department enforces all clean air laws and 
rules in South Dakota including those under the Federal Clean Air Act 
through delegation from the United States Environmental Protection 
Agency. I am here to testify on behalf of my State in opposition to any 
uniformly low, nationwide gasoline sulfur standard as proposed by EPA 
on May 1. South Dakota believes a rule based on regional economics and 
air quality needs is the only sensible way to resolve vehicle emissions 
and fuel quality issues. Letters signed by Governors and officials of 
at least eight other States and attached to this statement are evidence 
that South Dakota does not stand alone in this regard.
    There are four reasons for this fundamental opposition. First, for 
States like South Dakota, located in America's heartland, no measurable 
public health benefit will be gained from regulating gasoline sulfur to 
a uniformly low national standard. Second, current gasoline sulfur 
levels in my State do not threaten public health or ambient air quality 
in any downwind States. Third, application of the proposed gasoline 
sulfur standard in South Dakota and neighboring States poses a serious 
and unwarranted threat to our consumer gasoline prices by harming 
refineries supplying our fuels. Fourth, there is a way, through vehicle 
maintenance, that is less expensive than EPA's proposal and more 
closely tailored to the need for clean air than imposing on South 
Dakotans and residents of nearby States the significant costs of curing 
air pollution in other regions of the country. South Dakotans and their 
neighbors do not contribute to this problem and will not benefit from 
the proposed solution. Do not make them pay with higher gasoline 
prices.
                               background
    South Dakota has no refineries and is dependent on other States for 
gasoline and other fuels. Western South Dakota, the location of 
Ellsworth Air Force Base and an area very dependent on tourism, is 
supplied by refineries in Petroleum Administration for Defense District 
IV (PADD IV) to the west. Eastern South Dakota is supplied by pipeline 
from refineries in PADDs II and III. South Dakota's economy is heavily 
dependent on agriculture, perhaps more so than any other State, and 
agriculture is seriously depressed as farm prices are at perhaps their 
lowest levels in decades. The last thing our farmers need is an EPA-
induced increase in the cost of business that returns no measurable 
public health benefit to them or any one else.
    In 1996, South Dakota ranked 35th among the States in per capita 
income. Four of our western PADD IV neighbor States ranked 36th, 44th, 
46th and 47th. Colorado, at 14th, is the only PADD IV State ranked in 
the top half. Our neighbors to the north and south, North Dakota and 
Nebraska, who also receive fuel from PADD IV ranked 25th and 39th. Any 
cost increase in our region, without commensurate benefit, is 
unwarranted and will impose an economic hardship on our residents.
                        no public health benefit
    Attachment 2 is a chart displaying the relative traffic density of 
the States in 1997 as measured by vehicle miles traveled per square 
mile. South Dakota and the PADD IV States have some of the lowest 
traffic densities in the country. It stands to reason, therefore, that 
vehicle emissions in South Dakota are among the most dispersed and 
dilute in the country and that the benefits of requiring our gasoline 
supplies to meet a uniformly low national sulfur standard are dubious. 
Data provided by EPA in its Regulatory Impact Analysis do not display 
the impacts or benefits for each State. The best data otherwise 
available, however, bear out this hypothesis.
    Last year, the American Automobile Manufacturers Association (AAMA) 
had posted on its Web site a 1997 AAMA study on the impacts of gasoline 
sulfur on Tier 0, Tier 1 and LEV/ULEV vehicles.\1\ Extending the 
results of this study to South Dakota's 1997 vehicle miles traveled 
yields the following projections. First, simply changing from Tier 0 
vehicles to LEV/ULEVs will reduce South Dakota's annual vehicle 
NOx emissions by 3,064 tons. Second, taking the next step 
and reducing gasoline sulfur content from 330 ppm to 40 ppm\2\ may 
provide an additional 843 tons of annual NOx reductions. 
Standing alone, these reductions of NOx are minimal compared 
to other States.\3\ When spread out over South Dakota's 75,898 square 
miles they probably challenge the limits of detection.
---------------------------------------------------------------------------
    \1\ Source: American Automobile Manufacturers Association of 
International Automobile Manufacturers: Study on the Effects of Fuel 
Sulfur on Low Emission Vehicle Criteria Pollutants, Tables 1 and 3, 
1997.
    \2\ The study did not examine the 30 ppm level proposed by EPA.
    \3\ For example, changing from Tier 0 to LEV/ULEV vehicles in New 
York would reduce NOx by 50,557 tons per year. 13,903 
additional tons per yera would be saved by lowering gasoline sulfur for 
these LEV/ULEVs.
---------------------------------------------------------------------------
    This exercise also suggests that about 78 percent of the benefits 
of the proposed rule, i.e. -3,064 tons out of 3,064 + 843 tons, can be 
achieved through vehicle improvements alone without reducing gasoline 
sulfur. This compares favorably with EPA's analysis that in 2020 the 
American Petroleum Institute/National Petrochemical & Refiners 
Association regional standard proposal will provide 78 percent of the 
NOx reductions of the proposed rule.\4\ It appears that when 
more than half of today's vehicle fleet is of Tier 0 technology\5\ the 
lowest hanging fruit can be harvested by encouraging turnover of 
America's automobile fleet rather than increasing the price of gasoline 
through sulfur reduction. The EPA gasoline sulfur proposal has little 
to offer South Dakota and much to take from us.
---------------------------------------------------------------------------
    \4\ Tier 2/Sulfur Draft Regulatory Impact Analysis--April 1999, p. 
III-17.
    \5\ USA TODAY, September 10, 1998, citing data from Polk Co. See 
Attachment 3.
---------------------------------------------------------------------------
    Furthermore, at least one study on which EPA has relied is probably 
not applicable to South Dakota. In adopting the new ambient air quality 
standards for ozone,\6\ EPA pointed to a study of hospital admissions 
for respiratory conditions in New York City and other cities in New 
York State.\7\ It was concluded that respiratory hospital admissions 
increased with levels of haze air pollution, particularly ozone. In 1 
year of that study, 1988, the average hourly ozone concentration 
encountered in New York City was 69 ppb. The maximum hourly level was 
209 ppb. Until the recent ambient air quality standards were adopted, 
South Dakota had no reason even to monitor ozone. What few data we do 
have show hourly averages in the range of 40 ppb and a maximum hourly 
level of 80 ppb. Wyoming recently established an ozone monitoring 
location. The June, 1998 through February, 1999 data from that site 
show averages of hourly concentrations in the range of 26 to 50 ppb and 
a maximum hourly concentration of 81 ppb.\8\ Vehicle emissions in South 
Dakota are likely to improve from fleet turnover alone. With already 
good ozone levels of about half those encountered in the New York 
study, it is difficult to credibly predict any measurable public health 
benefit associated with the further step of lowering gasoline sulfur.
---------------------------------------------------------------------------
    \6\ The Regulatory Impact Analysis for the ambient air quality 
standard rule is cited as authority in the current Regulatory Impact 
Analysis.
    \7\ Thurston, et al: ``A Multi-year Study of Air Pollution and 
Respiratory Hospital Admissions in Three New York State Metropolitan 
Areas: Results for 1988 and 1989 Summers'', Journal of Exposure 
Analysis and Environmental Epidemiology, v. 2, no. 4, p. 429 (1992).
    \8\ See Attachment 4.
---------------------------------------------------------------------------
                            no downwind harm
    Attachment 5 is a June 6, 1996 letter I received from the Ozone 
Transport Assessment Group (OTAG). That group was formed to analyze and 
model the transport of ozone from other States into non-attainment 
areas. That letter states:

        Based on our preliminary assessment of emissions and air 
        quality data, it is our conclusion that States like Nebraska, 
        North Dakota, and South Dakota will not need to install 
        additional controls.\9\
---------------------------------------------------------------------------
    \9\ June 6, 1996 letter from Mary A. Gade, Chair, OTAG Policy 
Group, to Nettie H. Myers.

    Presumably, this exemption from additional controls also applies to 
States further west in PADD IV who were excluded from OTAG at the 
outset. 37 States participated in OTAG, and the conclusion was that 
South Dakota was not contributing to ozone levels downwind. This 
conclusion is true today and will be true in the future.
                    refinery closures are expensive
    Attachment 6 is a graph showing monthly average wholesale gasoline 
prices in three cities supplied by PADD IV and corresponding prices in 
all of PADD III. The three PADD IV cities are Billings, Montana; 
Casper, Wyoming; and Rapid City, South Dakota. The significance of this 
chart is that it spans the August, 1991 closure of Amoco's PADD IV 
refinery in Casper. Amoco closed this refinery rather than invest 
capital necessary to comply with current diesel sulfur standards.\10\ 
The gray band across the chart shows the relative gasoline price 
penalty paid in the PADD IV cities over time. This penalty increased 
about the time Amoco's refinery closed. The average penalty before 
closure was 6.4 cents per gallon. The average penalty since closure has 
been 12.0 cents per gallon. In December 1998, the difference was 
approaching 13 cents per gallon, an increase of about 10 cents since 
June 1987. For Rapid City, South Dakota alone, this unnecessary 
increase in gasoline prices represents an economic penalty to consumers 
of $10,000,000 per year!\11\ This does not include any effect the Amoco 
closure has had on diesel fuel so necessary to farming. When suppliers 
shut down, prices go up. We simply do not need another refinery closure 
until EPA finds a way for its rules to repeal the basic laws of 
economics.
---------------------------------------------------------------------------
    \10\ ``Refinery Closing Costly at Pumps'', The Sunday Denver Post, 
October 18, 1992, p. 1A.
    \11\ Based on estimated annual gasoline volume of 100,000,000 
gallons at the Rapid City pipeline terminal.
---------------------------------------------------------------------------
    I am aware, Mr. Chairman, of a recent study performed by MathPro, 
Inc. concluding that a 30 ppm gasoline sulfur standard will not force 
refinery closures in PADD IV.\12\ The study is very disturbing. The 
study concludes a national standard ``would likely increase the market 
price of gasoline in PADD 4''.\13\ That conclusion is exactly what is 
wrong with EPA's proposal and, yet, the study's casual tone infers that 
this certainty should be welcomed with open arms. Higher prices are not 
welcome in any case, and we certainly should not accept them without 
counterbalancing public health benefits.
---------------------------------------------------------------------------
    \12\ Likely Effects on Gasoline Supply in PADD 4 of a National 
Standard for Gasoline Sulfur Content'', MathPro, Inc., March 18, 1999.
    \13\ Id at 1.
---------------------------------------------------------------------------
    Refiners I have spoken with have commented that reading the study 
reveals at least three points casting doubt on MathPro's reasoning that 
PADD IV average refining margins are high enough to guard against any 
refinery closure. First, the refining margins calculated in the study 
were not based on any data from real PADD IV refineries. In fact, much 
of the data in the study was not even specific to PADD IV.\14\ Although 
the study's margin determination methodology may be the best available, 
the results are still only estimations, perhaps gross estimations, at 
best.
---------------------------------------------------------------------------
    \14\ ``Data are available on refinery crude oil acquisition costs 
at the national level, but not at the PADD level.'' Id at A-1.
    ``First purchases of domestic crude oil [purchases at the oil well] 
are reported at the PADD level.'' Id at A-2. Note that this relates to 
crude oil sales at the lease within a PADD and is not the same as 
prices paid by refiners in the reporting PADD. In fact, a substantial 
amount of first crude oil purchases reported within a PADD are made by 
refiners in other PADDs.
    ``Spot, or refinery gate, prices for refined products are not 
publicly available in PADD 4.'' Id at A-2.
---------------------------------------------------------------------------
    Second, MathPro based its conclusion regarding the survivability of 
PADD IV refiners on a roughly estimated ``average'' margin. It is not, 
however, the ``average'' refiner that is likely to close down. Refiners 
with below average margins are most likely to close, and they do exist 
in PADD IV. The MathPro study itself cites the example of one publicly 
traded PADD IV refiner whose cash operating margins were roughly two-
thirds those estimated in the study. Another refiner I have contacted 
had cash operating margins during the study period about one-half to 
two-thirds the margins in the MathPro report. If these refineries 
close, the loss of their production will affect consumer prices just as 
dramatically as the closure of an average or wealthy refinery. In 
California, five small refiners stopped producing gasoline after 30 ppm 
gasoline sulfur standards were adopted in spite of a 2-year compliance 
extension. The extreme price increases accompanying the Bay Area Tosco 
refinery closure further demonstrate the meaning of losing gasoline 
supplies in a competitive market. MathPro's reliance on ``average'' 
conditions does not accurately describe what is likely to happen.
    Third, MathPro assumes that PADD IV refineries, using new and 
commercially undemonstrated technology, will be able to remove sulfur 
at costs lower than those estimated by both the refining industry and 
EPA. There are no large refineries in PADD IV. It does not seem logical 
that small refineries with limited capital resources will bet their 
futures on untried solutions.
    I stress this portion of my statement as it is important to 
understand that according to refiners in our area the costs of sulfur 
removal, by and large, will not be passed on to the public until a 
refinery closes. At that point, it will be too late for corrective 
measures to bring prices into line. Unlike crude oil price increases 
which affect all refiners equally in terms of cost per unit of 
production, gasoline sulfur removal is capital intensive and will 
impact each refiner differently depending on the refinery's existing 
equipment, the quality of its crude oil and other factors. Gasoline 
sulfur removal will motivate all refiners to increase product prices, 
but it seems likely that a competitive market will halt price increases 
when the refiner with the lowest sulfur removal costs receives an 
adequate return on its investment and decides to increase market share 
rather than raise prices further. At that point, other refiners in the 
same market will not recover their remaining sulfur removal costs. If 
those unrecovered costs are large enough, a refinery will close and 
prices will rise further. The graph, Attachment 6, showing the effect 
of the Amoco refinery closure on prices in PADD IV cities demonstrates 
this point dramatically.
                          cheaper alternatives
    In terms of finding the least expensive means of improving air 
quality, the proposed rule appears to turn logic on its ear. The rule 
threatens significant costs for regions of the country which have no 
air quality problem. Furthermore, it forces a multi-billion dollar 
wholesale retooling of the Nation's refineries by 2004 for the benefit 
of emissions control technology that will take decades to become 
predominant in our automobile fleet. The median age of America's 
automobile fleet is about 8 years and rising.\15\ This fact means that 
today one-half of the fleet is still Tier 0 vehicles produced before 
1994. One may presume that perhaps 20 years will be required to turn 
100 percent of the fleet into Tier 2 vehicles. In fact, EPA's 
Regulatory Impact Analysis predicts the entire fleet will be Tier 2 
vehicles by 2030 or in 26 years.\16\ In addition, EPA's proposed rule 
phases in Tier 2 vehicle production over four or more years.
---------------------------------------------------------------------------
    \15\ See note 4, supra.
    \16\ Tier 2/Sulfur Draft Regulatory Impact Analysis--April 1999, p. 
III-11.
---------------------------------------------------------------------------
    These facts imply that after the first year, about 1 percent to 2 
percent of the fleet will be Tier 2 vehicles, but all the gasoline must 
be low sulfur. Regional standards are one way of deflecting this front-
end imposition, on clean air and economically fragile regions, of 
gasoline costs designed for a small fraction of the vehicle fleet.
    The issue of reversing the effects of sulfur on Tier 2 catalytic 
converters, however, appears to be blocking the concept of regional 
standards. The concern is based on the idea that vehicles traveling 
from low-sulfur areas to high-sulfur areas under a regional program 
will return home with ineffective catalytic converters. The 
reversibility debate revolves around whether catalytic converter 
efficiency will be restored when low-sulfur gasoline is, once again, 
placed in the vehicle's tank. Vehicle manufacturers argue the high-
sulfur effect is irreversible. Refiners argue the opposite. EPA has 
come down on the side of the vehicle manufacturers in this debate.
    This debate, however, is for naught. It is clear that 
reversibility, or the lack thereof, need not be an issue. Rather than 
make the entire Nation cater to the needs of a small fraction of the 
vehicle fleet, it is more sensible, particularly in the early years of 
the program, to require owners to properly maintain their Tier 2 
vehicles by replacing catalytic converters as necessary. Areas with 
ozone attainment problems are required to have inspection and 
maintenance programs, and Tier 2 sulfur-damaged vehicles operating in 
those areas should be easy to identify.
    If this is not possible politically, ask the vehicle manufacturers 
and the refiners to fund jointly a program that replaces sulfur-damaged 
Tier 2 catalytic converters. Both industries claim they can do no more 
to resolve this sulfur issue. Refiners claim lower gasoline sulfur is 
too expensive and that sulfur's effects are reversible. The vehicle 
manufacturers claim sulfur tolerant technology is not possible. If 
refiners are forced to pay for catalytic converters because their 
gasoline has too much sulfur, at some point lower gasoline sulfur 
levels will become economical. If refiners are correct about 
reversibility, it will cost them nothing. If vehicle manufacturers are 
forced to pay for catalytic converters because their technology is not 
sulfur tolerant, they will be prodded to develop technology that is 
sulfur tolerant. While I have no studies or specific data evaluating 
this idea, vehicle maintenance must be less expensive than nationwide 
gasoline sulfur removal for the foreseeable future.
    In any case, substituting proper vehicle maintenance for uniformly 
low and costly gasoline sulfur standards places the costs of regulation 
both on those causing the problem and on those who will benefit from 
the solution. Endangering refineries in PADD IV imposes costs on 
motorists and farmers who neither cause the problem nor benefit from 
the solution.
                               conclusion
    Mr. Chairman, I present this testimony today to clarify for the 
Subcommittee the negative effect of uniformly low gasoline sulfur 
standards on South Dakota and the neighboring region. Although they 
cause no air quality problems in other States, our citizens will pay 
significant costs and will receive no benefit under the proposed rule. 
The closure of a refinery in PADD IV is more than possible, and the 
economic harm from such an event will be unwarranted. In short, South 
Dakotans do not have the air quality problems prompting this rule, they 
do not need low sulfur gasoline, and they certainly do not want to pay 
for it. Thank you for the opportunity to be here today. I will be happy 
to answer any questions the Subcommittee might have.

       Responses by Nettie H. Myers to Additional Questions from 
                            Senator Moynihan
    Question 1. In your written testimony you proposed that Congress 
require owners to periodically replace their catalytic converters or 
require vehicle manufacturers and refiners to fund a program that 
replaces catalytic converters if gasoline sulfur damages them. Please 
comment on the effectiveness and costs of such proposals relative to 
the cost of the EPA gasoline sulfur program.
    Response. First, I am not sure Congress needs to act to enable 
vehicle manufacturers and refiners to fund such a program. The current 
NLEV vehicle program is voluntary. One would think EPA and industry 
could find a way to implement this program on a voluntary basis. Please 
understand, I believe the responsibility for maintaining clean auto 
emissions rests with the owner of the automobile rather than with 
gasoline consumers in a distant region of the Nation. I also understand 
the obvious political implications of implementing such a philosophy 
and have, therefore, suggested another way of achieving the same 
result.
    Second, I did not suggest periodic replacement of catalytic 
converters but, rather, replacement as needed. This will depend on 
identifying those converters that have, in fact, been damaged by 
exposure to high sulfur gasoline. This could be done if the detection 
points on I&M inspections were lowered or by some other means during 
regular vehicle maintenance. I am encouraged by a statement in EPA's 
Draft Regulatory Impact Analysis (RIA) that when the combination of 
temperature and variation in the air-fuel ratio is sufficient, the 
sulfur accumulated from operation on high sulfur fuel appears to be 
essentially eliminated and the emission impact of the high sulfur fuel 
is fully reversed. Draft RIA, p. B-4.
    This implies that, while full reversibility may not be achievable 
with the converter on the vehicle particularly after implementation of 
the Supplemental Federal Test Procedure which greatly reduces rich 
exhaust driving cycles, the converter could be removed from the vehicle 
and serviced in a shop. Once off the vehicle, the converter could be 
subjected to the conditions producing full reversibility. While I do 
not know if such a procedure or the appropriate equipment exists, it 
does not seem that the tasks required to create such a program are too 
difficult. A program for servicing catalytic converters should 
definitely be cheaper than replacing converters.
    Third, I have asked a small refiner in PADD IV to prepare a cost 
estimate for replacing catalytic converters on vehicles from API/NPRA's 
proposed low sulfur region traveling to API/NPRA's proposed high 
sulfur, western region. This is not an endorsement of the API/NPRA 
proposal but it seemed convenient to speak in terms of a proposal 
already on the table rather than attempt to identify wholly new 
regions. The results of that estimate are detailed in the attached 
spreadsheet report. The conclusion of the study is that catalytic 
converters on gasoline vehicles produced in 2004 and later and which 
travel to the western United States can be replaced for a cost 
representing about 1.2 cents to 1.5 cents per gallon of western 
gasoline. If converters can be serviced rather than replaced, the cost 
should be a fraction of this amount.
    I strongly recommend that this cost be borne not only by refiners 
but also by the automobile manufacturers for the following reasons. 
First, it is difficult to determine at this time if refiners have more 
responsibility to reduce gasoline sulfur than vehicle manufacturers 
have responsibility to develop more sulfur tolerant equipment. Second, 
spreading the costs will encourage both industries to solve the problem 
in the least expensive manner. Third, if the cost to the auto industry 
of replacing converters is borne wholly by the refiners, the price of 
new converters is likely to increase without limit. This will not be 
fair to the refiners.
    While this proposal and supporting study are not definitive, they 
certainly indicate that EPA and the refining and auto industries should 
further investigate other alternatives.

    Question 2. Do you have any estimate of the per-gallon cost of the 
EPA gasoline sulfur proposal to South Dakota consumers?
    Response. As I pointed out in my written testimony, the cost of 
closing a refinery in PADD IV appears to be about 10 cents per gallon 
for gasoline. The conventional wisdom among PADD IV refiners is that 
one or more of them will close as a result of this rule. We have 
attempted to perform a similar analysis for the increase in the cost of 
diesel fuel following the closing of Amoco's Casper refinery. 
Unfortunately, prices before the closure relate to high sulfur diesel 
while prices after the closure are for low sulfur diesel. At this time, 
it is not clear that a ``before and after'' analysis using two 
different products is appropriate. It is clear, however, that a 
refinery closure will affect the price of all products including 
diesel, jet fuel, and heating oil. It is not unreasonable to expect 
price increases for these products to be about the same magnitude as 
those experienced for gasoline.
                                 ______
                                 
       Responses by Nettie H. Myers to Additional Questions from 
                             Senator Graham
    Question 1. It appears that the initial question is does high 
sulfur content in automobile fuel degrade the performance of catalytic 
converters?
    Response. Yes. It appears that for Tier 0 and Tier 1 vehicles the 
degradation is marginal ``with NOx emissions decreasing 
between 11 percent to 16 percent when sulfur is reduced from 330 ppm to 
40 ppm.'' Draft RIA, p. B-2. There are greater differences for LEV's 
and ULEV's which EPA has projected onto the proposed Tier 2 vehicles. 
Keep in mind, however, that even for LEV's and ULEV's gasoline sulfur 
reduction represents only about 22 percent of the benefits of moving 
from Tier 0 vehicles on 330 ppm gasoline to Tier 2 vehicles on 40 ppm 
gasoline. In this sense, all gasoline sulfur impacts are somewhat 
marginal.

    Question 2. Does it degrade the performance of all catalytic 
converters or only the catalytic converters required by the Tier 2 
regulation?
    Response. As stated in response to the previous question, the 
damage appears to be focused on LEV's, ULEV's and Tier 2 vehicles.

    Question 3. Is this damage reversible?
    Response. Yes. See Draft RIA, p. B-4.

    Question 4. How would the damaged be reversed?
    Response. In my responses to Senator Moynihan, I pointed out that 
EPA believes the damage can be reversed by a sufficient combination of 
temperature and variation in the air-fuel ratio. This implies that 
converter damage can be reversed by servicing the converter off the 
vehicle under conditions that provide the correct environment. It 
appears that reversibility is an issue only for LEV's, ULEV's and Tier 
2 vehicles. Sulfur sensitivity for earlier vehicles is significantly 
less and reversibility, therefore, is not an issue for earlier 
vehicles. See Draft RIA, p. B-2.

    Question 5. What is the estimated cost of replacing a catalytic 
converter?
    Response. For a six cylinder vehicle, the estimated cost to the 
manufacturer is $197. See Draft RIA, p. V-10.

    Question 6. Is there another way to repair or ensure that catalytic 
converters, if damaged by high sulfur content in fuels, can be restored 
to their original performance levels?
    Response. In my responses to Senator Moynihan, I pointed out that 
EPA believes the damage can be reversed by a sufficient combination of 
temperature and variation in the air-fuel ratio.
    First, I am not sure Congress needs to act to enable vehicle 
manufacturers and refiners to fund such a program. The current NLEV 
vehicle program is voluntary. One would think EPA and industry could 
find a way to implement this program on a voluntary basis. Please 
understand, I believe the responsibility for maintaining clean auto 
emissions rests with the owner of the automobile rather than with 
gasoline consumers in a distant region of the Nation. I also understand 
the obvious political implications of implementing such a philosophy 
and have, therefore, suggested another way of achieving the same 
result.
    Second, I did not suggest periodic replacement of catalytic 
converters but, rather, replacement as needed. This will depend on 
identifying those converters that have, in fact, been damaged by 
exposure to high sulfur gasoline. This could be done if the detection 
points on I&M inspections were lowered or by some other means during 
regular vehicle maintenance. I am encouraged by a statement in EPA's 
Draft Regulatory Impact Analysis (RIA) that when the combination of 
temperature and variation in the air-fuel ratio is sufficient, the 
sulfur accumulated from operation on high sulfur fuel appears to be 
essentially eliminated and the emission impact of the high sulfur fuel 
is fully reversed. Draft RIA, p. B-4.
    This implies that, while full reversibility may not be achievable 
with the converter on the vehicle particularly after implementation of 
the Supplemental Federal Test Procedure which greatly reduces rich 
exhaust driving cycles, the converter could be removed from the vehicle 
and serviced in a shop. Once off the vehicle, the converter could be 
subjected to the conditions producing full reversibility. While I do 
not know if such a procedure or the appropriate equipment exists, it 
does not seem that the tasks required to create such a program are too 
difficult. A program for servicing catalytic converters should 
definitely be cheaper than replacing converters.
    Third, I have asked a small refiner in PADD IV to prepare a cost 
estimate for replacing catalytic converters on vehicles from API/NPRA's 
proposed low sulfur region traveling to API/NPRA's proposed high 
sulfur, western region. This is not an endorsement of the API/NPRA 
proposal but it seemed convenient to speak in terms of a proposal 
already on the table rather than attempt to identify wholly new 
regions. The results of that estimate are detailed in the attached 
spreadsheet report. The conclusion of the study is that catalytic 
converters on gasoline vehicles produced in 2004 and later and which 
travel to the western United States can be replaced for a cost 
representing about 1.2 cents to 1.5 cents per gallon of western 
gasoline. If converters can be serviced rather than replaced, the cost 
should be a fraction of this amount.
    I strongly recommend that this cost be borne not only by refiners 
but also by the automobile manufacturers for the following reasons. 
First, it is difficult to determine at this time if refiners have more 
responsibility to reduce gasoline sulfur than vehicle manufacturers 
have responsibility to develop more sulfur tolerant equipment. Second, 
spreading the costs will encourage both industries to solve the problem 
in the least expensive manner. Third, if the cost to the auto industry 
of replacing converters is borne wholly by the refiners, the price of 
new converters is likely to increase without limit. This will not be 
fair to the refiners.
    While this proposal and supporting study are not definitive, they 
certainly indicate that EPA and the refining and auto industries should 
further investigate other alternatives.

    Question 7. If the damage is reversible, could regional regulations 
work?
    Response. Absolutely. I believe reversibility is the only issue 
standing in the way of regional standards.

    Question 8. If the damage is not reversible, could regional 
regulations, tailored to the air quality needs of each region, 
effectively reduce the impact of sulfur on catalytic converters?
    Response. In response to a question from Senator Moynihan, I asked 
a PADD IV small refiner to estimate the cost of replacing damaged 
catalytic converters found in low sulfur regions. The response, 
supported by the attached spreadsheet report, is that damaged 
converters can be replaced for a cost representing 1.2 cents to 1.5 
cents per gallon of western gasoline. While the impact on catalytic 
converters cannot be reduced, the impact of damaged catalytic 
converters can be managed and controlled for less expense than that 
proposed by EPA. This speaks to adopting tailored regional standards 
rather than a uniformly low national standard.
                                 ______
                                 
       Responses by Nettie H. Myers to Additional Questions from 
                             Senator Chafee
    Question 1. Could you elaborate on some of the ripple impacts that 
this proposed rule could have on the economy of South Dakota?
    Response. First, as I presented in my testimony, any cost to the 
citizens of South Dakota is too great when we expect no measurable 
improvement in the quality of our air. Using EPA's projected increase 
of 2 cents per gallon for lower sulfur gasoline, the proposed rule will 
cost South Dakota, at a minimum, over $11 million. The cost of low 
sulfur diesel will add another $5 million. But even more frightening is 
the potential 10 cents per gallon increase if the proposal forces 
closure of small refineries in the Rocky Mountain States.
    An increase of that magnitude could cost South Dakota's citizens 
one-half of 1 percent of their annual average income. This expense is 
too great for no measurable benefit for the health of South Dakota's 
citizens!
    The ripple impacts of the proposed sulfur in gasoline rule and the 
anticipated diesel rule will be the economic hardship to the rural 
community, primarily to the agricultural industry, which in turn 
affects every other industry and business in the State. With ten people 
per square mile, fuel is a necessary commodity to live and do business 
in rural South Dakota. Agriculture is the State's No. 1 industry, 
generating $17 billion in economic activity in 1997. Agricultural 
producers' income is in a current State of decline, and any added 
economic pressure to this fragile industry will only add to the already 
overwhelming ``input'' cost. Information from South Dakota State 
University shows that over the last 7 years, Ag production has actually 
decreased by $400 million while the cost to production has increased by 
$2.5 billion (when adjusted for inflation).
    Agriculture impacts almost every other industry in the State either 
directly or through the buying power of agriculturally employed 
citizens. The number of persons employed in agriculture has decreased 
by over 30 percent in the past 20 years. This means businesses such as 
grocery stores, restaurants, car dealers, and hardware stores in our 
towns no longer have the customers necessary to keep the businesses 
going. The ripple effect of additional fuel costs to the rural 
community is the success and economic viability of the urban and 
business community.

 Statement of James D. Austin, Assistant Commissioner, New York State 
                Department of Environmental Conservation
    Good morning. My name is Jim Austin, and I'm Assistant Commissioner 
with the New York State Department of Environmental Conservation. On 
behalf of the Department, I appreciate this opportunity to testify 
before the Subcommittee in support of the Environmental Protection 
Agency's proposed sulfur standards for gasoline. We haven't come to 
these proceedings lightly. The Department has been investigating the 
effects of fuel sulfur on emissions for over 20 years, and Governor 
Pataki has allocated a million dollars in funding toward a joint 
project to look at how low sulfur diesel fuel can facilitate emission 
reductions in transit buses.
    There is no doubt that New York has an air quality problem, and 
that a large portion results from motor vehicles. We estimate that 
approximately half of the emissions that cause ground level ozone, and 
virtually all of the carbon monoxide in our air, come from mobile 
sources. New York has worked hard to address this problem, and we have 
made progress over the nearly three decades since the Federal Clean Air 
Act was enacted, implementing every mobile source control strategy 
required by the Act and its subsequent Amendments, as well as several 
well beyond the requirements. These have included stringent emissions 
inspections for cars, vapor recovery systems at gas stations, and the 
California emissions standards for new cars. Last year, the Governor 
also signed legislation requiring emission inspections for diesel 
trucks and buses.
    New York also limits the volatility of gasoline sold in the State, 
and our analysis indicates that this has been one of the most 
successful programs we have implemented in providing significant and 
immediate improvements in ambient air quality. This is because there 
was no waiting for new technology to penetrate the market and work its 
way into New York's fleet of vehicles. Additionally, all vehicles, 
young or old, well maintained or neglected, witnessed improved 
emissions performance as a result of the controls on gasoline 
volatility. Based on our review of EPA's proposed limits on sulfur in 
gasoline and the science supporting it, we feel it will likewise 
provide immediate benefits, and is a critical component of achieving 
further emission reductions from mobile sources.
    Being from New York, I am painfully aware of the role sulfur in 
coal and fuel oil plays in the acidification of our lakes, rivers and 
forests. Governor Pataki has repeatedly urged EPA to meet its 
obligations in the Clean Air Act and protect sensitive regions like the 
Adirondacks from acid rain. Yet high sulfur gasoline is perhaps doubly 
damaging to the environment. It directly results in emissions of 
extremely fine particulates and acidic aerosols that have been shown to 
lead to severe respiratory conditions and other ailments, and it strips 
catalytic converters of their ability to reduce emissions of other 
pollutants such as hydrocarbons, NOx, carbon monoxide and a 
host of tonics. EPA analysis has demonstrated that even a single tank 
full of high sulfur fuel can seriously degrade catalyst efficiency, and 
that this degradation may be irreversible under normal operating 
conditions. That's why adopting EPA's proposed sulfur limits on a 
national basis, rather than regionally, is so critical.
    There are other reasons to support low sulfur limits nationwide. 
Unlike other potential changes to gasoline we could make, decreasing 
allowable levels of sulfur has no downside. Reducing levels of sulfur 
has no negative side effects on emissions, driveability, or durability 
of motor vehicles. It only reduces emissions of pollutants known to 
harm the environment and the people of this Nation. Auto makers also 
say that it is essential to meeting the proposed new emission standards 
for automobiles. These vehicles will be federally certified using low 
sulfur fuel, and they should be operated on the same fuel.
    Limiting fuel sulfur would also be a relatively inexpensive, 
painless, and transparent way to reduce air pollution in all the States 
that will be determined to be out of compliance with the new 8 hour 
standard for ozone. For all these reasons, Europe, Canada and Japan 
have already taken steps to require low sulfur fuels, and it is 
essential that it be adopted here in the U.S. on a national basis.
    As I mentioned earlier, New York State is working with the 
Metropolitan Transit Authority and other participants in a program to 
introduce new emission reduction technology to diesel-powered transit 
buses. This technology has already been installed on nearly four 
thousand buses in Europe, and been demonstrated to provide dramatic 
reductions in emissions. Yet, due to the high levels of sulfur in 
American diesel fuels, this technology has not been previously 
available for use in the U.S. Thankfully, a foresighted company was 
willing to provide the project with the low-sulfur fuel needed to 
perform the demonstration. We have every reason to believe that the 
technology will provide the same emission reductions achieved on 
similarly equipped buses in Europe, which have been shown to be as 
clean as buses powered by compressed natural gas at a fraction of the 
cost. Hopefully, fuel to operate these clean buses will be available 
after the demonstration project is completed.
    Low sulfur fuel not only reduces exposure to harmful acidic 
aerosols and particulates, but it also enables the reduction of other 
pollutants. Catalyst and particulate trap technologies have advanced to 
the point where emissions from cars and trucks can be inexpensively 
reduced to a fraction of their current levels. Yet, without low sulfur 
fuels, these advanced technologies will only sit on the shelf 
collecting dust. We therefore strongly support EPA's proposal to reduce 
fuel sulfur. Thank you for the opportunity to present our strong 
support for EPA's proposed gasoline sulfur standards. The Department 
will be submitting more detailed comments before the hearing record 
closes. I'd be happy to answer any questions you may have at this time.

        Response by James D. Austin to Additional Question from 
                            Senator Moynihan
    Question 1. Please quantify the benefits to New York State of the 
gasoline sulfur proposal. How would a regional program affect these 
benefits?
    Response. Using the computer model EPA has developed to estimate 
emission reductions associated with the Tier II proposal, NYSDEC 
estimates that 30 ppm sulfur fuel will provide a dramatic environmental 
benefit compared to both current fuels (300 ppm) and the American 
Petroleum Institute's proposed compromise fuel for the Northeast (150 
ppm)? In the year 2004, 30 ppm fuel would reduce emissions from on-road 
light-duty gasoline-powered sources of NOx and VOCs by 14 
percent and 6 percent respectively compared to 330 ppm fuel. 
Particulates and sulfur dioxide emissions would be reduced by 57 
percent ant 90 percent respectively. In 2010, these reductions increase 
to 23 percent and 9 percent for NOx and VOCs, and 60 percent 
for particulates. These reductions don't include reductions associated 
with the Tier II new vehicle standards, which would provide additional 
benefits. The attached spreadsheet and graphs provide additional 
details on these reductions.
                                 ______
                                 
       Responses by James D. Austin to Additional Questions from 
                             Senator Graham
    Question 1. It appears that the initial question is does high 
sulfur content in automobile fuel degrade the performance of catalytic 
converters? Does it degrade the performance of all catalytic converters 
or only the catalytic converters required by the Tier 2 regulation?
    Response. There is clear evidence that sulfur in fuels results in a 
decrease in the effectiveness of catalytic converters. The impact of 
fuel sulfur on catalyst efficiency appears to be common to catalysts on 
all vehicles. It is possible that the decrease in efficiency resulting 
from high sulfur fuels will be even more pronounced on future vehicles 
meeting the Tier-2 or California LEV II standards. Below is an excerpt 
from EPA's Draft Regulatory Impact Analysis for Tier-2/Sulfur:

        The sulfur in gasoline increases exhaust emissions of HC, CO, 
        and NOx by decreasing the efficiency of the three-
        way catalyst used in current and advanced emission control 
        systems. For the purpose of this document, we will refer to 
        this phenomenon as ``sulfur sensitivity.'' Sulfur sensitivity 
        has been demonstrated through numerous laboratory and vehicle 
        fleet studies. These studies have demonstrated that significant 
        reductions in HC, CO, and in particular, NOx 
        emissions can be realized by reducing fuel sulfur levels. 
        Sulfur sensitivity for Tier 0 and Tier 1 vehicles is marginal, 
        with NOx emissions decreasing between 11 percent to 
        16 percent when sulfur is reduced from 330 ppm to 40 ppm. 
        Sulfur sensitivity for LEV and ULEV vehicles, however, is much 
        more significant. When sulfur is increased from 40 ppm to 330 
        ppm, we project that emissions increase by the following 
        percentages:
         Vehicle Type, NMHC, NOx; LEV and ULEV LDV, 
        40 percent, 134 percent; LEV and ULEV LDT, 24 percent, 42 
        percent.
        These percentages apply to ``normal emitting'' vehicles, which 
        generally are those in-use vehicles with emissions at or below 
        twice their applicable emission standards. Higher emitting 
        vehicles are projected to be less sensitive to sulfur, because 
        the catalyst is not operating at peak efficiency in-use and 
        should therefore be less affected on a percentage basis by 
        higher sulfur levels. [pages B-1, B-2]

    Question 2. Is this damage reversible? How would the damage be 
reversed?
    Response. While EPA auto makers and the oil industry all agree that 
high fuel sulfur levels results in some decrease in catalyst 
efficiency, there is still controversy regarding to what extent this 
effect is reversible. Studies recently conducted by the petroleum 
industry would seem to indicate that there is some potential to reverse 
the harmful effects of sulfur on catalysts, especially on older 
technology vehicles that did not rely so heavily on the catalyst to 
meet emission standards. Yet the conditions necessary to achieve this 
reversibility, (numerous very hard accelerations in a row) do not 
realistically occur outsite of laboratory settings and, even if they 
did, results in extremely high emissions from the vehicle in question. 
In other words, in order to reverse the loss of catalytic control that 
accumulates due to high sulfur, the car must be forced to operate in 
modes that are themselves inherently dirty. In any event, changes to 
EPA's Federal Test Procedure will make such a ``hot-rich'' scenario 
much more difficult, if not impossible, to achieve and thus eliminate 
the one potential mechanism to reverse the effects of sulfur on 
catalysts. For these reasons, DEC does not feel that the effects of 
fuel sulfur on catalysts is fully reversible in real world conditions, 
especially for the advanced technology vehicles needed to meet Tier-2 
and California LEV II emission standards.

    Question 3. What is the estimated cost of replacing a catalytic 
converter?
    Response. According to the parts department of an Albany, New York, 
Ford dealer, the retail cost of a new catalytic converter runs between 
$180 and $800, depending on the age and model of the vehicle and 
excluding labor/installation costs. The converter for a 1996 Ford 
Ranger with a 3.0 liter engine lists for $449.38. By way of comparison, 
EPA estimates that the cost of gasoline will increase less than 2 cents 
per gallon as a result of the low sulfur requirement. Assuming a car 
drives 100,000 miles over its lifetime and achieves 20 miles per gallon 
(CAFE is 27 mpg), the cost of low sulfur fuel will only be $100 over 
the entire lifetime of the vehicle.

    Question 4. Is there another way to repair or ensure that catalytic 
converters, if damaged by high sulfur content in fuels, can be restored 
to their original performance levels?
    As discussed previously, it does not appear that the effect of high 
sulfur fuel on catalysts is fully reversible in real world conditions. 
It should be pointed out that manufacturers certify new vehicles to 
Federal emission standards using extremely low sulfur fuels. Vehicles 
should be operated in the real world using similar fuels.

    Question 5. If the damage is reversible, could regional regulations 
work?
    Response. Because we do not believe that the effect of high sulfur 
fuel on catalysts is fully reversible, New York is concerned that the 
lack of low sulfur gasolines outside of the region will result in 
increased emissions in New York and throughout the Northeast.

    Question 6. If the damage is not reversible, could regional 
regulations, tailored to the air quality needs of each region, 
effectively reduce the impact of sulfur on catalytic converters?
    Response. Due to the low cost and high environmental and health 
benefits associated with low sulfur fuels, we strongly support adoption 
of the measure on a nationwide basis. While many regions of the country 
may not currently exceed air quality standards, NYSDEC believes it is 
logical to implement strategies which inexpensively and efficiently 
reduce the environmental and health impacts of the transportation 
sector. The vast majority of automobiles on the road will realize an 
immediate emissions benefit starting with their first tankful of low 
sulfur fuel. No other control program could have such a broad impact as 
quickly. Regional control programs necessarily involve boundaries, 
which gives rise to the untenable situation of different fuel 
requirements on opposite sides of a street. Additionally, adopting low 
sulfur fuels nationwide will minimize gasoline production and 
distribution impacts by providing one fuel nationwide.
                                 ______
                                 
   Responses by James D. Austin to Additional Questions from Senator 
                                 Chafee
    Question 1. How will the proposed rule benefit the Adirondack 
mountains and other areas suffering from acid rain?
    Response. As evidenced by the attached spread sheet, we predict use 
of 30 ppm fuels will immediately reduce emissions of sulfur dioxide 
from light duty gasoline-powered on-road vehicles by 90 percent 
compared to 300 ppm fuel. Such a reduction will have immediate benefits 
in reducing the harmful effects of acidic aerosols on human health and 
the environment. Reductions in NOx emissions will also have 
a beneficial effect. Although emissions from power plants and factories 
play a larger role in emissions which lead to acidic deposition in the 
Adirondacks (due to long range transport), such a dramatic reduction 
will nevertheless result in positive impacts on sensitive woodlands and 
water bodies.

    Question 2. What measures has New York taken to reduce ozone and 
other air pollutants?
    Response. New York State has implemented all air pollution control 
strategies as required by the Federal Clean Air Act and its subsequent 
amendments. Additionally, the State has implemented numerous control 
strategies beyond the requirements of the Act. These include the 
enactment of acid deposition control legislation 6 years before 
Congress, CFC control programs 1-year before Congress, Phase II and III 
NOx controls on stationary sources, emissions inspections 
for heavy-duty vehicles, early controls on fuel volatility, the 
California Low Emission Vehicle standards, controls on personal 
consumer solvents and architectural coatings. New York has also 
initiated several lawsuits attempting to force EPA to meet its Clean 
Air Act requirements to protect downwind states from the ``transport'' 
of pollutants across State boundaries. Additionally, according to the 
New York State Energy Research and Development Authority New York is 
the most energy efficient State in the Nation.
                                 ______
                                 
   Statement of J. Louis Frank, President, Marathon Ashland Petroleum
    Good morning. My name is Corky Frank. I am President of Marathon 
Ashland Petroleum LLC. We are the fourth largest U.S. refiner operating 
seven refineries with a combined capacity of 935,000 barrels per day. 
We operate 85 marketing terminals in the Midwest and Southeast United 
States which distribute gasoline, diesel and asphalt and, we operate 
over 5,400 retail outlets in 20 States.
    I also currently serve as Chairman of the American Petroleum 
Institute (API)'s Downstream committee, which establishes policy for 
the refining, marketing, and transportation segments of the petroleum 
industry.
    I am here today on behalf of my company to talk about EPA's 
recently announced Tier 2 proposal, which includes requirements for 
dramatic, nationwide reductions in gasoline sulfur within a very tight 
timeframe. EPA's primary basis for this proposed rule lies in meeting 
the National Ambient Air Quality Standards, which were recently 
tightened. While it is not the subject of my comments today, I 
understand that a court has recently overturned EPA's broad and 
aggressive interpretation of the Clean Air Act Amendments of 1990 in 
establishing these new standards. The outcome of this case will impact 
this and other proposed regulations.
    Marathon Ashland Petroleum supports reducing sulfur levels in 
gasoline. Indeed, for well over a year, my company, the American 
Petroleum Institute (API), the National Petrochemical and Refiners 
Association (NPRA), and others representing 95 percent of our Nation's 
refining capacity have been proposing a long term regulatory approach 
that would involve substantial reductions in sulfur in our Nation's 
gasoline supply. (Exhibit 1) We have been meeting with EPA and others 
in the Administration to discuss sulfur levels, costs and cost 
effectiveness, supply and distribution challenges, and technology.
    Our goal has been to encourage the development of a practical and 
workable program. While our discussions with EPA have been open, we 
regret that the Agency has discounted our input, analysis, conclusions 
and proposals.
    The proposal that EPA has recently announced would rapidly reduce 
sulfur in gasoline about 90 percent nationwide to levels now required 
only in California, the State with far and away the Nation's most 
serious air quality problems. We would be required to begin marketing 
this reduced sulfur gasoline beginning in 2004.
    This is not consistent with air quality needs, technology, or 
economics. This very expensive program EPA has proposed will only be 
workable if certain specific changes are made prior to the issuance of 
the final rule.
    First, it imposes a national solution for a problem that is 
uniquely regional. (Exhibit 2) A ``one size fits all'' approach is not 
appropriate because air quality problems vary dramatically across the 
Nation. They tend to be more severe in urban areas on the West Coast 
and throughout much of the highly populated Northeast. In these areas, 
emissions need to be substantially reduced to meet Federal air 
standards.
    By contrast, much of the Nation's heartland west of the Mississippi 
River enjoys air quality that is very good. Except in relatively 
isolated locations, air quality meets Federal standards. Moreover, in 
areas where air quality problems remain, they are generally less 
serious and can be managed by more cost effective strategies.
    A regional approach--reducing sulfur along each coast and more in 
the East than in the West--would avoid forcing consumers to pay for a 
costly program that is not needed. A rancher, for example, in Oklahoma, 
where air quality is better than Federal standards for all six of the 
key ``criteria'' pollutants, should not have to pay the same higher 
costs as a stockbroker in New York City, where significant air quality 
problems must be addressed.
    A regional approach would also not impair air quality as vehicles 
from the two geographic regions, operating on different gasolines, 
travel back and forth. We believe the catalysts in the automobile 
converters can reverse the effects of high sulfur fuels and therefore 
that catalyst irreversibility is not a real world problem. API and NPRA 
have shared with EPA peer-reviewed emissions research which supports 
this thesis.
    Let me now say a word or two about cost:
    Our estimate of five cents per gallon of additional consumer cost 
for the lower sulfur gasoline EPA is proposing may not seem like a lot 
of money to some. I would urge you to think about this in the context 
of the average multi-vehicle family, or in the case of a single parent 
or elderly couple struggling to cover the costs of health care, 
housing, food and other necessities on a limited income. Another way to 
look at this is that the annualized cost of this program to consumers 
nationally is $5.7 billion.
    The impact on refiners would also be considerable. On a nationwide 
basis, the added costs of EPA's proposal would total more than $7 
billion in new investments and substantially increased operating 
expense. This would be a daunting challenge for my industry, which is 
already struggling to provide a satisfactory return on investment for 
its shareholders. Specifically, over this decade, the refining 
industry's return on capital has averaged 3 percent while operating at 
maximum capacity, and operating margins have been consumed by 
increasing environmental mandates.
    For some refiners, EPA's proposed regulation will be the straw that 
breaks the camel's back. Facilities will close and jobs will be lost. 
Since the phase-in of identical sulfur lowering requirements in 
California's gasoline in 1996, 11 percent of that State's refineries 
have shut down. (Exhibit 3)
    Along these lines I would be remiss if I did not now note that EPA 
is also working on proposed diesel regulations. These regulations are 
likely to require significant further investment by Marathon Ashland 
Petroleum and additional multi-billion dollar investments by my 
industry. It is my strong hope that in designing these regulations the 
Agency gives more serious consideration to cost effectiveness issues 
and air quality needs than it has in designing the gasoline sulfur 
rules.
    This is a very important public policy issue. Closing refineries 
destroys jobs and harms local economies. It also has cost implications 
for consumers. When little excess capacity is left as is basically the 
case in California problems in just a few refineries can adversely 
affect supplies and prices. California has experienced this problem as 
prices have spiked on several occasions and once just in the past 3 
months, when prices exceeded $1.70 per gallon.
    Given the potential costs for solving what for large parts of the 
Nation is not a serious problem, it is surprising that EPA is 
recommending pushing vehicle and fuel technology to such extreme 
limits. The Agency claims that the benefits of its proposed program are 
as much as five times the costs. A closer look reveals that these 
numbers are, in fact, too good to be true.
    EPA's cost estimate is based on the use of desulfurization 
technology that is not yet commercially proven and which refiners may 
not be able to employ within the timeframe allowed by EPA.
    The Agency's so-called benefit estimates are based on 
epidemiological data that have not been released for any external 
review and on faulty, highly irregular valuation assumptions. Secret 
science or science that is not available for public and Congressional 
review must not be the basis for Federal regulation.
    My industry has long recommended that cost effectiveness be one of 
the primary considerations when evaluating environmental regulations. 
Indeed, in the Tier 2 portion of the Clean Air Act Amendments of 1990 
Congress directs EPA to use cost effectiveness to develop the proposed 
Tier 2 standards. However, the cost of the Agency's proposed gasoline 
standards is more than triple the cost of the vehicle changes. 
Furthermore, the proposed gasoline changes are 15 times more costly 
than EPA's NOx SIP Call proposal for NOx 
reductions from utilities and 7 times more costly than Inspection and 
Maintenance controls on cars. (Exhibit 4)
    The timing of EPA's proposal presents another problem. As proposed, 
the rule would require petroleum companies to market this new low 
sulfur gasoline beginning in 2004. While Marathon Ashland Petroleum and 
other companies have experience in retooling facilities to make fuels 
cleaner and cleaner and in providing them in the amounts needed at 
affordable prices this is a tough deadline, especially in light of the 
drastic reductions in sulfur contemplated.
    My company is typical of most refiners. We will need to install 
major new equipment at most of our facilities to be able to make this 
new gasoline. This will entail a lengthy process of obtaining permits, 
scheduling contractors, fabricating large, customized vessels and 
starting and completing construction, during the same time that 
European and Canadian refiners will be competing for these same 
resources. This raises the specter of potential disruptions in the 
marketplace.
    Equally important, the nearness of the 2004 deadline raises 
significant concerns about whether we will be able to use the new, most 
cost-effective desulfurization technology. Although this technology 
holds the promise of being able to reduce the costs of lowering sulfur 
levels by about half, as a practical matter, it is not yet commercially 
proven.
    As chief executive, I face a difficult choice on behalf of my 
company and my shareholders: Do I rely on more costly, older but proven 
technology, or do I risk investing large sums of money in emerging 
technology that may not perform as required. For the industry overall, 
the difference in capital investment is dramatic: $7 billion versus 
$3.5 billion.
    Each year that the deadline is pushed back improves the odds that 
all refiners could meet EPA's requirements, increases the likelihood 
that the most effective and cost efficient technology will be employed, 
and helps ensure that all refiners continue to adequately supply their 
customers. EPA's proposed initial phase-in sulfur level, which forces 
immediate major investments, is simply too low.
    Also, adjusting the timing will not hurt air quality. EPA projects 
that air quality will improve for the next 10 years, even without the 
Tier 2 vehicle or low sulfur gasoline. Reducing sulfur by over 50 
percent, as the oil industry has proposed, will provide significant 
benefits beyond this.
    In many areas the ozone benefits reductions achieved by EPA's 
stringent proposal are only 1-2 parts per billion. Phasing these 
requirements in over 2 more years would likely have such a small impact 
that it could not be accurately measured in most areas. While pre-Tier 
2 vehicles would benefit somewhat from the lower sulfur levels, by the 
end of 2005, Tier 2 vehicles will make up less than 11 percent of the 
fleet.
    An additional concern with EPA's proposal is that it treats 
refiners differently by putting some smaller refineries on a different 
implementation schedule than the rest of us. From a competitive 
perspective this is neither acceptable nor necessary. We ask that the 
EPA give us a fair chance to compete a level playing field. A regional 
approach to reducing sulfur would solve the problem EPA is attempting 
to address without creating this dilemma.
    One final concern deals with EPA's sulfur credit banking and 
trading program. EPA's proposed program is intended to provide 
flexibility to the industry during the phase-in of the gasoline sulfur 
requirements. As currently structured, however, the banking and trading 
provisions will not likely provide this flexibility.
    Under EPA's proposed scheme, early credits are generated only to 
the extent a refiner meets the new sulfur levels in advance of 2004. 
Due to the logistical limitations inherent in constructing new refinery 
process units, the timing is such that many companies will likely be 
able to generate only a limited number of these credits.
    In addition to not achieving its intended purpose, the 
establishment of a banking and trading program introduces other 
undesirable consequences, such as providing foreign refiners with a 
competitive advantage over domestic refiners by allowing them to 
manipulate blendstocks sold into the U.S. and play games with their 
baselines. The program would also create the potential for cheating by 
downstream blenders and suppliers.
    In conclusion, let me say that through its sulfur reduction 
proposal, EPA has set the next round of gasoline and vehicle 
improvements in motion for both the automobile and oil industries. We 
all support the goal of reducing emissions. However, certain key 
elements of the Agency's proposal must be modified in order to create a 
low sulfur gasoline program which will succeed and prosper. As a 
company, Marathon Ashland Petroleum embraces a strong commitment to 
continued environmental progress; as its chief executive, it is my job 
to ensure that the requirements of this rule respect the need to 
balance costs with benefits.
    We are proud to participate as a partner in ensuring a clean 
environment. We look forward to working together to address these and 
other issues provided that good science, common sense and cost 
effectiveness are the foundations used to build solutions that are 
workable.
    I would be happy now to answer your questions.
    
    
Responses by J. Louis Frank to Additional Questions from Senator Chafee
    Question 1. How would your regional approach help small refiners 
reduce sulfur in gasoline?
    Response. Most of the nation's small refineries are in the western 
portion of the country. By dividing the east and west along 
distribution system lines, as done by API and NPRA, two regions can be 
created inside which refineries have to compete on the same basis. 
EPA's approach will provide advantages to some small refineries which 
compete head to head with other small refineries, which are excluded 
from the small business delay EPA is proposing. Under the oil industry 
plan, refineries in the West can implement more stringent sulfur 
controls, whenever the air quality dictates.

    Question 2. What technology has your company considered to reduce 
sulfur levels in gasoline?
    Response. My company continuously talks with the vendors of CD 
Tech, Octgain and conventional desulfurization processes. We have 
evaluated all of these technologies and feel that CD Tech has the 
capability to offer the lowest long term cost to reach 30 ppm average 
sulfur levels in gasoline. However they are the furthest from 
commercialization at the present time. Their process has worked in a 
large experimental environment but still must go through all the 
problems typically encountered when trying to scale up a process from 
10-100 barrels per day of production to 100,000 barrels per day of 
production. Typically, in this process the equipment must go through 
several operation/modification cycles before it performs as designed. I 
would note that in recent conversations with CD Tech they have refused 
to provide a warranty on all aspects of their technology package, that 
would assure my company of the ability to achieve a 30 ppm average 
sulfur level in our gasoline at the costs estimated by EPA.
    If forced to make the decision by the end of 1999, it would be 
difficult for me to elect to expose my company to the possibility of 
failure to make saleable gasoline. On the other hand, I am very 
reluctant to be locked for the next 20-30 years into technology that 
places my company at a 2-2.5 cent per gallon disadvantage. EPA should 
not be forcing this decision. By waiting two additional years until 
2006 to begin the Tier 2 program, EPA can have all the advantages of 
low cost sulfur reductions, without forcing the industry to ``roll the 
dice'' for their future competitiveness.
                                 ______
                                 
Responses by J. Louis Frank to Additional Questions from Senator Graham
    Question 1.  It appears that the initial question is: does high 
sulfur content in automobile fuel degrade the performance of catalytic 
converters?
    Response. As currently designed and built automobile emissions 
control system catalytic converters are degraded by any sulfur in 
gasoline. API has demonstrated to EPA that there are many options 
available to Emission Control System designers to reduce sulfur 
sensitivity and to improve reversibility of sulfur effects on the 
catalyst. Since removing sulfur cost money and improving the emissions 
control system costs money, it is best to take a vehicle/fuel systems 
approach to determining the optimum emission control system/gasoline 
sulfur level in order to minimize the societal costs of the proposed 
rule.

    Question 2. Does it degrade the performance of all catalytic 
converters or only the catalytic converters required by the Tier 2 
regulation?
    Response. The catalytic converters required by the Tier 2 rule do 
not exist today and won't be available until the 2004 timeframe. 
However, we can extrapolate from the catalysts used in current LEV's 
and ULEV's in California. While any sulfur will degrade these 
catalysts, CRC testing has shown that there are vehicles in California 
at the present time that meet EPA's proposed Tier 2 standards. As a 
matter of fact, Ford has recently announced that it will produce all of 
its SUV's to meet California LEV standards. Since these vehicles will 
run on gasoline with today's sulfur levels, it appears that Ford has 
developed technology to solve the sulfur problem with no additional 
cost to the consumer.

    Question 3. Is this damage reversible?
    Response. EPA's argument seems to be that all current LEV's must 
demonstrate 100 percent reversibility. Our industry's position is that 
none of today's California LEV's have been designed to be sulfur 
tolerant or reversible to the effects of high sulfur levels. In spite 
of this, CRC testing on six 1997 LEV's with as received catalysts aged 
to simulate 100,000 miles of driving showed that, as a fleet, these 
vehicles achieved 108 percent reversibility for non-methane 
hydrocarbons, 104 percent reversibility for carbon monoxide, and 95 
percent reversibility for nitrogen oxides when returning to 30 ppm 
sulfur operations on the US06 operating cycle after being driven on 630 
ppm sulfur gasoline. Reversibility occurred in less than 20 miles of 
driving. Note that achieving 100 percent reversibility is a difficult 
task, since on a theoretical basis, 100 percent reversibility should be 
the maximum possible, unless high sulfur levels improve the catalyst 
performance when it is returned to the lower sulfur levels.
    EPA has correctly pointed out that the Ford Taurus showed poor 
reversibility (and brought the fleet averages down) but they neglect to 
recognize that the Toyota Camry achieved reversibility that was from a 
statistical point of view 100 percent or higher for all three 
pollutants on the US06 test cycle. This study and several others that 
API has provided to EPA demonstrate that the emissions control design 
engineer has many tools available (catalyst structure, precious metals 
loadings on the catalyst, ratio of precious metals, location of the 
catalyst and engine performance adjustments) which can make LEV's and 
future vehicles more sulfur tolerant and 100 percent reversible. This 
optimization does not occur in today's vehicles because it costs money 
and is not required in California. It is hard to understand how EPA can 
take the poorest (and probably the cheapest) designed LEV emission 
control system in 1997 and make it the standard for 2004.

    Question 4. How would damage be reversed?
    Response. CRC and API testing have shown that at the proper 
temperature, sulfur is eliminated from the catalyst. This temperature 
varies with the nobel metal concentrations and the catalyst cellular 
design.

    Question 5. What is the estimated cost of replacing a catalytic 
converter?
    Response. Current catalytic converters cost about $50 to produce. 
With the typical manufacturer's markup and installation, the cost is 
under $100. With the proper catalyst and vehicle design parameters, 
catalysts do not have to be replaced. Periodic regeneration 
capabilities could be added into the vehicle engine controls program 
routines to occasionally raise catalyst temperatures to drive off 
sulfur.

    Question 6. Is there another way to repair or ensure that catalytic 
converters, if damaged by high sulfur content in fuels, can be restored 
to their original performance levels?
    Response. Rather than repairing the catalytic converter, the 
catalyst system can be regenerated while on the vehicle, by 
periodically raising the catalyst temperature.

    Question 7. If the damage is reversible, could regional regulations 
work?
    Response. Yes, this is why the oil industry proposed its regional 
solution. Research has shown that sulfur does not damage the catalyst, 
it merely occupies the same active sites on the catalysts that reduce 
the hydrocarbon and NOx emissions. Once the sulfur is driven 
off by raising temperatures, these active sites are once more available 
for handling hydrocarbon and NOx in the exhaust stream.

    Question 8. If the damage is not reversible, could regional 
regulations, tailored to the air quality needs of each region, 
effectively reduce the impact of sulfur on catalytic converters?
    Response. While some of the CRC 1997 LEV research vehicles did not 
achieve 100 percent reversibility, all of the test vehicles achieved 
reversibility of 83 percent or higher for all three pollutants using 
the US06 test cycle, and most of the vehicles achieved greater than 90 
percent reversibility. Even if catalytic converters can't achieve 100 
percent reversibility, 90-95 percent reversibility will achieve nearly 
all of the benefits of the Tier 2 vehicle, even in those areas which 
have clean air. Under EPA's proposed Tier 2 vehicle and fuel standards, 
ozone is only reduced on average by 0.4 parts per billion. This 
quantity of ozone is practically immeasurable by itself. The effect of 
only getting 95 percent of this benefit could never be measured in the 
real world.
                                 ______
                                 
       Responses by J. Louis Frank to Additional Questions from 
                            Senator Moynihan
    Question 1. During the hearing, several Members and witnesses 
stated that the regulations may increase gas prices by as much as 10-15 
cents per gallon. Has the oil industry revised its cost estimates 
following the API/MathPro study which placed the costs at 2-5 cents per 
gallon? If you have found that the cost to consumers will be higher 
than the cost cited by the API study, please provide a citation or 
methodology for the higher estimate.
    Response. Mr. Frank did not State that the proposed Tier 2 
regulations may increase gas prices by as much as 10-15 cents per 
gallon. The oil industry average cost estimates for 40 ppm average 
sulfur levels in gasoline remain at 5-7 cents per gallon based on the 
API/MathPro study, using current conventional desulfurization 
technology. Perhaps the 10-15 cents per gallon prices which you refer 
to were brought up in relationship to the increased probability of 
temporary gasoline outages and shortages which are expected to occur 
due to the poor timing and implementation method EPA is proposing. 
While gasoline prices can rise and fall due to many factors, 
manufacturing costs are still expected to be in the 5-7 cents per 
gallon range for the average refiner.

    Question 2. How do you explain the difference between API's 
estimate of cost per ton and the estimate done by EPA? According to 
your testimony, the gasoline sulfur proposal will cost $23,000 per ton. 
According to EPA, the program will cost $2,000 per ton.
    Response. In this case, EPA has vastly underestimated the costs of 
reaching 30 ppm average sulfur levels. They have assumed a 2004 cost of 
1.68 cents per gallon based on using technology that is not 
commercially proven at this time. EPA has produced this cost without a 
refinery model but based on the expert opinion of one of their staff 
members, who has never worked in a refinery. API has modeled the cost 
of this future technology using MathPro's model and estimates the 
average cost to be about 2.5 cents per gallon. Since this technology 
will not be successfully commercialized by 2004, API's cost 
effectiveness calculations are based on 5.4 cents per gallon from 
MathPro modeling of current desulfurization technology.
    EPA's second mistake, shows their lack of understanding of how 
business project financing works. They have discounted the 1.68 cents 
per gallon cost to 1.23 cents per gallon in the future. As you are no 
doubt aware, when recovering the cost of investment over the multiple 
year life at a required cost of capital return rate, the cost of 
inflation is already built into the rate and you need to receive the 
calculated annual return to breakeven. You lose money if the annual 
income stream decreases further each year from that required to 
breakeven. In addition, since EPA's proposal will require nearly every 
refinery to make their major investments prior to 2004, all the units 
will already be built and no one will be able to take advantage of the 
future technology improvements which can lower the investment costs.
    On the benefit side of the cost effectiveness equation, EPA takes 
credit for every ton of NOx reduced, even those reduced 
during the winter which have no effect on ozone which is a summer 
problem. The ozone control season has already been established as part 
of the RFG regulations. It lasts for 120 days and therefore only \1/3\ 
of the annual NOx tons reduced can be counted as reducing 
ozone.
    In addition EPA has assumed benefits from the entire fleet being 
replaced by Tier 2 vehicles immediately. In reality new vehicles are 
phased in over 14 years. The existing fleet only gets \1/2\ to \1/3\ of 
the emissions reductions that Tier 2 vehicles get on 30 ppm average 
sulfur levels. It will take 14 years before the benefits EPA claims can 
be achieved. Thus, EPA has underestimated the costs for sulfur 
reduction by about a factor of 4 and overestimated the benefits by at 
least a factor of three. This roughly explains the factor of 12 
difference between EPA's cost effectiveness estimate of $2,000 per ton 
and API's estimate of $23,000 per ton.

    Question 3. In your testimony, you stated that reversibility need 
not be an issue; in essence, that a regional sulfur reduction program 
would be appropriate. Has API identified through its research any 
catalytic technology which is completely reversible?
    Response. EPA has thrown out the much more cost effective regional 
approach on the basis of catalyst irreversibility and dismissed our 
industry's research into the reversibility of sulfur effects on Low 
Emission Vehicle (LEV) catalysts. EPA's argument seems to be that all 
current LEV's must demonstrate 100 percent reversibility. Our 
industry's position is that none of today's California LEV's have been 
designed to be sulfur tolerant or reversible to the effects of high 
sulfur levels. In spite of this, CRC testing on six 1997 LEV's with as 
received catalysts aged to simulate 100,000 miles of driving showed 
that, as a fleet, these vehicles achieved 108 percent reversibility for 
non-methane hydrocarbons, 104 percent reversibility for carbon 
monoxide, and 95 percent reversibility for nitrogen oxides when 
returning to 30 ppm sulfur operations on the US06 operating cycle after 
being driven on 630 ppm sulfur gasoline. Reversibility occurred in less 
than 20 miles of driving. EPA has correctly pointed out that the Ford 
Taurus showed poor reversibility (and brought the fleet averages down) 
but they neglect to recognize that the Toyota Camry achieved 
reversibility that was from a statistical point of view 100 percent or 
higher for all three pollutants on the US06 test cycle. This study and 
several others that API has provided to EPA demonstrate that the 
emissions control design engineer has many tools available (catalyst 
structure, precious metals loadings on the catalyst, ratio of precious 
metals, location of the catalyst and engine performance adjustments) 
which can make LEV's and future vehicles more sulfur tolerant and 100 
percent reversible. This optimization does not occur in today's 
vehicles because it costs additional money for the automotive 
manufacturers and is not required in California. It is hard to 
understand how EPA can take the poorest (and probably the cheapest) 
designed LEV emission control system in 1997 and make it the standard 
for 2004.
                                 ______
                                 
       Responses by J. Louis Frank to Additional Questions from 
                           Senator Voinovich
    Question 1. You express concern about the proposed standards, what 
are the obstacles that you see in meeting these standards? How much 
time do you think is needed to meet them?
    Response. As stated in the answer to question 2 from Senator 
Chafee, my primary concern is the readiness of the new desulfurization 
technologies for commercialization. I am also concerned with the 
construction capability of building these new units in nearly every 
refinery at the same time that European and Canadian refineries are 
doing the same thing. All of the engineering has to be done at the same 
time. All of the permitting has to be done at the same time. All of the 
large pressure vessels have to be built at the same time.
    By extending the final date for 30 ppm sulfur for 2 years, from 
2006 to 2008, there should be sufficient time to allow the technology 
to be proven and to spread out the construction of all of the new 
units.

    Question 2. Can you estimate the number of refineries that would 
close down as a result of these rules? Can you estimate the potential 
job losses?
    Response. My company has not conducted any definitive studies that 
quantify the number of refineries which will be shutdown as a result of 
these rules. We have heard reports of estimates in the 5 to 19 range. 
We do anticipate that this rule will cause some refinery closures. The 
refining industry is not currently in the favor of the stock market 
investors, as it only is achieving a 3 percent return on investment. 
The $7 billion investment, that this rule will require, will reduce 
profitability for the foreseeable future. The multi-billion dollar 
diesel sulfur reductions which EPA is contemplating will be a further 
millstone around the industry's neck.

    Question 3. What is the refining industry's concerns over the use 
of newer technologies and how could these concerns be addressed?
    Response. Again as stated in the answer to question 2 from Senator 
Chafee, my primary concern is the readiness of the new desulfurization 
technologies for commercialization. The problem presented by EPA's 
proposed rule is one of being forced to make a multi-million dollar 
decision at an inappropriate time. Timing is the key to solving this 
problem. An additional 2 years will allow the technology issue to be 
resolved and to spread out the construction of new units by virtually 
every refinery in the U.S., Canada and Europe.

    Question 4. You claim that new technologies are on the horizon to 
reduce sulfur. Can you estimate the costs if this rule were postponed 
or phased in to allow for marketing of newer technologies? Is there 
likely to be a savings over using conventional technology?
    Response. Using MathPro modeling, API has developed estimates of 
the cost to reach 40 ppm sulfur levels in gasoline. With the best 
desulfurization technology proven today, the cost is about 5.4 cents 
per gallon. With the future CD Tech technology, the cost to reach 40 
ppm average sulfur levels is about 2.5 cents per gallon. Postponing the 
proposed rule for two years should allow this savings to be realized.

    Question 5. If the proposed rules are implemented, will we continue 
to have a reliable flow of fuel or will there be disruptions?
    Response. Under all conditions my company tries to provide a 
reliable flow of gasoline and diesel to our customers. However, without 
sufficient timing, the entire industry may not be able to complete all 
the construction projects required by 2004. Also, there is a chance 
that if newer technology is chosen, it may not be capable of achieving 
30 ppm sulfur averages. Additionally, even if the newer technology 
proves to be capable of delivering 30 ppm sulfur levels, it may be 
unreliable with frequent and unpredictable shutdowns. Any of these 
problems could cause serious supply disruptions.
                                 ______
                                 
     Statement of Dr. Loren Beard, Senior Manager of Materials and 
                         Fuels, DaimlerChrysler
    My name is Dr. Loren Beard and I am the Senior Manager of Materials 
and Fuels at DaimlerChrysler. I am here representing the Alliance of 
Automobile Manufacturers and its member companies regarding the 
nation's need for clean burning fuel. I want to thank the Members of 
the Subcommittee for inviting me here today to give the Auto Industry's 
perspective on the sulfur standard for gasoline contained in the 
proposed Tier 2 standard for automobiles.
    The auto industry agrees in principle with the clean air goals of 
the EPA's proposed rule governing the next round of new vehicle and 
fuel standards (Tier 2).
    We agree that the American people, in all 50 states, want and 
deserve clean air. However, we are certain that we cannot meet these 
goals unless clean fuels are widely available to ensure the performance 
potential of new vehicle hardware is realized. If the Nation is to 
achieve its clean air goals, it needs to apply all of the available 
tools, including some as yet unproven vehicle technology. We are 
committed to providing the cleanest running vehicles in the world. 
However, if exposed to the gasoline sulfur levels found in the U.S. 
market today, or even to the 30 ppm sulfur levels proposed by EPA, 
consumers will have wasted their investment in new technology, which 
will be rapidly, and irreversibly rendered ineffective. While we are 
committed to developing new, yet unproven vehicle technologies for 
clean air, we need a partner in the oil industry to apply proven, 
available, cost-effective technology to reduce sulfur in gasoline to 5 
ppm max. We have arrived at a stage of automotive emissions control 
technology where every available resource must be applied.
    EPA's proposed 30 ppm max. sulfur standard would reduce ozone 
precursors by 160 percent more than API's proposal. Going to a 5 ppm 
cap on sulfur would result in 250 percent more reductions than the API 
proposal. (Slide 1)
    The rest of the world has recognized the serious problem of exhaust 
catalyst poisoning by sulfur, and has taken steps to reduce sulfur 
levels. The United States lags well behind the rest of the developed 
world, and even some nations in the developing world in controlling 
gasoline sulfur levels. (Slide 2)
    As this slide shows (Slide 3) the price of a gallon of gasoline is 
dominated by the cost of crude oil and taxes. The cost to the consumer 
for the sulfur reductions proposed by the auto industry will be small 
compared to the normal variations in gasoline retail prices in gasoline 
at the pump.
    In the United Kingdom, Sweden and Finland, the governments offered 
small incentives to refiners for the early introduction of ultra-low 
sulfur gasoline and diesel fuel. Refiners rushed to take advantage of 
the incentives, and in the case of the U.K., virtually all fuel in the 
country moved to low sulfur in a period of about 6 months. Clearly, the 
cost of removing sulfur cannot have been higher than the small 
incentives offered, or refiners would not have moved so quickly, in 
fact, 5 years ahead of regulation. The rest of Europe is rapidly using 
this approach. If we do not move quickly to very low sulfur fuels, 
North America will become the natural dumping ground for high sulfur 
fuels, which will become economically non-viable in the rest of the 
developed world.
    Sulfur is a known permanent poison to the platinum and palladium-
based exhaust catalysts used in automotive emissions systems. Simply 
put, sulfur is the lead of the nineties.
    With very stringent emissions standards, catalysts must operate at 
98-99 percent efficiency for all driving cycles. As this slide (slide 
4) shows, even the reduction in catalyst efficiency caused by an 
increase in gasoline sulfur from 5 ppm to 30 ppm can lead to a doubling 
in exhaust emissions. EPA has set the course with very low 
NOx standards in Tier 2, and NOx emissions are 
the most sensitive to fuel sulfur.
    Some may argue that many U.S. states (mostly in the west) already 
enjoy clean air, and don't need low sulfur gasoline to protect their 
environment.
    The auto industry has noted that the people in these states see 
clean air as a valuable asset. With its voluntary National Low 
Emissions Vehicle (NLEV) program, the auto industry has voluntarily 
agreed to provide the same clean-running vehicles to all fifty states 
that we currently sell in California. Commitments to even tighter 
national standards demand that sulfur-free gasoline be in place.
    Under the new National Ambient Air Quality Standards (NAAQS) 
standards for ozone and particulate matter (PM), 43 U.S. states are 
projected to have areas which are not in compliance with national clean 
air goals. (slide 5) These states will be required under the Clean Air 
Act to take some action to reduce emissions. In addition to the new 
clean-running vehicles provided by the auto industry, these states will 
find that low sulfur gasoline is a cost-effective means of achieving 
these goals.
    Aside from compliance with the ozone and PM standards, several of 
the remaining 7 states will be called upon to reduce regional haze 
under other Clean Air Act provisions. While power generation stations 
and natural sources are the prime sources of emissions that eventually 
result in haze. Taking the sulfur out of fuel will be a great benefit 
to states that must institute programs to reduce haze.
    Through their Partnership for the Next Generation of Vehicles 
(PNGV), the U.S. auto industry is working together with the Federal 
Government to develop more fuel efficient vehicle technologies in part 
to help reduce the nation's reliance on imported oil and to address 
global climate issues.
    New fuel-efficient technologies include direct-injection gasoline 
engines and gasoline-fueled fuel cells. Advanced technology vehicles 
are extremely sensitive to sulfur contamination. The failure to control 
sulfur in gasoline will inhibit the introduction of more fuel-efficient 
technologies, delaying the auto industry's efforts to reduce greenhouse 
gas emissions. In essence, reducing the level of sulfur in gasoline 
will not only benefit our environment now, but it will facilitate a 
transition to cleaner future technologies that will help address global 
climate issues.
    In summary, sulfur is a poison that eventually renders emissions 
control equipment ineffective. The auto industry has committed through 
a proposal to EPA to work to reach extremely low emissions levels. To 
get there, we need to use all of the vehicle hardware tools available, 
some of which have not yet been invented. This includes a commitment 
from the oil refiners to step up to the challenge with very clean 
sulfur-free fuels, using available, proven, cost-effective refining 
technologies. With all the right tools in place, vehicle owners will 
use, and not waste, the investment they have made in emissions control 
hardware and all citizens will benefit from cleaner air.
    This concludes my prepared statement. I would be happy to answer 
any questions that you may have.

  Statement of Rebecca D. Stanfield, Clean Air Advocate, U.S. Public 
                        Interest Research Group
    Good morning. My name is Rebecca Stansfield, and I am the Clean Air 
Advocate for U.S. Public Interest Research Group (U.S. PIRG). U.S. PIRG 
is the national lobby office for the State PIRGs, which are consumer 
and environmental watchdog organizations active across the Nation. I 
greatly appreciate the opportunity to speak to the Subcommittee today 
on this important and timely issue.
            air pollution is causing a public health crisis
    Air pollution impacts the health of over 117 million Americans who 
live in areas where the air quality is often unhealthful. Each year 
tens of thousands of Americans are rushed to hospital emergency rooms 
due to asthma attacks brought on by smog pollution. Millions more miss 
work, miss school, are forced to stay indoors instead of playing 
outside or experience loss of lung function due to air pollution. More 
than 40,000 people this year will die prematurely as a result of air 
pollution.
    An anecdote may serve to more clearly illustrate the magnitude of 
this problem. In one New Jersey Episcopal congregation more than half 
of the children carry inhalers to Sunday School, and the risks of an 
attack are so high that the minister keeps a nurse on call during on 
smoggy summer days when children are at the church for activities. 
Stories like this one are becoming more and more common, as the number 
of Americans with asthma rises even above its current number of 15 
million victims, including over 5 million children.
    Moreover, air pollution is not just a Northeastern or a California 
problem, as it was once believed to be. Today, air pollution is known 
to be a national problem. During the 1998 smog season, over 5200 
violations of EPA's smog standard occurred in 41 States across the 
Nation, including the home States of every member of this Subcommittee.
        the proposed gasoline sulfur standards would save lives
    The U.S. EPA has proposed regulations that will save lives by 
reducing air pollution from one of its largest sources, the automobile. 
Despite improvements in automobile pollution control technology, motor 
vehicles are still responsible for one-third of the smog-forming, air 
pollution emitted in the United States. This is because people are 
driving more than ever: two and a half trillion miles a year in the 
1990's, compared to just one trillion miles per year in 1970.
    Reducing the extremely high levels of sulfur in gasoline sold 
throughout the U.S. will vastly improve the performance of the 
pollution control equipment in current and future models of 
automobiles, cutting smog and soot pollution, as well as hydrocarbons, 
carbon monoxide sulfur dioxide, and air tonics. Even in existing cars 
clean gasoline can cut pollution levels by up to 20 percent. In new, 
low-emission vehicles which will soon be available across the Nation, 
pollution levels are more than double when using high sulfur gasoline, 
as compared to clean gasoline. Studies by the State and Territorial Air 
Pollution Program Administrators, and the Association of Local Air 
Pollution Control Officials show that EPA's sulfur proposal would have 
the same air quality benefits as removing 4 million cars from the roads 
entirely.
       the proposed gasoline sulfur standards are cost-effective
    EPA's proposal is a cost-effective pollution reduction measure 
which has already been implemented in Japan, Finland, Thailand, Canada, 
Hong Kong, Taiwan, the European Union and California. EPA estimates 
that the program will cost just one to two cents per gallon of 
gasoline. For the typical driver, that adds up to about $12 per year. 
This added cost is well within the cost that the American public is 
willing to pay for cleaner air. Earlier this year the American Lung 
Association commissioned a poll showing that 90 percent of Americans 
would pay three cents per gallon more for clean gasoline, while 70 
percent would pay five cents more per gallon.
              a uniform, national program must be adopted
    We agree with EPA that it is critical to adopt a uniform national 
standard, rather than the regional standards advocated by the petroleum 
industry for several important reasons. First, as I said before, air 
pollution is a national problem, with violations of the smog standards 
occurring in four out of five States last summer. Reducing smog and 
soot forming pollution from automobiles can benefit people everywhere, 
not just in the worst ozone non-attainment areas of Southern California 
and the Northeast.
    Second, high sulfur gasoline sold in one State is very likely to 
have pollution impacts in many States. The reason is that Americans 
drive from State to State, and from region to region, fueling their 
vehicles along the way with whatever type of gasoline is sold in that 
State. A traveler filling up his gas tank with dirty Mel while passing 
through a slate with less stringent standards will damage the pollution 
control equipment in the car, part of which damage is irreversible. 
Thus the car will continue to be more polluting even after returning to 
its home State. Such an approach to gasoline sulfur standards would 
seriously undermine the effectiveness of the entire clean car program.
     the proposed standards provide ample flexibility for industry
    EPA's proposal strikes a balance between achieving necessary 
pollution reductions, and allowing the industry ample time and 
flexibility to meet the new standards. First, EPA allows the industry 
to use an averaging system to meet an average standard of 30 parts per 
million sulfur content. Second, EPA allows the oil refineries to meet 
these standards through the use of credits, generated as early as the 
year 2000 by refiners who make early sulfur reductions from current 
levels. Third, EPA is allowing less stringent caps to be met in the 
years 2004 and 2005, with the final cap of 80 parts per million sulfur 
to be met in 2006, more than 6 years after adoption of the rules. 
Finally, EPA allows small refiners, defined as a small business under 
the Small Business Regulatory Enforcement Fairness Act of 1996, to meet 
less stringent standards through the year 2007.
           the proposed standards should be phased in earlier
    We believe that EPA's proposed gasoline sulfur standards allows too 
much time to pass before the significant air pollution benefits can be 
expected. In 2001 automakers will begin nationwide marketing of low 
emission vehicles under the voluntary National Low Emission Vehicle 
program. The effectiveness of the emission control technology used in 
these vehicles will be compromised by the sulfur that will remain at 
high levels until 2004-2006, when clean gasoline would be phased in 
under the proposed standards. Moreover, under EPA's proposal, gasoline 
containing sulfur at levels up to 300 parts per million will continue 
to be sold in 2004, the year that EPA is requiring 25 percent of new 
cars to be significantly cleaner. Again, the technological advances 
made in these vehicles will be undermined by the use of high-sulfur 
fuel in 2004 and 2005. A better approach would be to begin phasing-in 
clean gasoline earlier, so that most, if not all gasoline sold in 2004 
is clean gasoline.
    Thank you again for the opportunity to address the Subcommittee. I 
hope that you will agree that the timely phase-in of a nationwide clean 
gasoline program is an important public health protection that should 
be adopted immediately.
                                 ______
                                 
      Responses by Rebecca Stanfield to Additional Questions from 
                             Senator Graham
    Question 1. Does high sulfur content in automobile fuel degrade the 
performance of catalytic converters?
    Response. Yes it does. Sulfur in gasoline has a negative impact on 
vehicle emission controls. Vehicles depend upon the catalytic converter 
to reduce emissions of smog forming pollution. Sulfur attaches to the 
metal catalysts, and blocks sites on the catalyst designed to prevent 
emissions.

    Question 2. Does it degrade the performance of all catalytic 
converters or only the catalytic converters required by the Tier 2 
regulation?
    Response. Sulfur degrades all catalytic converters. The degree of 
degradation depends upon many factors, including but not limited to the 
speeds the car is driven at, the load the vehicle carries and the 
metals used in the catalyst. For cars meeting low-emission vehicle 
standards, high sulfur fuel can increase smog-forming pollution by more 
than 134 percent. However, even for today's cars, high-sulfur gasoline 
will significantly increase smog-forming pollution.

    Question 3. Is this damage reversible?
    Response. No, the effect of sulfur on vehicle catalysts is not 
reversible. In the preamble to EPA's proposed Tier 2 and gasoline 
sulfur standards, EPA summarizes the results of testing on cars meeting 
today's standards, and cars meeting the proposed Tier 2 standards. For 
today's vehicles, studies show that catalyst damage would result in the 
permanent emission of up to 50 percent more smog-forming pollution. As 
EPA points out, more advanced pollution control devices are even more 
sensitive to sulfur damage, and an even greater proportion of that 
damage is irreversible.

    Question 4. How would damage be reversed?
    Response. Unfortunately, there is no demonstrated way of designing 
a catalyst that would not be sensitive to sulfur, and there is reliable 
way to reverse the damage caused by high sulfur gasoline. For example, 
some studies showed that a portion of the catalyst damage can be 
reversed if, immediately following the use of high sulfur fuel, the car 
is ``aggressively'' run on low-sulfur fuel. However, even under these 
circumstances, different cars react differently, some showing 
irreversibility for one pollutant but not for another. Cars will react 
to different fuels differently, depending upon the catalyst 
temperature, mixture of air and fuel in the engine. and design of the 
catalyst.

    Question 5. What is the estimated cost of replacing a catalytic 
converter?
    Response. For the American consumer, the expense of replacing a 
catalytic converter is enormous in comparison to the minimal cost of 
using a more environmentally friendly low sulfur gasoline in their 
vehicle. An informal poll of five auto body shops in the District of 
Columbia resulted in price quotes ranging from $200 to $3000 depending 
upon the type of car.
    By contrast, the EPA estimates that it will cost one or two cents 
per gallon more for low sulfur gasoline, which computes to a $5.50 to 
$11.00 per year cost for the average person driving 15,000 miles per 
year. Surveys have proven that the American public is willing to incur 
these minimal costs for the sake of the environment. American Lung 
Association survey report seven in ten people would pay a nickel per 
gallon increase for cleaner gasoline. Nine in ten would pay three cents 
a gallon. Even under the inflated oil industry prediction of the cost 
of low sulfur fuel of 5 cents per gallon, for a car driven 15,000 miles 
a year, the total cost would be 27 dollars, far lower than the cost of 
replacing catalytic converters.

    Question 6. Is there another way to repair or ensure that catalytic 
converters, if damaged by high sulfur content in fuels, can be restored 
to their original performance levels?
    Response. No, there is no reliable way to restore catalysts to 
their original performance levels once damaged by sulfur in gasoline.

    Question 7. If the damage is reversible, could regional regulations 
work?
    Response. Regional regulations will not work for three main 
reasons. First, contrary to popular myth, air pollution is not a 
regional problem, but is a grave national concern. In 1998, the EPA 
reported 5200 smog standard violations in 41 States.
    Second, due to a very mobile American public, it would be 
impossible, and highly unpopular, to keep citizens from crossing any 
regional boundaries.
    Finally, air pollution knows no boundaries. Just as it is 
impossible for humans to control the weather, it is equally impossible 
to control the range of affects of air pollution. An infinite number of 
variables effect the when, where, and how of air pollution. The jet 
stream, wind patterns, cloud cover, temperature humidity, and elevation 
are a few of the factors that make confining air pollution within a 
regional boundaries impossible.
    The solution to air pollution is to not contain it or to focus only 
in specific regions; the solution is to prevent its production from 
automobiles. The automobile industry has already taken a positive step 
in eliminating air pollution from cars by agreeing to produce vehicles 
with new catalytic converters that result in low emissions. However, 
these new catalytic converters will be rendered useless if the gasoline 
put into these automobiles still has a high sulfur content.

    Question 8. If the damage is not reversible, could regional 
regulations, tailored to the air quality needs of each region, 
effectively reduce the impact of sulfur on catalytic converters?
    Response. No. Please see answer for question number 7, above.
                                 ______
                                 
      Responses by Rebecca Stanfield to Additional Questions from 
                             Senator Chafee
    Question 1. Why is this rule necessary to reduce air pollution 
across the U.S.?
    Response. Automobiles are the No. 1 source of ground level ozone 
pollution, more commonly known as ``smog.'' An estimated 117 million 
Americans live in areas where smog pollution regularly exceeds the 
Federal health standard during the summer ozone season. Last year 
alone, there were over 5000 violations of this standard in 41 States. 
This summer we have already been able to document 1200 violations in 25 
States. Thus, contrary to popular myth, smog is not an eastern problem, 
it is a national problem.
    When inhaled, ozone oxidizes or ``burns through'' lung tissue. 
Breathing ozone causes airways in the lungs to become swollen and 
inflamed. Eventually, this causes scarring, and decreases the amount of 
oxygen that is delivered to the body through each breath. Outdoor 
exercise on days when ozone concentrations are high increases the 
impact on the respiratory system. In addition, the corrosive effect of 
exposure to ozone in the respiratory system increases susceptibility to 
bacterial infections.
    For vulnerable populations, including children, people with asthma 
or respiratory disease, and the elderly, ozone poses a more serious 
health threat, sending those with asthma and cardio-pulmonary disease 
to emergency rooms, and in worst cases, causing premature death. A 
number of studies have linked ozone pollution with emergency room 
visits, including one study showing a 26 percent increase in the number 
of asthma patients admitted to emergency rooms in New Jersey on summer 
days when ozone concentrations were high. A 1996 American Lung 
Association study of 13 cities found that between 30,000 and 50,000 
emergency room visits were caused by ozone pollution.
    In the same way that ozone attacks or ``oxidizes'' human lung 
tissue, it also oxidizes plant tissues, damaging forests and crops. By 
eroding plants stores of carbon, it leaves trees and crops unable to 
respond to normal demands of growth and development and abnormal 
demands caused by bad weather, pests, or nutrient deficiencies. Among 
the findings on ozone's impact on vegetation are that at least ninety 
plant species in the Great Smoky Mountain National Park exhibit ozone 
injury, twenty-three plant, wildflower and tree species in Virginia are 
sensitive to ozone, and in the Shenandoah National Park 97 percent of 
milkweed plants and 85 percent of white pine trees exhibit evidence of 
ozone damage. A number of studies have shown national-level economic 
losses due to ozone-caused crop damage in excess of $1 billion.

    Question 2. What lessons from California's experience reducing 
sulfur in gasoline are applicable to the rest of the Nation?
    Response. Most importantly, the experience in California has taught 
us that low-sulfur gasoline is an effective way to reduce automobile 
emissions. In fact, cleaner gasoline has been cited by the California 
Air Resources Board (CARB) as the single most effective pollution 
cleanup measure since the introduction of the catalytic converter in 
the 1970's. They estimate that the air quality impact from having 
mandated low-sulfur fuel is the equivalent of having removed 2 million 
cars from the road. The State and Territorial Air Pollution Program 
Administrators and the Association of Local Air Pollution Control 
Officials estimate that applying the California low-sulfur gasoline 
requirement nationwide would have the pollution benefits of removing 54 
million cars from the road entirely.
    Second, the California experience has taught us that low-sulfur 
gasoline is technologically feasible. In California, sulfur in gasoline 
has been limited since 1996 to an average of 30 parts per million, and 
capped at 80 parts per million. Similar limits have been implemented or 
proposed in Canada, Japan, Europe and Australia.
    Finally, the California experience has also taught us that low-
sulfur gasoline is a cost-effective clean air strategy. The EPA 
estimates that it will cost one or two cents per gallon more for low 
sulfur gasoline, which computes to a $5.50 to $11.00 per year cost for 
the average person driving 15,000 miles per year. Surveys have proven 
that the American public is willing to incur these minimal costs for 
the sake of the environment. American Lung Association survey report 7 
in 10 people would pay a nickel per gallon increase for cleaner 
gasoline. Nine in ten would pay three cents a gallon. Even under the 
inflated oil industry prediction of the cost of low sulfur fuel of 5 
cents per gallon, for a car driven 15,000 miles a year, the total cost 
would be $27 a year or 50 cents per week.
    In a media briefing last fall, Michael Kenny, CARB's executive 
officer, noted that the cleaner gasoline overall was costing California 
consumers about 5 cents a gallon more than gasoline outside of 
California. Of that nickel, the sulfur (smog-related) portion was one-
third, Kenny said. In other words, low-sulfur gas was costing less than 
2 cents a gallon.
                                 ______
                                 
  Statement of Clint W. Ensign, Vice President, Government Relations 
                        Sinclair Oil Corporation
    Mr. Chairman and distinguished committee members, my name is Clint 
Ensign. I am Vice President of Government Relations for Sinclair Oil 
Corporation. I am honored to share some initial views and perspectives 
on the U.S. Environmental Protection Agency's Proposed Tier 2 Motor 
Vehicle Emission Standards and Gasoline Sulfur Control Requirements.
    Sinclair is a family-owned company that operates three refineries, 
two in Wyoming and one in Oklahoma. Two of these refineries were closed 
by other companies before being purchased and reopened by Sinclair. As 
a manufacturer of fuels, I am proud to say that Sinclair routinely 
produces cleaner products than required by State and Federal 
regulation.
    All of our refineries are considered ``small'' by provisions 
established by Congress in the Clean Air Amendments of 1990 (CAAA). 
Regrettably, none of our refineries are considered small by standards 
EPA is using in this rulemaking. Therefore, we are not eligible for 
small refinery help in the proposal.
    Environmentally, the air improvements that automakers and refiners 
can achieve through Tier 2 vehicle and fuel changes are impressive, 
especially in major urban cities. My company and the refining industry 
support large reductions in gasoline sulfur. We have made specific 
recommendations to EPA on how best to accomplish this task quickly 
across America.
    But in reviewing EPA's gasoline sulfur proposal, we are surprised 
by how harsh it treats U.S. refiners. We are concerned the agency has 
overreached in many areas, particularly in the transition phase to low 
sulfur gasoline. The proposal's small refinery provisions are narrowly 
construed and were disappointing. Overall, the proposed gasoline sulfur 
regulation represents the largest and most costly government 
requirement in the history of our company. If made final as proposed, 
it directly threatens the future of our Casper, Wyoming refinery.
    We respect EPA's authority to set standards at any desired level. 
But they cannot compel private investment. Recent history demonstrates 
that many refineries withdrew rather than invest in fuel 
desulfurization. With little or no surplus refining capacity available 
in industry today, the success of gasoline sulfur regulation depends on 
the ability of EPA to convince every refiner to invest in virtually 
every refinery nationwide. We do not believe the gasoline sulfur 
proposal accomplishes this important objective.
    While Sinclair disagrees with many fundamental aspects of the 
gasoline sulfur proposal, I wish to make plain that I have been 
extended the opportunity to present our views to EPA on several 
occasions. I have appreciated meeting with senior agency officials on 
this issue.
    Let me discuss several specific concerns we have with the proposal.
    As a major stakeholder in developing gasoline sulfur standards, the 
basic views of the U.S. Refining industry were not incorporated in the 
proposed regulation.--In February 1998, the entire U.S. petroleum 
refining industry voluntarily proposed that EPA set new gasoline sulfur 
standards. We recommended large cuts in sulfur limits; a 70 percent 
reduction in the East and 55 percent in the West. Average sulfur levels 
in the national gasoline pool would fall by half in 2004. The largest 
sulfur cuts were targeted in the East. Our proposal recognized regional 
uniqueness and was designed to be consistent with congressionally 
established Tier 2 principles of need, feasibility, and cost-
effectiveness.
    In studying vehicle emissions data, we believed that Phase II 
pending emission standards for light duty vehicles and trucks as stated 
in the Clean Air Act could be achieved with these recommended sulfur 
reductions.
    As a second step, many refiners offered to make gasoline meeting 
California's severe sulfur standard--a 30 ppm average with an 80 ppm 
cap--by 2010. Other refiners promised further cuts based on the outcome 
of technical studies as well as air quality need.
    Our proposal gave a huge jump-start to the regulatory process. It 
essentially provided EPA with unanimous consent from our industry to 
impose regulation at this level. In the absence of gasoline sulfur 
workshops, feasibility studies, and the like, this represented a 
remarkable offer to EPA.\1\ And since large and small refiners 
supported the plan, the agency did not need to worry about possible 
plant closings, fuel supply concerns, small business compliance, and 
other large challenges that accompany major regulation of this kind.
---------------------------------------------------------------------------
    \1\ EPA has held one public workshop on gasoline sulfur control 
(May 1998). No other forum has been provided for refiners to meet 
directly with automakers to address gasoline sulfur issues.
---------------------------------------------------------------------------
    Our initial gasoline sulfur proposal raised many questions. We 
listened closely to the concerns and made many modifications.
    Automakers strongly opposed our plan. In response, the refining 
industry made a good faith attempt--with the help of Administrator 
Carol Browner--to meet directly with the autos. Issues important to the 
rulemaking needed a direct exchange of ideas and data, especially on 
the critical question of ``reversibility.'' EPA has noted that 
``vehicles tested exhibited a wide range of reversibility,for reasons 
that are not fully understood.'' \2\ We hoped the meetings would help 
resolve questions on this an other key issues. While automakers have 
pressed EPA hard to mandate severe gasoline sulfur standards, they 
refused the offer to meet with us.
---------------------------------------------------------------------------
    \2\ EPA, Proposed Tier 2 Motor Vehicle Emissions Standards and 
Gasoline Sulfur Control Requirements, pg. 98, emphasis supplied.
---------------------------------------------------------------------------
    In sum, the U.S. refining industry made an unprecedented effort to 
help EPA develop a major gasoline sulfur regulation. I don't know how 
our industry could have been more helpful, open, or responsible on this 
matter.
    Despite this background, EPA rejected our recommendations. The 
agency instead proposed a nationwide 30/80 ppm gasoline sulfur standard 
beginning in 2004. This is essentially the standard requested by the 
autos. From a fuel perspective, the proposal is a classic one-size-
fits-all regulation. It falls evenly hard on urban and rural areas 
alike despite large differences in air quality. After making such a 
huge outreach to help EPA craft a meaningful and workable gasoline 
sulfur regulation, we are disappointed that our recommendations were 
set aside.
    Even though regional air strategies are common in America today, a 
regional gasoline sulfur approach--supported by many Governors--was 
rejected by EPA.--Regional strategies have been widely used throughout 
the country to improve air quality. The Ozone Transport Assessment 
Group (OTAG) made regional designations and recommendations for ``fine-
grid'' and ``course-grid'' states. The Ozone Transport Commission, the 
Grand Canyon Visibility Commission, and the Western Regional Air 
Partnership are examples of coalitions of states that address regional 
air problems. Governors are often directly involved in these groups. 
When EPA and automakers established National Low Emission Vehicle 
(NLEV) regulations, the East and West were treated differently as to 
when each would receive NLEVs. In the CAA, areas receive reformulated 
and conventional gasoline based on air quality need. Precedent exists 
to support a regional gasoline sulfur approach.
    Nine Governors representing Rocky Mountain and Central Plains 
states have written to EPA urging regional gasoline sulfur controls. 
These Governors are from both political parties and represent states 
that join each other in a large, geographically contiguous block. We 
were disappointed their collective recommendations were not reflected 
in some way in the gasoline sulfur proposal. In fact, their views were 
not even noted in the preamble of the proposal.
    Collectively, these Governors represent states with excellent 
compliance with National Ambient Air Quality Standards. With few 
exceptions, EPA projects these states will meet the new, more 
protective NAAQS in future years.\3\ In many states in the West, EPA 
projects nearly total compliance with future ozone NAAQS:

    \3\ EPA, Proposed Tier 2 Motor vehicle Emissions Standards and 
Gasoline Sulfur Control Requirements, April 1999, Appendix C: One-Hour 
and Eight-Hour County Design Values.

        ``Outside California and the OTAG region, the NAAQS RIA 
        modeling indicated that all areas would attain the 1-hour 
        standard by 2010. One area (Phoenix, AZ) was projected not at 
        attain the 8-hour standard.'' \4\
---------------------------------------------------------------------------
    \4\ EPA, Proposed Tier 2 Motor Vehicle Emissions Standards and 
Gasoline Sulfur Control Requirements, April 1999, pg. 27, emphasis 
supplied.

    Other reasons support a regional standard:
     Rural states have a small vehicle inventory and emissions 
are dispersed over large geographic areas. Gasoline sulfur control has 
little impact on air quality in these states.
     Rural populations will pay more for sulfur control due to 
higher per capita gasoline usage rates than the Nation at large.\5\
---------------------------------------------------------------------------
    \5\ Highway statistics from the Federal Highway Administration show 
that populations in Rocky Mountain and Central Plains states have 
gasoline consumption rates higher than urban states.
---------------------------------------------------------------------------
     EPA projects the cost of gasoline sulfur control in PADD 
IV (WY, ID, MT, CO, and UT) will be nearly twice as high as the Nation 
at large.\6\
---------------------------------------------------------------------------
    \6\ Tier 2/Sulfur Draft Regulatory Impact Analysis--April 1999, 
Table V-35.
---------------------------------------------------------------------------
    It is also important to note the refining dynamics in the Rocky 
Mountain region. Unlike all other regions in the United States, PADD IV 
is almost entirely supplied by small refineries. Every refinery in the 
region is small. (Few of these refineries are eligible for regulatory 
help in the proposal.) Historically, small refineries face the largest 
challenge meeting fuel sulfur standards. In view of this, Sinclair 
expressed concern to EPA that severe regulation could impact refineries 
and cause supply problems for consumers. As noted earlier, the gasoline 
sulfur proposal, if adopted, directly threatens the future of our 
Casper, Wyoming refinery.
    But these concerns are dismissed in the proposal. In doing so, EPA 
references a study conducted by Math Pro, Inc.--prepared for the 
autos--that suggests that the potential for small refinery closures in 
the Rockies is small. This conclusion is not consistent with our 
situation or with our understanding of the region. We are meeting with 
Math Pro on May 20 to take a detailed look at their study.
    But most of all, the various Math Pro studies have led to 
confusion. Just a few months ago they completed a PADD IV gasoline 
sulfur study for the U.S. refining industry and reached different 
findings. One company, two conclusions, in 3 months. This situation 
raises questions about the value of these studies to the gasoline 
sulfur standard debate.
    EPA used a narrow small refinery definition for regulatory relief 
purposes in the gasoline sulfur proposal that is more restrictive than 
the definition established by Congress in the Clean Air Act.--In the 
gasoline sulfur proposal, EPA did not use the small refinery definition 
that exists in the Clean Air Act. As a brief background, Senator Chafee 
offered a small refinery amendment during consideration of the CAAA of 
1990 on behalf of a bipartisan group of 11 senators, including Senator 
Reid and Senator Baucus. Congress established small refinery provision 
to enable small refineries to earn marketable SO2 allowances 
to encourage investment in low sulfur diesel equipment. I am pleased to 
report that the small refining amendment has been a success.
    Since the desulfurization of diesel and gasoline share similar 
small refinery issues, we do not know why EPA's gasoline sulfur 
proposal contains a more restrictive small refinery eligibility 
requirement than that set by Congress in 1990. In reality, only a few 
small refineries in the country are extended regulatory relief in EPA's 
gasoline sulfur proposal.
    In all meetings we have had with EPA officials on gasoline sulfur, 
Sinclair has expressed small refinery concerns. More than 6 months ago, 
we informed EPA there were 53 small refineries in the United States 
that made gasoline. This number was much larger than the 17 refineries 
being considered by EPA under the Small Business Regulatory Enforcement 
Fairness Act of 1996 (SBREFA) review. We noted that rural populations 
depend on these small facilities for fuel supply. Because of size 
limitations, the viability of these refineries, as a class, has 
historically been threatened by severe fuel sulfur regulation. 
Consequently, we urged EPA to expand the review of small refineries 
beyond the SBREFA process.
    Instead, EPA has proposed using the small refinery eligibility 
requirements of the Small Business Administration. The SBA approach, 
which includes employee limits, disqualifies most small refineries. 
Companies such as Sinclair, Flying J. Giant Industries, and Cenex--
recognized by Congress as small refineries--are excluded from small 
refinery treatment in the gasoline sulfur proposal. We reject the 
position that many small refineries should be excluded from needed 
regulatory relief in this rulemaking because they employ too many 
people.
    Other small refinery concerns need to be addressed. For example, 
will refiners who expend great effort and cost to manufacture a 30/80 
ppm gasoline sulfur in 2004 allow their fuel to be commingled with high 
sulfur gasoline of small refineries in pipelines and terminals? Does 
this situation argue for a broader regional approach in areas where 
there is a preponderance of small refineries? Does the proposal 
encourage investment in instances when one small refinery receives 
regulatory help and other small refinery does not? Should small 
refineries owned by major oil companies be offered help since they 
share similar size challenges and are important to the rural markets 
they serve?
    These questions need further review. But it is clear that the SBA 
small refinery definition is too restrictive and does not accurately 
reflect small refinery impacts with major gasoline sulfur regulation.
    Adopting California gasoline sulfur standards nationwide may mean 
adopting California fuel challenges: ``California Screamin.''--Last 
month, the front page of USA Today noted that ``Drivers in San 
Francisco reported paying as much as $1.86 a gallon for unleaded 
gasoline and $2 for premium.'' \7\ The next day, the cover story in the 
Money section of USA contained a photograph of gasoline pump prices for 
up to $1.99 per gallon with the caption, California Screamin.'' \8\ The 
Wall Street Journal reported that unexpected problems at two California 
refineries ``cut California production by about 5 percent.  . . . This 
decline has sent West Coast wholesale prices soaring by more than 55 
cents a gallon.  . . . '' \9\
---------------------------------------------------------------------------
    \7\ USA Today, In just 6 weeks, gas prices up 25%, April 13, 1999, 
front page.
    \8\ USA Today, As gas prices zoom up, consumers wonder why, April 
14, 1999, Section B, front page.
    \9\ The Wall Street Journal, Output Snags In California Lift Fuel 
Prices, April 2, 1999, pg. A2.
---------------------------------------------------------------------------
    Some may argue this situation is unique and temporary. But the cost 
of gasoline in California has been such a concern that Senator Barbara 
Boxer has asked the Federal Trade Commission to investigate high fuel 
prices in the state. Her request was supported by the California State 
legislature. Senator Boxer stated in her letter to the FTC that 
``California drivers regularly pay 10-20 cents more per gallon of 
gasoline than the rest of the country.'' \10\
---------------------------------------------------------------------------
    \10\ New Fuels & Vehicles Report, FTC Said Investigating Oil 
Companies For Alleged RFG Price Fixing in California, May 8, 1998.
---------------------------------------------------------------------------
    California gasoline regulations--which include the 30/80 sulfur 
standard--are the most severe in the nation. These standards are needed 
to address widespread air quality problems in that state. But many 
refiners have fared poorly with such heavy regulation. The State has 
lost refineries, refining capacity, and fuel suppliers. The U.S. 
Department of Energy reports that since 1990, eight refineries with 
capacity of nearly 300,000 barrels per day have been lost in 
California. The state's small refinery sector no longer makes gasoline. 
While some may contend that the rash of small refinery closures 
resulted from numerous factors, the executive director of the Western 
Independent Refiners Association in California has stated that when 
ultra low-sulfur gasoline regulation passed, ``at least a half a dozen 
California small refiners made gasoline.'' \11\ Years after the 
introduction of 30/80 sulfur standards and reformulated gasoline--tight 
supply and price volatility remain a problem in California.
---------------------------------------------------------------------------
    \11\ Letter from Craig A. Moyer, Executive Director and General 
Counsel for the Western Independent Refiners Association to Clint W. 
Ensign, Sinclair Oil Corporation, June 18, 1998.
---------------------------------------------------------------------------
    In Canada, an extensive refinery competitiveness and viability 
study was performed to determine impacts of sulfur regulation on 
Canadian refineries. The independent study was done by a respected firm 
with refining expertise, Purvin & Gertz, Inc. The study concluded that 
requiring California sulfur standards in Canada would seriously 
threaten 3 to 4 of the country's 17 refineries.\12\ The assessment was 
done by refinery and by region. Here in America, no independent study 
has been contracted by EPA on refinery impacts of sulfur regulation. 
And even though the United States has nearly 10 times more refineries 
than Canada, EPA has concluded ``we do not expect refineries to close 
as a result of the implementation of the proposed sulfur standards.'' 
\13\ In view of the stringent timeframes and overall harshness of the 
gasoline sulfur proposal, this area needs closer review.
---------------------------------------------------------------------------
    \12\ Competitiveness and Viability Impact on Canadian Refining 
Industry of Reducing Sulfur in Canadian Gasoline and Diesel, May 1997, 
Purvin & Gertz, Inc.
    \13\ EPA, Tier 2 Sulfur Draft Regulatory Impact Analysis--April 
1999, pg. V-62.
---------------------------------------------------------------------------
    Sinclair has long expressed its concern to EPA that adopting 
California gasoline sulfur standards nationally could cause other 
states to experience the same kinds of refinery closure, supply, and 
price impacts that have occurred in California.
    The gasoline sulfur proposal does not address past impacts of fuel 
sulfur regulation and is instead based on technologies that are not yet 
commercially proven.--The preamble of the gasoline sulfur proposal does 
not discuss negative impacts many refineries experienced with recent 
fuel sulfur regulation. No reference is made to California. The 
widespread shortages of on-road low sulfur diesel in the West during 
the fourth quarter of 1993 are not cited. No mention is made that high 
costs caused some refineries not to invest in low sulfur diesel 
equipment. In some instances, refineries that compete with each other 
share desulfurization equipment.
    EPA correctly noted in the gasoline sulfur draft RIA that the U.S. 
refining industry's return on investment has been a dismal 3 percent 
since 1992. The inability to recover capital costs during this long 
period makes it tough for refiners to face major new regulation.
    Using conventional technology, EPA estimated the 30/80 gasoline 
sulfur standard would increase manufacturing costs 5.1 to 8 cents per 
gallon, or $5.6 to 8.8 billion dollars each year nationally.\14\ A 
regulation this costly would close some refineries, affect supply, 
raise consumer concerns, and present cost-effectiveness problems in 
regulatory assessments.
---------------------------------------------------------------------------
    \14\ EPA Staff Paper on Gasoline Sulfur Issues, May 1, 1998, pg. v. 
The cost estimate excludes California. The Federal Highway 
Administration reports that approximately 110 billion gallons of 
gasoline are consumed in the United States each year (x-CA).
---------------------------------------------------------------------------
    In this rulemaking, EPA believes these problems will be avoided due 
to new desulfurization technologies. Agency confidence in the new 
processes is so high that the proposal's entire gasoline cost estimate 
is premised on the belief that all refineries will use these 
technologies. While new processes could reduce sulfur extraction costs, 
they have not yet been commercially tested or proven. EPA reported 
there was not a single refinery with the new desulfurization technology 
currently in operation today. Despite this fact, EPA is gambling this 
new technology will work and that more than 100 facilities will license 
this technology--relatively trouble free--in a few short years.
    We hope the agency is correct. But the presumption is troubling for 
several reasons:
     It is our experience with packages that we license that 
the guaranteed yields of the process are significantly less than the 
advertised performance. In other words, when we get to the point of 
signing a contract with a vendor, the guaranteed results of the 
technology are less than advertised. In this instance, where no track 
record has been established, what levels of sulfur reduction can 
refiners confidently count on with new gasoline desulfurization 
technology? Is it enough for refineries to meet severe 30/80 ppm 
gasoline sulfur standards? Will additional conventional technology be 
needed to ensure that a refinery meets the new requirements?
     We believe problems will inevitably occur as new 
technology is implemented. Pilot studies under controlled conditions 
are often not indicative of field operating parameters. For example, we 
do not know the actual operational cycle of the new technology, how it 
will perform under severe operating conditions, whether it is reliable 
or subject to unexpected downtimes, and whether it is adaptable to a 
wide variety of processing configurations. These large uncertainties 
argue for a reasonable phase in of the technology instead of the rigid 
timetables proposed by EPA.
     Within the past year refiners have become aware of two new 
desulfurization technologies, CDTECH and OCTGAIN 220. While a few other 
options are beginning to emerge, they are not well known. Before 
applying for permits, refiners must choose the desulfurization 
technology they will use to meet the new standards. This decision will 
occur during a period when little will be known about these new 
processes. And if refiners all choose the new technologies as EPA has 
presumed, we question whether two vendors (perhaps a few others) can 
meet the needs of more than 100 refineries in the next few years.
     In order for refiners to review new desulfurization 
technologies, companies must sign strict confidentiality agreements 
with vendors. We understand the need for companies to protect the 
technologies they have developed. But will confidentiality agreements 
restrict open assessments among refiners about these new technologies?
     From an energy policy prospective, should a major 
regulation that requires severe, new standards for the nation's 
gasoline supply be based on commercially unproven technologies? Does 
the entire Nation need the regulation at the same time or should 
priority be given to certain areas--as was provided in the NLEV 
program?
     EPA's comment period on the gasoline sulfur proposal will 
end before any factual operating results are known about the new 
technology on which the proposal rests. This makes comment on the new 
technology largely a theoretical, subjective exercise.
    The short phase-in period proposed to refiners raises questions 
about simple fairness.--Statements often have been made that the 
emission controls of the vehicle and the fuel should be viewed as a 
single system. But for regulatory purposes, the proposed compliance 
timelines for each are quite different. EPA proposes that automakers be 
given more than twice the amount of time to phase into Tier 2 
regulation than refiners. This raises questions about simple fairness.
    Under EPA's proposal more than 97 percent of the refining capacity 
in the United States must meet the 30 ppm average sulfur standard by 
January 1, 2004. This represents an astonishing 90 percent reduction 
from existing sulfur levels in a very short period. The proposal 
provides the option for a restricted, but additional 2-year phase-in 
period if a refiner makes gasoline sulfur reductions prior to 2004.
    Compare this rigid timetable to the Tier 2 schedule proposed for 
the automobile industry. For new passenger cars and light duty trucks--
which comprise roughly 50 percent of all new vehicle production--Tier 2 
standards would phase-in for 4 years beginning in 2004. For heavier 
vehicles (e.g., minivans, sport utility vehicles, etc.) that comprise 
the remaining half of new vehicle production, the proposed Tier 2 
standards would be phased in beginning in 2008, with full compliance in 
2009.
    The agency states that ``the proposal is carefully designed to 
address the need for refiners to make low sulfur gasoline available at 
very nearly the same time as auto makers begin selling large numbers of 
Tier 2 vehicles.'' \15\ We disagree. The phase-in periods proposed by 
EPA for refiners and autos are significantly different. In fairness, we 
believe the Tier 2/gasoline sulfur regulation should be phased in 
together and equally between the two industries.
---------------------------------------------------------------------------
    \15\ EPA, Proposed Tier 2 Motor Vehicle Emissions Standards and 
Gasoline Sulfur Control Requirements, pg. 63-64.
---------------------------------------------------------------------------
                            recommendations
     There must a reasonable transition to low sulfur gasoline. 
If refiners select conventional desulfurization technology to meet new 
standards, a phase-in period is needed minimize harsh impacts and 
costs. If new, lower-cost desulfurization technology is used, time is 
needed to assess its actual processing performance and for a few 
vendors to meet the needs of the industry. In either case, more time is 
needed than proposed by EPA.
     The phase in period of Tier 2/Sulfur regulation for autos 
and refiners should be very similar.
     Legitimate regional differences (and the views of rural 
State Governors) need to be reflected in a gasoline sulfur regulation. 
This can be done with regional sulfur standards as refiners proposed or 
by implementing a national standard at different times in different 
regions. Nonattainment and attainment areas do not need the same level 
of regulation at the same time.
     The proposed eligibility for small refineries to receive 
help in meeting severe gasoline sulfur regulation needs to be broadened 
to more facilities. We hope Congress will consider extending the small 
diesel refinery SO2 allowance program with gasoline sulfur 
other fuel sulfur regulations. The program has proven to be a success.
    On behalf of Sinclair, I sincerely extend our appreciation for the 
opportunity to comment on the important issue of gasoline sulfur 
control. I would be pleased to provide additional information or 
respond to questions of members or professional staff of the 
Subcommittee.

 Response by Clint W. Ensign to Additional Question from Senator Chafee
    Question 1. Could you describe the oil industry's research into 
reversibility.
    Response. Research on the effect of gasoline sulfur on vehicle 
emissions has been done by the Coordinating Research Council which is 
funded by automobile and oil companies. It is our understanding the CRC 
research has been supplemented by separate studies conducted by 
automakers and refiners (which includes research on reversibility).
    At EPA's Gasoline Sulfur Workshop on May 12, 1999, the American 
Petroleum Institute and the National Petroleum Refiners Association 
presented initial findings on reversibility. In sum, research indicated 
that the effects of sulfur are reversible on several of the vehicles 
tested. Attachment A contains summary information on reversibility 
presented at the workshop.
    Automakers were asked at the workshop why the effect of sulfur on 
certain vehicles was reversible. Representatives for automakers could 
not provide an explanation. This uncertainty is further underscored by 
EPA's comments in the preamble of the Tier 2/Gasoline Sulfur proposal 
where the agency states that ``vehicles tested exhibited a wide range 
of reversibility, for reasons that are not fully understood.'' \1\
---------------------------------------------------------------------------
    \1\ EPA, Proposed Tier 2 Motor Vehicle Emissions Standards and 
Gasoline Sulfur Control Requirements pg. 98.
---------------------------------------------------------------------------
    The refining industry has proposed major, cost-effective cuts in 
gasoline sulfur levels. Refiners also believe it is in the public 
interest to study the reversibility question before committing 
consumers and refiners to billions of dollars to meet the California 
sulfur standards. Regrettably, the offer to meet and peer review 
reversibility data has been declined by the automakers.
    Inasmuch as reversibility research was conducted by the American 
Petroleum Institute, I refer further questions on this matter to that 
organization.
                                 ______
                                 
   Responses by Clint W. Ensign to Additional Questions from Senator 
                                 Graham
    Question 1. It appears that the initial question is does high 
sulfur content in automobile fuel degrade the performance of catalytic 
converters?
    Response. The refining industry recognizes that gasoline sulfur has 
a partial and temporary effect on the performance of catalytic 
converters. This is why refiners proposed a 70 percent reduction in 
gasoline sulfur limits in the East and a 55 percent reduction in the 
West. Nationwide, this would reduce average sulfur levels by more than 
50 percent.

    Question 2. Does it degrade the performance of all catalytic 
converters or only the catalytic converters required by the Tier 2 
regulation?
    Response. In January 1997, the Auto/Oil Air Quality Improvement 
Research Program reported that lowering gasoline sulfur from 450 to 50 
ppm reduced emissions by 18, 8, and 19 percent for HC, NOx, 
and CO, respectively, for ``Current'' vehicles. Similar emission 
reductions were experienced with ``Federal Tier 1'' cars. (Current cars 
are considered 1989 models and Federal Tier 1 cars are 1994 models). A 
significant portion of these emission reductions would be realized 
under the gasoline sulfur proposal of U.S. refiners.
    Research was done on the effects of gasoline sulfur on Low Emission 
Vehicles by the American Automobile Manufacturers Association, Inc. and 
the Association of International Automobile Manufacturers, Inc. in 
1997. Listed below are some of the published findings of that research. 
Note that LEVs have lower HC, CO and NOx emissions when 
using high gasoline sulfur (600 ppm) than Tier 1 vehicles using low 
gasoline sulfur (40 ppm). Taking into account HC, CO, and 
NOx emissions collectively, the hardware on the LEV had a 
larger impact on reducing emissions than fuel sulfur.

----------------------------------------------------------------------------------------------------------------
                   Sulfur level                       NMHC        CO        NOx                Status
----------------------------------------------------------------------------------------------------------------
Tier I Vehicle:..................................
  330 ppm........................................       .122       1.75        .33      Ave sulfur level in U.S.
                                                                                                           today
  40.............................................       .102       1.47        .30  ............................
LEV/ULEV:........................................
  600 ppm........................................       .076       1.22        .28  ............................
  330............................................       .071       1.06        .23  ............................
  150............................................       .064        .88        .18  ............................
  40.............................................       .054        .65        .12  ............................
----------------------------------------------------------------------------------------------------------------
Source: AAMA/AIAM Study on the Effects of Fuel Sulfur on Low Emission Vehicle Criteria Pollutants, 1997, Table I
  and Table 3. Emission data in grams per mile (log-log regression).

    Question 3. Is this damage reversible?
    Response. As noted above, some vehicles have demonstrated a high 
degree of reversibility. (Please refer to the response on reversibility 
provided to Senator Chafee.)

    Question 4. How would damage be reversed?
    Response. We understand certain driving conditions are required to 
heat and regenerate the catalyst. For example, high speed driving--
similar to what vehicles would do in traveling between regions of the 
country--may be needed. This is a matter we hoped would be studied 
further and discussed in workshops with automakers. (Please refer to 
the response on reversibility provided to Senator Chafee.)

    Question 5. What is the estimated cost of replacing a catalyst 
converter?
    Response. It is our understanding from EPA's Tier 2/Gasoline Sulfur 
Proposal that the cost of a catalytic converter is approximately $150 
to $200.

    Question 6. Is there another way to repair or ensure that catalytic 
converters, if damaged by high sulfur content in fuels, can be restored 
to their original performance levels?
    Response. As noted earlier, the subject of possible damage to 
catalytic converters and the degree of reversibility with high sulfur 
gasoline are in dispute. This is a matter that warrants further 
research and Deer review.

    Question 7. If the damage is reversible, could regional regulations 
work?
    Response. Yes. The refining industry felt that the large reductions 
in gasoline sulfur limits that we proposed would substantially help 
automakers make catalytic converters reversible.

    Question 8. If the damage is not reversible, could regional 
regulations, tailored to the air quality needs of each region, 
effectively reduce the impact of sulfur on catalytic converters?
    Response. Yes. The agency could adopt a national gasoline sulfur 
program with regional considerations. For example:
     The effective date of gasoline sulfur standards could be 
different in the East than the West. Low sulfur standards could begin, 
say, in 2004 in the East and 2008 in the West. The automakers NLEV 
Program in national in scope but is regional in its implementation.
     Since most of the Nation's nonattainment populations use 
reformulated gasoline, low sulfur standards could first phase-in with 
RFG and then with conventional gasoline. This gives priority in 
directing sulfur control to the areas with the greatest air quality 
need.
     EPA has proposed a national gasoline standard with a 
sulfur average of 30 ppm and a cap of 80 ppm. In regions with good air 
quality, the agency could set a less stringent sulfur average (say 50 
ppm) while keeping the national sulfur cap at 80 ppm.
     Since most small refineries are located in rural States in 
the western half of the country, substantially expanding small refinery 
eligibility for regulatory relief would effectively result in a 
regional consideration. This is especially true in PADD IV (WY, UT, CO, 
MT, ID) where every refinery is small (less than 75,000 b/d in size).
    In the event research demonstrates that catalytic converters are 
not reversible, these kinds of options warrant evaluation.
    Nearly a dozen rural States have urged EPA to adopt a regional 
component to gasoline sulfur control. Regrettably, the Tier 2/Gasoline 
Sulfur proposal has not been responsive to the views of these important 
stakeholders.
                                 ______
                                 
       Responses by Clint W. Ensign to Additional Questions from 
                           Senator Voinovich
    Question 1. You express concern about the proposed standards, what 
are the obstacles that you see in meeting these standards? How much 
time do you think is needed to meet them?
    Response. Refiners face many challenges in meeting severe 
California gasoline sulfur standards nationwide, including:
    Conventional Desulfurization Technology.--Refiners know how to 
remove sulfur from gasoline but the current process is costly; between 
5 and 8 cents per gallon (according to DOE/EPA 1998 estimates). 
Nationally, this would increase gasoline costs to consumers by $6 to 9 
billion each year. This would likely cause gasoline sulfur regulation 
to fail cost-benefit analysis. This method is so expensive it is not 
mentioned in any of the cost estimates of EPA's gasoline sulfur 
proposal. Conventional desulfurization costs also contributed to the 
closure of many small refineries in California. It is likely the very 
short compliance timeframe proposed by EPA to meet severe sulfur 
regulation will cause many refiners to choose this high cost 
technology.
    New Desulfurization Technology.--New processes currently being 
developed and tested could reduce gasoline desulfurization costs by 
half. But regrettably, the technology is so new there are no refineries 
in the United States where it is used on a commercial scale. From a 
practical standpoint, it will take several years of actual operating 
conditions before enough is known about the new technology and what it 
can do with different refining configurations. Also, only a few vendors 
offer the technology which is clearly not enough to meet the needs on 
an entire industry all at one time. To meet the tight timeframe of 
EPA's gasoline sulfur proposal, the uncertainties of the new technology 
will likely cause many refineries to forgo potential cost savings of 
these new processes.
    Small Refineries.--During this decade, the gasoline sulfur 
standards in California and the Federal low sulfur on-road diesel fuel 
standards caused many small refineries to withdraw from investing in 
desulfurization equipment. Limited process economies cause small 
refineries to incur higher per barrel costs. This is a critical factor 
in a high cost regulation of this kind.
    Sulfur Reduction Costs.--Regardless of the technology used, fuel 
desulfurization represents an extraordinary cost to refiners. During 
the 1990's, the U.S. refining industry earned only a 3 percent return 
on investment (many projects were environmentally related). Poor 
returns makes requires more time to pay for expensive projects.
    From a timing perspective, the U.S. refining industry proposed 
significant, cost-effective reductions in gasoline sulfur averages and 
caps in 2004. We believe new desulfurization technology could make 
additional sulfur reductions widely practical and cost-effective by 
2010. There is no question (even with EPA) that there must be a 
transition period to Tier 2/gasoline sulfur regulation.

    Question 2. Can you estimate the number of refiners that would 
close down as a result of these rules? Can you estimate the potential 
job losses?
    Response. Neither the EPA or the DOE have conducted a feasibility 
study to determine the impacts of severe gasoline sulfur regulation on 
U.S. refiners. With the refining industry operating a near capacity, 
and with the potential loss of MTBE for gasoline supply, the question 
possible refinery closures by Senator Voinovich is very appropriate. 
The agency has estimated no refinery will close as a result of gasoline 
sulfur regulation but has no feasibility study to support the claim. In 
fact, at the subcommittee hearing, Sinclair stated that the proposed 
gasoline sulfur regulation, if implemented, threatens the future of one 
of our refineries.
    In the Final Report of the SBREFA Small Business Advocacy Review 
Panel, the group reported that ``most . . . small refiners, did State 
that if the Agency were to adopt a rule that would require them to 
achieve 30 ppm sulfur levels on average with an 80 ppm per-gallon cap, 
they would be forced out of business.'' Since most of the 50 small 
refineries in the U.S. are not covered by SBREFA and are not extended 
regulatory relief in the proposal, it is reasonable to assume many of 
these facilities would also be at risk with 30/80 ppm gasoline sulfur 
standards.
    A 50,000 b/d refinery, on average, will employ approximately 300 
workers. This does not include contract workers or outside jobs 
generated due to the refinery.

    Question 3. What is the refining industry's concerns over the use 
of newer technologies and how could these concerns be addressed?
    Response. New desulfurization technologies presents many 
uncertainties to refiners. It will take several years before we know 
what this new technology can actually do. For example, is the 
technology applicable to a wide range of refinery configurations? How 
will it perform under severe processing conditions? What is the 
operating cycle of the technology? Is the technology enough to enable a 
refinery to meet a 30/80 ppm gasoline sulfur standard? What yields or 
results with the vendor actually guarantee when licensing the 
technology?
    Also, refineries must choose which technology (conventional or new) 
they plan to use prior to applying for permits. This means that 
sometime next year--when a great deal will still be unknown about the 
new technology--refineries will be making this decision. In view of 
this uncertainty, we believe EPA has made an unrealistic assumption 
that every U.S. refinery (more than 100 refineries) will choose the new 
technology.

    Question 4. You claim that new technologies are on the horizon to 
reduce sulfur. Can you estimate the costs if this rule were postponed 
or phased in to allow for marketing of newer technologies? Is there 
likely to be a savings over using conventional technology?
    Response. There would be huge regulatory savings to consumers and 
industry if time were given for more to be known about the newer 
technologies. An additional 3 to 4 years would lead to fuel cost 
savings of billions of dollars each year.

    Question 5. If the proposed rules are implemented, will be continue 
to have a reliable flow of fuel or will there be disruptions?
    Response. There are several supply factors that should be taken 
into account in connection with this rulemaking. U.S. refineries are 
operating a near capacity. This means there is little surplus capacity 
available to replace lost supply if refineries closed as a result of 
severe regulation. It also appears as if MTBE will be phased out, or 
used less, in gasoline supply. This will result in a loss of gasoline 
supply. These supply factors must be balanced with demand for gasoline 
which increases each year.
    In California, where the 30/80 ppm sulfur standard is in effect, 
gasoline supply and cost for consumers are the most volatile in the 
Nation. Since small refineries will be most impacted by severe sulfur 
regulation, we are most concerned about fuel supply and cost in rural 
areas that rely on small facilities for supply.
    We also do not know of how low sulfur standards in this and other 
countries will affect the amount of gasoline imported to the United 
States. For example, will less gasoline be exported to the U.S. from 
Canada if refineries close in that country.
    Take, together, these supply factors should be explored in 
connection with severe gasoline sulfur regulation.
                                 ______
                                 
    Statement of William Nasser, CEO, Energy BioSystems Corporation
    Mr. Chairman and Members of the Panel, thank you for inviting me to 
testify today. I have a brief oral statement and ask that my written 
statement be included in the record.
    Energy BioSystems is a biotechnology company whose aim is to 
address major environmental and industrial issues through recent 
advances in microbiology, genetic engineering and bioengineering. Most 
are aware of the significant advances in genetics and bioengineering in 
the pharmaceutical industry and in agriculture. Our company has 
positioned itself to be a leader in the third wave of the biotechnology 
revolution into the chemical and energy industries.
    I am not here today to validate, support or criticize the proposed 
EPA regulations of lowering sulfur standards in gasoline and diesel 
fuel. It is up to you in Congress to determine whether that standard is 
necessary, to what level and on what timetable. I am here to talk about 
new alternatives to achieving sulfur reductions in fuel being developed 
by our company.
    There is current technology, hydrodesulfurization or HDS, which is 
now used to reduce the sulfur content in fuels. Unfortunately, HDS has 
many disadvantages including:

    (1) It is old technology, having been in existence for over 40 
years.
    (2) It is enormously energy intensive as it requires high 
temperatures and pressure.
    (3) Because of its large appetite for energy, it results in large 
greenhouse gas emissions.
    (4) It is enormously costly to install and very costly to operate.

    I can understand the reluctance of the refining industry, where 
margins are thin, to invest the billions of dollars to install such old 
technology with so many adverse consequences. In fact, for smaller 
refiners, prohibitive costs of installing and operating this technology 
may well force them to close. I also find it ironic that the EPA's goal 
of decreasing sulfur in fuels will result in a direct and adverse 
impact on the Administration's goal of reducing greenhouse gas 
emissions.
    We at EBC have developed a new process, which also promises to 
lower sulfur in gasoline and diesel, but at half the cost and without 
the huge increase in emissions inherent in current technology. Our 
process is called biodesulfurization or BDS. Basically, we have 
identified a microorganism that is naturally occurring in the soil that 
can be genetically enhanced to ``eat'' sulfur out of gasoline and 
diesel fuels. The organism can also be enhanced to ``eat'' sulfur out 
of coal and crude oil, which current HDS technology cannot do.
    The benefits of this BDS technology are several. The headline on a 
DOE fact sheet issued in January of this year states that 
``Biodesulfurization will yield lower sulfur gasoline at lower 
production costs.'' Our studies show that capital costs for our 
technology will be half that of current technology and that the 
operating costs for our technology will be some 20 percent lower.
    In addition to cost savings, BDS will result in up to 80 percent 
less greenhouse gas emissions over current technology. This is because 
our process operates at essentially room temperature and pressure. HDS 
requires large increases in both to reduce sulfur.
    Another benefit is that our process yields beneficial and 
commercially viable byproducts. We can alter the enzymes to produce 
surfactants from the sulfur, which currently sell for about 50 cents 
per pound and are used in detergents. Other byproduct applications may 
include resins, polymers and other usable products. HDS produces either 
large amounts of elemental sulfur or sulfuric acid, neither of which is 
highly valued commercially, thereby presenting an added problem for 
refiners.
    A final benefit of our technology is its flexibility. It can be 
inserted at various stages of the refining process. In addition, it can 
be used in conjunction with HDS technology. Large refiners with HDS 
operations presently in use can tap our technology to complement its 
current operations to reach ultralow sulfur levels.
    Our pilot projects already have demonstrated the ability of our 
technology to reach sulfur levels of 75 parts per million. We believe 
that we can easily achieve a 30 ppm and commercial viability within the 
next 3 years, contingent upon the level of investment we receive. In 
fact, we are confident that we can reach a sulfur level of zero using 
BDS.
    While our technology is extremely promising, Mr. Chairman, there 
remain hurdles. The primary hurdle being investment in research and 
development. With oil prices low, refining margins practically 
nonexistent, and small capitalization stocks battered, we face an 
enormous difficulty in raising capital to complete our technology. To 
date, we have spent some $68 million on our technology; about $65 
million of that coming from private investors. We have been the 
recipients of a small amount of funding from the DOE.
    In conclusion Mr. Chairman, this proposed rule will require 
enormous investment. Because of the short amount of time in which to 
reach the rule's targets, I am concerned that the rule will ``lock'' 
industry into an old technology that will be expensive, waste energy 
and result in vast increases in greenhouse gas emissions. We believe 
that the rule and the Federal Government should help to fully develop 
alternative technologies such as biodesulfurization. Not only will 
refiners be the beneficiaries, but so will the environment and fuel 
consumers.
    Again, thank you Mr. Chairman for inviting me to testify and I will 
be happy to answer any questions from the Panel.
                                 ______
                                 
                           Energy Biosystems
                        overview of the company
    Energy BioSystems Corporation (``ENBC'' or ``the Company'') is a 
development-stage publicly traded biotechnology company located in The 
Woodlands north of Houston, Texas. Since its incorporation in 1989, 
ENBC has been engaged in the research, development, and testing of a 
variety of genetically engineered microbes for use in the petroleum 
refining industry, a technology collectively known as ``biorefining''. 
To date, the majority of the Company's efforts have focused on the 
development of a biologically based method of selectively removing 
sulfur from petroleum distillates such as diesel fuel and gasoline as 
well as from raw crude oil. ENBC has termed this process 
``biodesulfurization'', or ``BDS''. The Company's most advanced 
biocatalyst technology also adds further value by converting the sulfur 
removed from the distillates to potentially valuable commodity 
chemicals. Having proven the viability of the BDS process using small-
scale pilot plants, the Company is now working to complete the 
development and commercialization of its proprietary technology. In 
addition, the Company intends to explore the use of microorganisms in a 
variety of other fields, including heavy metals removal, nitrogen 
removal, crude oil upgrading, and coal desulfurization.
    At present, Energy BioSystems employs 37 individuals and leases 
approximately 25,000 square feet of office and laboratory space. The 
Company conducted its initial public offering in March 1993.
                          the market problems
    The presence of sulfur in raw crude oil is one of the most 
pervasive problems facing the refining industry today. The sulfur is 
troublesome for a number of different reasons. First of all, sulfur is 
a constituent element of sulfur oxides (SOx). Sulfur oxides 
are end products of the burning of fossil fuels and have been 
specifically identified as one of the principal causes of ``acid 
rain''. Sulfur oxides are also believed to reduce the efficiency of the 
catalytic converters in automobiles, leading to increased tailpipe 
emissions of both oxides of nitrogen (NOx) and carbon 
dioxide (CO2). NOx and CO2 are thought 
by many to be the primary causes of urban ``smog'' as well as 
``greenhouse gas'' accumulation. To the U.S. refiner these problems are 
a stiff challenge due to the fact that the average sulfur content of 
crude oil fed to U.S. refineries is steadily increasing at the same 
time that proposed sulfur limits are dramatically decreasing. This 
higher sulfur content extends to all of the distillates of raw crude 
oil, including gasoline, diesel fuel, and heating oil.
    The Company has elected to focus on the diesel fuel and gasoline 
markets for its initial applications of its BDS technology. Due to the 
widespread belief that the most likely route to more fuel-efficient 
vehicles is through the use of new diesel engine technology, a large 
proportion of ENBC's development efforts have been targeted on diesel 
fuel. In order to take full advantage of the benefits of this advanced 
engine technology, sulfur must first be removed from the diesel fuel.
    The reported actual average sulfur content currently in both 
gasoline and diesel fuel in the U.S. is about 340-350 parts per million 
(ppm). In order to meet this standard, the petroleum refining industry 
currently uses large operating plants for desulfurization. Using 
conventional technology, these plants are very costly, due to their 
need to operate at very high temperatures and pressures. The single 
most expensive production component is hydrogen gas, which is injected 
at high pressure into the reactor, thus, giving the process its name: 
``hydrodesulfurization'', or ``HDS''. Despite these limitations, the 
industry is, nevertheless, able to meet the current regulatory 
standards at an acceptable cost using existing HDS technology, 
successfully producing approximately 31 billion gallons of highway 
diesel fuel and 124 billion gallons of gasoline per year in the United 
States alone. It is notable that the new proposed, more stringent 
environmental quality standards for the U.S. (already adopted by the 
governments of several other industrialized nations) will force the 
maximum allowable sulfur level of these fuels to be significantly 
reduced in the coming years. Specifically, the European Union has set a 
sulfur content standard of no more than 350 ppm that will be in effect 
by the year 2000 and a standard of 50 ppm for the year 2005. The United 
States and the industrialized nations of the Far East are following the 
European Union's example.
    Overall these increasingly restrictive sulfur-content regulations 
for gasoline and, especially, for diesel fuel cannot be met with 
existing HDS capacity. Consequently, in order to achieve the 30 ppm 
standard using existing technology, the worldwide refining industry 
will have no choice but to invest an estimated $50 billion in new 
capital equipment over the next 5 years. It is important to note that 
this capital investment will have to be made regardless of the 
prevailing level of crude oil prices on the open market or the short-
term profitability to the refiner. Therefore, the questions essentially 
become: What is the cheapest and most efficient way to meet these new 
benchmarks? Is there a real probability that a new technology will 
provide refiners with a decent opportunity for long term profitability 
while offering substantial environmental benefits?
    In addition to its refining limitations, current 
hydrodesulfurization technology is very energy-intensive, thus creating 
high emissions, and produces elemental sulfur as its principal by-
product. This represents a tremendous waste of raw material that could 
potentially be put to profitable use. For these reasons, the Company 
feels that any new technology which could allow the refining industry 
to meet the new regulatory standards at a significantly reduced cost 
while simultaneously producing a commercially marketable co-product 
should generate a great deal of enthusiasm among oil company 
executives.
                     the energy biosystems solution
    The Company believes that it has developed an effective solution to 
these problems using a naturally occurring, benign species of bacteria 
that was originally isolated from soil. In Energy BioSystems' 
biodesulfurization (``BDS'') process, a genetically engineered variant 
of the Rhodococcus erythropolis strain of bacteria is used with water 
and the fuel to be treated. The bacterium first internalize the sulfur 
containing hydrocarbon molecule and then employs an enzymatic reaction 
to cleanly cleave a sulfur-carbon bond in the molecule. The oxidized 
sulfur-bearing molecule is then released by the bacterium into the 
water medium. The Company believes that when employed en masse, this 
bacterium can be used to effectively remove sulfur from fuels on a 
commercially viable scale. In 1992, the relevant genes from the 
bacterium were identified, sequenced, and successfully cloned. As a 
result, the Company has received numerous patents on the specific 
genetic sequence of the modified bacterium as well as other separate 
``method-of-use'' patents covering the bio-
desulfurization process itself. In total, the Company possesses 47 
issued patents and has 81 additional patents pending. The oldest of 
these patents is not scheduled to expire until the year 2010, providing 
excellent proprietary protection to the Company for the foreseeable 
future.
    The Rhodococcus bacterium is a benign species and poses no threat 
to humans, animals, or plant life in the event of an industrial 
accident. It is easily sustainable by means of an inexpensive nutrient 
solution and reproduces itself under process conditions. Moreover, the 
bacterium is able to process large quantities of fuel before its 
effectiveness begins to wane. Finally, it is easily killed by a simple 
application of heat and/or chemicals.
    The actual BDS process consists of simply adding refined fuel to a 
slurry composed of water, nutrients, and bacteria, intimately 
contacting the mixture for a time, and then using standard process 
manufacturing methods to separate the bacteria, water and dissolved 
organo-sulfur products from the newly desulfurized diesel fuel. It is 
important to note that unlike current hydrodesulfurization plants, the 
BDS process operates at basically both ambient temperature and standard 
atmospheric pressure, offering significant cost and safety advantages.
    The BDS process also yields a sulfur-based chemical product that is 
potentially suited to a wide variety of industrial applications. For 
one, this product has can be used as the base molecule for the 
synthesis of surfactants that are suitable for use in detergents. These 
model surfactants appear to have properties comparable to LAS, a 
commercial surfactant with a $2 billion worldwide market. Other 
potential applications of the BDS product are in the areas of 
adhesives, resins, and polymers. The Company believes that these 
products will have significant commercial value and will further reduce 
the net costs of using the BDS system relative to conventional 
hydrodesulfurization technology.
    In summary, Energy BioSystems' BDS technology offers the following 
four benefits:
    (1) Cost effectiveness.--The BDS system is designed to operate at 
essentially ambient temperature and pressure, thereby removing the need 
for the expensive thick-walled reactors and other plant systems now 
required for hydrodesulfurization. Additionally, BDS does not require 
the addition of hydrogen, the single most expensive component of the 
overall operating cost of hydrodesulfurization.
    (2) Reduced greenhouse gas emissions and energy consumption.--As 
compared to HDS, the Company believes that its BDS system will operate 
with up to 80 percent less energy consumption and carbon dioxide 
emissions in achieving the dramatic new low sulfur levels proposed.
    (3) Ease of integration and synergy with existing refinery 
operations.--The Company believes that the BDS system can be integrated 
with the existing physical plants of refining companies without 
significant difficulty. In larger more complex refineries BDS systems 
will most likely be used in combination with existing HDS facilities, 
although in small refineries BDS is likely to be the only viable 
option. Furthermore, in certain highly energy intensive refinery 
applications such as coking, BDS offers a refiner a very real 
opportunity for improved profitability and environmental improvement. 
It should be noted that the sulfur compounds that are the most 
difficult to remove using HDS are the same compounds that are most 
readily removed using BDS. Therefore, when used in conjunction with an 
HDS system, BDS can provide the refiner with a synergy that results in 
a minimized total cost of desulfurization.
    (4) Generation of a sulfur-based byproduct readily converted to 
profitable uses.--The Company believes that its biologically based 
method of sulfur extraction can be easily modified to produce a 
marketable product that can be readily adapted to a variety of 
commercial uses, thereby adding significant value and lowering overall 
costs.
                        commercialization status
    Energy BioSystems has validated its BDS technology by constructing 
and operating a five-barrel-per-day pilot plant. Using the knowledge 
gained from the operation of that pilot unit, other smaller pilot 
plants were built and are operated. The Company is now working with 
Petro Star, Inc. to proceed with the design of a 5,000 barrel-per-day 
BDS facility to be constructed at their Valdez, Alaska refinery. Petro 
Star is a subsidiary of the Arctic Slope Regional Corporation and is 
ENBC's first commercial licensee. Based upon ENBC's recent technical 
progress, the company expects detailed engineering to start in late 
1999, and that the facility will commence full operations in the second 
half of the year 2001. The construction of this facility is a key step 
toward the Company's ultimate goal of being able to desulfurize diesel 
fuel at a rate of 40,000 barrels per day (a level which would meet the 
needs of the industry's largest players) as well as the eventual 
expansion of BDS technology into the processing of raw crude oil, 
gasoline, and other distillates.
    While the production technology is being scaled up, the Company 
intends to complete work on the development of the BDS process itself. 
Further improvements in the performance of the biocatalyst in the 
reaction system are necessary to successfully commercialize ENBC's 
technology. Currently, the BDS process is capable of meeting the 30 ppm 
target for diesel fuel when the feedstock has a sulfur content of 200 
ppm or below. In order to gain widespread commercial acceptance, the 
process must be improved to accept feedstocks with sulfur levels of up 
to 500 ppm. Improvements in the rate of desulfurization will also be 
required to bring the overall costs of the process down to competitive 
levels. Finally, ENBC is now producing samples of the organo-sulfur end 
products of BDS for evaluation by potential alliance partners for 
manufacturing and marketing them on a commercial scale.
    The petroleum industry is the single largest industry in the world 
and is responsible for the refining of over 23 billion barrels of crude 
oil annually. The Company believes that its technology will be most 
attractive to refiners that currently lack sufficient HDS capacity to 
meet both existing and anticipated demand (such as Petro Star). 
Successful demonstration of the technology with these customers is 
expected to lead to the sale of BDS systems to larger, more 
sophisticated refiners who can take advantage of the synergies between 
BDS and HDS.
                          corporate alliances
    In order to accelerate the commercial development of its core BDS 
technology, the Company has entered into a number of technology 
development alliances with established companies. Specifically, ENBC 
has agreements in place with TOTAL Raffinage Distribution S.A. of 
France (development of the BDS process for diesel fuel streams), with 
Koch Refining Company (development of the BDS process for certain 
gasoline streams), and with the Exploration & Production Division of 
Texaco, Inc. (the development of the BDS process for crude oil). In 
addition, the Company has an agreement with Kellogg, Brown & Root for 
the basic engineering services required for the installation of BDS 
systems at commercial sites.
   Responses by William Nasser, to Additional Questions from Senator 
                                 Inhofe
    Question 1. Mr. Nasser, I am intrigued by vour companies product, 
what will be required to bring the biodesulfurization to the 
marketplace?
    Response. We have already begun the process of introducing BDS to 
the marketplace by licensing our first biodesulfurization process for 
diesel fuel to Petro Star, Inc., a small Alaskan refiner that processes 
about 40,000 barrels of crude oil per day. Nevertheless, accounting for 
the time required to complete detailed engineering, procurement of 
equipment, and onsite construction, this unit is not expected to be 
operational until late 2001.
    Between now and then, EBC will continue to advance its technology 
to further improve the economic viability through advancements in the 
company's proprietary biocatalyst, and the process design to compliment 
the biocatalyst. One of the largest hurdles is to find continued 
financial support to complete our technology, and allow us to 
demonstrate the technology at commercial scale at Petro Star.
    Petro Star is a small refiner market segment opportunity for EBC. 
Further development work must be completed to meet the demands of the 
more typical large, full-conversion refineries. Active participation of 
these major refiners would be extremely helpful. As I pointed out in my 
testimony, however, given the current State of the refining industry, 
we continue to face enormous difficulty in raising capital to complete 
this technology. Active participation by the EPA and DOE would also be 
very helpful. We have already spent upwards of $70 million to get to 
where we are today, so there is a great opportunity for the government 
sector to leverage the future investment required to commercialize the 
technology.

    Question 2. I know that critics will say we can not afford to wait 
for a product that might not work. How can we be assured that your 
technology will work?
    Response. Of course, with any product or technology under 
development, there can be no absolute assurance of success or failure. 
In our case, however, there are many examples in the company's history 
that provide a strong basis for anticipated success. As recent as 1 
year ago, the estimated cost to desulfurize a barrel of diesel fuel 
using our technology was on the order of $5. Through advances in our 
technology over the past year, the cost has been reduced to an 
estimated $0.14 per barrel.
    Another example is the efficiency of our biocatalyst has been 
improved over 200-fold since our technology development began.
    Additionally, we have demonstrated the key elements of our process 
at the pilot scale to validate that all of the process steps work as we 
have predicted.
    This past demonstration of success in the development history of 
our technology gives us, and our partners, a high degree of confidence 
that we can achieve the incremental improvements that will be required 
in the near future.

    Question 3. I understand that the Department of Energy has assisted 
you in your research. What has been the role of the EPA on your R&D or 
your funding. I am concerned that the EPA is acting without paying 
close attention to what the Department of Energy has been doing. Have 
you been in contact with them?
    Response. We've spent close to $70 million for the development of 
our technology. Only about $3 million of that has come from the Federal 
Government, including our current Department of Energy project for 
gasoline biodesulfurization.
    In the past, the EPA has not directly assisted our research, 
financially or otherwise, but has been aware of the scope of our 
efforts. It is difficult to say whether the EPA was specifically aware 
of what the DOE had in the past been doing with regard to this 
technology.
    Nonetheless, within the past 6 to 8 months, we have increased our 
own efforts to bring the EPA up to date on our activities to ensure 
that our technology is considered in the course of their rulemaking for 
gasoline and diesel fuel standards. They now have a more detailed 
understanding of both the technology itself, and the status of the 
development. We will continue our contact with both the EPA and the DOE 
to keep them informed about our technology, although their direct 
involvement with project funding would be the best approach.
   Responses by William Nasser, to Additional Questions from Senator 
                                 Chafee
    Questions 1. Is your technology a substitute or compliment to 
existing technology?
    Response. There is very good synergy between our technology and 
existing hydrodesulfurization (HDS) technology. As you know, industry 
has already spent billions of dollars to install HDS processing 
capacity to desulfurize to meet the current sulfur specifications. We 
don't expect that our customers would replace this capacity, but rather 
compliment it with our technology to meet future specifications.
    We have shown that the types of sulfur that HDS has a very 
difficult time treating are precisely the types of sulfur that our 
technology can best treat. In fact, we have demonstrated that our 
technology can actually enhance the performance of the HDS process by 
up to 300 percent when the two are combined.
    There is also a subset of refiners who don't realistically have the 
option to install HDS processing capacity due to the nature of their 
business. Most of these refiners have fairly simple refineries that do 
not have the infrastructure to install HDS in a profitable manner. 
Given the cost advantages of our technology relative to HDS, we provide 
a viable option that will allow this group of refiners to produce low 
sulfur fuels, and thus stay in business. Petro Star, Inc. is a prime 
example of this.

    Question 2. Do you expect your product to be effective for removing 
sulfur from both diesel fuel and gasoline?
    Response. Yes. Our technology for diesel fuel biodesulfurization is 
most advanced, as evidenced by the fact that we were able to license 
our first commercial unit to Petro Star, Inc. We are also near the end 
of the second year of a 3-year program sponsored by the Department of 
Energy for gasoline desulfurization. We expect to capitalize on our 
experience with diesel fuel to accelerate the development of the 
gasoline program, but this will not be feasible unless, at a minimum, 
the third year of funding from the DOE is provided. Currently, the 
third year of funding for this project has not been approved.
   Responses by William Nasser, to Additional Questions from Senator 
                                 Graham
    Before answering the specific questions from Senator Graham, a few 
general comments are necessary. EBC agrees that the line of questions 
that Senator Graham has submitted are critical to this issue of 
developing appropriate regulations for sulfur in fuels. We, however, 
are not experts in this area. It is likely that some of the other 
participants who testified at the hearing can provide more expert 
opinions in these matters.

    Question 1. It appears that the initial question is does high 
sulfur content in automobile fuel degrade the performance of catalytic 
converters?
    Response. Yes, higher sulfur in fuels does degrade the performance 
of the catalytic converters. It is our understanding that this is 
undisputed.

    Question 2. Does it degrade the performance of all catalytic 
converters or only the catalytic converters required by the Tier 2 
regulation?
    Response. Sulfur in fuels degrades the performance of all catalytic 
converters.

    Question 3. Is this damage reversible?
    Response. The answer to this question has been the subject of 
numerous scientific studies, and is certainly up for debate. There is 
considerable disagreement on the answer. Our understanding is that the 
effect of sulfur on catalytic converters is, in fact, reversible 
provided that the engines are operated under certain conditions after 
exposure to high-sulfur fuels. One issue is whether or not these 
operating conditions would be realized under normal driving conditions.

    Question 4. How would the damage be reversed?
    Response. Due to lack of specific expertise in this area, we don't 
feel qualified to answer this question, and defer to the other panel 
members.

    Question 5. What is the estimated cost of replacing a catalytic 
converter?
    Response. Due to lack of specific expertise in this area, we don't 
feel qualified to answer this question, and defer to the other panel 
members.

    Question 6. Is there another way to repair or ensure that catalytic 
converters, if damaged by high sulfur content in fuels, can be restored 
to their original performance levels?
    Response. Due to lack of specific expertise in this area, we don't 
feel qualified to answer this question, and defer to the other panel 
members.

    Question 7. If the damage is reversible, could regional regulations 
work?
    Response. Due to lack of specific expertise in this area, we don't 
feel qualified to answer this question, and defer to the other panel 
members.

    Question 8. If the damage is not reversible. could regional 
regulations tailored to the air quality needs of each region. 
effectively reduce the impact of sulfur on catalytic converters?
    Response. Due to lack of specific expertise in this area, we don't 
feel qualified to answer this question, and defer to the other panel 
members.
                                 ______
                                 
            Statement of Catalytic Distillation Technologies
                       who is cdtech'?
    CDTECH' is a Texas general partnership between ABB 
Lummus Global Inc. (LGI) and Chemical Research & Licensing (CR&L). The 
partnership was formed in 1988 when CR&L was owned by NOVA Corp., of 
Canada. In 1997, CR&L was purchased from NOVA by CRI International, a 
wholly-owned subsidiary of Royal Dutch Shell Petroleum. ABB Lummus 
Global is an international engineering and construction company 
providing a wide range of technologies and services to the chemical, 
petrochemical, petroleum refining, oil and gas, and power industries. 
ABB Lummus Global is part of ABB's worldwide oil, gas and petrochemical 
business activities, which employs approximately 10,000 people. ABB is 
a U.S. $31 billion Group based in Zurich, Switzerland, employing 
approximately 200,000 people. The CDTECH partnership develops and 
licenses a wide range of process technologies for the petrochemical and 
refining; industry. CDTECH has 74, licensed operating units worldwide 
including 50 Mtbe and Etbe units, 10 Tame units, 3 ethylbenzene units, 
3 iso-butene units, and 11 hydrogenation units.
                    why fcc gasoline sulfur removal?
    Most modern United States refineries contain fluid catalytic 
cracking (FCC) units, which produce 30 to 50 percent of the gasoline in 
a refinery. The gasoline produced by these FCC units can contribute up 
to 90 percent of the sulfur in a refinery's gasoline pool. Our 
experience with refiners in the United States is that FCC gasoline 
contains sulfur levels between 700 and 5000 ppm. To achieve sulfur 
levels in the gasoline pool of 30 ppm, the sulfur in FCC gasoline must 
be substantially reduced. In addition, there are other components of 
the gasoline pool, such as Light Straight Run gasoline, and coker 
gasoline, which typically have to be treated to reduce pool gasoline to 
30 ppm or below.
    FCC gasoline is also a major contributor to the octane value of the 
gasoline pool. On a molecular basis, this is due to the high olefin 
content in the low boiling portion of the FCC gasoline; a high ratio of 
branched to linear alkanes, and the high aromatic content of the high 
boiling portion. Most processes for sulfur reduction rely on the 
reaction of sulfur with hydrogen. The reaction conditions suitable for 
sulfur removal also cause the olefins present to react with hydrogen. 
This saturation reaction produces alkanes, reducing the octane of the 
individual olefin components by as many as 30 road octane points 
(defined as the average of research and motor octane numbers). If this 
saturation is excessive, the refiner will be severely limited in its 
ability to blend fuels with the octane required by automotive engines. 
The octane loss for the FCC gasoline that is desulfurized depends on 
the percentage of olefins originally in the FCC gasoline, and the 
percentage that react with hydrogen. The aromatics content of the FCC 
gasoline is not usually changed by sulfur reduction processes. However, 
some processing routes which include catalytic reforming, would 
increase the aromatics content of FCC gasoline in order to offset the 
octane losses caused by olefin saturation.
    During desulfurization, there is also the possibility of converting 
a portion of the FCC gasoline to components too volatile to be blended 
into the gasoline pool. This yield loss of gasoline production can also 
add to the costs of desulfurization since the products produced are of 
lower value than gasoline.
    The preferred process then must reduce the sulfur level 
selectively, without eliminating a major part of the octane value 
contained in this major component of gasoline and with minimal yield 
loss to undesired products. As a benchmark, 90 percent reduction in 
sulfur with less than one octane loss and no yield loss represents a 
selective process.
                types of sulfur species in fcc gasoline
    The sulfur components present in FCC gasoline can be generally 
grouped into the following chemical classes: mercaptans, sulfides, 
thiophenes, and benzothiophenes. Mercaptan sulfur is principally 
concentrated in the low boiling range of the FCC gasoline while 
benzothiophene and its alkylated derivatives are concentrated in the 
highest boiling portion. The thiophenic and sulfide compounds are 
distributed relatively uniformly in the mid-boiling range of the FCC 
gasoline. Benzothiophene and its alkylated derivatives typically 
represent greater than 60 percent of the sulfur in FCC gasoline while 
mercaptan sulfur is less than 5 percent.
             gasoline sulfur removal technology description
    CDTECH offers processes that are applicable for FCC gasoline sulfur 
reduction for any refinery with the desire to remove sulfur while 
limiting the extent of octane and yield loss associated with the sulfur 
removal step. The typical process scheme uses two stages of catalytic 
distillation and is currently available for up to 99 percent 
desulfurization of FCC gasoline. Catalytic distillation is a unique 
processing scheme in which both distillation and catalytic reactions 
take place simultaneously in the same vessel. The first stage of the 
process is a CDHydro' dehexanizer. This stage processes a 
FCC gasoline feed to produce an olefin rich overhead stream containing 
about 50 percent of the olefins in about one third of the volume of FCC 
gasoline. This stream is composed principally of five and six carbon 
hydrocarbon components and is designed to meet the targeted sulfur 
specification. Inside this catalytic distillation unit, volatile 
mercaptan sulfur species react with some of the hydrocarbons present to 
form substantially less volatile sulfide species that exit with the 
bottoms product stream. The overhead stream is thus very low in 
mercaptan sulfur species and does not require further processing before 
blending to the gasoline pool. The volume of this stream is limited by 
the levels of non-reactive sulfur compounds which are taken overhead in 
this unit. These include low boiling sulfur components such as methyl 
sulfide and thiophene. The first stage CDHydro unit can also be 
designed to increase the octane value of this olefin rich stream. This 
is accomplished by converting lower octane olefins to higher value 
olefins. This permits the recovery of some of the octane loss 
associated with the second stage of the process described below.
    The second stage of the process uses the CDHDS' process 
to remove the concentrated sulfur species from the heavier FCC gasoline 
produced as bottoms product from the first stage unit. In the second 
stage, sulfur compounds are catalytically converted to hydrogen sulfide 
(H2S) using conventional hydrodesulfurization catalyst and 
hydrogen. The product H2S is easily removed from the 
gasoline stream in a downstream unit known as a product stabilizer and 
then is recovered using a conventional amine absorption unit. The 
essential feature of the CDHDS technology is that it permits a more 
selective sulfur removal step than conventional fixed bed processing, 
minimizing olefin saturation, hydrogen consumption, and yield and 
octane losses.
    At 95 percent, removal of the sulfur from the feed, the two stage 
CDTECH process has virtually no yield loss and a road octane loss of 
about 1.0 for FCC gasoline streams containing about 30 percent olefins. 
Increasing the level of sulfur removal to 98 percent increases the 
octane loss to about 1.5 octane points with no change in the yield 
loss. Finally, higher olefin content gasolines will result in higher 
octane losses for a given level of sulfur removal.
                          development overview
    Development work for all of CDTECH's technologies is conducted at 
our state-of-the-art pilot plant facility in Pasadena, Texas. The pilot 
plant operates 24 hours a day, 7 days a week, replicating commercial 
operations. The development work is carried out on a number of scales, 
culminating with a test program at a scale sufficient to reduce the 
risks associated with scale-up to commercial operations to levels 
similar with previously successful processes. Feedstocks for the sulfur 
removal technology are acquired from the refining industry in tank 
truck quantities and are representative of the wide range of FCC 
gasoline streams currently being blended into the gasoline pool. 
Development work has been facilitated by onsite technical input of 
individual refining corporations who are interested in evaluating the 
technology for their FCC gasoline.
(a) CDHydro Technology Development
    Development of the CDHydro technology dates back to 1992. The first 
commercial application of Catalytic Distillation for CDHydro was 
successfully started up in 1994. Currently 11 commercial units operate 
using catalytic hydrogenation within distillation towers. In 3 of these 
applications, the conversion of the mercaptan sulfur present in the 
C5 fraction of FCC gasoline occurs in the same manner as in 
the first stage of the FCC gasoline sulfur reduction process. The 
development work for the first stage therefore consisted of extending 
the commercialized process to include the mercaptans present in the 
light C6 fraction of the FCC gasoline. The octane enhancing 
option of the CDHydro technology has been in commercial operation since 
1997.
(b) CDHDS Technology Development
    The development program for the second stage, CDHDS technology, 
began in 1994 and has included comprehensive pilot plant testing with 
10 FCC gasolines obtained from the North American refining industry. 
During its development, CDTECH has maintained close collaboration with 
the refinery industry to ensure the technology would address their 
needs. Over 15,000 hours of pilot plant operations have been conducted 
at the 5 to 10 barrel per day (bbl/d) feed rates, with an additional 
10,000 hours operation at the 0.5 to 1.0 bbl/d rate. The feedstocks 
tested ranged in sulfur content from 800 ppm to near 7000 ppm with 
olefin contents between 10 to 35 percent. In addition to a wide scope 
of pilot plant testing, CDTECH has collected and generated analytical 
data on dozens of FCC gasoline streams. This data allows CDTECH to 
evaluate the applicability of the results from the piloting of specific 
FCC gasolines to a wider clientele. Each feedstock can be evaluated 
against the CDTECH data base to ensure the engineering design will meet 
its intended performance criteria.
                    costs estimates to remove sulfur
    To meet the 30 ppm sulfur specification proposed by the EPA, most 
refineries are evaluating options to reduce the sulfur in their FCC 
gasoline to a 50 ppm specification. An example of the costs associated 
with treating a FCC gasoline stream with the CDTECH process is shown 
below (Total Installed Cost +/-25 percent U.S. Gulf Coast Location):

------------------------------------------------------------------------
                                                      Cost Estimates
------------------------------------------------------------------------
Feed Rate: 40,000 BPSD of FCC gasoline.........  .......................
Feed Sulfur Content: 2300 ppm..................  .......................
Product Sulfur Content: 50 ppm.................  .......................
Percent Sulfur Removal: 97.8 percent...........  .......................
                                                ------------------------
  Total Capital Related Expenditures with a 4                  $0.64/bbl
   year payout: (Includes ISBL+Royalty, OSBL @
   40 percent of ISBL, Maintenance @ 4 percent
   of ISBL+OSBL)...............................
  Total Operating Costs: (Includes catalyst,                    0.55/bbl
   hydrogen, and utility costs)................
  Octane Loss Costs @ 1.5 (R+M)/2 loss:........                 0.35/bbl
  Total Cost of Process:.......................   1.54/bbl Or= 0.037/gal
------------------------------------------------------------------------

    Of course for each refinery, the costs will vary depending upon 
site specific economics, the desired rate of return on capital 
investments and the properties of the FCC gasoline fed to the process. 
OSBL capital as a percentage of ISBL costs will vary from site to site. 
Octane and utility values will also be different. FCC gasoline is a 
different percentage of the total gasoline pool at each refinery. Using 
the range of 30 to 50 percent, this example could generate an 
additional cost of 1 to 1.9 cpg of pool gasoline. If other gasoline 
pool streams require processing, costs will increase.
       commercialization steps, capability and status of projects
    The typical facility project has five separate phases, four of 
which require primary support from the Technology Supplier (CDTECH and 
others), and one of which can be contracted to any of the multiple 
major Engineering, Procurement and Construction (EPC) companies. These 
phases are:
    1. Technology Selection
    2. Budget and Project Approval
    3. Basic Engineering
    4. Detailed Engineering and Construction
    5. Commissioning and Start-up
    During technology selection, multiple technology suppliers 
typically submit preliminary process designs, and capital and operating 
cost estimates to a refiner. CDTECH has provided a large number of 
these proposals to refiners throughout the world. The refiner evaluates 
these proposals, and after discussions with the potential licensors, a 
single technology is selected. Capital for the project is then either 
included in the budget with a proposed timing, or approval of the 
project may be sought directly.
    The proposals that CDTECH provides to refiners during this phase 
are based on technology that CDTECH has developed in our pilot plant 
facilities and the performance of relevant commercial operating units. 
The technology is translated into process designs, and plant operating 
and capital cost estimates by ABB Lummus Global, under contract to 
CDTECH. CDTECH can expand this resource as required to meet the needs 
of the refining industry.
    Project approval may require more detailed capital estimates than 
have been provided with a proposal. The refiner can make these 
estimates within their own organization, or request a better definition 
from CDTECH. At times. this will require additional engineering design 
to meet the accuracy level requested by the refiner.
    During Basic Engineering, the process design is finalized by CDTECH 
to meet the refiner's detailed requirements, and equipment is sized, 
with the critical equipment specified in detail. The Basic engineering 
package supplied can be used by any of the many competent EPC companies 
to develop a project proposal for the refiner.
    The EPC firm selected by the refiner performs detailed engineering 
and construction. Thus, the entire EPC industry is available to support 
refiners during this phase. Detailed engineering drawings may be 
reviewed by CDTECH, if requested by the refiner.
    The final phase of the project is commissioning and startup. 
Engineers from CDTECH's technology development team with Lummus 
engineers and CDTECH Technical Service personnel ensure the unit starts 
correctly and is brought to full and guaranteed operation, meeting low 
sulfur requirements. Continuing technical support for operations is 
provided by this same team, in support of the refiner.
    The combination of CDTECH working with the EPC industry 
demonstrated our ability to meet the needs of the refining industry for 
Mtbe manufacturing facilities after the 1990 Clean Air Act was passed. 
The same cooperation and proven abilities are available for sulfur 
reduction facilities.
    CDTECH's sulfur removal technology has already been selected by 
three North American refineries. Two of the units will initially treat 
the heavy portion of the FCC gasoline only using CDHDS with provisions 
in the future to incorporate the first stage unit. The third unit will 
treat the full FCC gasoline using CDHydro and CDHDS. Basic engineering 
has been completed on two of the three projects. Basic engineering is 
being completed simultaneously with detailed engineering to expedite 
the third project. The first commercial CDHDS unit is expected to begin 
operation in Q1, 2000. The project involving both CDHydro and CDHDS 
unit is expected to begin operations in Q3, 2000. In both these cases, 
the time from beginning of basic engineering to unit startup is 
projected to be 18 to 24 months.
    Many other refiners are waiting for final issue of the EPA 
regulations for sulfur in gasoline before committing funds for a 
project for FCC gasoline sulfur reduction. The incentives for early 
sulfur reduction being offered may cause some refiners to commit to 
sulfur reduction projects as soon as the regulations are finalized. By 
2001, both portions of the CDTECH process for selective FCC gasoline 
sulfur reduction will have been fully commercialized, with adequate 
operating experience to demonstrate their reliability.

     CLEAN AIR ACT: SULFUR IN THE TIER 2 STANDARDS FOR AUTOMOBILES

                              ----------                              

                         THURSDAY, MAY 20, 1999

                               U.S. Senate,
         Committee on Environment and Public Works,
Subcommittee on Clean Air, Wetlands, Private Property, and 
                                            Nuclear Safety,
                                                    Washington, DC.
    The subcommittee met, pursuant to recess, at 9:30 a.m., in 
room 406, Senate Dirksen Building, Hon. James M. Inhofe 
(chairman of the subcommittee) presiding.
    Present: Senators Inhofe, Bennett, Boxer, and Chafee [ex 
officio].
    Also present: Senator Thomas.

          OPENING STATEMENT OF HON. JAMES M. INHOFE, 
            U.S. SENATOR FROM THE STATE OF OKLAHOMA

    Senator Inhofe. The meeting will come to order right on 
time as usual.
    As I told the Administrator, this will go fairly rapidly. 
They called a special meeting on Kosovo that's taking place now 
and most of the members who are going to be here also want to 
get to the last part of that, so we will get right into it.
    Today's the second day of hearings on the EPA's proposed 
sulfur standards which is a part of the Tier 2 automobile 
standards. On Tuesday, we heard from the States, the auto 
industry, the public interest groups and a witness representing 
an alternative biotechnology. Today, we hear from both 
Administrator Browner and Mr. Perciasepe. We appreciate both of 
you being here. This allows the EPA to respond after the fact 
to the things that were said in last Tuesday's hearing.
    I have many concerns regarding the EPA's proposed sulfur 
standards. After Tuesday's hearings, my concerns really have 
increased. I have been raising a number of issues to the 
Administration regarding sulfur over the past year and these 
issues were not answered or addressed in the proposed 
rulemaking.
    I was extremely disappointed that my concerns were largely 
ignored by the EPA in the proposal. EPA's proposed sulfur 
standard is an unworkable program which, if enacted, would 
jeopardize and create disruptions in our national fuel supply, 
would lead to closing of refineries, and threaten our national 
security by making us more reliant upon foreign-refined 
products and will provide limited benefit to the environment.
    On Tuesday, I explained some of my major concerns. After 
listening to the testimony Tuesday, I'm adding to my concerns 
and I will just briefly list those things in addition to what I 
mentioned on Tuesday. (1) The small refineries that the EPA has 
failed to justify why they are using the 1,500 employee 
definition; (2) the problem that some of these refineries are 
owned by large corporations and yet the same cost 
considerations would be held by the subsidiary as if they were 
free-standing refineries; (3) the phase-in time, the EPA has 
provided the autos with generous time while ignoring the 
equipment installation problems for refineries; (4) cost data, 
the EPA's cost data assumes everyone will use the new equipment 
which has only been installed in one refinery to this date; (5) 
the regional approach, the Western governors are unanimous in 
their overwhelming objection to the national standard and their 
concerns have not been addressed; (6) new technologies, the EPA 
has ignored important new alternative technologies such as 
biotech which will not be ready for the 2004 deadline--we had a 
witness on Tuesday, Mr. Nasser, that made this very clear; (7) 
closures, the EPA believes no refineries will be closed without 
conducting a detailed refinery review like the one conducted by 
Canada, which found that 3 to 6 of their 18 refineries would be 
closed; (8) the national security, ignoring the refinery 
closure issue, the EPA has failed to consider the impacts on 
our national security creating a greater reliance on foreign-
refined products; (9) the banking and trading program is too 
little and too late--in other words, they earn credits through 
2005 that the equipment is not available; (10) cost 
effectiveness, the EPA did not cost out other approaches to 
reduce the pollutants such as other sulfur levels or phase-in 
dates--you costed out using the 30 ppm by 2004 but not some 
comparison, perhaps 40 ppm for 2006 or some other alternatives; 
(11) MTBE usage, like they didn't consider the negative health 
impacts in ozone reduction which came rather clearly in the 
court case that we've been looking at in the last few days, 
they didn't consider the impact of increased MTBE usage; (12) 
cost of gasoline due to the EPA's incorrect equipment cost 
projection and supply disruptions, they have grossly 
underestimated the cost impact on gasoline. It assumes that the 
new technology will be used which is not yet there.
    This is not an exhaustive list but there are some other 
areas we will be able to get into. I also want to point out 
that the proposed Tier 2 rule the EPA uses, the term ``8-hour 
standard, 48 times; ``new ozone'' appear twice, ``new PM'' 
appears 5 times and ``PM2.5'' appears 35 times. For 
anyone to say that the EPA has not relied on the new 
NOx standards for this rulemaking, they simply 
aren't reading the record.
    Senator Thomas.

 OPENING STATEMENT OF HON. CRAIG THOMAS, U.S. SENATOR FROM THE 
                        STATE OF WYOMING

    Senator Thomas. Thank you, Mr. Chairman.
    Thank you for having this hearing. Administrator Browner, 
we're happy to have you here.
    I won't make an opening statement but let me just say there 
are some areas we're very concerned about from our previous 
hearing and want you to address with respect to how these 
regulations apply to each of the areas across the country--
obviously Wyoming is quite different than California or New 
York--the time requirements that are there, whether or not 
there is fairness between the automobile industry and the 
refineries, particularly small refiners, whether you can expect 
this to be done in that length of time; the cost-benefit ratios 
I think are unclear in terms of what might be done. There seems 
to be decisions based on conflicting studies. I think that 
needs to be explained as well.
    We've heard there has been cooperation with the refiners in 
terms of it and yet I'm not sure there's been any meetings, so 
we seem to be faced with a problem.
    Let me say again as I've said before, you can't just cover 
this by saying we all want clean air, we obviously do. That's 
not the issue. The issue is the process. So I hope we can talk 
a little bit about how we arrive at a joint purpose and goal 
and that's clean air, but do it in a way that is not 
destructive. So we're very happy to have you here.
    I won't take anymore time, Mr. Chairman.
    Senator Inhofe. Administrator Browner.

     STATEMENT OF HON. CAROL BROWNER, ADMINISTRATOR, EPA; 
ACCOMPANIED BY HON. ROBERT PERCIASEPE, ASSISTANT ADMINISTRATOR, 
                OFFICE OF AIR AND RADIATION, EPA

    Ms. Browner. Thank you, Mr. Chairman. I appreciate the 
opportunity to once again appear before this committee to 
testify today on the President's proposal for the next 
generation of cleaner cars and cleaner gasoline.
    Joining me is the Assistant Administrator for our Office of 
Air and Radiation, Bob Perciasepe.
    Simply put, over the next decade, this proposal will phase 
in both cleaner burning engines and cleaner burning fuels. That 
will mean cleaner air and healthier families. We are doing 
this, we proposed to do this with a market-based approach that 
is both flexible and fair to industry. The costs to consumers 
are modest while preserving their choice in vehicles.
    We propose these new standards in recognition of some 
simple facts. No. 1, Americans are driving more than ever--we 
are in our cars almost 60 percent more than we were in 1980. 
That is simply a fact we all need to deal with. We live further 
and further from work, mass transit is not always an option, 
and higher polluting, large sport utility vehicles, minivans, 
light trucks now make up 50 percent of the automotive market 
and sales are expected to steadily increase.
    Since the Clean Air Act was passed almost 30 years ago, we 
have made tremendous progress in this country. Working 
together, industry, government, environmental and health 
experts, we are now preventing almost 70 million tons of 
harmful emissions from entering the air we breathe. We estimate 
that these gains, the hard work and the gains we've achieved 
will begin to erode in the next 10 to 12 years if we don't do 
something about increased vehicle emissions. Together we have 
come too far to let all of our hard work drift away on clouds 
of auto-induced soot and smog.
    The President has proposed the following. First, we are 
proposing to hold sport utility vehicles, light duty trucks to 
the same national pollution, tailpipe emission standards as 
automobiles. Second, for the first time ever, we are treating 
tailpipe emissions and gasoline as a single system, as a unit. 
Not only will the automotive manufacturers build cleaner 
catalytic converters and thus cleaner cars, but refiners will 
be producing cleaner fuels that contain less sulfur.
    We have worked with both automotive and refining sectors in 
developing these proposals. Mr. Perciasepe, his staff, have 
spent countless hours with these industries. I personally have 
also met on numerous occasions with representatives from both 
of these industries. I have had individual telephone 
conversations, meeting with individual companies.
    We consulted with States, we consulted with engine 
manufacturers, we consulted with public health groups. We 
engaged in a process to hear from each and everyone who would 
be affected by these proposals to best understand how to strike 
the balance, how to give the American people the clean air that 
I know we are all committed to providing.
    After months of collaboration with all of the interested 
parties, we have proposed a tailpipe standard of .07 grams per 
mile of nitrogen oxide. We propose this because we believe it 
is technically feasible, cost effective and it gives us the 
pollution reductions the American people need.
    This proposal represents a 77 to 86 percent reduction for 
automobiles and a 92 to 95 percent reduction for SUVs and 
trucks, reductions in their tailpipe emissions. To make the 
fuel that our vehicles burn cleaner, we will also phase in a 90 
percent reduction of sulfur and gasoline. We propose to begin 
that in 2004.
    Sulfur not only pollutes our air but it can also poison the 
performance of the catalytic converters that are supposed to 
help clean the air, that are supposed to scrub the tailpipe 
emissions. A great deal of flexibility has been built into the 
proposal, including giving the automotive and refining sectors 
needed time to phase in the technologies that will bring about 
these reductions. The proposal also includes market mechanisms 
that reward manufacturers and refiners who would meet the 
targets ahead of schedule.
    For cars and other vehicles under 6,000 pounds, the new 
standard will be phased in over 4 years, beginning in 2004 in 
25 percent increments with 100 percent compliance by model year 
2007. We recognize that trucks and SUVs have a longer way to 
go. The phase-in period for these vehicles would be between 
2004 and 2009.
    Most of the Nation's refiners will have to phase in and 
meet a sulfur standard of 30 ppm by 2006. We did recognize the 
needs of small refiners. They would have until 2008 to meet the 
requirements. If they could prove an extreme economic hardship, 
they could have until the year 2010.
    To ensure both the automobile and refining industries can 
meet these goals in the most cost effective way, the proposal 
contains several innovative and flexible incentives. In 
addition to the phase-in period, there is the opportunity for 
fleet averaging. This allows the car manufacturers to build a 
range of vehicles so long as the average of that fleet remains 
at .07.
    We also encourage early compliance by including a credit 
system that rewards manufacturers and refiners who meet their 
goals faster than required. For instance, beginning in the year 
2001, auto manufacturers can generate and obtain credits for 
later use for vehicles produces at or below the .07 standard. 
Refiners and oil importer would also be able to bank and trade 
sulfur credit so that they could use them in a later year or 
sell to another refiner.
    We estimate that when fully implemented, these proposals 
will keep about 3 million tons of pollutants out of our air, 
and in every year help prevent thousands of premature deaths 
and the onset of respiratory illnesses associated with air 
pollution. The results of these standards would be to cut 
emissions from cars and trucks by about 80 percent of what they 
are today. The effect is the same as if 166 million cars were 
pulled off the road.
    These proposals do not limit the consumer's choice in 
vehicles. In almost all cases, the manufacturing and refinery 
sectors will be able to meet the standards by building upon and 
perfecting technologies that already exist today. The cost to 
consumers will be minimal. We estimate that the price of gas 
will rise 1 to 2 cents per gallon. That means for the average 
motorist, an extra $12 to $24 a year for cleaner air.
    We expect the price of the cleaner catalytic converter to 
be approximately $100 to $200, although as you may have seen 
recently, one manufacturer who is reducing their tailpipe 
emissions is already promising not to pass that cost on to the 
consumer.
    With these new standards, we will maintain this Nation's 
progress in meeting our clean air goals and we will allow 
Americans to breathe easier into the next century.
    We are now in a period of public comment. We are hearing 
from numbers of people across the country. We will continue the 
dialog with both industry sectors, with public health 
officials, with State and local government leaders so that by 
the end of this year, we can complete these proposals, we can 
complete this rulemaking and begin the process of implementing 
programs that will bring cleaner air for millions of Americans.
    Mr. Chairman, before I conclude I just want to take a 
moment to talk about a recent Federal Appeals Court decision 
that would seem to call into question on constitutional grounds 
EPA's ability to tighten public health standards for soot, for 
smog under the Clean Air Act.
    The decision surprised us. We regarded it as extreme, 
illogical and bizarre. It is extreme in that it seems to fly in 
the face of more than a half century of U.S. Supreme Court 
rulings. It ignores the fact that for the past 64 years, this 
body, Congress, has passed laws and then relied on the 
executive branch, executive agencies to set the particular 
rules to carry out the legislative goals, rules that ultimately 
have provided a tremendous amount of public health and safety 
protections for the people of this country.
    The decision is illogical. It would have you believe that 
during the 1990 debate on the Clean Air Act amendment, this 
body, the Congress, the Bush administration, all but broke 
their sacred trust with the American people and perpetrated a 
cruel hoax on the one hand, telling EPA, retaining the 
provisions that tell the EPA to set a public health standard, 
to review it every 5 years and to strengthen it, if necessary 
to protect the public health and on the other hand, buried in 
another section, denying EPA the ability to ever enforce that 
standard, denying EPA the ability to ever require industry to 
reduce its pollution to meet a tougher public health standard.
    I have read the congressional debates on the Clean Air Act 
of 1990. No where have I ever, ever seen a member of this body 
say it is our intention to deny EPA the ability to ever 
strengthen the ozone standard and if they do it, to enforce it. 
I don't believe that is what this body was doing. I don't 
believe that is what was intended and yet that is what the 
court now tells us.
    Senator Inhofe. Should we conclude that you don't agree 
with the court decision?
    [Laughter.]
    Ms. Browner. Let me continue. In one of the more bizarre 
sections of the decision----
    Senator Inhofe. If you could go rapidly through the rest of 
your opening statement, you've gone beyond the time. We have 
some Senators who have to leave.
    Ms. Browner. This is an important decision, as I think the 
members of this committee with jurisdiction over this Act have 
rightfully noted. I want to call your attention to a few other 
sections of the opinion and I will be brief.
    It is a very strange opinion, Mr. Chairman. It is a very 
strange opinion and I think all of the scholars who have looked 
at it agree with that.
    Senator Inhofe. Let me suggest something. I'll have a 
hearing on this opinion later. Rather than use up the time for 
this opinion right now, I'd rather address that at a later 
date. There are a lot of opinions and court decisions that come 
out that I don't agree with either but our system is such that 
one right now is standing.
    Mr. Chairman, with all due respect, you raised the issue of 
the court opinion and how it may relate to Tier 2. I assumed 
you'd like me to speak to that.
    Senator Inhofe. Because the court opinion has been made, 
yes.
    Ms. Browner. I presume you would like me to speak to the 
issue of whether or not this court opinion would affect----
    Senator Inhofe. If you could do it very rapidly, yes.
    Ms. Browner. The court opinion goes far beyond what any 
court has recently found in terms of giving agencies the 
ability to set public health standards. I think it's important 
to understand--and some have suggested that somehow or another, 
this opinion says that EPA had bad science, that EPA didn't 
follow the process, that EPA didn't do what it was supposed to 
do in setting these standards. In fact, that is not what the 
court says. It explicitly recognizes that we did have the 
science, that we did have a public health rationale for tougher 
air quality standards.
    The Tier 2 proposal that brings us here today is premised 
on a series of authorities in the Clean Air Act--is it 
technologically feasible; does the technology exist to provide 
cleaner air; does the technology exist to build a better 
catalytic converter; does the technology exist for cleaner 
fuel?
    Second, it looks at the public health benefits that would 
flow from reducing the pollutants associated with tailpipe 
emissions. Perhaps most importantly to the Tier 2 proposal is 
the fact that as we continue to drive more and more, the gains 
we have made in air quality benefits will be lost and the Tier 
2 proposal is designed to maintain the benefits that we have 
achieved and to ensure that has we love to do, we will be able 
to continue to drive our cars where we want and when we want.
    You suggested, Mr. Chairman, that in some way the Tier 2 
proposal is premised solely on the new ozone standard, the 8-
hour standard commonly referred to, that it is in some way 
premised on the fine particle standards. It is premised on the 
technology, the cost-effective nature of the technology, and 
finally the public health benefit. Those are largely driven by 
the fact that when we look at the number of miles we will drive 
our cars, it is going up and with it, so will the pollution. 
This is an effort to ensure that we do not lose the progress 
that we have made.
    Senator Inhofe. Thank you very much.
    There is one thing I want to pursue before turning it over 
to my colleagues. For over a year, we've been requesting the 
benefits data of the proposed sulfur standard. You were not 
required to submit this information to the rule as proposed. We 
found it strange that since we usually do get this data, but 
after we received it, I can see why you weren't all that 
excited to share that with us.
    I have four charts I'd like to look at. The first one is 
the chart of the benefits chapter of the EPA's regulatory 
impact on page 59. Look at the far right side which is the high 
end. Your range goes from 2.2 to 14.2, so we'll use the high 
side for comparison purposes because the ratios are the same if 
we use the low side, almost the same.
    You can see that the bottom line of the chart, the benefits 
range from $3.0 to $19.5 billion. At the top, it says the 
benefits that come from the mortality portion of the benefits 
is $14 billion, roughly 75 percent of the total benefits is 
found in that particular column. That is based on this one Pope 
study. I remember so well going over the Pope study previously. 
It was one of two principal studies whose data was never made 
public. The Pope study is currently undergoing a reanalysis by 
the Health Effects Institute.
    There are a lot of criticisms of the Pope study and you can 
recall when different scientists appeared before this 
committee. The Pope study relied on old data from 1980, the 
scientists agreed and are reviewing one, the fact that there 
are conflicting epidemiological studies, that the Pope study 
showed weak association levels, whether there are other 
confounders such as humidity, other pollutants, day of the 
week, temperature, et cetera, no biological mechanisms defined, 
no chamber studies for PM2.5. Three-fourths of the 
benefits are relying on this study.
    This is a letter from the President, a memorandum for the 
Administrator of the Environmental Protection Agency, subject, 
implementation of the revised clean air quality standards for 
ozone and particulate matter. The part that's highlighted 
reads:

    Implementation shall ensure that the Environmental 
Protection Agency completes its next periodic review on 
particulate matter, including review by the Clean Air 
Scientific Advisory Committee within 5 years of the issuance of 
the new standards as contemplated by the Clean Air Act. Thus, 
by July 2002, the agency will have determined based on data 
available from its review whether to revise or maintain the 
standards. This determination will have been made before any 
areas have been designated as nonattainment under the 
PM2.5 standards and before imposition of any new 
controls related to the PM2.5 standards.

    And it goes on.
    I guess the question here is that the President stated in 
his memorandum that the PM2.5 studies should not be 
used for the PM2.5 controls until the EPA has 
completed the next 5-year review. Yet you are using these same 
studies here and the Pope study for 75 percent of the benefits 
data for the sulfur rule. I guess the question is obvious. Can 
you explain why these studies are not appropriate for the PM 
regulatory decisions according to the President, yet you're 
relying on them for a regulatory decision here?
    Ms. Browner. First, let me speak to the issue of the 
studies, the scientific, peer-reviewed, published studies, the 
Pope study is one of the ones you referred to that formed the 
basis for EPA's decision to set a PM2.5 standard. 
You questioned whether or not that is a good study and you 
raise the fact that the Health Effects Institute is looking at 
these studies.
    The Health Effects Institute reported in a meeting last 
week in San Diego that they have in fact confirmed the results 
of the Pope study and what is commonly referred to as the six-
city study. This is another panel of scientists, I think there 
has been a recognition in Congress that it was important, we 
agreed with that, to have another panel look at it. They have 
now indicated that they can confirm the results of the Pope 
study.
    Senator Inhofe. Madam Administrator, I know we can spend a 
lot of time discussing that and I have a lot of information.
    Ms. Browner. You suggested it's not a good study.
    Senator Inhofe. No, that isn't my question. My question is 
the President said you don't do this until you have this data 
and yet you're relying upon them for this regulatory decision.
    Ms. Browner. No, we're not.
    Senator Inhofe. You're not?
    Ms. Browner. The Tier 2----
    Senator Inhofe. Here it is----
    Ms. Browner. If I can explain.
    Senator Inhofe. Yes, you can explain.
    Ms. Browner. The rationale for the Tier 2 study--this is a 
cost-benefit analysis. The question I think that you want me to 
answer is what is your rationale for requiring tougher tailpipe 
standards and I think you're suggesting that somehow or 
another, our sole rationale is the tougher, fine particle 
standard which is now the subject of litigation.
    If you look at the justification which we have made public 
for the tougher tailpipe standards and at the cleaner fuels, 
what you will see is, as I said previously, it is 
technologically feasible and there is a public health need. We 
have justified the public health need based on the old 
standards.
    The easier way for me to talk about this in the case of 
ozone is there is the 8-hour standard, which is what is 
referred to as the new standard, the old standard is referred 
to as the 1-hour standard. The litigation is about the 8-hour 
standard.
    This proposal, the Tier 2 proposal, is premised on the need 
for pollution reductions under the old standards. The 
documentation is all there and it is publicly available.
    Senator Inhofe. Madam Administrator, with all due respect, 
I'm only asking on the highlighted part where he says, ``Do not 
use the new PM standards until you have the review process 
behind you,'' and yet you are doing it and the President said 
not to do it.
    Ms. Browner. We didn't do what the President told us not to 
do. We didn't. The standards are premised on----
    Senator Inhofe. Senator Thomas and I hope you get a better 
answer?
    Senator Thomas. Let me just make an observation. You talked 
a good deal about the court decision. We went through this a 
week ago on clean water as well. There is, as I understand it, 
a relationship between what the Congress does statutorily and 
what the agencies do to live within that. I think that is a 
reasonable thing. As you know, it's not unusual to suggest that 
EPA has gone beyond its authority, so I'm not as surprised by 
this as you seem to be. We talked about it last week, you 
recall.
    Let me ask you, California has done some of these things 
for 20 years. You say the costs will probably be 2 cents a 
gallon. How do you understand the cost in California which is 
80 cents higher than Wyoming?
    Ms. Browner. The issues of fuels in California go beyond 
the issue of sulfur. California has----
    Senator Thomas. So you don't think there is any 
relationship there?
    Ms. Browner. California has other requirements on their 
fuels beyond the sulfur reduction. When we look at the cost in 
terms of the cost to refineries to install the technology, and 
it is existing, available technology. You are right, California 
has already reduced sulfur. So have other parts of the world. 
California goes beyond sulfur and does other things than what 
we've proposed, but in terms of sulfur, when you look at the 
cost to the refineries of installing the equipment to produce 
the lower sulfur fuels which brings the public health benefits, 
that is something that is easily ascertained, and that is what 
our cost figures are based on.
    To simply say because California's gas is this much higher 
than Wyoming's gas today, as you well know today probably far 
better than I do, a lot of factors go into the pricing of 
gasoline. California does have other issues involved in the 
price of their gasoline.
    Senator Thomas. For you to simply say you've decided that 
when the refiners who were here earlier this week have quite a 
different view also brings it into question.
    Ms. Browner. Obviously we're taking public comment on it. 
We are more than happy to share with you how the study was done 
to look at--again, this is existing information. What is the 
technology, how much does it cost the refiner to buy the 
technology, to install the technology? The good news is it has 
been done and the more it is done, if history is any guide, it 
does tend to become less expensive. This is something that is 
known, people have done it, are doing it.
    Senator Thomas. How long did it take California to made the 
adjustment?
    Ms. Browner. Just the sulfur adjustments? California 
started their sulfur reduction program in 1992 and they 
completed it in 1996 is my understanding. We will check those 
dates.
    Senator Thomas. You check that because I don't believe that 
is accurate. They've taken much longer than that to do that and 
that's part of the problem here, that you're requiring--we 
don't need to debate it with all your associates--but come up 
with that, will you, please because that's one of the real 
issues here as you know, is there time, is this a time that you 
can make this transition? That's part of the question.
     The small refiners in the West are something selfishly 
that I'm quite concerned about. For example, why should Wyoming 
motorists be subject to these increased costs and disruptions 
from this when we're really doing it for other areas of the 
country substantially.
    Ms. Browner. Everyone gets cleaner air when you get cleaner 
fuels, cleaner tailpipes, cleaner catalytic converters. 
Everybody gets cleaner air. One of the great things about this 
country is our freedom and our strong desire to see our country 
and to travel from State to State.
    There is a technological issue which I'm happy to discuss 
if you'd like me to.
    Senator Thomas. I started this by saying we all want that. 
Nobody wants clean air anymore than we do in Wyoming. We have 
an attainment. It's quite different in Wyoming than it is in 
New York City.
    Ms. Browner. I'm going to explain why you would want to 
have one standard. It is associated with the fact that we drive 
our cars from State to State.
    Senator Thomas. I understand that.
    Ms. Browner. The catalytic converters, when you put the 
dirtier fuels into the catalytic converters, you limit, you 
decrease the catalytic converter's ability to scrub the fuel 
and to achieve lower emissions. You may do that permanently. So 
we could go through the effort of putting cleaner, better 
available new technology catalytic converters on cars and then 
as we enjoy a family vacation and drive to a State where they 
do not have cleaner fuels, the benefits of that catalytic 
converter are lost.
    Senator Thomas. You're saying that doesn't ensure that's 
entirely accurate. Not everyone agrees with that. Do you 
understand?
    Ms. Browner. The people who build the catalytic converters 
do agree with us. I've spent time with them.
    Senator Thomas. Let me ask you this. You talked about 
getting the refiners and the automobile people together so they 
could do something about that. Did you ever help set up that 
meeting between them?
    Ms. Browner. Sir, I didn't say we got them together. I 
said----
    Senator Thomas. I said did you help set up a meeting 
between the two of them?
    Ms. Browner. I think you can ask both of the industries, I 
tried and unfortunately, they didn't want to do it that way. 
Instead, they preferred to work with us individually.
    Senator Thomas. Who is they?
    Ms. Browner. The car manufacturers did not want a joint 
meeting. The petroleum industry was more than happy. When I 
called API back and I explained to them that our invitation to 
the automobile association was not to their liking, the 
petroleum industry said, they would like to work with us alone 
and that is what we did. I met with API, I met with company 
representatives on several occasions and my colleagues, on 
numerous occasions. In addition to that, I placed phone calls 
and had extensive conversations with several CEOs, 
environmental vice presidents of individual companies.
    It would have been my preference to have everyone in one 
room. That was not their preference and so we found another way 
to move forward listening to both industries.
    Senator Thomas. I understand. We do find different points 
of view. You kind of make the statement as if this is the way 
it is. That may be your views, but that isn't everyone's view. 
You do understand that?
    Ms. Browner. It's not API's view that I met with them?
    Senator Thomas. No, the idea that it's going to impact the 
automobile industry so much and the cars by having this thing. 
The things that you say, Ms. Administrator, are your views but 
they are not everyone's view. That's kind of what we're talking 
about here in terms of the studies.
    Ms. Browner. They're not my views.
    Senator Thomas. Why are you putting them out there? Why are 
you so aggressive today? Can't we just talk about this? You 
don't need to be so defensive about everything.
    Ms. Browner. I'm not defensive. I do have a job to do and 
I'm trying to do it.
    Senator Thomas. So do I.
    Ms. Browner. We've made a proposal, we think it is a sound 
proposal and we are taking public comment on the proposal. I am 
simply trying to answer your questions, how did we arrive at 
this proposal, what was the process we engaged in, and why did 
we make it? That's all I'm trying to do.
    Senator Thomas. What we would like to do is to help explain 
to you some of the questions and problems that our people have 
and I think we deserve just a civil response. We don't need 
great defensiveness and rejecting everything we way.
    Ms. Browner. I haven't rejected anything you've said. I 
simply explained to you that in my conversations with the 
catalytic converter manufacturers----
    Senator Thomas. My conversations with the oil people is 
that is not necessarily accurate.
    Senator Inhofe. Senator Thomas, your time has expired.
    I want to apologize to Senator Boxer. I did not see you 
here, Senator Boxer.
    Senator Boxer. It's easy to miss me, I know.
    [Laughter.]
    Senator Inhofe. No, it's not easy to miss you.
    Senator Boxer.

           OPENING STATEMENT OF HON. BARBARA BOXER, 
           U.S. SENATOR FROM THE STATE OF CALIFORNIA

    Senator Boxer. Thank you very much, Mr. Chairman.
    Mr. Chairman, sometimes I think I'm in the wrong room when 
I come to an Environment Committee and everybody's entitled to 
get on the committees of their choice, but I hope you will 
continue to give us your views and your best analysis even if 
everyone doesn't agree with you because it would not be 
appropriate for you to sit there and not tell us what you see 
as the truth, as it would not be for Senator Thomas not to tell 
us what he sees as the truth. I think everyone should just be 
truthful and respectful.
    I just have to say this. Again, maybe it's because we do 
come from different States. It's true, California has gone a 
long way to clean its air and there was a very good reason for 
it. Even today, a child born in Los Angeles has a 12 percent 
lower lung capacity than a child born in another part of my 
State, San Francisco, because of the air. So in California, it 
is our view to just do everything we can do to clean up the 
air.
    In terms of the cost of gasoline, we know that it does cost 
us about 10 cents more a gallon to meet all of the various 
requirements to get clean gas. Our people support that. What we 
don't quite understand is why we're paying so much more. That's 
the subject of an FTC investigation. That's another issue.
    There is no question that our people do pay more for 
cleaner fuels and also my understanding is the oil companies 
say it will cost about 5 cents to get a cleaner fuel in terms 
of sulfur. So it does cost.
    The question is, is the cost worth it? I guess what I 
always come back to and the reason I'm so happy to be on this 
committee with all of you, even though we don't agree on a lot 
of things, is because between 1982 and 1994, asthma prevalence 
has increased 61 percent in our population and 72 percent 
increase among children. This just doesn't come out of--it does 
come out of the air. It's because of the dirty air and we know 
that asthma is the No. 1 cause of school absences attributed to 
chronic conditions.
    We know that our children are very vulnerable to the 
effects of air pollution because unlike adults, children 
breathe 50 percent more air by body weight than the average 
adult. That's why I wrote the Children's Environmental 
Protection Act. I think it is time that rather than fight 
cleaner air, we should fight for even cleaner air than we 
thought we needed because if we clean up the air enough to 
protect an adult, which is currently what the law provides, we 
miss out on the children, the pregnant women, the vulnerable 
population. So what do we do here I hope would be about 
ensuring that we improve the health of our people, our children 
and the most vulnerable populations.
    It has a cost. I'm very straightforward about that, but it 
saves money at the other end. Every child that goes into a 
hospital emergency room because of asthma costs us money. Every 
person that has their life shortened because of emphysema and 
other problems costs us money. We know that automobiles is an 
area we need to address.
    What our Administrator is doing here, and I think she 
deserves praise, she's fighting from her heart and from her 
mind to make this case. She knows her facts.
    As I look at all this and I want to ask the Administrator 
this question, I understand there are at least two available 
cost-effective technologies for reducing the sulfur content of 
gasoline and one is called CD hydro and the other is called 
OCTA made by Mobil. I don't know whether we invited those folks 
to participate in this hearing but I would ask you, do you 
think 5 cents a gallon is about what it would cost in terms of 
the sulfur, cleaning the sulfur?
    Ms. Browner. When we looked at the available technology, 
and you're correct, those are two technologies and I think we'd 
also find there are other technologies. Our study, which we've 
made publicly available, suggests 1 to 2 cents per gallon.
    Senator Boxer. So the oil companies say 5 cents, you say 2 
cents. Let's say something in between.
    Ms. Browner. Correct.
    Senator Boxer. Let's even go to the 5 cents. If you ask 
people what they think, the polls, I don't have any charts but 
if I had one, I'd show you the asthma chart and I'd show you 
the public support for cleaner fuel, 89 percent of the people, 
and a vast majority are willing to pay for it.
    All I want to say is I've been in this battle for clean air 
since I was a county supervisor and we've always heard these 
same arguments. In California in particular, the argument made 
was strong economy versus clean environment. I think what we 
have proven in our State is they go hand in hand and when we 
embrace these new technologies that we know work, they create 
jobs in and of themselves.
    I would hope in this committee we could join hands across 
the aisle. Today, it looks like that is difficult, but I'm ever 
optimistic that we can because I think in the end, we will find 
cleaner air means better health for our people, longer lives, 
better quality of life, more productivity for our people, and 
we save money at the other end when people live healthier 
lives, and particularly the children.
    Children are not little adults. I am a little adult, I 
agree, but kids are changing. It is dangerous for them to 
breathe dirty air.
    Mr. Chairman, I know your concerns, I understand them but I 
hope in the end we will continue to make progress. I understand 
this court decision but this decision certainly didn't tell you 
not to move ahead with this standard?
    Ms. Browner. Not with the Tier 2 proposal, no, it did not.
    Senator Boxer. Because it's related to another underlying 
law. I hope we will move forward with this. I look forward to 
more debate with my colleagues.
    Thank you very much, Mr. Chairman.
    Senator Inhofe. Senator Chafee, I appreciate your being 
here today.
    Senator Chafee. Thank you. I think Senator Bennett was 
first.
    Senator Inhofe. You're going to defer to Senator Bennett. 
That's fine.
    Senator Bennett.

         OPENING STATEMENT OF HON. ROBERT F. BENNETT, 
              U.S. SENATOR FROM THE STATE OF UTAH

    Senator Bennett. Thank you, Mr. Chairman.
    It's been an interesting morning. I'm not sure that I can 
add too much to it in terms of incisive questions because the 
battle lines have been drawn but let me take advantage of the 
time to make a few observations.
    I used to live in California, Senator Boxer. I was there 
for 12 years. I know that there are things in California that 
the rest of the country does not have to endure. In a way I was 
delighted to be out from under some of those restrictions, but 
that I recognize given the nature of California, particularly 
the Los Angeles Basin, the geographic situation there with the 
mountains situated as they are.
    The San Fernando Valley I'm told--that's where I lived--was 
called the Valley of Smokes by the Indians before anybody else 
showed up. There was dirty air there from natural causes before 
the automobile got there. When the automobile came and 
exacerbated the problem, the San Fernando Valley, beautiful as 
it is and wonderful as it was to live there, became an area 
very different than the high, wind-swept plains of Wyoming.
    So I understand that paying extra for gasoline and other 
things that are done in California is just part of the price of 
living there.
    Senator Boxer. And more and more people are coming.
    Senator Bennett. More and more people are coming. I 
remember reading about the comments of one of the early 
developers of Los Angeles who said, it's the climate we're 
selling, the land is free. The climate has gotten very 
expensive if the land is free in southern California.
    I think some of these debates about whether it's 1 or 2 
cents or 5 cents or so on are a bit short-sighted. The Wall 
Street Journal has a story about California and indicates that 
the law of supply and demand is still in effect. That is that 
problems with refineries, who could not manufacture under these 
rules, caused shortages in California's output to the point 
that the supply fell and the price--admittedly you could say it 
was temporary--went up as high as 55 cents a gallon because of 
lack of supply of this particular kind of fuel that could not 
be replaced from fuel in other parts of the country.
    Senator Boxer. If I might say, we had a couple of fires at 
a couple of refineries but it's not the supply and demand 
issue. I'm steeped in this and that's why the FTC is 
investigating because there's a lot more to it than this, 
regardless of what the Wall Street Journal might say.
    Senator Bennett. Nonetheless, we do have the question of 
whether or not--we'll debate that at some other point.
    I'll tell you my experience in Utah where the EPA has 
determined that Utah Valley--those unfamiliar with the 
geography in Utah, we have Salt Lake Valley where Salt Lake 
City is, we have Utah Valley where Provo is--has the same kinds 
of problems. That is, there are inversions there that occur 
naturally. Again, a different kind of situation than you have 
in Kansas or Nebraska.
    Utah Valley does not meet some standards some parts of the 
year and EPA has ruled that certain things have to be done to 
the gasoline in Utah Valley which raises the price, and which 
has produced the natural law of supply and demand, the 
phenomenon that many people in Utah Valley drive to Salt Lake 
Valley to fill their tanks, not only because of price but 
because of degradation of performance.
    You can argue that Americans shouldn't be so in love with 
their cars and the performance of their cars that that 
shouldn't be an issue but we have had that experience, where 
people in Utah Valley routinely drive to Salt Lake County to 
fill their tanks. They get gasoline that is not compliant with 
the requirements in Utah Valley but they drive back there and 
there you have the problems.
    So basically what we come down to is a very serious problem 
that does not lend itself to the shouting of slogans back and 
forth. Administrator Browner, I can understand your frustration 
with some of the attitudes on this committee and the very human 
reaction to be firm in your position. I don't criticize you for 
that. I understand that.
    At the same time, I think the EPA institutionally has a 
history of having something of a tin ear in the marketplace and 
on some issues of science, I think some dialog should take 
place that, for whatever reason, doesn't now.
    I can confirm that people in the refineries agree that you 
have had an open door, you have sat down with them, you have 
had those conversations. I would hope that you, us, someone can 
be an honest broker to get the refinery industry and the 
automobile industry together. I do not think that the science 
is ever as clear-cut as some people like to claim that it would 
be.
    Some of the scientific studies that are being cited here 
are to the benefit of the automobile industry. I remember back 
before you were the Administrator a controversy about catalytic 
converters. One of the big three manufacturers had a particular 
kind of engine they thought had great promise for clean air; 
another manufacturer had a very heavy investment in catalytic 
converters and a patent on catalytic converters. The battle was 
lost for the first manufacturer and in favor of the second 
manufacturer and we're now stuck with that technology having 
thrown out the opportunity for the first technology. It's too 
late, long since, to go back to that. That was 15-20 years ago.
    Let's not automatically assume that what one manufacturer 
or one industry tells us is the only way to clean air.
    I'll close, Mr. Chairman, and I appreciate your indulgence 
with the time. No one has a monopoly on his or her dedication 
to clean air. No one should be stigmatized as being against 
clean air just because he or she might question the scientific 
validity of some of the studies that we have.
    Thank you.
    Ms. Browner. Just very briefly. First of all, I wanted to 
thank the Senator for your recognition of the work that we did, 
the outreach and the dialog we engaged in with the industry. I 
think it was both appropriate and quite extensive. It 
continues. It is not something that is simply set aside as we 
move into this public comment phase. It does in fact continue. 
Anyone who can help us encourage all of the parties who 
ultimately have a stake in this, everything from the State 
agencies who could set their own fuel standards, to the 
petroleum industry to the automotive industry, to come together 
and to look at how best to answer this question of cleaner 
fuels and cleaner tailpipe emissions we would be very, very 
pleased to have that kind of assistance. We would appreciate 
it.
    If I might make one other point, with the indulgence of the 
chairman. You raised the issues of studies and who does which 
studies, and that's a very valuable question to ask, a very 
legitimate question to ask. I would call the committee's 
attention to the work that EPA itself has done in this area. It 
is detailed in the proposed rule that is now available for 
public comment.
    Very briefly, we did purchase a car, a large SUV is what I 
think it would be referred to--I'm going to try to do this 
without referring to manufacturers' names--off the lot, like 
any one of us could purchase an SUV off the lot. We then 
installed a newer catalytic converter, the new generation 
catalytic converter, then fueled it with the cleaner fuels to 
see what sort of issues might arise and what kind of pollution 
reductions we could achieve.
    Obviously we're not free to make some of the adjustments 
that the manufacturer can make inside the engine body; we're 
simply sort of playing on the outside if you will, things we 
can add on. I think the very, very good news is simply those 
things that we could do we were able to get very significant 
pollution reductions and we were able to bring a very large 
vehicle down to something on the order of .04 emission level. 
What we are proposing is an average, a fleet average of .07.
    So I take your counsel on who does which study and I would 
simply call to your attention to some of the work we have done.
    Senator Inhofe. Madam Administrator, you're talking about 
the other subject. We're here talking about sulfur and gas. 
Tuesday they refrained from talking about the auto emissions, a 
separate subject, and you're spending a lot of time on this.
    Ms. Browner. But they go together. What comes out of your 
car is a factor of two things.
    Senator Inhofe. They may go together but the seven 
witnesses last Tuesday were able to segregate the two. We will 
be having hearings on that.
    I think since Senator Bennett brought up the science that 
this would be a good time. This was called to my attention and 
I suggest to everyone in the room regardless of what your 
thinking is, read the current Reader's Digest article. It hits 
the shelves today or yesterday, and it's called, ``Weird 
Science at the EPA.'' At this time, I would enter this as a 
part of the record.
    [The referenced article follows:]
                      [Reader's Digest, June 1999]

                        Weird Science at the EPA

                         [By Trevor Armbrister]
            political smog is costing us billions of dollars
    Two year ago Environmental protection Agency (EPA) Administrator 
Carol M. Browner told a Senate committee that ``our air-pollution 
standards are not adequate to protect our health.''
    Under the Clean Air Act, the EPA must seek the advice of its Clean 
Air Scientific Advisory Committee (CASAC) before it issues new 
regulations. Browner testified that the committee reviewed a vast body 
of research. ``In a most compelling way,'' she said, ``the science 
leads us to the new, stronger standards that EPA proposes.''
    In fact, on a key soot regulation only two of the committee's 21 
members supported the EPA's stringent standard, and of ten members who 
expressed their views on the smog rule, only four agreed with the one 
chosen by Browner. ``The committee was used,'' one CASAC member told 
Reader's Digest.
    The cost of these new regulations--as much as $47 billion a year by 
EPA estimates, more than $100 billion by critics calculations--will be 
borne by every American. Yet the public-health benefits are either 
marginal or uncertain, according to the CASAC reports.
    This episode--in which the head of a Federal agency overstated the 
scientific basis for a proposal she wanted to implement--is part of a 
disturbing pattern, according to Browner's many critics. ``This is by 
far the most politicized EPA I've seen in my three decades of working 
in State government'' says Russell J. Harding, director of Michigan's 
department of environmental quality. ``It is an agency driven more by 
sound bites than by sound science, an agency that is out of control.''
    EPA scientists and other employees have also criticized the 
agency's management practices under Browner; several reportedly then 
faced vicious harassment. U.S. Rep. F. James Sensenbrenner, Jr. (R., 
Wis.), chairman of the House Committee on Science, fears that 
retaliation against whistleblowers may be having a ``chilling effect on 
scientific research at the agency.''
    New EPA regulations will cost as much as $47 billion, yet the 
health benefits are marginal or uncertain.
                           cooking the books
    When Carol Browner's name first surfaced as President Clinton's 
choice to head the EPA, few in Washington had heard of her. A 37-year-
old attorney and mother of a young boy, she had been a legislative aide 
to then-Senator Al Gore (D., Tenn) and the head of Florida's department 
of environmental regulation. Browner had no scientific credentials but, 
as she told Senators, she had ``management skills.''
    Those skills would presumably come in handy, because the agency had 
long been a lightning rod for criticism--and not only by industry. A 
year earlier a special review body at the EPA had characterized the 
agency's ``interpretation and use of science'' as ``uneven and 
haphazard.''
    Early in 1993 (before Browner took over) the EPA declared in a 
report that secondhand smoke was a deadly carcinogen responsible for 
approximately 3000 lung-cancer deaths each year. The fallout was 
enormous. States, cities, counties and towns rushed to pass new laws, 
and the White House declared itself a smoke-free zone. Browner was all 
over the media, touting the report.
    Several tobacco companies claimed the EPA's risk assessment was 
wrong and filed a lawsuit to force the agency to withdraw the report. 
But few paid any attention, since the industry lacks any credibility.
    A year later, however, the nonpartisan Congressional Research 
Service (CRS) questioned the EPA finding's scientific basis. ``The 
statistical evidence,'' CRS researchers told a Senate subcommittee, 
``does not appear to support a conclusion that there are substantial 
health effects of passive smoking.''
    Then, last July, U.S. District Court Judge William Osteen (who had 
in another major case ruled against the tobacco industry) concluded in 
effect that the EPA had cooked the books. Based on a comprehensive 
review of the evidence, Osteen wrote that the ``EPA publicly committed 
to a conclusion before research had begun'' and ``adjusted established 
procedure and scientific norms to validate the agency's public 
conclusion.'' The judge noted, ``Using standard methodology, the EPA 
could not produce statistically significant results.'' (Osteen did not 
challenge the link between secondary smoke and respiratory problems in 
children, or other studies that point in the direction of a link to 
lung cancer.)
    The Federal judge's ruling--issued in a blistering 92-page 
document--was in effect a challenge to the EPA's integrity. In 
response, Browner stood behind the report, and her agency has filed an 
appeal.
                               no apology
    Members of Congress have frequently voiced complaints about 
Browner's agenda. Republicans charged that she was more interested in 
expanding her agency's reach than protecting the environment. She 
ignored them. Veteran House Democrats John Dingell (Mich.) and Ron 
Klink (Pa.) complained publicly about her unresponsiveness and 
inaccessibility during the debate over clean-air standards. Browner 
cold-shouldered them too.
    Browner's officials have also tried to stiff-arm the States. In 
1996 EPA officials approved an application from the Oneida Nation of 
Wisconsin granting the tribe authority to set water-quality standards 
on its reservation near Green Bay. Wisconsin protested, arguing that 
the State had the right to regulate its own waterways and that only 15 
percent of the land affected by the EPA's ruling was owned by the 
tribe.
    According to Wisconsin's attorneys, the EPA, when forced to justify 
its action, discovered that the ``factual analysis'' required to 
buttress its decisions had never been made. ``Don't worry,'' EPA 
attorney Marc Radell told his colleagues, according to a co-worker's 
deposition filed in Federal court. ``We can pull together whatever is 
necessary and backdate'' it to before the decision was announced.
    In sworn affidavits, Radell and a colleague, Claudia Johnson-
Schultz, claimed that the factual analysis had been prepared prior to 
the EPA's approval of the Oneida application. Then in April 1997 the 
U.S. Justice Department filed a ``status report'' that ``affidavits 
submitted by [EPA] may contain false statements.'' Radell and Johnson-
Schultz stuck to their story. Higher-ups supported them.
    Later, investigators found e-mails that, Wisconsin attorneys claim, 
proved Radell and Johnson-Schultz had created the documents in late 
May, backdated them to January and lied about it ever since. Without 
admitting any wrongdoing, the EPA agreed to pay Wisconsin more than 
$30,000 for legal fees and other costs. Gov. Tommy G. Thompson (R.) 
requested a ``formal apology'' for the EPA's ``abhorrent conduct and 
the great harm it has caused.'' The EPA would not respond, since the 
mater was in litigation.
                             reprisal time
    Under Carol Browner, critics charge, the EPA's Office of Inspector 
General has been so aggressive in investigating EPA employees that 
agency morale has suffered. Wrongdoing should always be prosecuted, but 
many of the cases were dropped for lack of evidence, and in other cases 
the accused have reported being harassed and intimidated by 
investigators.
    One episode of employee harassment involved the EPA's Office of 
General Counsel and EPA microbiologist David L. Lewis. In two long 
letters to Browner, Lewis expressed his concern that poor management 
was undermining science at the EPA to such an extent that it was 
jeopardizing public health and the environment.
    Lewis had an international reputation. He had conducted pioneering 
research on dental infections; the EPA would nominate him for a 
prestigious national award. But when Browner failed to respond to his 
letters, Lewis published an article entitled ``EPA Science--Casualty of 
Election Politics'' in Britain's renowned science journal, Nature: 
Science at the EPA had reached ``a state of crisis,'' he charged.
    EPA officials were quick to retaliate. Lewis had violated 
government ethics rules, agency attorneys suggested, because his 
disclaimer--the required acknowledgment that he was speaking just for 
himself and not for the EPA--was insufficiently prominent in the 
article.
    At the time, Congress was considering legislation to reform EPA 
science procedures. The agency also claimed that another Lewis article 
in a newspaper constituted political activity prohibited by the Hatch 
Act.
    Lewis was forced to hire Washington attorneys to preserve his 
career as well as his right of free speech. Late in 1996 they filed a 
whistleblower's complaint with the U.S. Department of Labor (DOL), 
which referees such disputes within the executive branch.
    The DOL ruled that the EPA had violated no fewer than six federal 
statutes in its quest to silence Lewis. In a settlement, the EPA agreed 
to pay Lewis $115,000 in damages and legal fees. Later October, Lewis 
announced that he was taking early retirement. ``I have no faith in the 
agency or the character of its top leaders.''
                         ``veering off course''
    Carol Browner appears often in print and on television, speaking 
about how her agency protects the health and environment of all 
Americans, especially ``the children.'' What is her policy about 
whistle-blower complaints? How does she respond to allegations that 
politics takes precedence over science at the EPA, that questionable 
conduct passes without rebuke?
    Through a spokesman, Browner declined repeated requests for an 
interview. But she may have to talk to Congress, as it plans to hold 
hearings this year to look into some of her policies.
    Americans want a clean environment, and they're willing to pay for 
it. But they also have a right to be assured that the agency charged 
with administering the environmental laws makes its decisions on the 
basis of the best science available. Unfortunately, the evidence 
suggests that this is not necessarily the case.
    Rep. Joe Knollenberg (R., Mich.) sits on the committee that 
controls EPA funding. ``The agency has been veering off course,'' he 
said in an interview. ``We have to push it back on track.''
                              plane truth
    I was on a flight from Washington, D.C., to San Francisco. In a 
seat ahead of me was an off-duty senior airline captain. After an 
unusually rough landing, I overheard another passenger asking the off-
duty captain to critique our pilot's skills.
    ``A good landing is one that you can walk away from,'' he said. 
Then he added, ``And a great landing is one where you can reuse the 
plane.''
                            --Contributed by Robert G. Hahn

    Ms. Browner. Do you know what the issue is that they're 
raising?
    Senator Inhofe. Science, yes.
    Ms. Browner. Which body--water, air.
    Senator Inhofe. Air and other science.
    Is there objection to entering this into the record at this 
point?
    Senator Bennett. No.
    Senator Inhofe. Thank you very much.
    Senator Bennett. Just quickly. I have the information that 
California did have six small refineries close as a result of 
sulfur California standard rules. This was in the testimony 
that we had a couple of days ago. So the reduction in supply 
was not due entirely to the fires, there were six small 
refineries that were closed because they could not produce this 
and that had an impact on California's supply. I just want that 
in the record at this point.
    Senator Inhofe. I would observe, Senator Bennett, that 
during my comments I talked about what has happened in Canada 
in terms of those that are in the process of being closed 
today.
    Senator Chafee.
    Senator Chafee. Thank you very much, Mr. Chairman.
    We've got a real problem here as I see it. If you look at 
the testimony of Ms. Browner, you'll see that the increased 
mileage driven by Americans over a rather short period of 
time--if I read her statistics correctly, we've gone from a 
trillion miles per year of what you call light vehicles or is 
that total vehicles?
    Ms. Browner. I think that's total vehicles, from passenger 
up to the trucks.
    Senator Chafee. Up to and including trucks?
    Ms. Browner. It includes everything from your small 
passenger car up to your large SUV.
    Senator Chafee. So we've gone from a trillion miles per 
year vehicle miles traveled in 1970 to just over 2 trillion 
miles per year today. In a 28-year period, it has doubled. 
There's no reason to believe that isn't going to continue.
    I think what you indicate in the testimony the staff has 
prepared for us, what the committee did, if we follow the 
procedures you've outlined here, it would be the equivalent to 
moving 69 million cars from the road in 2020. That's a pretty 
big step forward. What they're saying here is if we followed 
the proposal you have, it would be the equivalent of removing 
69 million cars from the road.
    Ms. Browner. Actually, it's a different number, the 166 
million.
    Senator Chafee. That would be only for the sulfur part of 
the proposal.
    Ms. Browner. Yes.
    Senator Chafee. I think it's something that deserves our 
attention in following through with this. I'm a cosponsor with 
Senator Moynihan of legislation, S. 171, which would require 
the same level of reduction.
    We've got big problems here and I take if I'm correct here, 
since 1996, California gasoline has met this standard, is that 
correct?
    Ms. Browner. That is correct. Their program was different 
than the one we have proposed. It did not include extra time 
for the small businesses, the small flexibility and it did not 
include a banking and trading program like we propose.
    Senator Chafee. This is something California did by itself?
    Ms. Browner. California did it on their own, right.
    Senator Chafee. I'd like to change gears on a completely 
separate subject if I might since you're here. My question is 
addressed to you.
    Yesterday I met with Senator Baucus in connection with 
Superfund. One thing that we agreed on is we need much more 
detailed information from EPA on Superfund cost data. We need 
that information as we move toward the appropriations and as 
you know, the Senate allocation for the VA/HUD Subcommittee is 
down by 12 percent, over $10 billion less than last year.
    Mr. Fields sent me some information on Superfund last 
evening and the staff is in the process of reviewing it but it 
really misses the mark. The EPA plans seem to focus on how it 
will spend $1.5 billion but that wasn't the question I asked 
Mr. Fields.
    What we want is a bottom-up estimate of how much EPA will 
need to run the Superfund cleanup program over the next 5 
years.
    Ms. Browner. We can provide that.
    Senator Chafee. We've had a tough time getting it.
    Ms. Browner. They may not have understood the question. As 
I understand the question, maybe the simplest way to do this is 
you look at the number of sites that we project activity at, 
the cost on average per site per year.
    Senator Chafee. Whatever your best judgment of the cleanup 
costs over the next 5 years. Our focus is on the cleanup 
program, not on the discretionary extras such as brownfields or 
research or worker training or other non-cleanup things under 
Superfund. Our focus is on the Superfund cleanup.
    What I'd like from you is a commitment that you'll give us 
that information as quickly as possible.
    Ms. Browner. Certainly.
    Senator Chafee. Because we're very anxious to move on with 
our Superfund proposal. Our staff here is available to meet 
with you and your staff to make sure that everybody understands 
the nature of this request.
    Ms. Browner. Yes, we're more than happy to do that. I think 
I understand. With your suggestion, we will meet with your 
staff and make sure we're doing it in an accounting that works 
for you.
    Senator Chafee. That's right, so that we're in sync 
together.
    Ms. Browner. Absolutely.
    Senator Chafee. Thank you very much, Mr. Chairman.
    [The prepared statement of Senator Chafee follows:]
   Statement of Hon. John H. Chafee, U.S. Senator from the State of 
                              Rhode Island
    Mr. Chairman, with your indulgence I would like to take this 
opportunity to make a few comments on a court decision announced last 
week that declared the ozone and particulate matter standards 
unconstitutional. As everyone knows by now, the Court of Appeals found 
that the analysis supporting these standards was too vague; it did not 
articulate a principle that pointed to the specific standards selected 
by EPA as opposed to others that might have been selected. I want to 
make three points about this decision.
    First, this is not a general defeat in all of our environmental 
laws. I have seen some press reports suggesting that the whole 
structure of environmental law has been undermined. Not so.
    For instance, the Safe Drinking Water Act has long dealt with 
contaminants that cause cancer and for which there is no threshold for 
the adverse health effect. When Congress enacted the Safe Drinking 
Water Act in 1974, it established a clear principle for setting 
standards in these cases. Set the goal at zero and set the enforceable 
standard as close to zero as can be achieved using best available 
treatment technology.
    Most of our laws use comparable technology-based principles for 
standard setting. Even within the Clean Air Act itself, the first phase 
of standards for toxic air pollutants are determined based on best 
technology and the second phase, which is health-based, has a one-in-
one-million trigger.
    Far from being a general defect in environmental law, I believe the 
vagueness the Court found for these national ambient air quality 
standards is almost unique. If there were a threshold for the health 
effects of ozone and particulate matter as there are for other ambient 
air pollutants, EPA would have easily translated ``requisite to protect 
public health with an adequate margin of safety'' into a clear 
standard. It is the newly appreciated absence of a threshold for the 
health effects that make these ozone and particulate standards 
difficult to justify using the statutory language of the Clean Air Act.
    Second, I agree with the Court as it expresses its discomfort with 
the vagueness in these two regulations. As some may recall, I did not 
endorse EPA's regulations when they were proposed, in part, because EPA 
was not able to say why .08 for ozone was better than .09, but .07 was 
not better than .08. Whenever that subject came up, Administrator 
Browner would always appeal to report of the Clean Air Scientific 
Advisory Committee that was nearly unanimous for .08. But, as the Court 
said, CASAC didn't articulate a decision principle either.
    I think that Congress must do a better job of saying when ``enough 
is enough''. And that applies even where we are using technology-based 
standards and the principle is clear. Our ability to detect these 
substances and control them gets better and better. It is a blessing of 
modern technology. But at some point removing that last little 
increment of pollution has a cost way beyond reasonableness. We need to 
do a better job in our environmental laws telling EPA when to stop.
    My third point is on cost-benefit analysis. I suspect that many 
will think that cost-benefit analysis is the obvious answer to the 
Court's challenge. EPA can't use it now, because a previous decision of 
the same Court bars it. But Congress could amend the law to make it the 
principle for decision on these two pollutants. The Court seemed to 
invite such an approach. And indeed, the Governmental Affairs Committee 
is this morning marking up a bill to require a cost-benefit analysis of 
every regulation. Just set the standard where the cost of pollution 
control is equal to the cost of the doctor's visits avoided and you 
have a clear principle.
    But I would caution those who would jump on the cost-benefit 
bandwagon to do their homework. In some cases, cost-benefit is a useful 
tool in setting national standards. We authorized its use in the 1996 
Safe Drinking Water Act Amendments. The costs and benefits of drinking 
water treatment are roughly the same in Minneapolis and Philadelphia. 
Using a cost-benefit test on a national standard applying to both 
cities makes sense. But care is needed in using this tool, because the 
drinking water standard that is affordable in Minneapolis and 
Philadelphia will not always be affordable for the smallest towns in 
America.
    In the case of the Clean Air Act, the complications are much 
greater. It is much cheaper to achieve any particular level of ozone 
control in Minneapolis than it is in Philadelphia because of 
differences in meteorology and the regional transport of pollutants. 
Whose costs and benefits do we consider when we set the national 
ambient air quality standard for ozone? Are the people of Minneapolis 
to be denied the protection that they can afford because the same 
standard would be too expensive in Philadelphia? Do all of us want to 
live under the air pollution regulations that would be readily 
affordable in Los Angeles? I don't think so.
    Perhaps it is not as elegant as a Court of Appeals would desire, 
but our current system of muddling through may be the best that we can 
do. We have national health-based standards that are tough goals to 
strive toward and an implementation system based on State plans that 
leave many cities in perpetual non-attainment because immediate 
compliance would be too expensive. Although the system is a source of 
constant complaints and adjustments, we must also recognize that it has 
produced marvelous results in public health and air quality over the 
past 30 years. Clear principles would make us more comfortable. But it 
is exceedingly difficult to capture the physical complexity of a vast 
Nation in simple legal principles. Clear air should be our real 
concern. And we should be loathe to throw out a law that has produced 
so many wonderful results.

    Senator Inhofe. Thank you, Mr. Chairman.
    I have a number of questions I was going to ask concerning 
the time for permits should this rule become effective and 
there are some 20 refineries in the States of Louisiana and 
Texas. I'm not going to ask those now because I still haven't 
gotten an answer to my first question, so I'm going to go back 
to that.
    This is a hearing on a rule affecting sulfur and gasoline. 
In the event that this becomes a reality, it will become 
effective, as I understand it, in December of this year, 
December 31?
    Ms. Browner. Yes. It is our hope to complete--we've 
committed to completing both of these rulemakings by the end of 
the year.
    Senator Inhofe. We went to a lot of expense. I've always 
wondered how much these charts cost because I know we use them 
all the time quite freely and we're supposed to be so austere. 
They're very nice charts.
    The one up here we went over before you came in, Senator 
Bennett and Senator Chafee, the President specifically said--
and I read the highlighted part--that you can't use 2.5 
standards for rules until the 5-year review, which would be 
2002, and that's what it says.
    Ms. Browner. But we didn't.
    Senator Inhofe. Yet, you're using the 2.5 Pope study for 
three-fourths of the benefits in this rule, right?
    Ms. Browner. That is not the legal justification for why we 
have----
    Senator Inhofe. You're using it. This is in your report, 
page 59.
    Ms. Browner. It is part of a cost-benefit analysis, it is 
not the legal justification for the proposal. I'm happy to cite 
the sections of the Clean Air Act that we rely on in making the 
proposal to reduce sulfur.
    Senator Inhofe. So even though it's in your report, you're 
saying you're not using it?
    Ms. Browner. Sir, there are two different issues. One is--
--
    Senator Inhofe. No, we're talking about the justification 
for this rule and the cost benefit is part of that 
justification. There's your benefit up there. Three-fourths of 
the benefit is predicated on the Pope study which is 2.5.
    Ms. Browner. In making the proposal to reduce sulfur in 
gasoline, we used a variety of authorities in the Clean Air 
Act. Is it feasible, is it technologically feasible, what are 
the health benefits. We also undertake a----
    Senator Inhofe. Madam Administrator, we're not asking about 
the authority you're using, it's in your report and it speaks 
for itself.
    I'm through with my questions. I'll yield now to anyone 
else who has a question.
    Ms. Browner. Can I answer?
    Senator Inhofe. You've already tried to answer it. It's 
there in front of you and you're denying that it's there.
    Ms. Browner. Sir, I've never denied that it's in the 
report. I'm explaining----
    Senator Inhofe. Based on 2.5, the Pope study is based on 
the 2.5 pm, isn't it?
    Ms. Browner. I'm more than happy to explain why it's in 
there, I'm more than happy to explain what standard we rely on 
in making this.
    Senator Inhofe. Just for the record, why don't you just 
deny that you're using 2.5?
    Ms. Browner. I haven't----
    Senator Inhofe. Because the President said not to, and so 
you're----
    Ms. Browner. I think if you look in the proposal, look at 
the justifications, if you look at the public health needs, the 
issue we are seeking to address and the pollution reductions we 
are seeking to achieve, are premised on the need, we are 
driving our cars more; they are premised on the 1-hour ozone 
standard; they are premised on the coarse particle standard.
    Senator Inhofe. Thank you very much.
    Senator Thomas.
    Senator Thomas. Just one, I think, question of interest, 
the definition of small refiner. We've heard apparently in 
California--I'd heard nine, they said six--at any rate, it's 
more difficult apparently for small refiners to accomplish 
these things than larger ones. It's my understanding the 
definition of SBA is based on corporate employees and so on but 
in the Clean Air Act, there is a definition that has to do with 
refining capacity. You've chosen to use the one for small 
business?
    Ms. Browner. The provision that you refer to I think refers 
to diesel fuels on refining capacity, but let me back up for 
second. We did use the SBA definition, we worked very closely 
with SBA on this on the panels. In fact, SBA has been very 
complementary of what we did on the small business side of 
this. The definition is 1,500.
    Senator Thomas, we are taking comment on that. Several 
individuals have spoken to me personally about the fact that 
there may be a few refineries that sit right above that and 
there may be a bigger jump up, so we have, in fact, opened 
ourselves for comment on the definition of small business. We 
did develop that in conjunction with SBA. I think the provision 
in the Clean Air Act that you're actually referring to is 
focused on diesel fuel which is a separate provision.
    If I might go back to the point I tried to make earlier 
with Senator Bennett in terms of California, while California 
does have a requirement on sulfur that is similar to the 
requirement that we have proposed or the standard we have 
proposed, I think equally important is how did they get there.
    Our proposal in terms of how the industry would be able to 
meet this standard is different in two very important ways than 
California's proposal. One is the small business flexibility. 
There is a provision in our proposal for the small business, 
the small refineries as we refer to them. If there is economic 
hardship, they can get an additional year.
    There is also what we refer to as a banking and trading 
program. This is the same kind of program that has been used in 
the acid rain where it helps industry to find the more cost-
effective source of reductions. Finally, there is an early 
credit program.
    So it is not the same path that California traveled that we 
are proposing and I'll be honest with you, I think we have--we 
may have a difference of opinion as to what happened in 
California and what caused it to happen. I think we have 
learned from California and that a lot of the flexibilities 
that we propose are in part a response to some of the rigidity 
that may have existed in California's program.
    Senator Thomas. From a distance, it seems like if the Clean 
Air Act had a definition that would be appropriate for you to 
use.
    Ms. Browner. I don't think it does have a definition.
    Senator Thomas. Yes, it does. We just went through that.
    Ms. Browner. We are using that on the diesel side.
    Senator Thomas. What's the difference in terms of size of 
the refinery?
    Ms. Browner. We are taking comment on that. SBA, who I 
think we would all agree, is the keeper of this. We used them.
    Senator Thomas. I just made an observation, you'd think the 
Clean Air Act would be kind of appropriate when you're talking 
about clean air.
    What about the math pro study, were there two of those 
done, one with refiners and one with automobiles? You came to 
the cost conclusions on this.
    Ms. Browner. I think there were two studies done. I think 
that is correct.
    Senator Thomas. One on refineries and one for the 
automobile?
    Ms. Browner. Yes.
    Senator Thomas. And you chose the one for automobiles to 
base this on?
    Ms. Browner. No, they were jointly done. I don't think 
that's--we're happy to provide you with the study. I think it 
was a joint effort to look at these issues.
    Senator Thomas. Would you provide it because it's my 
understanding they came to different conclusions and you have 
based it on the one that was for the automobile. We don't need 
to go through it in great detail.
    Ms. Browner. The staff that is much better informed on 
these two studies is telling me that there were two studies, 
they did reach the same conclusions. Why don't we give them to 
you?
    Senator Thomas. Yes, please.
    Thank you, Mr. Chairman.
    Senator Inhofe. Senator Bennett.
    Senator Bennett. Thank you, Mr. Chairman.
    I want to come back to the issue of supply. I probably 
shouldn't have to do this but apparently we do need to do this. 
I am not in any way carrying the brief for dirty air. I want 
everybody to understand I believe in clean air.
    Ms. Browner. Nor am I.
    Senator Bennett. We do not import very much gasoline in 
this country. We import a great deal of crude oil, indeed we 
import the majority of our crude oil, but in spite of 
tremendous burdens that have been placed, for environmental 
reasons and one can argue legitimately upon the refinery 
capability of this country, refineries have survived to the 
point where most of the gasoline in this country is refined in 
this country.
    Such percentage of imported gasoline that we do have acts 
as a regulator on the market. In other words, there is an 
alternative, albeit small. The numbers I've seen are from 10-15 
percent of gasoline in this country is refined outside our 
borders and is imported as gasoline, but that acts as a 
regulator on price so that there is a source of supply outside 
the country available.
    As we tighten pressure on supply in the United States, we 
increase the impact of imported gasoline in terms of its impact 
on the market.
    Ms. Browner. Just so I can follow the point, I think you 
and I both agree that the vast majority of what is imported is 
crude.
    Senator Bennett. Yes, and I'm not talking about crude at 
all. I'm talking about refined gasoline.
    Ms. Browner. Right, and sulfur would be the----
    Senator Bennett. Let's stay with the major product. As I 
understand it the percentage of gasoline is about 10----
    Ms. Browner. Percentage of crude?
    Senator Bennett. No, 55 percent of the crude is imported. 
Refined gasoline is somewhere between 10 and 15 percent and it 
acts as a regulator on price. So there is an alternative if the 
price gets too high for domestic, then the amount of imports go 
up, the price gets--this is the way it work. The law of supply 
and demand still operates.
    What will happen? Is anybody doing this kind of thinking in 
the EPA, what will happen if gasoline in the United States has 
specifications that are significantly different from gasoline 
outside of the United States, that the cost of refining 
gasoline for the United States in a foreign source becomes 
sufficiently prohibitive that the foreign source decides they 
are not going to refine anything for the United States and the 
availability of imported gasoline disappears? Has anybody done 
any studies on that?
    Ms. Browner. First of all, this is not the first time that 
there have been U.S. requirements that foreign refiners had to 
meet.
    Senator Bennett. I'm aware of that.
    Ms. Browner. And they have met them and they have remained 
a part of the mix, if you will.
    Second, lots of other countries have either done this or 
are preparing to take this specific reduction on sulfur. For 
example, Europe, the EU, the European Union, Japan, Canada. 
Canada has told me they're essentially going to follow exactly 
what we do. So it is something that is happening not simply 
here but it is a worldwide phenomenon.
    Finally, and I don't know if this is the issue you're 
trying to raise.
    Senator Bennett. I'm just trying to get a dialog on all 
these issues because I will tell you as a philosophical 
statement, I have the feeling that most of these debates take 
place in a very narrow arena and ignore the impact outside that 
arena. I would like the debates to take place in an arena where 
they consider all of the implications.
    Ms. Browner. I think this is an example of where we have 
looked at the worldwide situation. I have had several meetings 
to discuss what other countries are doing in terms of refining 
and the reduction of sulfur and we are continuing to work with 
the Department of Energy to ensure that the appropriate balance 
remains in terms of what is imported and what is domestic. We 
do have prior experience of requirements.
    Senator Bennett. I understand that. My summary is we 
disagree on this number too but I have evidence, Senator Thomas 
has evidence that the sulfur thing has caused some refineries 
to close. By definition that usually means a decrease in 
supply, a decrease in supply in terms of the United States' 
capacity usually means an increase in imports because as 
Senator Chafee says, we're going to keep driving. An increase 
in imports raises the question of the ability of refineries 
that are outside of our borders to meet this increased demand 
in the United States. I just want somebody to pay attention to 
those and talk about them. I am not being ideological about it, 
I am raising an issue in terms of the economics of the 
situation.
    Ultimately we come down to the question, as policymakers, 
if we can get all that information in front of us, is the cost 
worth it. We make the decision on a public health basis, yes, 
the cost is really going to be this. Frankly, in my gut, I have 
to tell you I think 1 to 2 cents per gallon is clearly not what 
this is going to cost. I think the 5 cents per gallon that 
Senator Boxer talks about is getting closer to reality, maybe 
it's 10 cents. The next question is, is the 10 cents worth it.
    If the answer from a societal point of view is the 10 cents 
is worth it, we go arm in arm toward paying the 10 cents and 
say it's very much worth it and let's all do it, but let's 
understand what the real number is and make the real decision 
instead of saying, this is all there is and there is no other 
problem. Let's look at the whole picture, that's the plea I'm 
making.
    Ms. Browner. I believe we've made that effort. If I might 
suggest that we could take the question you posed and work with 
DOE to look back in time where there have been fewer 
requirements, refinery requirements, how has that affected the 
import. It's not going to be a perfect answer but I think 
history can always help inform our judgment.
    The issue of refineries closing was an issue that was part 
of the small business panel discussion. We did have two Wyoming 
refineries that participated.
    Senator Inhofe. If you could bring this to a close, we have 
a vote in progress right now and I do want to give the chairman 
a chance to ask one or two more questions.
    Ms. Browner. I simply want to make the point that there 
were two small refineries from the gentleman's State and that 
when we looked at the small business impacts, with the 
flexibilities that came about because of our work with the 
small business refineries and the SBA panel, we do not project 
closings. We believe we have added in the flexibility, the 
additional time, the trading that should allow everyone to 
remain.
    If we need to go further, we are in a public comment period 
and we can make those adjustments.
    Senator Bennett. I will have some comments for you.
    Senator Inhofe. I would ask since you mentioned the DOE 
that you include them in this discussion.
    Ms. Browner. Yes, they have been but we'll go back on this 
specific question.
    Senator Inhofe. Senator Chafee.
    Senator Chafee. One quick question if I could get a quick 
answer because as the Chairman mentioned, we have this vote.
    What's your timing for implementation of this proposal?
    Ms. Browner. Essentially, 2004 is the first round of 
requirements for both the automotive and the fuels and then it 
plays out over the next 4 to 6 years and different factors come 
into play on that timeframe.
    Senator Chafee. Fine. Thank you.
    Ms. Browner. There is the opportunity, the proposal does 
allow for recognition and credit for companies who may desire 
to go sooner. We have already heard from some of the petroleum 
industry go are going to go to 30 much sooner than we would 
require.
    Senator Chafee. Thank you.
    Senator Inhofe. Thank you, Mr. Chairman.
    I do have other questions that I'm going to submit in 
writing. You can answer them as long as you want, having to do 
with the definition of the small refineries, the permit time, 
the disparity between your estimate of cost per gallon as 
opposed to our panel last Tuesday.
    Thank you very much for being here, both of you. You are 
here, aren't you?
    Mr. Perciasepe. Yes, I am.
    Senator Inhofe. Thank you very much.
    [Whereupon, at 11 a.m., the subcommittee was adjourned, to 
reconvene at the call of the chair.]
    [Additional statements submitted for the record follow:]

      Statement of Carol M. Browner, Administrator, Environmental 
                           Protection Agency
    Thank you, Mr. Chairman and Members of the Subcommittee, for the 
opportunity to appear here today to discuss the U.S. Environmental 
Protection Agency's (EPA) proposed Tier 2 standards for cars and light-
duty trucks and the accompanying proposed low sulfur requirements for 
gasoline.
    Our proposal follows from sweeping changes over the past couple of 
decades in how Americans move around. We've gone from under 100 million 
light vehicles in 1970 to 200 million last year. And we're driving 
farther--from just over one trillion miles per year in 1970 to just 
over two trillion miles per year today. And as you probably know, there 
has been a dramatic shift in recent years toward sales of the larger 
light vehicles meeting emission standards 2 to 5 times less stringent 
than passenger cars. All indications are that these trends will 
continue indefinitely into the future, and they will have significant 
impacts on increasing emissions from motor vehicles.
    Our proposal, over the next decade, will improve and maintain the 
nation's air quality by phasing in both cleaner vehicle technologies 
and cleaner burning gasoline using flexible, market-driven mechanisms 
that are fair to industry with minimal consumer cost while preserving 
vehicle choice.
                       tier 2 report to congress
    These issues were highlighted in the context of the Clean Air Act's 
requirement that we reassess light-duty standards. We were to report to 
Congress on three issues: whether there would be an air quality need 
for new tailpipe standards in the post-2004 timeframe, whether such 
standards could be technologically feasible and whether they are cost-
effective. Last year, we reported to Congress in the affirmative on all 
three issues. Let me say a few words about the specific evidence in 
this report.
    Our projections identified large parts of the country, involving 
about one hundred thirty million residents, that would be at or near 
unhealthy levels of pollution in the middle of the next decade, even 
with all expected control programs in place. A large part of that 
problem will be ozone, which reduces the lung function of otherwise 
healthy people and increases hospital admissions for people with 
respiratory ailments like asthma and which, under longer exposures, 
permanent lung damage can occur. Particles are the other major part of 
the problem because they can penetrate deep into the lungs and are 
linked with premature death, increased hospital admissions, and changes 
in lung tissue. Other environmental problems related to pollution from 
motor vehicles, such as agricultural damage, impaired visibility, and 
nitrogen deposition in our nation's waterways, will also remain a 
concern to citizens across the nation.
    The vehicles we are discussing today--cars, minivans and full-size 
vans, pickups, and sport utility vehicles (SUVs)--are big contributors 
to air quality problems. For example, they will be responsible for 
about 20 percent of ozone causing NOx emissions nationwide 
and approach 40 percent in some metropolitan areas like Atlanta in 
2004. And since more vehicles are being purchased and more miles are 
being driven, total emissions from these vehicles will increase after 
2010 eroding the progress made by local and State government in 
cleaning the air. This was a large part of the evidence we reported 
that led to our decision to propose new standards for this vehicle 
class.
    In our Tier 2 Report to Congress, we also demonstrated that much 
lower vehicle emission standards were within reach of current emission 
control technologies; improvements in today's technology, not new 
breakthroughs, are what will be needed. In fact, many vehicles being 
sold today in California and the Northeastern U.S. are already 
employing technologies that can achieve lower emission levels when 
operated on low sulfur gasoline. In addition, as a technology 
demonstration at EPA's laboratory, we have made progress in 
significantly lowering emissions from a large pickup and a popular SUV 
by making calibration and catalyst changes to the emission control 
systems. In fact, we have been able to achieve the proposed standards 
on both of these vehicles. Since these large emission reductions would 
come at a fairly modest estimated cost, we reported that new standards 
beyond the National Low Emission Vehicle Program would be cost-
effective. These findings on air quality need, feasibility, and cost-
effectiveness formed the basis for our recent proposed rule.
    We also determined that lower sulfur gasoline will be needed to 
allow these advanced emission control technologies to be effective in 
reducing emissions. There is widespread agreement that sulfur degrades 
emission control performance for all vehicles, reducing the 
effectiveness of the catalyst in converting pollutants such as 
hydrocarbons, carbon monoxide, nitrogen oxides, and particulate matter. 
Further, a combined industry research project by the Coordinating 
Research Council, a consortium of oil and auto companies, as well as 
other research, has found high levels of sulfur permanently damages 
vehicle emission controls. Unfortunately, this problem will get worse 
in the future because as emission levels are lowered, the more 
effective control systems are even more sensitive to sulfur. So 
gasoline sulfur levels must be reduced--significantly--to enable 
cleaner emission control technologies to work to their full potential.
                                process
    Our proposal is the culmination of an extensive deliberative 
process during which we worked intensively with a wide range of 
stakeholders. Before completing the proposal, we met repeatedly at high 
levels with the vehicle manufacturing industry, the oil refining 
industry (including a special outreach process with small refiners), 
states, environmental organizations, and other parts of the Federal 
Government. We logged many hours at all management levels in meetings 
with individual companies and trade associations, State organizations, 
and others to understand the issues and the capabilities of each group 
to respond to these concerns. The perspectives of these many 
stakeholders are reflected in the design of our proposed program and 
the principles on which we based it.
                               principles
    Through this broad deliberative process, we developed a list of 
overarching principles for the design of a strong, national program, 
including:
     Do not constrain consumer choice of vehicles or driving 
styles, either due to cost or technical factors;
     Treat vehicles and fuels as one system;
     Hold cars and light trucks to the same emission standards, 
since in the vast majority of cases they are used for the same 
purposes, and the fleet mix is shifting toward larger vehicles;
     Set emission standards that build on the success of the 
National Low Emission Vehicle Program (NLEV) and that are fuel neutral, 
so that it doesn't matter whether the vehicle is fueled by gasoline, 
diesel, or an alternative fuel;
     Make sure that the standards and accompanying program not 
preclude the introduction of low emission and fuel efficient 
technologies;
     Employ performance standards and provide both automakers 
and gasoline refiners a menu of flexible provisions for demonstrating 
compliance with the program; and
     Provide sufficient lead time to allow automakers to design 
even their heaviest light-duty trucks to meet our standards and to 
allow refiners to install the necessary equipment.
                            vehicle program
    The auto and oil industries and other stakeholders provided 
meaningful suggestions during the development of the proposal. Based on 
our work with the stakeholders, we drafted a proposal, which we then 
shared and revised based on our discussions with other parts of the 
Federal Government, including the Department of Energy and the Office 
of Management and Budget, to ensure that the proposal balanced concerns 
regarding cost, benefits, and timing. We believe that the Tier 2/
Gasoline Sulfur standards that we proposed on May 1, 1999, represent a 
common sense, cost-effective plan resulting from the many levels of 
cooperation we experienced in this process.
    Our proposal consists of two parts: Tier 2 emission standards and 
gasoline sulfur requirements. The vehicle standards require 
manufacturers to meet a corporate average NOx standard of 
0.07 grams/mile--a 77 percent reduction from NLEV levels and a more 
than 90 percent reduction from Tier 1 levels. These standards are 
phased in over time beginning in 2004, and the heavier vehicles 
(between 6,000 lbs. and 8,500 lbs. GVWR) are given the greatest amount 
of time, until 2009. During the phase-in period, the remaining cars and 
smaller trucks will continue to meet NLEV levels, and the heavier 
trucks, which are currently certified to Tier 1 standards, will have to 
meet average levels of 0.2 g/mi NOx.
    In meeting the corporate averages, manufacturers will have a number 
of certification ``bins'' to choose from. The bin with the highest 
emission levels will accommodate vehicles certified to 0.2 g/mi 
NOx, with corresponding standards for hydrocarbon, carbon 
monoxide and particulate emissions. We believe this bin will provide 
substantial flexibility for manufacturers to comply with the Tier 2 
standards while still meeting their customers' desires for larger 
trucks and SUVs, including possible diesel-fueled vehicles.
    Our proposal also reduces evaporative emissions from all vehicles 
by 50 percent, and extends the useful life requirements for these 
vehicles to 120,000 miles to more properly represent the actual 
operating life of today's cars and trucks. Thus, although much of our 
effort was focused on ensuring reductions in NOx emissions, 
our program will also result in fewer hydrocarbon emissions. These 
reductions will help states to improve and maintain their air quality 
for many years.
    We have designed this program to achieve the environmental goals as 
early as possible while minimizing the burden on the affected 
industries. In addition to allowing vehicle manufacturers to choose 
from emission standard bins above and below the average standards, we 
have provided other compliance flexibilities for manufacturers. In 
addition to the certification bins, manufacturers will be able to use 
an averaging, banking, and trading program when meeting the corporate 
average standards. Under this program, manufacturers who surpass their 
corporate average standard in a given year can bank or trade 
NOx credits for future use or for use by manufacturers that 
are having trouble meeting the corporate average standards. Other 
flexibilities include the phase-in and interim standards.
    Overall, we have estimated that these requirements will only result 
in modest increases to the cost of producing these vehicles. We 
estimate that the technologies required for cars and the smaller light 
trucks will average about $100/vehicle. The heavier trucks will require 
more changes, particularly since they are starting from less stringent 
standards; this technology will average about $200/vehicle.
                        gasoline sulfur program
    To enable the emission control technologies necessary to meet these 
proposed standards, we have proposed a national gasoline sulfur 
standard of 30 ppm on an annual average basis, with a maximum cap of 80 
ppm in 2004, and a credit program to allow for compliance as late as 
2006. Based on the information I mentioned earlier, we believe a 
national program is the best option, due to the permanent damage that 
sulfur causes on vehicle emission control performance and the magnitude 
of environmental benefits to be achieved from this program. Tier 2 
technologies anticipated to be used to meet emission levels required to 
address our air quality concerns are expected to be even more sensitive 
to sulfur than today's technologies, and these new technologies simply 
cannot be exposed to high sulfur levels and continue to perform as 
designed.
    Current information indicates that these catalysts will have a 
partial but permanent loss in performance if they are exposed to high 
sulfur levels, even for a short period of time. This permanent damage 
can on average mean a loss of as much as 50 percent of the emission-
reducing capacity of a catalyst, which for some vehicles means the 
emissions reductions of the new standards are lost. For example, a 1999 
Ford Taurus designed to meet NLEV standards that was a part of the 
industry testing program only recovered 40 percent of its capacity 
after a short exposure to gasoline with a sulfur content typical of 
current gasoline. As vehicles are required to maintain tighter controls 
on operations in order to meet low emission standards over a range of 
operating conditions, the ability of the catalyst to reverse the 
negative sulfur impact is further lost. The role irreversibility will 
play on vehicles which travel across the country also supports the need 
for a national program. A regional sulfur control program would 
compromise the ability of a vehicle/fuel program to achieve the air 
quality reductions needed to protect public health by limiting the 
effectiveness of the emission control systems in ``high-sulfur'' 
regions versus ``low-sulfur'' regions. In addition, clean vehicles 
which for any number of reasons might travel to a ``high-sulfur'' 
region would be irreversibly damaged. Hence, tighter emission standards 
would require not only substantial reductions in sulfur levels, but 
timely and uniform reductions across the country to protect the new 
technology.
    There are additional reasons for a nationwide sulfur control 
program. Gasoline sulfur reduction is essential to improve the emission 
control performance of current technology vehicles. NLEV vehicles being 
sold today in the Northeast and by 2001 in the rest of the country 
using high sulfur fuels will have NOx emissions about 140 
percent greater than NLEV vehicles operated on 30 ppm gasoline. Sulfur 
reductions will result in emission benefits from existing vehicles as 
well as enabling future Tier 2 vehicles, including vehicles using fuel 
efficient technologies. A national program will provide broad 
environmental and health benefits including: reduced air toxics, 
reduced acid rain, improved visibility, reduced nitrogen deposition in 
our nation's waterways, and reduced agricultural damage. Finally, a 
national program will not preclude the introduction of fuel efficient 
technologies, such as gasoline direct injection, and will ensure 
compliance with the vehicle standards across the nation.
    We believe there are a number of promising technologies available 
to refineries to remove sulfur. Several technologies have been 
developed that reduce the capital investment, the loss of octane value, 
and the energy consumption involved in desulfurizing gasoline compared 
to conventional methods. Two specific technologies, CDTech and OCTGAIN, 
were closely examined during the development of this proposal and we 
believe they are cost-effective viable technologies for removing sulfur 
from gasoline. In addition, a number of refineries and other companies 
are exploring other technologies. We believe the industry will make 
extensive use of these technologies in meeting the proposed 
requirements.
    To enhance the flexibility of compliance for the oil industry, we 
have proposed to provide refiners with two additional years, until 
2006, to comply with the proposed requirements through a voluntary 
banking and trading credit program. This credit program will allow 
sulfur credits to be generated as early as 2000 by refineries making 
early reductions in sulfur levels. To provide some protection to the 
Tier 2 vehicles that will be phasing into the fleet in this same 
timeframe as the credit program for refiners, refiners will meet a 
maximum cap standard of 120 ppm in 2004 and of 90 ppm in 2005 as well 
as actual in-use average sulfur level standards that are substantially 
lower than current sulfur levels. The rule is expected to be finalized 
at the end of this year. Under this proposal, refiners will have 4 
years for planning and construction, and then an additional 2 years 
during which refiners could use credits to meet the phase-in of the 30 
ppm average standard.
    In addition to these provisions, the particular problems of small 
refiners have been carefully considered. We convened a panel under the 
Small Business Regulatory Enforcement Fairness Act (SBREFA) to evaluate 
the potential impact on small refiners of our proposed gasoline sulfur 
standards. The panel used the Small Business Administration definition 
of small refiner based on the total number of employees in the 
corporation, including any non-refining functions. Based on the panel's 
recommendations, we have proposed to allow refiners employing no more 
than 1,500 people an additional 4 to 6 years (beyond 2004) before they 
will be held to the 30 ppm average/80 ppm cap standards. In the 
interim, about half of these small refiners would have to reduce their 
sulfur levels below 300 ppm, but they will not have to meet the same 
levels that the majority of refiners will be held to in 2004. This 
delay will allow small refiners to make the required investments over a 
longer time, and we expect all of them will be able to comply by the 
end of the delay period.
    Throughout the SBREFA process a number of specific issues were 
identified as concerns. We have identified these issues in the proposal 
and are asking for comment on how to address these concerns. As an 
example, in the proposal, we have asked for specific comment on other 
potential definitions for small refiners--ranging from the crude oil 
processing capacity of the refinery to counting employees only involved 
in gasoline production. While the purpose of these provisions is to 
provide some relief to the smallest refiners, we are looking forward to 
working with the entire industry to find the most appropriate 
definition.
    A number of other issues are outlined in the proposal where we are 
keenly aware of the concerns likely to be expressed and are seeking 
input and ideas from the public and the industry. A specific example is 
the concerns expressed by refiners regarding the time constraints on 
being able to construct the necessary desulfurization equipment in time 
to meet our standards or, hopefully, to generate credits through early 
reductions. We have proposed to work with industry and the states to 
streamline the construction permitting process to minimize the 
potential that permitting could be a roadblock to early compliance. In 
addition, we are requesting comments on a general hardship provision.
    Although I believe our proposal expresses a clear willingness to 
design the most workable program possible, I do not want to minimize 
the cost and effort that the oil industry will expend in meeting the 
proposed standards. We estimate that it will cost 1-2 cents/gallon to 
reduce gasoline sulfur levels to the proposed standards. However with 
the flexibilities we have outlined in the proposal and the advances in 
desulfurization technologies that have occurred in recent years, we 
believe we have outlined a sound and effective proposal for reducing 
sulfur from gasoline.
    Since diesel cars and light trucks will also be impacted by the 
proposed vehicle standards, we've also released an Advance Notice of 
Proposed Rulemaking which raises questions about the need to control 
diesel sulfur levels to enable these technologies to meet the Tier 2 
standards. After consideration of comments received on the need to 
control diesel fuel sulfur levels, we plan to issue a Notice of 
Proposed Rulemaking late this year, so that refiners have this 
information at the same time that they receive our final regulations 
for gasoline sulfur control. Since this decision has significant 
implications for the refining industry, we would work with 
representatives of this industry to identify workable options and would 
work with small refiners to address their unique concerns.
                               conclusion
    We believe our combined vehicle standards and gasoline sulfur 
requirements to be very cost-effective, at about $2,000 per ton of 
NOx plus VOC reduced. In 2020, the emission reductions from 
these new national standards would be equivalent to reducing the number 
of vehicles on the road by more than \2/3\, or 166 million vehicles. 
While the total cost of the program for cleaner vehicles and gasoline, 
adjusted for inflation, is estimated to be around $4 billion annually, 
the benefits--avoided deaths, avoided illness and hospital days, 
avoided lost work days, etc.--are estimated to be worth over $16 
billion annually in our best-case estimate.
    In conclusion, let me emphasize that we believe that the progress 
that has been made to date to bring cleaner vehicles to our nation's 
highways has been one of the reasons our air quality continues to 
improve. However, as we move into the next century, there is no doubt 
that even cleaner vehicles and gasoline need to continue to be part of 
the solution as we strive to ensure clean air across our nation. The 
amount of miles that people drive continues to increase. Sales of 
larger (more polluting) vehicles, such as minivans, SUVs, and pickup 
trucks, continue to increase. Current emission standards cannot offset 
the growth in miles traveled. Technology is available and affordable to 
better control these vehicle emissions, provided that we address the 
negative impact of sulfur in gasoline on these technologies. Cleaner 
vehicles and cleaner gasolines are part of the cost-effective solution 
to cleaner air.
    Thank you again for this opportunity to discuss our program with 
you. I would be happy to answer any questions that you may have.

                                           The White House,
                                         Washington, July 16, 1997.
         Memorandum for the Administrator of the Environmental 
                           Protection Agency
subject: implementation of revised air quality standards for ozone and 
                           particulate matter
    I have approved the issuance of new air quality standards to 
provide important new health protection for all Americans by further 
controlling pollution from ozone and particulate matter. These new 
standards promise to improve the lives of millions of Americans in 
coming years.
    Consistent with my Administration's approach to regulatory 
decisionmaking, I also want to ensure that these new standards are 
implemented in a common sense, cost-effective manner. It is critically 
important that these standards be implemented in the most flexible, 
reasonable, and least burdensome manner, and that the Federal 
Government work with State and local governments and other interested 
parties to this end.
    I have determined that there are certain essential elements of an 
approach to implementation that will accomplish these goals. I direct 
you to use the following elements when implementing the new air quality 
standards:
    1. Implementation of the air quality standards is to be carried out 
to maximize common sense, flexibility, and cost effectiveness;
    2. Implementation shall ensure that the Nation continues its 
progress toward cleaner air by respecting the agreements already made 
by States, communities, and businesses to clean up the air, and by 
avoiding additional burdens with respect to the beneficial measures 
already underway in many areas. Implementation also shall be structured 
to reward State and local governments that take early action to provide 
clean air to their residents; and to respond to the fact that pollution 
travels hundreds of miles and crosses many State lines;
    3. Implementation shall ensure that the Environmental Protection 
Agency (``Agency'') completes its next periodic review of particulate 
matter, including review by the Clean Air Scientific Advisory 
Committee, within 5 years of issuance of the new standards, as 
contemplated by the Clean Air Act. Thus, by July 2002, the Agency will 
have determined, based on data available from its review, whether to 
revise or maintain the standards. This determination will have been 
made before any areas have been designated as ``nonattainment'' under 
the PM2.5 standards and before imposition of any new 
controls related to the PM2.5 standards; and
    4. Implementation is to be accomplished with the minimum amount of 
paperwork and shall seek to reduce current Paperwork requirements 
wherever possible.
    Excellent preliminary work on the strategy for carrying out these 
implementation principles has been accomplished by an interagency 
Administration group and I commend that group for these important 
efforts. The group's work is set out in the attached plan, which is 
hereby incorporated by reference.
    In order for the implementation of these standards to proceed in 
accordance with the goals I have established, I hereby direct you, in 
consultation with all affected agencies and parties, to undertake the 
steps appropriate under law to carry out the attached plan and to 
complete all necessary guidance and rulemaking no later than December 
31, 1998.
    This memorandum is for the purposes of internal Administration 
management only, and is not judicially reviewable.
    You are authorized and directed to publish this determination and 
plan in the Federal Register.
                                        William J. Clinton.
                                 ______
                                 
                        (3) Refinery Eligibility
    As used in this subsection, the term ``small refinery'' shall mean 
a refinery or portion of a refinery----
    (A) which, as of November 15, 1990, has bona fide crude oil 
throughput of less than 18,250,000 barrels per year, as reported to the 
Department of Energy, and
    (B) which, as of November 15, 1990, is owned or controlled by a 
refiner with a total combined bona fide crude oil throughput of less 
than 50,187,500 barrels per year, as reported to the Department of 
Energy.
    ----Clean Air Act, Section 410(h) Small diesel refineries
                                 ______
                                 
      Responses by Carol M. Browner to Additional Questions from 
                             Senator Inhofe
    Question 1. What is the scientific basis for determining that the 
standard should be 30/80 versus some higher or lower standard? What 
studies did EPA use and were these subject to peer review? Are these 
studies and the data used for them being made publicly available so 
that all materials can be reviewed?
    Response. As we discuss in greater detail in our response to 
Question #2, our determination that the standard should be 30/80 was 
based on a range of technical factors. The proposed standard reflects a 
balancing of several factors, including the potential air quality 
benefits, economic impacts, compliance flexibility, and the 
irreversibility of the effects of gasoline sulfur on vehicle emissions 
controls.
    The vast majority of work to develop automotive catalysts and to 
design vehicles which comply with our proposed emission standards is 
done on fuel which meets these criteria. The testing to assess the 
sulfur impact on these designs was done on a range of sulfur levels 
(from 30 ppm to over 700 ppm). Specifically, we received data from 
three test programs which evaluated the reversibility of sulfur's 
impact on vehicle emissions. These programs, which are described in 
detail in Appendix B of the Draft Regulatory Impact Analysis for the 
proposal, were conducted by the Coordinating Research Council (CRC), 
the American Petroleum Institute (API) and Johnson Matthey, a catalyst 
manufacturer.
    In addition to our reversibility analysis, we examined the costs 
for refiners to produce low sulfur gasoline. In chapter V of the Draft 
RIA, we estimated costs for average sulfur standards ranging from 150 
ppm down to 30 ppm. Furthermore, in chapter VI, we evaluated the cost 
effectiveness of the entire program which includes the proposed 30/80 
standard. Based on this information, we believe that requiring the 30/
80 levels would be necessary to ensure that vehicles regularly use 
gasoline containing very low levels of sulfur, and that vehicle 
manufacturers could not achieve the proposed Tier 2 emission levels in-
use without reducing gasoline sulfur to the 30/80 levels.
    Essentially every component of our analysis has undergone some form 
of review, including the emissions modeling, air quality modeling, 
epidemiological studies of effects, and economic studies of valuation. 
The technical and scientific bases for the environmental benefits of 
the standard and the cost and cost-effectiveness methodology are 
adapted from and closely follow methods previously used for other 
rulemakings.
    Specifically, to derive our estimate of benefits, we first used a 
preliminary version of the MOBILE 6 model to determine the level of 
emission reductions that would result from the rule. As described 
below, key elements of this version are undergoing various forms of 
public review. We then used these emission reductions as inputs to 
peer-reviewed air quality models that determine the change in 
concentrations of particulate matter (PM) and ozone throughout the U.S.
    We were then able to use published journal articles and other 
studies of the health effects of changes in pollutant concentrations 
and of the economic value of these effects to quantify many of the 
benefits associated with this proposal.
    The journal articles and other studies undergo critical review 
before they can be published. In addition, the methods used and the 
underlying studies employed in our analysis have been extensively 
reviewed by the Science Advisory Board (SAB), other Federal agencies, 
and the public during the development of the PM and Ozone NAAQS and the 
NOx SIP call. (Incidentally, the recent Court of Appeals 
rulings on the PM and ozone NAAQS and the NOx SIP Call did 
not call into question the fact that ozone and PM pose health risks.)
    Although there were no major scientific or technical products 
supporting this action requiring peer review as defined by the Agency's 
Peer Review Handbook, the underlying studies used in our air quality 
and benefits analyses have been extensively peer-reviewed. The SAB has 
taken a considerable amount of time to review studies selected to 
quantify mortality and morbidity effects associated with PM and ozone. 
Specifically, issues reviewed by the SAB include:
     mortality associated with particulate matter (Pope et al./
American Cancer Society study),
     quantification of chronic bronchitis effects (Schwartz and 
Abbey study),
     valuation of chronic bronchitis effects (Viscusi et al., 
Krupnick and Cropper studies),
     valuation of mortality (26 studies of wage-risk and 
consumer safety).
    Finally, the inter-agency review process and public comments on 
previous rules are also used to continually refine our analytical 
methods.
    On the emission modeling front, key elements of the preliminary 
version of the MOBILE 6 emission model used to estimate emissions in 
the Tier 2 proposal have undergone public review in several ways. For 
example, our revision to the estimate of in-use emissions 
deterioration, a fundamental building block for the emission modeling, 
has been discussed in public Mobile Source FACA Work Group and 
Subcommittee meetings. This issue is also the subject of a document 
that has been available via the internet. Also, in developing the 
preliminary MOBILE 6 model for the Tier 2 NPRM, we took into account 
public comments we received last year on the modeling we did for the 
Tier 2 Report to Congress, including the issues of how real world 
driving and high gasoline sulfur affect vehicle emissions.
    Regarding availability of information, in addition to making 
supporting information available through the public docket and national 
publication centers such as NTIS, we've provided Internet access to all 
key regulatory documents. The proposed rule and Draft Regulatory Impact 
Analysis (RIA) contain most of the information necessary to understand 
the technical and scientific basis of our analysis. Supporting 
documents for the proposed rule and RIA (including the underlying 
studies) can be found in the public record. We also place any available 
documentation of the underlying data in the docket.

    Question 2. What is the cost effectiveness basis for determining 
that the standard should be 30/80 versus some higher or lower standard, 
or a different pollution control device such as new catalytic convertor 
technology. What cost studies did the EPA rely upon. Please provide 
copies of all cost estimation documents and alternative costing 
estimation documents.
    Response. As we explain in our proposal, we believe that the 
stringent standards we have proposed for Tier 2 vehicles are needed to 
meet the nation's air quality goals. At the same time, we believe that 
for these standards to be met by gasoline cars and light-trucks, low 
sulfur gasoline must be made available. The data indicate that 
catalytic converters in vehicles being sold today under the NLEV 
program are being damaged by high sulfur levels. Sulfur inhibits the 
performance of catalysts. Everything we and the catalyst manufacturers 
understand about emission control technology suggests that the new 
catalysts used to meet the Tier 2 standards will be as, or more, 
sensitive to high sulfur levels than the NLEV catalysts. We were unable 
to identify any emission control technology for gasoline vehicles that 
didn't increase NOx and HC emissions at levels above 30 ppm.
    The vast majority of data available to us is based on sulfur levels 
in the 30-80 ppm range. Catalyst manufacturers generally use low sulfur 
gasoline in their development work, and automakers typically certify 
the vehicles equipped with these catalysts on low sulfur fuels. 
Furthermore, there is no evidence that catalyst technology can be 
developed that will enable vehicles to meet the proposed Tier 2 
standards while running on high sulfur gasoline. At the same time, we 
believe the proposed Tier 2 standards are cost-effective and will help 
us meet our air quality goals. We do not believe that sulfur levels 
lower than those proposed are needed to comply with the Tier 2 emission 
standards. Some parties have asked for even more sulfur reductions 
(down to 5 ppm) and the proposal does ask for comment on issues 
associated with further reductions.
    Our cost and cost-effectiveness evaluations were done by EPA staff 
and were presented in the Draft Regulatory Impact Analysis which 
accompanied our proposal. In section IV.D of the proposal and in 
chapter V of the RIA we also described other cost analyses obtained 
from the automotive and oil industries, and explained why our estimates 
differ from those. All of that information is available in the public 
record and has been provided to the Committee staff. We look forward to 
receiving comments or additional information through the public comment 
process.
    In addition, we recently received a report from API which provides 
further support for our gasoline desulfurization cost estimates. In a 
February 26, 1999 report by Mathpro for API, Mathpro estimated the cost 
of meeting a 40 ppm average sulfur standard for eastern refineries 
(PADDs 1-3). Rocky Mountain and Pacific Coast refineries (PADDs 4-5) 
were not included. Mathpro estimated that achieving 40 ppm sulfur on 
average would cost 2.3 and 2.5 cents per gallon with the CDTech and 
Octgain processes, respectively. (See the table below.) Using our data 
and analysis applied to the same sulfur concentration and PADDs, our 
estimated costs for 40 ppm sulfur based on the CDTech and Octgain 
processes are 1.2 and 1.6 cents per gallon, respectively. The 
difference in estimates can be attributed in part to Mathpro's use of a 
10 percent return on investment (ROI) for new refinery equipment, while 
we used a 7 percent rate of return. Also Mathpro added a 0.5 cent per 
gallon ``ancillary'' cost to its estimates. This ancillary cost is 
intended to represent costs not included in the refinery model, such as 
additional fuel storage tankage and distribution costs. Mathpro has 
included ancillary costs in its previous studies, however, we are 
unaware of a clear justification for this adjustment. If we remove 
Mathpro's ancillary cost from their cost estimate and adjust Mathpro's 
costs to represent a 7 percent rate of return on investment, we get 
costs of roughly 1.6 and 1.8 cent per gallon with the CDTech and 
Octgain processes, respectively. These costs are very close to those 
which we presented in the NPRM. The following table summarizes the 
comparison.

   Mathpro and EPA Costs for 40 ppm Sulfur Gasoline in PADD 1, 2 and 3
                               Refineries
                           [cents per gallon]
------------------------------------------------------------------------
                                       Octgain 220           CDTech
------------------------------------------------------------------------
Mathpro

  10 percent ROI, WITH Ancillary                  2.5                2.3
   Cost...........................
  7 percent ROI, WITHOUT Ancillary    1.8    1.6
   Cost...........................
EPA (7 percent ROI)...............                1.6                1.2
------------------------------------------------------------------------

    Question 3. The Administration and DOE have been looking for ways 
to provide relief to the oil and gas industry during this current 
crisis. How does the Administration balance the costs of this 
regulation against the announced plans of industry relief?
    Response. The Administration's 11 point proposal for relief is 
aimed at the crude oil production side of the industry. This proposal 
focuses on upgrading technology for exploration and drilling to 
maintain current production capacity. These provisions would have no 
impact on the refining or marketing segments of the oil industry, and 
our Tier 2/Gasoline Sulfur Control proposal would not impact the crude 
oil production relief provisions. Given that these two parts of the oil 
industry are generally separate (even though the same company may 
operate both oil production and refining/marketing functions), we see 
no inconsistency between helping to provide relief on the production 
side and proposing new regulations that may require investments at the 
refinery.

    Question 4. In August 1991 the Amoco refinery in Casper closed. 
Following the closing, the average price difference between PADD III 
and PADD IV increased from 6.4  cents/gal to 12  cents/gal. Has this 
type of information been factored into the Regional considerations 
regarding the proposed rule?
    Response. Yes, our estimates of the national costs of our proposal 
do consider the unique economic position of the refineries located in 
PADD IV. Although we discuss (in chapter V of the RIA) the general 
effects of changing supply and demand on the refining industry, we did 
not factor specific supply, demand, or distribution assumptions for any 
specific region of the country into our production cost analysis. (See 
the table below for the specific cent-per-gallon costs we estimated for 
each PADD.) Currently, PADD IV refineries produce gasoline that is 14 
percent lower in sulfur content, on average, than that produced in PADD 
III. However, these refineries tend to have higher capital costs for 
desulfurization (on a per-gallon basis) than refineries in PADD III. 
Thus, our cost projections for refineries in PADD IV are higher than 
those for PADD III. To alleviate concerns about potential market 
disruption and/or refinery closures in PADD IV and elsewhere, we have 
proposed a sulfur averaging, banking, and trading program to provide 
all refiners with flexibility in meeting the standards. Furthermore, we 
have proposed special provisions for small refiners, several of which 
are located in PADD IV, that would give them an additional 4 to 6 years 
to meet the proposed standards. We believe that the combination of 
these actions will minimize any regional cost variations due to 
compliance with this proposal. We have also solicited comment on a 
range of measures, such as a hardship provision that any refiner could 
be eligible for, as well as whether such measures are needed to ensure 
smooth implementation of our program. We look forward to receiving 
comments on these ideas and will carefully consider all comments 
received as we make our final decisions about the design of our sulfur 
control program.

                           Per-Gallon Cost of Desulfurizing Gasoline to 30 ppm Average
                                               [cents per gallon]
----------------------------------------------------------------------------------------------------------------
  PADD I  (East         PADD II        PADD III  (Gulf    PADD IV  (Rocky     PADD V  (West
      Coast)           (Midwest)            Coast)             Mtns.)        Coast, excl. CA)      U.S. Avg.
----------------------------------------------------------------------------------------------------------------
           2.3                1.4                1.4                3.2                2.8                1.7
----------------------------------------------------------------------------------------------------------------

    Question 5. DOE has been studying Biotech technologies. Mr. William 
E. Nasser of Energy BioSystems Corporation, a DOE grantee company, 
testified on Tuesday May 18th that they will be commercially viable 
around 2005, has this been factored in? For the banking and trade 
program?
    Response. We have been closely following the progress of 
biotechnologies being developed for desulfurization of petroleum 
products. Based on the information available to as at the time of 
proposal, we had serious questions about whether these technologies 
will be market-ready by 2004 (if not earlier to enable credit 
generation). Hence, we did not include the impact of these technologies 
in our evaluation of the costs of complying with our proposal. Mr. 
Nasser's testimony supports our concerns. However, if the technology is 
commercially viable in 2005, refiners may choose to use this approach 
if it provides them with the lowest cost way to meet our requirements. 
Our averaging, banking and trading program should allow several 
refiners to delay construction of sulfur reducing equipment until 2005 
or 2006; this delay should accommodate this new biotechnology if the 
company's plans proceed as expected. Similarly, a refiner could use 
this type of technology to participate in our sulfur banking and 
trading program, if it was available prior to 2004. Our proposed 
standards would set limits on gasoline sulfur content, and would not 
prescribe how that sulfur level is achieved.

    Question 6. When you reduce sulfur you reduce octane thus driving 
up the demand for MTBE. Has the environmental impact for this been 
analyzed?
    Response. Traditional gasoline desulfurization technologies have 
resulted in octane loss. The advanced technologies (from Mobil and 
CDTech) discussed in the proposal substantially reduce the octane loss 
associated with desulfurization compared to these traditional 
approaches. Furthermore, we have recently learned of additional 
technologies being developed by Black and Veatch, Inc. which completely 
eliminate any negative octane loss; in some cases, octane may even be 
improved. In any case, if refiners do experience a slight octane loss, 
they have a range of options to address this situation. Blending MTBE 
is only one of the options. The use of alkylates, ethanol, or other 
oxygenates are additional options.
    The environmental impact of using MTBE in low sulfur gasoline would 
not be different than the impact of using MTBE in any other gasoline. 
We have a Blue Ribbon Panel which is assessing the environmental 
impacts of oxygenates such as MTBE, and we will evaluate the panel's 
recommendations.

    Question 7. What impact will sulfur levels have on the CAFE 
standards? Will it impact the energy content or the performance of the 
vehicle? One aspect that has been lost in the debate is the fact that 
these fuel standards are just for Tier 2, not the next generation, 
including fuel cells. Has the Administration analyzed the need for 
lower sulfur fuel solely for Tier 2 vehicles, and the necessary 
effective date for low sulfur fuel for those vehicles? How does fleet 
turnover impact this?
    Response. The sulfur levels (and, for that matter, the Tier 2 
standards) have no direct impact on CAFE standards. The fuel economy of 
individual vehicles could be impacted slightly if the energy content of 
the gasoline is reduced during the refining and blending processes, but 
we don't expect that vehicle operators will notice a difference. Any 
energy impact and/or vehicle performance issues would be no different 
than those experienced when vehicles are operated on today's gasolines, 
which vary in energy content, since the low sulfur gasoline would not 
be substantially different.
    Advanced technologies such as gasoline direct injection (GDI) 
engines or fuel cells are not necessary for vehicles to meet the 
proposed Tier 2 emission standards. That is, our primary analysis is 
based on gasoline vehicles only. For completeness, we considered (in 
section IV of the proposal) the needs of advanced technologies in our 
analysis of the need for and feasibility of low sulfur fuel. It is 
possible that near-zero sulfur fuels may be needed for these future 
technologies. We have raised this issue for comment in our proposal, 
and are exploring what the implications would be for the refining 
industry if near-zero sulfur levels were to be required in the future.
    While we have supported the need for low sulfur gasoline primarily 
to enable the emission control technology needed to meet the proposed 
Tier 2 standards, we have identified real emission reductions and 
environmental benefits to be achieved from other vehicles in the fleet. 
Much of the emissions benefits in the early years of the program result 
from the use of low sulfur gasoline in vehicles currently on the road 
and those that will enter the fleet in the next 5 years. Thus fleet 
turnover to Tier 2 vehicles is not the only consideration when 
evaluating timing, nor should the implementation date for low sulfur 
gasoline be tied solely to phase-in of Tier 2 vehicles. The emissions 
performance of all Tier 2 vehicles will be sensitive to sulfur, arguing 
for low sulfur levels as soon as Tier 2 vehicles are introduced rather 
than some later date when they make up a substantial fraction of the 
fleet. Furthermore, the emissions control systems of vehicles on the 
road today are less effective than they would be on lower sulfur fuel, 
and each year that passes without implementation of low sulfur 
standards increases the number of more sensitive vehicles (i.e., NLEV 
which will be sold nationwide beginning in 2001) whose catalysts are 
irreparably damaged. We have tried to balance the costs and technology 
needs of the refining industry with these vehicle emission control 
system realities.

    Question 8. I am concerned about the timing of the permits process. 
Currently the permitting process for major equipment changes averages 
around 18 months, assuming no delays because of public hearings. Given 
that states have the primary permitting responsibility and Texas and 
Louisiana each have 20 or more refineries, will these two states be 
able to process all of their permits in time for the industry to meet 
the 2004 deadline?
    Response. It is EPA's experience that, on average, the major New 
Source Review permitting process takes less than 1 year to complete 
from the date a complete application is submitted to the permit 
reviewing agency. Although the 1 year timeframe should be sufficient 
for refiners to comply with the 2004 deadline, as outlined in the 
preamble to the proposed rulemaking, EPA solicited comment on, and is 
currently evaluating, numerous options to ensure the timely issuance of 
any necessary Clean Air Act permits. As part of our efforts to ensure 
timely permit issuance, we also have an initiative underway to work 
directly with refiners and State permitting agencies on a number of 
individual refinery desulfurization projects, with the goal of 
developing from these examples permit streamlining strategies and tools 
that can be applied nationwide. We are working to ensure that at least 
one of the case studies will be in a Gulf Coast state, either Texas or 
Louisiana and possibly both.
    One example of a strategy we are considering for streamlining the 
permitting process is the issuance of guidance establishing an 
emissions level (and associated permit conditions) that, in our view, 
likely satisfies the control technology review requirements under the 
major source permitting programs for the class or category of emission 
units associated with refinery desulfurization. We expect that 
providing such guidance would help to expedite major source permitting 
by adding a significant level of certainty regarding the technology 
requirements of the permit process. In addition to pursuing the permit 
streamlining opportunities outlined in the rulemaking proposal, we will 
be encouraging states to process a refinery's request to implement 
changes at a facility to meet gasoline desulfurization requirements as 
a priority and on an expedited basis. Priority treatment, in 
combination with potential streamlining opportunities, would ensure 
that permit applications associated with gasoline desulfurization 
changes are processed as expeditiously as possible. Given the enormous 
environmental benefits that will be achieved as a result of the 
gasoline sulfur control requirements, we believe such expedited and 
special processing will be supported by the State and local air 
pollution control agencies.

    Question 9. I understand that you have promised a 6-month permit 
process, yet you have not requested any additional resources or FTEs to 
accomplish this. How will you do it without causing any additional 
delays for other permits or other industries?
    Response. We recognize that compliance with Clean Air Act 
permitting requirements--under both the New Source Review and Title V 
Operating Permit programs--will be an integral component in any 
refiner's plan to implement a gasoline sulfur control program under our 
proposal. In order to achieve the significant environmental benefits 
from the proposed program as soon as possible, we are exploring a 
number of possible options to streamline the air permitting process. 
Our goal is to both simplify and accelerate the air permitting process, 
so that refiners can begin producing low sulfur gasoline well within 
the lead time provided by our proposal. In the proposal, we are seeking 
public comment on a number of ideas to help streamline the processing 
of permits for refinery gasoline sulfur control programs. We already 
have begun a constructive dialog with the refining industry to identify 
what specific permit streamlining options they would benefit from most, 
and we plan to continue this dialog with refiners, states, the 
environmental community, and other stakeholders as we work toward the 
final rule.
    The kinds of permit streamlining approaches we're evaluating 
include:
    (1) developing ``model'' permits and permit applications that would 
serve as templates for the refining industry;
    (2) developing clear Federal guidance on technology to control any 
pollutant emission increases at the refinery associated with a gasoline 
desulfurization project; and
    (3) in nonattainment areas, promoting the availability of emission 
``offsets'' (that is, emission reductions from other sources), which 
refineries may need prior to obtaining a construction permit.
    In addition to these and several other streamlining options we're 
exploring, if refiners and State permitting agencies are interested, we 
plan to hold a workshop to focus on refinery permitting arising from 
the gasoline sulfur control program.
    To address this issue, we have realigned our priorities and 
reassessed our resources in order to move forward with this permit 
streamlining effort. If we see that additional funds are necessary 
following our planning process and depending on how decisions are made 
in the final rule, the Agency may request funding for implementation of 
the Tier 2/Gasoline Sulfur requirements as they affect permit 
streamlining. At that time, we would consider whether the funds would 
be requested in future appropriations.

    Question 10. Lately environmental justice claims have caused long 
delays in permit applications and modifications, particularly in States 
such as Louisiana. What are you doing to make sure that such delays 
will not occur?
    Response. The Agency is encouraging State and local permitting 
authorities to involve residents from affected communities in the 
decisionmaking process as early in the review process as possible. We 
want to ensure that the concerns of the community are considered, 
addressed, and resolved as plans are being developed. At the same time 
we also want to have permits issued in a timely and expeditious fashion 
where all other permitting requirements have been met.
    The delays that have been encountered arose from concerns that 
decisions of permitting authorities resulted in disparate 
discriminatory impacts on predominately minority communities due to the 
race, color, or national origin of the citizens residing there. Such 
alleged discriminatory actions is prohibited by the Civil Rights Act of 
1964.

    Question 11. The EPA Enforcement Office has been targeting Oil 
Refineries regarding New Source Review and modification permits. On 
February 12 of this year Sylvia Lowrance, the Deputy Administrator of 
the Enforcement Office issued a memorandum to the Regions directing 
this targeting. How is the Enforcement Office's policy on targeting 
consistent with the stated goal on the Air Office to work with the 
States and industry to expedite the process. Right now the States and 
industry are very cautious on the permitting process, afraid that they 
might make some mistake and have the EPA come down on them. Could you 
explain how this is consistent.
    Response. EPA's Office of Enforcement and Compliance Assurance 
(OECA) targeting efforts address past violations that have occurred at 
petroleum refineries. Most of these violations involve sources that 
failed to go through the major NSR permitting process altogether for 
certain triggering activities, not sources that obtained a major NSR 
permit with which EPA later had problems. Importantly, these violations 
often result in excess emissions of harmful air pollutants. By 
requiring compliance with these important Clean Air Act programs, tens 
of thousands of tons per year of pollutants will not be emitted into 
the air. Nothing in this enforcement effort, however, should hinder 
EPA's working with industry to develop an NSR permitting program that 
expedites permit issuance and allows timely compliance with the new 
sulfur rules. Because OECA is an active member of the EPA/industry 
permitting workgroup, EPA does not foresee enforcement problems arising 
from compliance with an expedited permitting system developed by the 
workgroup.

    Question 12. Will you propose some sort of amnesty program for 
these permits? What will happen if a facility can not get their permit 
approved in time?
    Response. We do not plan to propose, nor at this time do we see a 
need for, an amnesty program for permitting. Given the amount of lead 
time already proposed, combined with our efforts to streamline the 
permitting process (described above), we believe refineries will have 
sufficient time to obtain air permits and meet the proposed compliance 
dates for gasoline sulfur control.

    Question 13. The refining industry will be hit with a regulatory 
blizzard over the next 5-10 years proposed reductions in the sulfur 
content of diesel fuel, possible MTBE phaseout, urban air toxics, etc. 
What analysis has EPA performed to look at the cumulative impact of 
these fuels activities on the refining industry, motorists, petroleum 
supplies, and air quality? Please provide a copy of all such analysis.
    Response. To date, we have only analyzed the program which we have 
proposed--gasoline sulfur control. As we proceed to evaluate and 
possibly propose diesel fuel sulfur controls or fuel-related air toxics 
controls, we will analyze the implications of the combined programs on 
the refining industry. Similarly, if the MTBE Blue Ribbon Panel 
recommends phase-out of MTBE, we will work with the industry to assess 
the implications of such an action not only on the proposed gasoline 
sulfur standards but also on other, existing fuel programs (like the 
reformulated gasoline program). DOE has asked the National Petroleum 
Council to evaluate the implications of multiple environmental controls 
for the refining industry. EPA staff are involved in this process and 
we hope that the results of that study will be available as we make 
future decisions about gasoline and diesel fuel sulfur control.

    Question 14. Ms. Browner, you picked the cutoff for the small 
business definition 1500 employees for the entire corporation. This 
means that if a company owns two or three refineries with a few hundred 
employees and they own hotels or convenience stores that those non-
refinery employees kick them over the cutoff. What is the rationale for 
this? Why didn't you rely on other sections of the Clean Air Act for a 
working definition. In 1990 Senator's Symms, Chafee, and Baucus worked 
out a small refinery definition for diesel regulations based on 
production volume and the Department of Energy routinely uses a 
production volume for its programs. Please explain whether or not the 
Agency considered a production volume limitation and if so why it was 
discarded.
    Response. Like the programs you cite, our Tier 2/gasoline sulfur 
proposal uses a definition of small refiner that targets a segment of 
the industry that may need additional time to comply, for example 
because of difficulties faced in raising capital and in arranging for 
installation of desulfurization equipment. The proposed definition is 
based on the Small Business Administration's definition of small 
refiner, which looks at the total number of a company's employees, 
rather than on volume of throughput. EPA started with this approach 
because the 1996 SBREFA amendments to the Regulatory Flexibility Act 
start with the SBA definition as a default. Like the definition of 
small refinery used in past EPA programs (described below), our 
proposed definition is aimed at identifying those refiners that may 
face particular economic difficulties in complying, for example, 
because they don't have the ability of a larger corporation to raise 
capital for investment in desulfurization. When we conducted the Small 
Business Advocacy Review Panel convened under SBREFA requirements, we 
did not exclude any parties on the basis of their number of employees 
even though we focused on reaching those refiners we believe most 
clearly meet the SBA definition.
    In the lead phase-down program for gasoline EPA used a definition 
of ``small refinery'' that Congress adopted in 1977 specifically for 
the lead phase-down program. The definition was based on crude oil or 
feedstock capacity at a particular refinery, combined with total crude 
oil or feed stock capacity of the refiner that owned the refinery. In 
1990, the lead phase-down program was complete, and Congress removed 
this provision from the Act.
    Shortly before the Act was amended in 1990, EPA set standards for 
sulfur content in diesel fuel, including a 2-year delay for small 
refineries. EPA used the same definition of small refinery as it used 
in the lead phase-down program. This 2-year delay, like many of the 
small business flexibilities in the gasoline sulfur NPRM, was aimed at 
problems that small refineries faced in raising capital and in 
arranging for refinery construction.
    In the 1990 amendments to the Clean Air Act, Congress rejected this 
small refinery provision, and instead allocated allowances to small 
diesel refineries under the Title IV Acid Rain program. Section 410(h). 
This approach was also aimed at helping small refineries solve the 
problem of raising the capital needed to make investments to reduce 
diesel sulfur. Congress provided allowances to small refineries that 
met criteria similar to that used in the lead phase-down provision--
based on the volume of crude oil throughput at a particular refinery, 
combined with the total volume of crude oil throughput of the refiner 
that owned the refinery.
    While we have proposed a different definition for gasoline sulfur 
control in light of the SBREFA Panel's recommendations, in our proposal 
we are seeking comment on alternative definitions of small refiner, 
including definitions based on volume of crude oil processed (at a 
given refinery and/or corporate-wide) or volume of gasoline produced. 
However, we do believe that any relief offered to refiners must not 
result in a substantial loss of the environmental benefits of the 
program. Our proposal would affect less than 4 percent of gasoline 
produced in the U.S. The crude oil capacity-based definition from 
Section 410(h) would encompass about 38 percent of refiners in the U.S. 
(approximately 60 out of 158 refiners), although many of these may not 
produce gasoline. The combined crude capacity of these 60 refiners is 
approximately 7 percent of the total U.S. capacity.

    Question 15. Does the number of employees correlate with the size 
of the facility? How about correlation with environmental impacts? In 
making a large capital investment how is it anticipated that small 
refineries spread the cost with less volume?
    Response. Yes, to some degree the size of the refinery (in terms of 
capacity) correlates with the number of employees, with larger and more 
complex refineries needing more employees to operate the facility. 
However, consistent with the Small Business Administration's 
definition, the employee number we have proposed to use for defining a 
small refiner is a corporate-wide figure, including all operations 
(including those unrelated to the petroleum industry, if any), not just 
refining. It is meant to indicate the overall financial standing of the 
company and the company's ability to respond quickly to these 
environmental regulations.
    The environmental impacts of a refinery vary greatly from refinery 
to refinery. To some degree, the smaller refineries emit fewer tons of 
pollutants than larger refineries. However, this depends on refinery 
location and doesn't necessarily equate to fewer tons per barrel of 
product produced. Furthermore, the environmental impacts of the 
products produced, in this case, the sulfur level of gasoline, will 
have the same gram-per-mile impact on Tier 2 and other vehicles 
regardless of whether the fuel comes from a large refinery or a small 
refinery. The only difference is in the total volume of fuel produced 
(and thus the total number of tons of emissions which result).
    In estimating the costs of our program, we have attempted to take 
into consideration the dis-economies of scale of installing 
desulfurization equipment in a smaller refinery. Our analysis shows, 
for example, that the per-gallon costs of sulfur control will be higher 
in PADD IV (the Rocky Mountain region). This higher cost is due to many 
factors, including the fact that refineries in that region are 
generally smaller than refineries in other parts of the country. We 
expect all refiners, large or small, to spread these compliance costs 
across the volume of gasoline produced. We have proposed to give small 
refiners more time to comply with our standards, in part to maximize 
their ability to select the lowest cost technologies to desulfurize 
their gasoline.

    Question 16. If a large corporation has several large refineries 
and one small refinery they are more likely to close the small refinery 
than spend the hundreds of millions on all of them. Please identify all 
small refineries in the U.S. (those who produce 75 thousand barrels of 
oil or less per day), regardless of corporate size, and the cities 
where they are located. In addition, please identify whether or not the 
refinery is a major employer in each city.
    Response. The table below lists U.S. petroleum refineries with 
crude capacities less than or equal to 75,000 barrels per calendar day 
(75K bpcd). Here are some additional facts which may be useful:
    There are approximately 158 refineries in the U.S., the total 
refining crude capacity in the U.S. is nearly 16 million bpcd.
    Approximately 85 of the 158 refineries (or 54 percent) have 
individual crude capacities less than or equal to 75K bpcd; the 
combined capacity of these 85 refineries accounts for approximately 17 
percent of the total U.S. capacity.
    Approximately 23 of the 85 refineries (or 27 percent) with less 
than 75K bpcd capacity do not produce gasoline.
    Approximately 11 of the 85 refineries (or 13 percent) with less 
than 75K bpcd capacity are located in the State of California and 
therefore already produce gasoline that complies with California's 
cleaner burning gasoline regulations.
    There are approximately 51 refineries (or 51/158* 100 = 32 percent 
of all U.S. refineries) outside of California which produce gasoline 
and have individual capacities less than 75K bpcd.

     U.S. Petroleum Refineries (as of 1/1/99)* with Crude Processing
 Capacities Less Than or Equal to 75,000 barrels per calendar day (BPCD)
                         [In Order By Capacity]
------------------------------------------------------------------------
                                                              BPCD Crude
           Company                  City           State       Capacity
------------------------------------------------------------------------
Specified Fuels & Chemicals   Channelview....           TX         1,600
 (formerly Howell Corp.).
Silver Eagle Oil Inc........  Evanston.......           WY         3,200
Foreland....................  Tonopah........           NV         3,500
Ten By, Inc.................  Oxnard.........             CA       4,500
AGE Refining................  San Antonio....           TX         5,000
Huntway.....................  Wilmington.....             CA       5,500
Somerset....................  Somerset.......           KY         5,500
Chevron.....................  Seattle........           WA         5,700
Southland Oil...............  Lumberton......           MS         5,800
Cross Oil & Refining........  Smackover......           AR         6,000
Young Petroleum.............  Douglasville...           GA         6,000
Martin Gas Sales (Berry       Stephens.......           AR         6,700
 Petroleum).
Holly Corp. (Montana).......  Great Falls....           MT         7,000
World Oil...................  South Gate.....             CA       7,000
Calumet.....................  Cotton Valley..           LA         8,000
Calumet.....................  Princeton......           LA         8,000
American Refining Group.....  Bradford.......           PA        10,000
Anchor Refining.............  McKittrick.....             CA      10,000
Canal Refining..............  Church Point...           LA        10,000
Huntway.....................  Benicia........             CA      10,000
Santa Maria Refining (Saba    Santa Maria....             CA      11,000
 Petroleum?).
Southland Oil...............  Sandersville...           MS        11,000
Ergon.......................  Newell.........           WV        11,500
Sound Refining..............  Tacoma.........           WA        11,900
Arco........................  Kuparuk........           AK        12,000
Golden Bear Oil Specialties   Bakersfield....             CA      12,500
 (formerly Witco).
Inland (formerly Crysen)....  Woods Cross....           UT        12,500
Wyoming.....................  Newcastle......           WY        12,500
Arco........................  Prudhoe Bay....           AK        15,000
Chevron.....................  Portland.......           OR        15,000
Petro Star..................  North Pole.....           AK        15,000
Transworld (Calcasieu)......  Lake Charles...           LA        15,300
Pennzoil....................  Rouseville.....           PA        15,700
Giant.......................  Bloomfield.....           NM        16,800
Coastal.....................  Chickasaw......           AL        18,700
Giant.......................  Gallup.........           NM        20,800
Kern Oil & Refining.........  Bakersfield....             CA      21,400
Countrymark Co-op...........  Mount Vernon...           IN        22,000
Sinclair....................  Casper.........           WY        22,000
Ergon.......................  Vicksburg......           MS        23,000
San Joaquin Refining........  Bakersfield....             CA      24,300
Inland (Big West Oil (Flying  North Salt Lake           UT        25,000
 J)).
Phillips....................  Woods Cross....           UT        25,000
American International......  Lake Charles...           LA        27,600
Citgo.......................  Savana.........           GA        28,000
Ultramar Diamond Shamrock...  Commerce City..             CO      28,000
Neste Trifinery.............  Corpus Christi.           TX        30,000
Murphy......................  Superior.......           WI        33,250
Cit-Con Oil Corp............  Lake Charles...           LA        38,000
Frontier....................  Cheyenne.......           WY        38,950
U.S. Oil & Refining.........  Tacoma.........           WA        40,800
Petro Star..................  Valdez.........           AK        42,000
Paramount...................  Paramount......             CA      43,000
Hunt........................  Tuscaloosa.....           AL        43,225
Chevron.....................  Salt Lake City.           UT        45,000
Gary-Williams...............  Wynnewood......           OK        45,000
Cenex Harvest States........  Laurel.........           MT        46,000
Pennzoil....................  Shreveport.....           LA        46,200
Placid......................  Port Allen.....           LA        48,000
Sinclair....................  Tulsa..........           OK        50,000
Ergon (Lion Oil Company)....  El Dorado......           AR        50,350
Ultrarnar Diamond Shamrock..  Alma...........           MI        51,000
Conoco......................  Billings.......           MT        52,000
Crown Central...............  Tyler..........           TX        52,000
Exxon.......................  Billings.......           MT        52,000
Amoco.......................  Salt Lake City.           UT        53,000
Chevron.....................  Honolulu.......           HI        54,000
Sinclair....................  Sinclair.......           WY        54,000
Shell.......................  Saint Rose.....           LA        55,000
Conoco......................  Commerce City..             CO      57,500
Amoco.......................  Mandan.........           ND        58,000
Amoco.......................  Yorktown.......           VA        58,600
Holly Corp. (Navajo)........  Artesia........           NM        60,000
Fina........................  Big Springs....           TX        60,500
Equilon Enterprises LLC.....  Bakersfield....             CA      61,750
Amerada Hess................  Port Reading...           NJ        62,000
United Refining.............  Warren.........           PA        66,700
Clark.......................  Hartford.......           IL        68,000
Ultramar Diamond Shamrock...  Ardmore........           OK        68,000
Marathon/Ashland............  St. Paul.......           MN        70,000
Marathon/Ashland............  Texas City.....           TX        72,000
Tesoro......................  Kenai..........           AK        72,000
Marathon/Ashland............  Canton.........           OH        73,000
Marathon/Ashland............  Detroit........           MI        74,000
Valero......................  Krotz Springs..           LA        74,000
------------------------------------------------------------------------
*Based on the Oil & Gas Journal's 1998 Worldwide Refining Survey.

    We do not have the data necessary to determine whether or not each 
refinery is a major employer in its respective city.

    Question 17. When the Canadian government decided to reduce their 
sulfur levels they commissioned a detailed analysis on the impact on 
their refinery industry. They are going to 30 ppm by 2005. They found 
that of their 18 refineries, between 3 and 6 will close. Has the EPA 
conducted a similar analysis? If so please provide a copy.
    Response. In May 1997, a study of the implications of various 
gasoline and diesel fuel sulfur standards on Canadian oil industry 
competitiveness was completed. This study projected that if a 30 ppm 
sulfur standard was implemented in 2001, three to four refineries in 
Canada may be at risk for closure due a combination of factors, 
including the costs of desulfurization technology, the very poor 
refining margins currently experienced in the industry, and competition 
from U.S. refiners who were portrayed as larger and more sophisticated 
than most Canadian refineries.
    Since the time of the study, several factors have changed that 
would lead one to different conclusions about the potential for 
refinery closures:
      The new, lower cost desulfurization technologies which we 
have based our proposal on--and which Canada had not considered--are 
being tested. We expect these technologies would substantially reduce 
(by at least 50 percent) the capital costs assumed for desulfurization 
to 30 ppm.
      Market prices, and thus refining margins (profits) in 
both Canada and the. U.S. have increased, strengthening the economic 
position of the refining industry.
    The combination of these two factors will likely have a positive 
impact on refiners' abilities to meet Canada's gasoline sulfur 
standards, and would substantially reduce the likelihood of refinery 
closures due to their proposed regulations. Canada's decision to 
proceed with gasoline sulfur control indicates the country's belief 
that the Canadian refining industry will be able to respond to these 
requirements.
    EPA has not yet conducted a refinery-specific analysis similar to 
the Canadian study. We intend to analyze the likely response of the 
refining industry to our gasoline sulfur proposal as we develop our 
final regulations. We are also participating in the National Petroleum 
Council's study, commissioned by DOE, which will address this type of 
information.

    Question 18. Last week Ford announced that they have developed new 
improved catalyst technology which will allow their trucks to meet 2004 
standard next year, using current fuels. The EPA has claimed for months 
that changes in catalysts were not possible to meet the new standards. 
It appears that you were wrong. They also said that they can produce 
the new catalyst technology without raising the price of the trucks. 
How can Ford lower their emissions without low sulfur fuel? Is this 
technology available to the other automobile makers?
    Response. Ford's announcement of plans to sell trucks nationwide 
which meet LEV-type emission levels next year is based on its ability 
to certify these vehicles using low sulfur gasoline. The emission 
levels these trucks will be certified to are substantially higher than 
the proposed Tier 2 standards. These trucks were designed to operate on 
California's low gasoline sulfur levels, and the catalysts they use are 
as sensitive to sulfur as those which we evaluated as we developed our 
proposed Tier 2 standards. Because of the much higher sulfur levels 
found around the country, these trucks will suffer reduced emission 
performance when operated outside of California. Thus, while the 
vehicles' engines will operate satisfactorily in terms of power and 
fuel economy, these vehicles will not achieve the same emission levels 
as they would if consistently operated on low sulfur gasoline. Other 
manufacturers could implement the same emission control technologies if 
they wanted to pull-ahead our proposed interim standards for the 
heavier light-trucks, but without low sulfur gasoline nationwide, would 
not be able to achieve Tier 2-like (or even LEV-like) emissions 
performance in-use.

    Question 19. EPA has concluded that in-use emissions would increase 
by 50 percent if ``operated on 300 ppm gasoline at any point in their 
life.'' The effect would be permanent; ``continued operation with low 
sulfur gasoline would be unlikely to improve the emissions 
performance.'' Now what if a Tier 2 vehicle was driven to Mexico and 
filled up there one or more times? Would the on-board emissions system 
warning light go on? If this light goes on and the vehicle operator 
takes it to a dealer for repair, is the emissions control system 
covered under warranty or not? If the vehicle subsequently fails an 
emissions inspection, the emissions control system covered under 
warranty or not? Would operation on Mexican gasoline for some period of 
time cause vehicle operating problems? Would Tier 2 vehicle operating 
manuals contain warnings only to fill up in the U.S. or Canada?
    Response. According to the data we cite in our proposal, we believe 
that a Tier 2 vehicle refueled on high sulfur gasoline (in Mexico or 
anywhere else) would suffer a permanent loss in emissions performance. 
We do not anticipate any vehicle operating problems from the use of 
Mexican gasoline. The on-board emission control warning system would be 
triggered only if the resulting loss in emissions performance was equal 
to 1.5 times the standard to which the vehicle was certified. This 
requirement currently only applies to NMHC emissions, not 
NOx emissions. The increases in NMHC emissions attributed to 
sulfur are generally less than 50 percent, though some vehicles can 
experience larger increases. Also, OBD systems do not monitor NMHC 
emissions. They monitor oxygen storage. Sulfur can definitely reduce 
oxygen storage and this is detected in many instances. However, sulfur 
can also affect the operation of the oxygen sensor, which is a key 
component in the assessment of oxygen storage. There are instances 
where high sulfur levels affected the ability of the oxygen sensor to 
sense a loss of oxygen storage. Thus, high levels of sulfur can cause 
NOx emissions to increase by more than 50 percent and the 
catalyst portion of the OBD system may or may not catch it because it 
only assesses NMHC performance. Also, sulfur can prevent the OBD system 
from being able to determine that a poorly performing catalyst is in 
fact poorly performing. Whether the replacement of the fouled catalyst 
would be covered under warranty depends on the facts of each case. The 
manufacturer may request that EPA allow a special sulfur-removal test 
cycle to be used to ascertain whether the loss in emissions performance 
was due to sulfur exposure or to some other factor (catalyst age, 
catastrophic catalyst failure, etc.). (Under the NLEV program, one 
manufacturer has already requested the use of such a test cycle if 
certain vehicles are selected for in-use emissions compliance testing 
due to concerns about the effect of high sulfur levels on these 
vehicles.) It would be up to the manufacturer to specify whether 
refueling in Mexico (or anywhere else with higher sulfur levels) should 
be avoided and/or would void commercial warranty coverage. EPA does not 
plan to mandate such warnings.

    Question 20. EPA estimates that this proposal will result in an 
increase in CO2 emissions across the domestic refining 
industry of 6.9 million tons per year. This looks to be very large. 
Will this Tier 2/Sulfur proposal initiate greenhouse gas emissions 
reductions elsewhere to offset this increase? Are you concerned about 
the size of this increase?
    Response. We have not proposed any measures to offset the increase 
in CO2 emissions estimated as a result of gasoline 
desulfurization. We do not believe that the size of this increase is 
unreasonable. It represents 0.03 percent of projected worldwide 
CO2 emissions in 2004, and a 1.2 percent increase in 2004 
emissions over 2003 emissions (based on current projections and 
assuming that all of the technology was installed and operational in 
2004 for the purposes of this analysis). Since installation and startup 
of desulfurization technology would take place over several years, the 
increase in CO2 emissions in any 1 year relative to the 
previous year would be much smaller than this. If gasoline demand 
continued to grow at current rates beyond 2004, the incremental 
increase in CO2 emissions from the desulfurization of that 
gasoline would represent only 0.02 percent of projected annual growth 
in worldwide CO2 emissions in 2005 and beyond.

    Question 21a. EPA mentions that there are 17 qualifying small 
domestic refineries, 9 of which already have gasoline sulfur levels 
less than 90 ppm.
    You are proposing that if a sulfur baseline was 30 ppm or less, 
that refinery would have a standard of a 30 ppm average and a 80 ppm 
cap for 2004-2007 with the cap effective October 1, 2003. In 2008, that 
refinery would lose its small refiner status and have the same 
identical standard of a 30 ppm average and a 80 ppm cap. I don't see 
any relief here, could you explain the relief?
    Response. Small refiners who are already meeting the proposed 30/80 
gasoline sulfur standards would not incur any new costs as a result of 
our proposal. Small refiners who are producing gasoline consistently 
below 80 ppm (but averaging greater than 30 ppm) would be given until 
2008 (rather than 2004) to bring their average down to 30 ppm.
    EPA did receive comments from one such small refinery at its Tier 
2/sulfur hearing in Denver on June 15, 1999. This refiner testified 
that the small refiner provisions as proposed could put it at a 
significant disadvantage if it had to change operations from its 
current state. One such change could be a switch from low sulfur crude 
oil to a higher sulfur crude oil. In this case, this refiner would have 
to build its sulfur removal equipment in order to meet the proposed 30 
ppm standard by 2004, instead of by 2008, as required for other small 
refiners. EPA will be considering this situation as it develops the 
final small refiner provisions.

    Question 21b. By comparison, other refiners would have a sulfur cap 
of 300 ppm beginning October 1, 2003 and 180 ppm in 2005. In this case, 
this small refiner producing very low sulfur gasoline would have 
tighter standards than other refiners (80 ppm cap for small refiners 
and 300 ppm cap in 2004 for all others). Do you expect a small refiner 
to request special small refiner status so that it has a tighter cap 
than other refiners?
    Response. No refiner would be required to apply for small refiner 
status. Our proposed small refiner standards indicate our desire to 
maintain at least the status quo as we start small refiners down the 
path toward low sulfur production. Thus, a small refiner who already 
meets the proposed 30/80 standard would be expected to continue 
producing at this level. As you point out, such a refinery probably 
would not see much benefit from achieving small refiner status. Unless 
the refiner operates more than one refinery, it could comply under the 
general industry requirements. The average standard would be 30 ppm in 
2004, but the refiner would be permitted to meet a higher maximum 
standard (300 ppm in 2004 and 180 ppm in 2005) if it opts not to 
participate as a small refiner. If this small refiner currently 
produces gasoline which consistently averages less than 30 ppm (and is 
under the proposed 80 ppm cap), it may want to generate early sulfur 
credits for its own future use or for sale to other refiners in 2004 
and beyond and thus might opt not to apply for small refiner status.

    Question 21c. Furthermore, you propose that this small refiner 
could not use early credits between 2004 and 2007 to meet the 30 ppm 
average, but that refiner could after 2007. You also propose that all 
early credits must be used or transferred by 2007. So a small refiner 
can generate them but not use them? A small refiner would have to sell 
them by 2007 and buy others or buy these same credits back? Why do you 
propose to permit most refiners to use early credits between 2004 and 
2007, but specifically prohibit small refiners?
    Response. With the exception of small refiners who already meet the 
proposed 30/80 standard, no eligible small refiner would have to meet 
the 30 ppm average standard until 2008 (2010 if a hardship extension 
were granted). Hence, these refiners have no need for the use of sulfur 
credits We have proposed interim standards for these refiners that only 
minimally protect Tier 2 vehicles in an attempt to strike a balance 
between the needs of the vehicle technology and the needs of small 
refiners If a small refiner is able to generate sulfur reduction 
credits prior to 2004, it could sell them to another refiner for use by 
2007 If a small refiner expected to be able to generate credits in 2004 
or after, indicating it would have the ability to produce gasoline that 
consistently averages less than 30 ppm, it could choose not to 
participate in the small refiner program but rather to comply with the 
proposed 30/80 standard and bank or sell the credits it generates each 
year (Credits generated in 2004 and beyond are proposed to have a life 
of 5 years--a refiner could bank credits to use in the event of an 
unforseen problem leading to an inability to continue producing 30 ppm 
average gasoline in the future.) No refiner is required to generate or 
sell credits, but we have proposed to allow small refiners to do so if 
they are capable to help them offset the costs of ultimately complying 
with the 30/80 standard.

    Question 21d. If this is an accurate summary, I fail to see how 
this small refiner benefits between 2004 and 2007. It would seem to be 
a dis-benefit. How many affected refineries are in this category.
    Response. Of the 17 refineries we have identified to date which 
appear to meet our small refiner criteria, four already produce 
gasoline which is consistently below 30 ppm. Under our proposed 
program, these refiners need to do nothing to meet our standards except 
to report the sulfur levels of each batch of gasoline produced. Hence, 
while the proposed small refiner provisions may not benefit these 
refiners, they will not incur any new costs due to the proposal, 
either.

    Question 21e. In the second category, if a small refiner has a 
sulfur baseline between 31 and 80, then there would be a cap of 80 ppm 
beginning October 1, 2003. This seems restrictive. How is this a 
benefit when other refiners would have a sulfur cap of 300 ppm 
beginning October 1, 2003 and 180 ppm in 2005?
    Response. We do not want refiners to make dirtier gasoline in the 
future than they do currently. Absent a change in crude slate, there is 
no technical reason why a refiner who could currently meet an 80 ppm 
sulfur cap cannot continue to do so. A small refiner who currently 
meets the proposed 80 ppm cap but not the 30 ppm average would be 
better off to apply for small refiner status and obtain four additional 
years to bring the average sulfur levels down, rather than having to 
meet the proposed 30 ppm standard no later than 2006 (and as early as 
2004 it he does not obtain sufficient credits to meet the 30 ppm 
refinery standard in 2004), even with the higher caps permitted in 2004 
and 2005 to non-small refiners.

    Question 22. As of December 7, 1998, there were 30 nonattainment 
areas outside of California for the current 1-hour ozone standard. Of 
these thirty areas, only three are located west of the Mississippi. 
(See attached chart). How can EPA justify a national 30 ppm gasoline 
sulfur program on the basis of the 1-hour ozone standard when the air 
quality problems are in the east? Doesn't the industry's regional 
approach to gasoline sulfur make more sense? Could the Agency provide 
the Subcommittee with an analysis of the environmental and public 
health benefits of the refining industry's regional approach to 
gasoline sulfur using the current 1-hour ozone standard?
    Response. There are several reasons why we have proposed that a 
nationwide 30 ppm sulfur standard is needed under the combination of 
the 1-hour ozone NAAQS and the original PM10 NAAQS. First, 
gasoline sold in the West not only affects the emissions from vehicles 
operating in the West, but also some vehicles operating in the East. 
EPA's analysis of the available emission test data (developed by both 
the auto and oil industries, as well as by others) shows that future 
vehicles' emissions are likely to be irreversibly affected by high 
sulfur levels. Specifically, VOC and NOx emissions from 
future California low emission vehicles and vehicles meeting the Tier 2 
standards could be, on average, 20 percent and 67 percent higher, 
respectively, if these vehicles were typically operated on 30 ppm 
gasoline but were temporarily operated on gasoline with 330 ppm sulfur. 
We estimate that as many as 25 percent of the vehicles in the East have 
been operated in the West sometime during their life. Therefore, 
gasoline sold in the West directly impacts VOC and NOx 
emissions in the eastern portion of the U.S. These emissions not only 
adversely affect attainment of the 1-hour ozone standard in the East, 
which is a major problem, but they also contribute to ambient levels of 
PM10. NOx emissions form ammonium nitrate in the 
atmosphere, which is one of the major components of ambient 
PM10. While the nonattainment problem for PM10 in 
the East is not as widespread as for ozone, PM10 attainment 
is projected to be a problem in the future for a number of urban 
counties with a combined population of about five million people.
    Second, as the Senator points out, there are currently several 1-
hour ozone nonattainment areas in the West outside of California. While 
future local and national emission controls are projected to bring 
these areas into attainment with the 1-hour ozone standard, population 
and economic growth are relatively high in these areas. The proposed 
Tier 2 and sulfur standards will help keep these current ozone problem 
areas in attainment with the standard. Furthermore, in the West, unlike 
the East, compliance with the ambient PM10 NAAQS is more of 
a challenge than for ozone. A number of western counties are projected 
to have difficulty meeting the original PM10 NAAQS in the 
future, both inside and outside of California. Sulfur control in the 
West will not only reduce ambient levels of nitrate particulate, but 
will also reduce emissions of sulfate particulate and sulfur dioxide. 
Sulfur dioxide, like NOx, forms particulate in the 
atmosphere. Thus, gasoline sulfur control will reduce ambient 
PM10 levels in the West both by reducing direct emissions of 
particulate matter and by reducing gaseous emissions which form PM in 
the atmosphere.
    Finally, recent ambient ozone monitoring data show that nine 
current ozone nonattainment areas in California are still exceeding the 
1-hour ozone NAAQS. These areas have a combined population of 
approximately 30 million. It appears that some California areas with an 
attainment deadline of 1999 will not meet that date, and therefore will 
require additional emission reductions to attain. Attainment of the 1-
hour standard in the remaining California areas will be 20 challenging. 
Though this proposal would not directly regulate California vehicles, 
ozone levels in California are reduced through reductions in emissions 
from vehicles sold outside California that subsequently enter 
California temporarily or permanently. According to California, about 7 
to 10 percent of all car and light truck travel in California takes 
place in vehicles originally sold outside of California. In fact, the 
State of California has recently filed an update to its State 
Implementation Plan for the South Coast Air Basin that expressly claims 
that the Tier 2 program will lead to four tons of reduced 
NOx emissions per day in the South Coast area in 2010. As 
mentioned above, these NOx emission reductions will reduce 
ambient levels of both ozone and PM10. Furthermore, low 
gasoline sulfur levels would reduce the impact of sulfur on the 
catalysts of California vehicles that travel outside California and 
later return to the state. Of the vehicles entering California, the 
majority are likely to come from neighboring states. In addition, some 
California vehicles are refueled at least part of the time with 
gasoline sold in western states.

    Question 23. In a recent review of the 1997 summer gasoline 
production, the Energy Information Administration (EIA) concluded that 
its analysis provided clear indications that in summer 1997, gasoline 
production from U.S. refineries was approaching the upper limit.'' EIA 
also projects significant growth in petroleum consumption, principally 
gasoline and jet fuel. What assurance does the Agency have that rapid, 
stringent.
    Response. [This question is incomplete. A call has been made to the 
Committee staff to obtain the complete question but we have not yet 
received an answer.]

    Question 24. Imports are a significant source of East Coast 
supplies, about 15-20 percent of total gasoline demand on the East 
Coast? Has EPA determined whether these sources of imports will 
continue when the new gasoline sulfur program is in effect? Has the EPA 
determined whether regulations on very low sulfur content in gasoline 
will not create tight markets and increase U.S. vulnerability to market 
disruptions?
    Response. Given our experience with the reformulated gasoline 
program and other fuel programs, we have no reason to believe that 
foreign refiners will not continue to send imports to the U.S., 
including the East Coast, under a low sulfur gasoline program. 
Economics dictate whether imports come to the U.S.; many times a shift 
in gasoline prices of a few pennies has turned a ship toward the U.S. 
from its original destination. Many parts of the world are moving 
toward low sulfur gasoline standards, so many of the world's refiners 
will be installing desulfurization capacity. Furthermore, just as in 
the U.S., some refiners worldwide already produce low sulfur products 
due to the low sulfur crude oil they process or other aspects of their 
existing refinery configurations. Finally, foreign refiners who send 
only a small fraction of their production to the U.S. may be able to 
send low sulfur gasoline by segregating their production. To summarize, 
EPA expects no supply problems due to reduced imports as a result of 
our proposed regulations.

    Question 25. How many Tier II vehicles will be on the road on 
January 1, 2004 when the 30 ppm gasoline sulfur standard is effective? 
What percent of the U.S. fleet will Tier II Vehicles represent in 2004?
    Response. While it is impossible to precisely predict the number of 
vehicles of a particular model year on the road in any one particular 
calendar year. some assumptions can be made to produce an estimate. 
Model year 2004 vehicles will go on sale in the Fall of 2003. By 
January 1, 2004, we can assume that about 25 percent of the entire 2004 
model year would be on the road. Given that only 25 percent of 2004 
model year vehicles are required to meet Tier 2 standards, it is 
reasonable to expect that about 6 percent of the entire 2004 model year 
will be Tier 2 vehicles on the road by January 1, 2004.
    In our Regulatory Impact Analysis we project passenger car and 
light truck sales of 13.6 million in 2004 for the 49 states affected by 
Tier 2. Using the 6 percent figure above, approximately 850,000 
vehicles affected by Tier 2 requirements would be sold by January 1, 
2004 and about 3.4 million would be sold by the end of the 2004 model 
year. This would represent less than 1 percent of the passenger car and 
light truck fleet by January 1, 2004. By the end of 2004, Tier 2 
vehicles could be expected to represent just under 3 percent of the car 
and light truck fleet.

    Question 26. By how much would public health and environmental 
benefits increase if all categories of vehicles, including sport 
utility vehicles, were required to meet Tier II emission standards in 
2004?
    We do not have specific modeling results to assess the impact on 
air quality and benefits of requiring the heavier light-duty trucks to 
meet Tier 2 levels at the same time as cars and lighter light-duty 
trucks. However, it is important to note that the delay in implementing 
the final Tier 2 requirements for large light-duty trucks is 
accompanied by the proposed requirement to meet interim standards 
beginning in 2004. These interim requirements will yield substantial 
NOx and NMOG reductions. For example, the Tier 1 
NOx standard for LDT4s is 1.53 g/mi. This would be reduced 
to a corporate average of 0.2 g/mi phased in from 2004 to 2007.

    Question 27. A major flaw in the banking and trading program is 
that credits must be generated early, by 2003, and there simply is not 
enough time to accomplish the permitting and construction of 
desulfurization equipment. What can the Agency do to make banking and 
trading program useful?
    Response. We have provided in our proposal one example of how the 
refining industry may respond to the sulfur banking and trading program 
that demonstrates that sufficient credits can in fact be generated 
prior to 2004 to allow many refiners to delay construction of 
desulfurization equipment a year or two. We permit winter reformulated 
gasoline to generate credits if summertime sulfur levels are maintained 
(which is not required in the current RFG program). We know of several 
refiners who plan to install some desulfurization equipment in the near 
future--these refiners will be positioned to generate credits prior to 
2004. We also know that once the industry sees our final program 
requirements later this year, refiners will begin to make investment 
plans and this will likely lead to some installing desulfurization 
capacity prior to 2004, thereby being able to generate sulfur credits. 
Finally, as we have explained in responses to previous questions, we 
will work to streamline the construction permitting process to ensure 
that the desulfurization equipment could be installed in sufficient 
time to generate credits. We look forward to working with the refining 
industry to improve on this proposal, but we believe our proposal has 
the potential to provide credits if we finalized it as currently 
designed.
    We have taken comment on alternative approaches and issues 
associated with this proposed program.
                                 ______
                                 
      Responses by Carol M. Browner to Additional Questions from 
                             Senator Baucus
    Question 1. Please provide information indicating the costs and the 
benefits associated with the proposed Tier II/sulfur rule, including 
those particular to PADD IV and the intermountain West. Please provide 
estimates for both the 1-hour and the 8-hour ozone standards.
    Response. As explained in the proposed rule, we have estimated that 
the average Tier 2 car would approximately cost an additional $100, the 
average Tier 2 light truck would cost about an additional $200, and low 
sulfur gasoline would cost 1-2 cents/gallon more than today's gasoline. 
In PADD IV, we estimate low sulfur gasoline would cost slightly over 
three cents/gallon more than today's gasoline (due to the generally 
higher costs in this region). None of these costs is impacted by 
whether the standards are being implemented in response to the 1-hour 
or 8-hour ozone NAAQS. We have estimated the cost effectiveness of the 
proposed rule (vehicle and fuel controls combined) is $1,200 to $1,600 
per ton of NMHC plus NOx controlled, including credits for 
reductions in emissions of sulfur dioxide and particulate matter and 
$1,750 to $2,150 without such credits. We did not assess the 
incremental cost effectiveness of VOC and NOx emission 
controls in the western U.S.
    We have prepared an initial assessment of the overall costs and 
benefits of our proposal in the form of a Benefit-Cost analysis. The 
results of that assessment indicate that the benefits of the rule may 
substantially exceed the cost. Once fully implemented, we estimate that 
the monetized annual benefits of the rule will be between $3.2 and 
$19.6 billion per year, with our best estimate being $16.6 billion per 
year. The comparable annual cost of the Tier 2/gasoline sulfur rule 
would be about $3.5 to $4.3 billion per year. We have no regional 
analysis of the benefits which would allow us to determine benefits in 
a particular region, such as PADD IV or the intermountain West.
    The value of the benefits of our proposal are not dependent on the 
1-hour or 8-hour ozone standards. The estimates of benefits are based 
on (a) our estimates of the emission reductions that the rule would 
produce, (b) our projections of the air quality changes that would 
result from these emission reductions, (c) the changes in various 
health and welfare endpoints caused by the air quality changes, and (d) 
the value of reductions in those health and welfare endpoints. None of 
these pieces of the benefits analysis is dependent upon the specific 
value of the NAAQS. Emission reductions and related air quality changes 
are determined by the requirements of the rule itself. The changes in 
health and welfare effects are determined solely from the underlying 
scientific studies relating effects and endpoint changes. Similarly, 
the valuation of changes in these end points is derived directly from 
the scientific literature. None of these factors depends on the 
specific NAAQS level.
    EPA has requested public comments on many issues associated with 
the costs and benefits of the proposed rule and expects to revisit 
these issues in preparing the final rule.

    Question 2. What impact will the U.S. Court of Appeals decision 
(American Trucking Association, May 14, 1999) have on the Agency's 
assumptions in and the ability to implement the proposed Tier II/sulfur 
rule? What steps is the Agency taking to analyze the decision's impacts 
on other rules and regulations?
    Response. On May 14, 1999, a panel of the U.S. Court of Appeals for 
the District of Columbia Circuit found, by a 2-1 vote, that sections 
108 and 109 of the Clean Air Act, as interpreted by EPA, represent 
unconstitutional delegations of Congressional power. American Trucking 
Ass'ns, Inc. et al., v. Environrnental Protection Agency, Nos. 97-1440, 
1441 (D.C. Cir. May 14, 1999). The Court remanded the record to EPA. 
One judge dissented, finding that the majority's opinion ignores the 
last half-century of Supreme Court nondelegation jurisprudence.
    The Court also ruled on other general issues and on issues specific 
to each NAAQS. The Court upheld EPA's rules on some of these claims, 
but ruled against the Agency on others. In general, the Court did not 
find fault with the scientific basis for EPA's determinations regarding 
adverse health effects from ozone or PM. However, the Court did ask EPA 
to evaluate the adverse effects associated with reducing ozone.
    On June 23, 1999, the Administrator signed a notice clarifying the 
proposed Tier 2 rule in light of the Court's decision. That notice has 
been given to Committee staff. EPA has evaluated its authority to 
implement the proposed Tier 2/sulfur program after the Court's 
decision. EPA believes that the Court's decision does not impact EPA's 
proposed determination that the Tier 2/sulfur program is a necessary 
and appropriate regulatory program that would provide cleaner air and 
greater public health protection. EPA believes that the need for the 
Tier 2/sulfur program exists whether one measures this need against the 
new ozone and particulate matter NAAQS or against the preexisting NAAQS 
for ozone and particulate. Moreover, the Court's decision does not 
affect EPA's analysis of the benefits of the proposed Tier 2/sulfur 
rule in reducing air toxics, acid rain, visibility impairment, and 
other air quality problems.

    Question 3. What is the Agency's position on the Court's decision 
and what impact could that decision have on air quality if it is not 
successfully challenged?
    Response. As you are probably aware, the Agency strongly disagrees 
with the Court's decision. On June 28, 1999 EPA and the Department of 
Justice filed a petition for rehearing and rehearing en banc asking the 
D.C. Circuit to reverse the decision of the panel. If this decision is 
not overturned, the panel's decision will delay the health protection 
provided by the new NAAQ standards. The D.C. circuit panel's decision 
did not question the need for a new, more stringent, ozone standard and 
a new fine particle standard.

    Question 4. Why did the Agency choose to propose a definition of 
small refinery different than the one used in section 410(h) of the 
Clean Air Act?
    Response. Our Tier 2/gasoline sulfur proposal uses a definition of 
small refiner that targets a segment of the industry that may need 
additional time to comply, for example because of difficulties faced in 
raising capital and in arranging for installation of desulfurization 
equipment. The proposed definition is based on the Small Business 
Administration's definition of small refiner, which looks at the total 
number of a company's employees, rather than on volume of throughput. 
EPA started with this approach because the 1996 SBREFA amendments to 
the Regulatory Flexibility Act start with the SBA definition as a 
default. Like the definition of small refinery used in past EPA 
programs (described below), our proposed definition is aimed at 
identifying those refiners that may face particular economic 
difficulties in complying, for example, because they don't have the 
ability of a larger corporation to raise capital for investment in 
desulfurization. When we conducted the Small Business Advocacy Review 
Panel convened under SBREFA requirements, we did not exclude any 
parties on the basis of their number of employees even though we 
focused on reaching those refiners we believe most clearly meet the SBA 
definition.
    In the lead phase-down program for gasoline, EPA used a definition 
of ``small refinery'' that Congress adopted in 1977 specifically for 
the lead phase-down program. The definition was based on crude oil or 
feedstock capacity at a particular refinery, combined with total crude 
oil or feed stock capacity of the refiner that owned the refinery. In 
1990, the lead phase-down program was complete, and Congress removed 
this provision from the Act.
    Shortly before the Act was amended in 1990, EPA set standards for 
sulfur content in diesel fuel, including a 2-year delay for small 
refineries. EPA used the same definition of small refinery as it used 
in the lead phase-down program. This 2-year delay, like many of the 
small business flexibilities in the gasoline sulfur NPRM, was aimed at 
problems that small refineries faced in raising capital and in 
arranging for refinery construction.
    In the 1990 amendments to the Clean Air Act, Congress rejected this 
small refinery provision, and instead allocated allowances to small 
diesel refineries under the Title IV Acid Rain program. Section 410(h). 
This approach was also aimed at helping small refineries solve the 
problem of raising the capital needed to make investments to reduce 
diesel sulfur. Congress provided allowances to small refineries that 
met criteria similar to that used in the lead phase-down provision 
based on the volume of crude oil throughput at a particular refinery, 
combined with the total volume of crude oil throughput of the refiner 
that owned the refinery.
    While we have proposed a different definition for gasoline sulfur 
control in light of the SBREFA Panel's recommendations, in our proposal 
we are seeking comment on alternative definitions of small refiner, 
including definitions based on volume of crude oil processed (at a 
given refinery and/or corporate-wide) or volume of gasoline produced. 
However, we do believe that any relief offered to refiners must not 
result in a substantial loss of the environmental benefits of the 
program. Hence, we must ensure that whatever definition is selected, 
only a small percentage of the gasoline produced in the U.S. is 
eligible for the less restrictive standards. Our proposal would affect 
less than 4 percent of gasoline produced in the U.S. The crude oil 
capacity-based definition from Section 410(h) would encompass about 38 
percent of refiners in the U.S. (approximately 60 out of 158 refiners), 
although many of these may not produce gasoline.

    Question 5. What effect does the Agency expect that the Tier II/
sulfur proposed rule, if implemented, would produce in terms of annual 
carbon dioxide emissions from mobile sources?
    Response. No loss in fuel economy or increase in CO2 
emissions from Tier 2 vehicles is expected as a result of the proposed 
rule, so there will be no direct increase in mobile source 
CO2 emissions as a result of this program. The Tier 2/
gasoline sulfur rule will lead to a small increase in CO2 
emissions from domestic refineries due to the increased energy 
consumption needed to desulfurize gasoline. We estimated an increase of 
6.9 million tons in 2004. This represents 0.03 percent of projected 
worldwide CO2 emissions in 2004, and a 1.2 percent increase 
in 2004 over 2003 (based on current projections and assuming that all 
of the technology was installed and operational in 2004 for the 
purposes of this analysis). Since desulfurization technology will be 
installed and start operation over the course of several years, the 
increase in CO2 emissions in any 1 year relative to the 
previous year will be much smaller than this. If gasoline demand 
continued to grow at current rates beyond 2004, the incremental 
increase in CO2 emissions from the desulfurization of that 
gasoline would represent only 0.02 percent of projected annual growth 
in worldwide CO2 emissions in 2005 and beyond.

    Question 6. Please quantify the total estimated emissions of each 
pollutant (NOx, PM, etc.) that would be avoided by 
implementation of the proposed rule without change.
    Response. The following table summarizes our estimates of the 
emission reductions to be achieved from the Tier 2/gasoline sulfur 
program, as proposed. Since both the fuel and vehicle regulatory 
requirements would be phased-in over time, the estimated emission 
reductions increase over time. These estimates are based on an analysis 
of the emissions in 47 states (excluding California, Hawaii, and 
Alaska). The proposed program would apply in Hawaii and Alaska and in 
U.S. territories, and thus these areas would also see emission benefits 
from this program; however, we were unable to quantify these benefits. 
California, although subject to a separate vehicle and fuel control 
program, would benefit from lower-emitting Federal vehicles migrating 
to and/or traveling within the state, as well as California vehicles 
operating on lower sulfur non-California fuel (and avoiding 
irreversible damage from high sulfur levels) if they leave the state. 
These estimates do note account for the impact of the proposed small 
refiner provisions. However, we expect to revisit these estimates based 
on information received during the comment period as we prepare our 
analysis for the final rule.

               Emission Reductions From Tier 2/Gasoline Sulfur Program, As Proposed (Annual Tons)
----------------------------------------------------------------------------------------------------------------
                      Year                           NOx          VOC          SOx         PM2.5*       PM10*
----------------------------------------------------------------------------------------------------------------
2004...........................................      502,511      104,069      189,646       19,909       21,462
2007...........................................      795,734      131,428      193,760       20,542       22,145
2010...........................................    1,182,323      177,128      216,437       23,410       25,239
2015...........................................    1,778,881      258,380      242,964       26,595       28,674
2020...........................................    2,198,113      331,676      269,756       29,707       32,031
2030...........................................    2,786,345      435,981      321,609       35,549       38,331
----------------------------------------------------------------------------------------------------------------
*Assumes no growth in diesel engine sales in the light-duty market. If the market share of diesel engines
  increases in this sector, the PM2.5 and PM10 reductions of this proposal would be even greater since diesel
  light-duty vehicles and trucks currently meet less stringent standards than their gasoline counterparts.

    Question 7. In model year 2004, only about a quarter of 
manufacturers' vehicles will be required to meet the more stringent 
emissions standards in the proposed rule. Yet, refineries will still be 
manufacturing and shipping gasoline with an absolute sulfur content cap 
of 300 ppm. Won't this level of sulfur damage the advanced catalysts of 
some of those vehicles and cause catalyst poisoning? Under the proposed 
rule, what recourse would consumers have if their vehicle is damaged or 
requires repair due to higher sulfur content levels in gasoline than a 
vehicle manufacturer recommends?
    Response. As we explain in our proposal, we believe that Tier 2 
vehicles require gasoline sulfur levels to be limited to 80 ppm and 
averaging at lower levels to ensure that these vehicles achieve the 
emissions performance they were designed to achieve in-use. However, at 
the same time, we recognize that refiners need some flexibilities in 
meeting our proposed standards, to ensure that the program is 
implemented in an orderly manner (without supply shortages or 
substantial price spikes in the early months). Hence, in an attempt to 
balance the needs of the emission control technology with the 
regulatory burden, economic impact, and ability of the refining 
industry to reduce sulfur levels in this timeframe, we have proposed to 
allow less stringent caps in 2004 and 2005. We believe that the 
potential damages to Tier 2 vehicles as a whole are minimized over this 
time period because the vehicles would still be phasing in, and by the 
time a majority of new sales are required to meet Tier 2 standards 
essentially all gasoline would meet the 80 ppm cap. However, individual 
Tier 2 vehicles sold in 2004 and 2005 which are exposed to higher 
sulfur levels might incur some irreversible damage to their emission 
control systems. While this is clearly undesirable, the alternative is 
no better. If the Tier 2 standards are delayed until the entire fuel 
pool can be at 80 ppm sulfur or less, more vehicles will be produced 
under the National LEV program. These are higher emitting vehicles 
whose emissions are very sensitive to sulfur and which are likely to 
show the same degree of irreversible sulfur impacts as Tier 2 vehicles. 
Thus, delaying the Tier 2 standards would only exacerbate the problem.
    We did not propose any provisions for consumers to seek recourse if 
they have to replace a Tier 2 catalyst damaged by high sulfur levels in 
the early years of the program. The existing emissions warranty 
provisions would cover all Tier 2 vehicles.

    Question 8. If a regional plan, such as proposed by the American 
Petroleum Institute, or perhaps a plan with higher sulfur levels 
allowed in gasoline produced and used in PADD IV, were implemented, 
what impact would that have on air quality, vehicle performance, and 
consumers.
    Response. We estimated that the regional program proposed by API 
would result in 15-20 percent more NOx emissions than our 
proposal (without adjusting our assumptions about the emissions 
reductions achieved by Tier 2 vehicles because we believe the Tier 2 
standards would have to be less stringent if we were to adopt the API-
proposed sulfur levels). These relatively higher emissions are 
attributable to both the emissions in the West resulting from the 
higher sulfur levels, and the irreversible damage to Tier 2 vehicles 
from the East (lower sulfur) region which could travel to the West and 
be exposed to the higher sulfur levels.
    In general, any regional program with higher sulfur levels would 
result in lower air quality benefits than our proposed program. Because 
higher sulfur levels impact absolute emission levels, such a regional 
program would result in higher emissions of ozone-forming compounds, 
particulates and their precursors and air toxics.
    Hence, the citizens in the high sulfur region would receive less 
environmental protection under such a regional program. Furthermore, 
they would be paying a higher cost for the low emitting Tier 2 vehicles 
but not reaping the full emission control benefits of those vehicles. 
Gasoline costs would likely be somewhat less in these areas, however.
                                 ______
                                 
      Responses by Carol M. Browner to Additional Questions from 
                            Senator Moynihan
    Question 1. Please comment on the legal basis for the gasoline 
sulfur rule.
    Response. We proposed gasoline sulfur controls pursuant to our 
authority under Section 211(c)(1) of the Clean Air Act. Under Section 
211 (c)(1), EPA may adopt a fuel control if at least one of the 
following two criteria is met: (1) the emission products of the fuel 
cause or contribute to air pollution which may reasonably be 
anticipated to endanger public health or welfare, or (2) the emission 
products of the fuel will significantly impair emissions control 
systems in general use or which would be in general use were the fuel 
control to be adopted. We have used both criteria to support our 
proposal. Under the first criterion, we believe that emissions products 
of sulfur in gasoline used in Tier 1 and LEV technology vehicles 
contribute to ozone pollution, air toxics, and PM. Under the second 
criterion, we believe that gasoline sulfur in fuel that will be used in 
LEV and Tier 2 technology vehicles will significantly impair the 
emissions control systems expected to be used in such vehicles.

    Question 2. In your estimation, how much of the price difference 
between California gasoline and gasoline sold elsewhere is attributable 
to sulfur reductions? What other differences are there between 
California gasoline and that gasoline sold elsewhere?
    Response. California's reformulated gasoline standards (CaRFG 2) 
set limits not only on sulfur content, but also on benzene, aromatics, 
and olefins levels. The California standards also regulate the 
distillation properties known as T50 and T90 and set a flat limit on 
the volatility of the gasoline (as measured by Reid vapor pressure, 
RVP). It is difficult to calculate the exact breakdown of the cost 
difference between producing California gasoline and Federal gasoline. 
(Note that the term ``cost'' not ``price'' is used here--factors other 
than production costs can contribute to differences in price, so EPA 
does not make projections about price differences.) However, we have 
estimated that the sulfur reduction requirements, while significant, 
were responsible for only about one-third of the total costs and even 
less of the capital investments needed to meet the CaRFG 2 
requirements. Now that technology has evolved and refiners may have 
lower cost alternatives to meet low sulfur standards, we expect the 
costs for refiners nationwide to be lower than those experienced by 
California's refiners.
    Recently, there have been substantial differences in the price 
between California gasoline and gasoline sold elsewhere. California has 
experienced two significant refinery closures due to unforeseen 
accidents in recent months. Because of California's unique 
requirements, they cannot easily get gasoline from other parts of the 
country to make up for their supply shortage, so prices have gone up. A 
national low sulfur gasoline program would avoid this type of problem 
because if a refinery in one part of the country were unable to produce 
qualifying gasoline, fuel could be shipped from another part of the 
country without incurring such a substantial price increase (although 
some increase for transportation costs may be expected).

    Question 3. It has been noted that the Administration's cost 
estimate of 1-2 cents per gallon was based on ``unproven'' 
technologies. However, some refineries have installed a currently 
available technology to reach the sulfur levels outlined in the 
proposed rule. How long has this technology been available? What would 
be the cost to consumers of a gasoline sulfur reduction which relied 
solely upon currently available technology?
    Response. Technologies that enable refiners to significantly reduce 
the level of sulfur in gasoline have been available for many years. 
Roughly 15 percent of current domestic gasoline production could meet 
the proposed gasoline sulfur standards with no or very little 
additional capital investment, and at most a small increase in 
operating cost. These refineries use traditional sulfur removal 
technologies, or, in some cases, have refinery configurations that can 
accommodate very low sulfur crude oils. Two examples of these 
traditional technologies are hydrotreating and hydrocracking the feed 
to the fluidized catalytic cracker unit (FCC), the unit in the refinery 
that produces the largest fraction of gasoline blendstock. These 
processes are capital intensive and demand large amounts of hydrogen 
and other utilities, resulting in high operating expenses. Another 
example is desulfurization of the gasoline stream coming from the FCC 
unit. Treating the FCC gasoline stream has the advantage of lower 
capital and operating costs than treating the FCC feed. The major 
concern with this approach is that the octane value of this gasoline 
blendstock is reduced at the same time that sulfur is reduced, 
particularly when the sulfur is being reduced to low levels. This lost 
octane must be made up by increasing the production of high-octane 
blendstocks from other units of the refinery, or by the addition of 
oxygenates. Making up this octane loss adds significantly to the cost 
of desulfurizing FCC gasoline.
    We have been very encouraged to see the recent development of 
several improved desulfurization processes that are now available at 
reduced capital investment and operating costs (and which avoid the 
octane loss that increases the costs of traditional technologies). 
Examples of these technologies are CDHydro and CDHDS (licensed by the 
company CDTECH) and OCTGAIN 220 (licensed by Mobil Oil). These 
technologies use conventional refining processes combined in new ways, 
with improved catalysts and other design changes that minimize the 
undesirable impacts (such as the substantial loss in octane) and 
maximize the effectiveness of the desulfurization approach. Hence, we 
do not believe these technologies are ``unproven'' although in some 
cases the specific combinations of proven technologies have not been 
commercially demonstrated. Since these processes provide less costly 
ways to reduce gasoline sulfur, we presume that they would be used by 
most refiners to meet the proposed gasoline sulfur standard, and have 
based our economic assessment on that presumption.
    We do not have a current estimate of the costs of using 
conventional gasoline desulfurization technologies to meet our proposed 
standards, since we believe refiners will use the lowest cost approach. 
In our May 1998 ``EPA Staff Paper on Gasoline Sulfur Issues'' we did 
estimate that the cost of gasoline would increase 5.1--8.0 cents per 
gallon if these traditional approaches were used. However, this 
estimate was based on a refinery model which is now known to contain 
significant errors which caused the projected costs to be over-
estimated. Thus, a more accurate cost estimate could be lower. In 
contrast, our proposal was based on an estimated cost of one to two 
cents per gallon, calculated based on the improved, lower cost 
technologies now available.
                                 ______
                                 
      Responses by Carol M. Browner to Additional Questions from 
                             Senator Graham
    Question 1. It appears that the initial question is does high 
sulfur content in automobile fuel degrade the performance of catalytic 
converters?
    Response. Yes, there is substantial test information on catalyst 
equipped vehicles which shows that sulfur reduces catalyst efficiency.

    Question 2. Does it degrade the performance of all catalytic 
converters or only the catalytic converters required by the Tier 2 
regulation?
    Response. All catalysts are adversely impacted by gasoline sulfur 
(as well as by other compounds that may end up in gasoline; lead was 
banned from gasoline because it causes immediate and catastrophic 
failure of catalytic converters) to some degree. This is a phenomenon 
based on the chemistry involved in the operation of the catalyst, and 
every catalyst will suffer some loss in emissions performance after 
exposure to sulfur. Even very low sulfur levels, over time, will have 
an adverse impact on the catalyst. As emission standards have been 
pushed to lower levels to address ongoing air quality problems, 
catalysts have had to become more effective at reducing pollutants. 
Sulfur inhibits this effectiveness by reducing catalyst efficiency. 
This loss in catalyst efficiency can be substantial enough that the 
vehicle exceeds the emission standards for which it was designed. This 
is a concern that has been raised about NLEVs which were designed to 
operate on California sulfur levels. Test data generated by the auto 
manufacturers, oil industry, and others documents this sensitivity. 
Because Tier 2 catalysts would have to be as or more efficient than 
NLEV catalysts to meet the proposed standards, we believe Tier 2 
catalysts would be as or more sensitive to sulfur than NLEV catalysts.

    Question 3. Is this damage reversed?
    Response. The sulfur damage may or may not be reversible, depending 
on the vehicle model year and the conditions under which the vehicle is 
operated. Tier 0 and Tier 1 vehicles were not required to meet very low 
emission standards relative to NLEV and the proposed Tier 2 standards 
and their catalysts tend to be less sensitive to sulfur and to be more 
easily regenerated if they are exposed to high sulfur levels. Newer, 
more efficient catalysts, on the other hand, are not only more 
sensitive to sulfur but have a harder time recovering their original 
performance levels once they have been exposed to high sulfur. In 
addition to improving catalysts, manufacturers have also improved the 
ability of the engine to maintain the correct mixture of air and fuel, 
which both minimizes emissions out of the engine and maximizes the 
efficiency of the catalyst. It appears that this tight control of the 
air-fuel mixture hinders the removal of sulfur from the catalyst. Thus, 
the emissions from vehicles meeting the NLEV standards and the proposed 
Tier 2 standards, particularly those also meeting EPA's off-cycle 
emission standards, are less reversible than earlier vehicles. We 
estimate that a Tier 2 vehicle may suffer, on average, a permanent 50 
percent loss in emissions performance after exposure to high sulfur 
gasoline. This means that 50 percent of the damage caused by high 
sulfur levels cannot be reversed. We are continuing to gather data on 
the reversibility of the sulfur effect and will update our analysis as 
necessary.

    Question 4. How would damage be reversed?
    Response. The mechanism for reversing the sulfur impact--the way in 
which sulfur is removed from the catalyst--relies on a combination of 
high temperatures and in some cases, low oxygen or ``rich'' exhaust 
entering the catalyst. Different catalyst formulations require 
different combinations of heat and rich exhaust to partially or fully 
reverse the sulfur effect. While some vehicles may be operated 
periodically in a way that would achieve these conditions, we cannot 
guarantee that vehicles exposed to high sulfur levels would regularly 
be able to reverse the sulfur impact. Some test programs to assess 
sulfur sensitivity and reversibility found it very difficult to produce 
the conditions necessary to reverse the sulfur effect on certain 
catalysts, even in the laboratory setting. Calibrating vehicles to 
create these conditions in actual driving is problematic since that 
tends to create large increases in hydrocarbon and NOx 
emissions.

    Question 5. Is there another way to repair or ensure that catalytic 
converters, if damaged by high sulfur content in fuels, can be restored 
to their original performance levels?
    Some research vehicles have been able to regenerate their catalysts 
by being driven through unique aggressive driving patterns which 
created the ``hot, rich'' environment needed to release sulfur. 
However, these vehicles did not meet either the SFTP requirements being 
implemented over the next few years or the Tier 2 emission standards. 
Given the unique driving required to reduce sulfur on the catalyst and 
the likelihood that future emission requirements will constrain the 
ability of vehicles to create the hot, rich conditions needed, it seems 
unlikely that Tier 2 catalysts could be returned to their original 
condition on the vehicle in any manner which would occur consistently 
and would not otherwise compromise emission controls.

    Question 6. What is the estimated cost of replacing a catalytic 
converter?
    Response. The cost of replacing a catalytic converter varies 
depending on the age, make, and model of the vehicle and where the 
consumer goes to have the catalyst replaced. An aftermarket catalytic 
converter generally costs $200-300, while a converter purchased from an 
original equipment manufacturer (OEM) (say, through an automotive 
dealership) can cost anywhere from $500 to over $1,000.

    Question 7. If the damage is reversible, could regional regulations 
work?
    Response. If the sulfur effect is completely reversible under 
typical driving conditions, then yes, a regional sulfur program would 
not permanently compromise the emissions performance of vehicles 
exposed to the higher sulfur levels. However, the higher sulfur levels 
would result in higher emissions as long as the vehicle operates on 
high sulfur gasoline. Hence, many of the projected emissions benefits 
of the Tier 2 vehicles would be reduced for the vehicles operated in 
high sulfur areas. Furthermore, the projected benefits of low sulfur 
gasoline to the other vehicles in the fleet would not be realize.

    Question 8. If the damage is not reversible, could regional 
regulations, tailored to the air quality needs of each region, 
effectively reduce the impact of sulfur on catalytic converters?
    Response. If the sulfur damage is not reversible, any variation in 
sulfur levels across the country will have some adverse impact on Tier 
2 (and other) catalysts. While it may be possible to tailor the 
regional program(s) to consider regional air quality needs, vehicles 
that travel across regions may suffer permanent damage. We have 
estimated that perhaps as many as 25 percent of vehicles have traveled 
between the East and the West (due to business or pleasure travel or 
relocation) over their life. This could result in a lower emissions 
benefits in all areas. Furthermore, the consumers would be paying for 
emission controls that may not achieve the full reductions they were 
designed for simply because of higher sulfur levels in their region.

    Question 9. What percentage of vehicles are still using Tier 0 
technology?
    Response. Estimating the number of Tier 0 vehicles still in the 
fleet in a future year is quite difficult due to the number of model 
years involved, variations in sales from year-to-year, and other 
factors. For emissions estimation purposes, estimating the percentage 
of vehicle miles traveled (VMT) associated with different vehicle 
standards is much more important. Using estimations of VMT distribution 
by vehicle age assumed in EPA's emission factor model for highway 
vehicles, we can estimate that Tier 0 vehicles account for 
approximately 73 percent of passenger car VMT in 1999 and will account 
for approximately 39 percent in 2004.

    Question 10. I believe that your existing analysis shows that the 
entire fleet of cars in the United States will have transitioned to 
Tier 2 technology by the year 2030. Is this accurate?
    Response. We believe this analysis is essentially correct. There 
may be few vehicles on the road which are over 25 years old, but they 
will not be driven much. This estimate is based on two sources: the 
number of vehicles of each age is based on State registration records, 
while the mileage accumulated by vehicles of different ages is based on 
the Department of Transportation's National Personal Transportation 
Study. This information shows that in 2030, vehicles 24 years of age 
and younger would account for over 95 percent of the VMT by light-duty 
cars and trucks. Thus, Tier 2 vehicles would account for about 95 
percent of total VMT in 2030.

    Question 11. What reduction of air pollutants will accompany that 
transition?
    Response. Since the proposed Tier 2 standards would reduce 
emissions of NOx, NMOG, and PM, emission levels of these 
pollutants will continue to decrease as long as Tier 2 vehicles replace 
older models in the fleet. By 2030, we estimate annual reductions of 
436,000, 2,786,000, 322,000, and 36,000 tons of NMOG, NOx, 
SOx, and PM, respectively.

    Question 12. If the sulfur regulation you propose is adopted as 
currently written, by what date will that same level of reduction 
occur?
    Response. We have not analyzed the emissions reductions due to 
sulfur control apart from the emissions reductions due to the Tier 2 
standards, since we believe the Tier 2 standards cannot be achieved 
without this degree of sulfur reduction. In the early years of the 
program, the majority of the modeled emission reductions come from 
emissions benefits realized in the vehicles already on the road as a 
result of sulfur control. Later in the program, the majority of 
emissions benefits come as Tier 2 vehicles continue to replace older 
technologies.

    Question 13. Several of the witnesses on Tuesday discussed the 
transition of the vehicle fleet to Tier 2 technology as one possible 
guideline for a phased implementation of national sulfur regulations. 
Based on the numbers we have just discussed, what is your opinion on 
the viability of a phased sulfur regulation that was coordinated with 
the transition of the fleet to Tier 2 technology?
    Response. We are concerned that phasing in gasoline sulfur control 
in parallel with the introduction of Tier 2 vehicles, in a manner 
similar to the phase-in of unleaded gasoline in the 1970's as catalytic 
converters were first introduced into the marketplace, could 
significantly reduce the emissions reductions to be achieved in the 
early years of this program. This occurs because there is a loss in 
emissions reductions that can be achieved from vehicles already on the 
road. However, EPA has requested comment on the proposed time frame and 
plans to consider these comments in developing the final rule.

    Question 14. How many refineries do you estimate will go out on 
business as a result of your proposed rule?
    Response. We do not believe any refineries will close due to our 
proposed standards, because we have developed a program with multiple 
compliance flexibilities. These flexibilities include a sulfur 
averaging, banking, and trading program that allows refiners to use 
credits against the sulfur standards, a 3-year phase-down of sulfur 
levels, and special provisions for small refiners providing additional 
time for compliance. We are also asking for comment on a range of other 
alternatives, such as a hardship provision that could be available to 
any refiner regardless of size, that we will evaluate seriously as we 
proceed in developing our final program. It is certainly not our 
intention to implement a program that requires refinery closures.

     CLEAN AIR ACT: SULFUR IN THE TIER 2 STANDARDS FOR AUTOMOBILES

                              ----------                              

                        THURSDAY, JULY 29, 1999

                               U.S. Senate,
         Committee on Environment and Public Works,
Subcommittee on Clean Air, Wetlands, Private Property, and 
                                            Nuclear Safety,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 9:30 a.m., in 
room 406, Senate Dirksen Building, Hon. James M. Inhofe 
(chairman of the committee) presiding.
    Present: Senators Inhofe, Lautenberg and Bennett.
    Also present: Senator Thomas.

 OPENING STATEMENT OF HON. JAMES INHOFE, U.S. SENATOR FROM THE 
                       STATE OF OKLAHOMA

    Senator Inhofe. The committee will come to order.
    I think we are going to be joined, probably not until after 
we recess for the votes, by both Senator Bennett and Senator 
Thomas, maybe Senator Hutchison.
    Today's hearing will discuss the EPA's proposed gasoline 
sulfur regulation. While this is officially our third hearing 
on the issue, the last hearing seemed to get off track with 
discussions on the NAAQS court case, you remember we got off 
and started talking about that, and we never really got back 
on. So we will not do that again today.
    The sulfur rule is very important, and I feel the agency is 
rushing into a decision without considering all the effects of 
the proposed rule. I have consistently raised a number of 
issues for over a year and a half which have not been addressed 
by the agency, such as the effect on fuel supply, the impact on 
both small refineries and refines, the timing of the proposal 
in light of the unproven technology and cost of equipment, and 
the impact on national security.
    In addition, the EPA has played games with expected 
benefits from the low sulfur standard. As I showed in the last 
hearing, 75 percent of the expected benefits come from one 
PM2.5 study, which President Clinton said should not 
be considered as a basis for this until there has been a 
scientific review. In addition, on June 23, the EPA issued a 
supplemental notice to address the NAAQS court case. The 
original proposal cited both the 8-hour and the 1-hour ozone 
standard for justification of the regulations.
    The supplemental addressed only the 1-hour ozone standard. 
But when the EPA calculated the affected populations based on 
the 1-hour standard, the numbers dropped to 39 million people. 
Instead of going forward and basing the regulation on the lower 
population figure, they switched to a different statistical 
model, which brought the number back up to 70 million people to 
justify the same sulfur standards.
    So it just appears that there is a lot of evidence out 
there that the EPA, first of all, picks the level they want to 
regulate or the standard they want to set, and then they 
conduct the analysis to justify that decision. It's my 
intention to begin to shed some light on the way regulatory 
decisions are made at the EPA.
    We have one witness, Mr. Perciasepe. I appreciate your 
being here on time. What I think we will do, since we are going 
to have three votes, the three votes will start in about 1 
minute, we will go for about 15 minutes, and I will run over 
and vote three times and be back and hopefully bring some 
members back with me. If not, the meeting will be shorter.
    So at this time, why don't you go ahead with your opening 
statement. We are very happy to have you here today.

 STATEMENT OF HON. ROBERT PERCIASEPE, ASSISTANT ADMINISTRATOR, 
  OFFICE OF AIR AND RADIATION, ENVIRONMENTAL PROTECTION AGENCY

    Mr. Perciasepe. Thank you, Mr. Chairman. It is a pleasure 
to be here again to continue our discussion in the hearing 
format on the proposed sulfur rule.
    I know that you want to concentrate on sulfur and I will do 
that. But I do want to provide just a tad of context to it, 
because it is part of a larger process that we have going on, 
looking at tailpipe emissions from automobiles.
    So one of the things that we have been looking at and that 
we had in our report to Congress last year was the need for 
further tailpipe emissions reductions from mobile sources, 
particularly light duty vehicles in the United States. Just a 
couple of quick statistics on that, in 1970, at the beginning 
of the Clean Air Act, the first version of it in Congress, 
there were 100 million light duty vehicles in the United 
States. Last year, there were 200 million light duty vehicles 
in the United States. You might imagine the miles driven by 
these vehicles were increased commensurate with the number of 
vehicles. It was about a trillion miles a year in 1970, and 
last year it was about 2 trillion miles a year that we drive 
the vehicles.
    So even as the individual vehicles and the emissions 
standards have continued to improve over time, and indeed, 
automobiles are much superior in their emissions performance 
than they were in the early 1970's and 1960's, the numbers 
continue, of the miles driven, continues to increase. So when 
you look at this overall, a picture over the next decade, you 
find that, and of course the rule we are talking about takes 
effect over the next decade, it is not a quick implementation 
rule, you find that absent further attention to this that the 
emissions from light duty vehicles in the United States will 
start to increase during the next decade. Thus, while 
automobiles and emissions from the tailpipes part of the 
solution over the last 20 years, they will start to become part 
of the problem again unless we move forward.
    In our report to Congress, we looked at the air quality 
need, the feasibility of additional controls and then the 
comparable cost effectiveness. You mentioned the different or 
the numbers of people affected by it. Without getting into the 
standards and the status of standards, but just looking at the 
public health perspective, our estimate is that near 130 
million people would be affected one way or another. Indeed, as 
we move forward in the national program, every citizen in the 
United States will have improved air quality over the next 20 
years.
    We based this on data, we based our proposal on data from 
both industry and our own data. We looked at the feasibility of 
the 
emission standards. And most importantly, we looked at how to 
optimize achieving these goals with technology on the vehicle 
and improvements on the fuel. This gets us to, I think, the 
purpose of today's hearing, is how are we looking at that 
optimization between the technology on the car and the quality 
of the fuel. That is one of the primary focuses of our 
rulemaking, that for the first time we're trying to find a way 
to do this as a system.
    I want to point out that as we have done that proposal, we 
did it with extensive outreach. We worked with many in 
industry, both automobile and oil refining industry. We have 
reached out to States, environmental groups, public health 
officials. We tried to develop principles by which we would 
conduct the rulemaking. I just want to list them quickly.
    We wanted to develop a national program, so that we could 
help both the automobile and the oil industry to avoid boutique 
fuels, or opting into different State automobile standards. We 
did not want to constrain consumer choices.
    I see I'm on the yellow.
    Senator Inhofe. We try to limit opening remarks to 5 
minutes, but go ahead and take a couple more minutes.
    Mr. Perciasepe. Thank you very much, Mr. Chairman.
    Senator Inhofe. Your entire statement will be in the record 
for others to read.
    Mr. Perciasepe. I appreciate that.
    Treat the vehicles and the fuels as one system, cars and 
light trucks have the same emission standards. Build on the 
success of the national low-emission vehicle program. Be fuel 
neutral, not preclude the introduction of technologies that are 
both low emission and fuel efficient. Provide performance 
standards and develop flexible provisions on how to achieve 
those standards, and provide sufficient lead time.
    I know these are some of the questions that you have in 
your opening statement.
    We continue to conduct outreach. Our formal comment period 
closes next week. We will be having follow-up meetings with 
most of these groups, both the oil industry and the auto 
industry over the next month to get into the details of their 
comments.
    On the gasoline sulfur reduction, from the current fuel, 
our view and our proposal shows that we feel that this is 
critical, that there must be sulfur reduction in order to 
optimize the performance of the vehicle technologies. Some of 
the reasons for that have been laid out before, but let me just 
summarize again.
    The irreversibility of the effect, the fact that 
introduction of low sulfur fuel will have immediate benefits, 
even on existing automobiles. For instance, the automobiles 
that are being sold today in the Eastern part of the United 
States and in 2001 in the rest of the country will perform 
almost over 100 percent better on nitrogen oxide with lower 
sulfur fuel.
    And it's a technology enabling attribute of fuel, too, as 
we look at more modern engine technologies in the future, and 
that there is emerging and new technologies on how to do this 
at the refinery.
    We looked at flexibilities for refiners on how they will 
implement this rule. We have proposed a banking and trading 
program that would allow the development of early credits that 
could be used later to delay implementation on certain 
refineries, and allow refiners to have some flexibility in how 
they time their capital programs. These credits can originate 
as early as 2000.
    We have specific consultations with small refineries, and I 
know you want to get into the definition of those. But the 
provisions that we provided look at more time for small refines 
and additional hardship conditions for them.
    So in summary, one last thing I want to say about the small 
refines. I have also met with the Western Governors at the WGA 
meeting a month ago in Wyoming. We are participating in a 
process with the Western Governors looking at some of the 
unique issues of the so-called PAD-4, which is the Rocky 
Mountain area, and some of the refineries out there. Many of 
them are included in our existing small refinery proposal, but 
there are others, and there are other geographic anomalies out 
there. So I just wanted to let you know that we are continuing 
that process, and we will continue to do that.
    We are also engaged in looking at the permitting process 
and how we can make sure that the permitting process is 
streamlined so we have a deliberate process underway now with 
the oil industry to look at that.
    I am going to stop there.
    Senator Inhofe. That's good. As I said, the rest of your 
statement will be in there.
    You mentioned you met with these Governors out there and 
they proposed to you, their two regional approaches to this. 
What was your response to them?
    Mr. Perciasepe. When I met with them, we had a discussion 
about why they felt and what the issues were behind the 
regional recommendation. What we've committed to do, they have 
a coalition that they've put together of the Western States 
called the Western Regional Air Partnership. They have put a 
committee together to look at the specific issues related to 
the refineries in the West, and also the impact on air quality. 
The Western Governors are concerned also about visibility 
issues.
    So we have been providing technical assistance to that 
group. Some of the issues that they brought up were, for 
instance, well, if you have some of these small refineries in 
our area, having more time under the existing process that you 
have defined in your proposal, but there are other refineries 
that may not be owned by a refiner who is in that definition, 
they are going to be competing in a market where some other 
people will have an advantage because they have more time, and 
they don't, therefore they will be at a disadvantage.
    They also were concerned about the importation and 
exportation of petroleum in that energy region. That pad I 
think has about 20 percent of its fuel, gasoline is exported 
out, mostly toward the Northwest, and about 20 percent is 
exported in.
    Senator Inhofe. I was really just getting at specifically 
their two region approach. But also I wanted to get to a couple 
of things before we have to go over and cast those three votes. 
One is getting, as you mentioned, we are concerned about the 
refineries that would have to be shut down. In the written 
questions of the last hearing, I asked Administrator Browner if 
she had conducted refinery specific analysis similar to the 
study by Canada. Of course, Canada, their study came out and 
said that yes, refineries would have to close.
    First, the EPA said that no refineries would close, and in 
response to the specific question she said, and I'll read it,

    The EPA has not yet conducted a refinery specific analysis 
similar to the Canadian study. We intend to analyze the likely 
response of the refining industry to our gasoline sulfur 
proposal as we develop our final regulations.

    I think this analysis is key to the whole debate and should 
be subject to notice and comment as well as scrutiny by 
Congress.
    I will just ask you the question, why shouldn't the 
American public have access to this analysis before these 
decisions are made? Because it will have tremendous economic 
impacts on different areas.
    We're going to put a chart up here. There are quite a 
number, as I understand it right now, of refineries that, about 
50 or so, we just picked out a few of them here. I was hoping 
that Senator Baucus would be here so he could see the one in 
Montana. So we are talking about potentially a lot of 
refineries closing.
    Mr. Perciasepe. When you say employee rank, Mr. Chairman, 
do you mean employer rank in that State?
    Senator Inhofe. In that city.
    Mr. Perciasepe. In that city?
    Senator Inhofe. Yes.
    Mr. Perciasepe. So for instance, the Exxon one that you 
just mentioned in Billings, MT, is in the top 20 employers in 
Billings.
    Senator Inhofe. Yes.
    Mr. Perciasepe. OK. Let me respond quickly to that 
question. The study that Canada conducted, there were two 
things that I think are worth noting there. First, they did not 
make any assumptions, as we have, about new technology that is 
less expensive to achieve these goals. Their economic analysis 
was based on old technology.
    Second, they operated, they did an analysis based on 
starting this process in 2001, we are trying to provide more 
time, and certainly that's a key issue in the comments that 
we're receiving on our proposal on the timing of the whole 
thing. We still feel that there won't be any refinery closings 
because of our rule, and we are continuing to look at both the 
banking and trading program to provide that kind of flexibility 
and also how we should be looking at the definition of the 
small refinery that we have in our proposal vis-a-vis some of 
these other issues you're bringing up, some of which are in the 
West.
    Senator Inhofe. You're saying you still feel there will be 
no refineries closed?
    Mr. Perciasepe. I think refineries will likely close in the 
United States over time. But our view is that none will close 
due to this rule alone.
    Senator Inhofe. None will close due to this rule alone. I 
would like to share your optimism, and I'm sure that a lot of 
industry would, too. You could answer this for the record, 
perhaps, later, what you could put in place to offer that 
assurance to these people. Because if you really believe that, 
I would certainly like to get the assurances out there, so that 
maybe we can reduce the hysteria level just a little bit.
    Getting to the refiners versus refineries in our 
definition, and you've thought about this, I am sure, but if 
you have two refineries, each with the capacity of 35,000 
barrels a day with identical levels of sulfur in their 
gasoline, and both need to install the same equipment to meet 
new standards, both have identical cost margins, both have the 
same number of employees, why should the EPA say that only one 
should be eligible for a small refinery program?
    Mr. Perciasepe. Well, we are going to have a small refinery 
program in this----
    Senator Inhofe. In this case. I'm talking about two 
refineries, but one is owned by a large company.
    Mr. Perciasepe. I understand the question, I just wanted to 
preface it to make sure we are all clear that we are going to 
have a small refiner program. What is actively being discussed 
and we are getting comment on in the comment period, and we 
will be talking to folks, including the Western Governors and 
the refiners out there, what is being discussed is how, if any, 
change should be made from the proposal that we have put out 
for comment. We are actively discussing whether there should be 
modifications to that definition.
    One of the things that we are looking into is a situation 
where you might have, I think what I just heard you say is two 
refineries that are essentially the same size, one is owned by 
a company that has more than 1,500 employees and one is not.
    Senator Inhofe. That's correct.
    Mr. Perciasepe. The one that is owned by the company with 
more than 1,500 employees, one can make the assumption, well, 
maybe there is more capacity in that company to deal with this 
anomaly. But on the other hand, if it is an isolated facility, 
and it is going to have to compete in a situation where the 
other refiner is going to have additional flexibility, I think 
that is an important consideration that we have to take into 
account.
    Senator Inhofe. Can the reverse be true also? Say there is 
a small part of our overall picture and we can do without it, 
rather than go through all this and these changes?
    Mr. Perciasepe. Of course. Some of the comments we're 
getting from members of the oil industry, as you might imagine, 
is don't provide any small refinery flexibility. They want a 
level playing field, and you can imagine why they want that 
kind of level playing field, because they think they'll be able 
to compete better.
    So we do want to balance, as we are required to do by 
Congress under SBREFA----
    Senator Inhofe. Yes, but we're concerned also about the 
people in the cities. That's why we have the column up here on 
how it relates to the economy of these cities. Sometimes that 
is more important than the welfare of the refiner or the 
company that owns that refinery alone.
    Mr. Perciasepe. And I agree with that statement, and I 
think we have the obligation that Congress has given us under 
the Small Business Regulatory Enforcement and Flexibility Act 
that we do take that into account.
    I just wanted to point out that in the industry, there are 
different views on how we should go about doing that. But the 
issue you raise is one that we are actively looking at.
    Senator Inhofe. OK. I want to get into something that's 
rather complicated for me and probably not for you, and that's 
the banking and trading concept. However, I think I'll recess 
right now. Hopefully it will only take, in order to get three 
votes out of the way, the tail end of this and then the next 
and then a 10-minute vote, so it shouldn't be more than 20 
minutes.
    So breathe deep, get a cup of coffee, enjoy yourselves, 
have a conversation.
    [Recess.]
    Senator Inhofe. We will reconvene the meeting.
    Mr. Perciasepe, let's get into the banking and trading 
issue. There's been a lot of concern expressed to me and to you 
also about in 2000, they are supposed to be able to show the 
1997 and 1998 sulfur level as a baseline. It's my understanding 
that then, by 2004, they would use the baseline or 150 parts 
per million, whichever is less.
    I am kind of concerned how it works and how the timing is, 
I'm concerned about what will happen under the plan in October 
2003, if it becomes clear that credits will not be available 
for some refineries, and they are unable to produce low-sulfur 
levels. If it becomes clear that they can't produce low-sulfur 
gasoline due to perhaps permitting difficulties or construction 
delays, things that really are beyond their concern, what 
happens? Will they be shut down? Will the EPA risk fuel 
shortages or price spikes? What do you think would happen under 
these circumstances?
    Mr. Perciasepe. Well, there are a lot of questions embedded 
in there. Let me just say that----
    Senator Inhofe. Well, just one question, then. If for no 
reason, no fault of their own, and here again, construction 
delays, and there are only two companies that make the 
equipment, what will happen if they don't meet those deadlines?
    Mr. Perciasepe. I'll just go directly to that question, but 
there's a lot of context to this. Let me just say that we 
proposed, in the proposal, that we consider having what we call 
supplemental compliance pool of sulfur credits. We have had 
some discussions with the Department of Energy whether we would 
do it at EPA or whether they would have it. We don't specify in 
there. We take comment on it, and we put in the actual rule 
proposal itself that credits could come from a variety of 
places, including any supplemental pool.
    The idea with the supplemental pool is really two-fold, to 
try to deal with that kind of an eventuality, which I would 
like to also explain that we don't think will happen, and we 
are going to continue working on the banking and trading 
program so it doesn't happen.
    But not to get into that longer discussion, if for some 
reason what you suggest happens or for instance, there isn't 
enough confidence in the banking and trading program, that's 
why we wanted to put that idea on the table. It was an idea 
that came directly from some of our consultations with the 
industry and with the Department of Energy before we propose a 
rule. So the idea, quite simply, would be if somebody is for 
some reason short on credits, and this is assuming we do any 
other modifications we do to the banking and trading program 
before we go final, that there would be a door of last resort 
to be able to get credits upon the demonstration that they've 
had some kind of problem.
    Senator Inhofe. That's assuming there would be credits 
there. Let's call those orphan credits, then. Let's assume that 
they are going to be there. What assurances would I have, if I 
were not able to come up with the credits and that deadline 
comes up, that there would be credits in there, No. 1, and No. 
2, wouldn't it be simpler, then, to say, if your feeling is 
that they're not going to be shut down, to word it in some way 
that would give that assurance, rather than to assume that 
there are going to be orphan credits in there to take care of 
any problems in my particular refinery?
    Mr. Perciasepe. These would be credits that would not be 
generated by other actions. These would be credits that the 
Government would hold for some kind of an eventuality that 
you're describing. So we would have the ability to provide 
credits, if we follow through with that proposal. We have to 
figure out under what conditions and we have to figure out a 
lot.
    Senator Inhofe. I like what you're saying, and it's the 
first I'd heard of this, and I asked my staff, and it's the 
first they've heard of this, too.
    Mr. Perciasepe. It's in the proposal.
    Senator Inhofe. Would it be your intention to have that as 
a guarantee, so that that is there and they could know that 
those credits will be there? I see some staff nodding in the 
affirmative.
    Mr. Perciasepe. I'm afraid to turn around and see who's in 
the room.
    [Laughter.]
    Senator Inhofe. They don't want you to.
    Mr. Perciasepe. In order for a banking and trading program 
to work, the corporate entities or the facilities that are 
participating in it or would have to participate in it have to 
have some confidence in it. If you have no confidence in a 
banking and trading program, you may make economic decisions 
early on that are not the best.
    So one of the main reasons we put this in the proposal, and 
it's not completely flushed out in the issues you're talking 
about, who would get it and under what circumstances would they 
get it, have to be worked out. But the idea simply is to 
provide that there to enable folks to feel like, I'm going to 
have some confidence in this banking and trading program, 
because I've got that safety valve.
    Senator Inhofe. OK. I like the idea of a safety valve. And 
the other thing that I'm not going to ask you now, because I 
want to get to Senator Thomas, but it seems to me in this whole 
banking and trading process that those refiners who may have 
acted responsibly some time in the past preparing for this, 
their baseline would be different than it would be otherwise, 
and they would be punished for the--and don't respond to that, 
because we'll come back to that in just a minute.
    Mr. Perciasepe. You're talking about the 1997 and 1998 
baseline?
    Senator Inhofe. That's correct. The 1997 and 1998 baseline 
would show them in a more favorable position than if they had 
not prepared. Therefore, are they being punished for that.
    Senator Thomas.
    Senator Thomas. Thank you, Mr. Chairman. I'm pleased that 
you've brought this topic up again. We had one hearing before, 
and frankly didn't come away with very many answers.
    Are you aware of the letter that was sent to the 
Administrator by the Western Governors' Association? They sent 
a letter in June. They were concerned about a number of things. 
The Rocky Mountain areas, of course, will be impacted. Among 
other things, it talked about the definition of small 
refineries. Could you respond to that letter?
    Mr. Perciasepe. Yes. In fact, I went to Wyoming and met 
with the Western Governors in June myself, in a meeting with 
all the Governors that were present at that time. We discussed 
the letter, we discussed the western refinery issues that they 
had. I committed to work with their air quality planning group, 
the Western Regional Air Partnership, who has a work group that 
is now looking at this issue. We have committed to work with 
them.
    Of course, it's their work group, and the Governors decided 
at that meeting to refer the issue to that group. So we have 
people that are going to those meetings, it's their meeting, 
we're not a member of it, but we have been going to the 
meetings and coordinating and cooperating.
    I am hopeful that we can work on some recommendations from 
that group under that auspices to try to deal with some of the 
issues that they have. I think we continue those discussions, 
those discussions are ongoing. I am here today before you just 
to express optimism that we can do that.
    But I want you to know that I personally went to talk to 
the Governors as a result of that letter.
    Senator Thomas. That's good. I'm glad that you did. I think 
there is concern, most people felt like EPA ignored the Grand 
Canyon visibility recommendations and went ahead absolutely 
without using them, have rejected the regional phased-in 
approach to the sulfur that was advocated by the refining 
industry. So frankly, there's a good deal of skepticism on the 
part of these folks that whatever they do is going to be 
considered by EPA, which I think is too bad, with that sort of 
an attitude.
    Mr. Perciasepe. I hope I have allayed that concern.
    Senator Thomas. I hope so, too. I would like, Mr. Chairman, 
to submit this letter for the record, if I might.
    Have you taken a look at the impact on small refineries in 
California in terms of how they were impacted, as opposed to 
the larger ones, when they did something similar over much 
longer time?
    Mr. Perciasepe. We have had conversations with the State of 
California about their phase-in in the last decade. In fact, 
they did provide some additional flexibility to small 
refineries when they implemented their program. The indications 
we have from them, and if you have other indications or you 
know folks who have different ones, we would be willing to look 
at it.
    But the indications we have from the State of California is 
that the adjusting and the refining capacity out there was more 
driven by things like mergers and acquisitions and other 
economic and business decisions, and not by the proposed, the 
rulemaking that California went through. But they did have some 
provisions for small refineries in their program, and we have 
looked at those, and we have had discussions with them about 
what happened to the refineries. We will continue to dig into 
that a little bit as well.
    But I want to point out that we are actively working with 
small refineries, either through the Western Governors process 
of thinking about those issues out there, and we're also, since 
we've taken comment on, and our rulemaking comment period 
closes next week, we're taking comment on the definition of 
small refinery, some of the attributes of the banking and 
trading program that the chairman and I were just talking 
about, we're getting comments and we're going to have to follow 
up on those comments related to this issue of small refineries.
    So we plan to be doing that over the next several months.
    Senator Thomas. Well, as you know, as in many things, there 
is some uniqueness about low population areas. We have, for 
instance, four refineries in all of Wyoming. And so the idea of 
merger or consolidation is not nearly as likely there.
    What I have heard from some is that they think there is 
going to be something of a regulatory blizzard over the next 10 
years, reductions in sulfur in diesel fuel, MTBE, phase-out, 
mobile source air toxics and so on. Have you looked at the 
cumulative impact?
    Mr. Perciasepe. We have a process underway with the 
Department of Energy to look at that longer term horizon. We 
have also had conversations both with API folks, the 
Administrator himself has met with API, and I certainly have 
had ongoing discussions with them and with individual companies 
about how to look at all of those processes that are coming 
down the line.
    So I think a combination of working with the Department of 
Energy and continuing discussions with the individual companies 
about how this will, how these different requirements, at least 
the ones we can predict with some degree of certainty over the 
next decade, will affect the industry.
    We have actually gotten some letters in specifically on the 
issue of two of the ones you've mentioned there, sulfur and the 
oxygenate requirement. We have gotten letters in from specific 
refiners saying, here are some ideas on how this could be 
sequenced over the next decade that we think we can handle. Or, 
if you do this, it will make it easier to handle it. Or, don't 
do this, it will make it harder.
    So we have some specific input on that particular issue. So 
I would say, just to summarize again, specific conversations 
and input from specific refiners, as well as working with the 
Department of Energy, we want to take a look at that big 
picture. And we want our final rule to be in the context of all 
of that. The oil industry and the refining industry is too 
important to not make that kind of consideration.
    Senator Thomas. I am told that the cost estimate for the 
gasoline sulfur proposal is based largely on so far unproven 
technologies. How do you react to that?
    Mr. Perciasepe. The technology that is extremely promising 
and blossoming in our opinion in the industry, that we're 
getting more input, almost on a weekly basis, of processes that 
people are modifying, while they are new, they are based on 
existing technology. This isn't a revolution in technology, 
this is an evolution of existing technology that is used 
already, catalytic processes and others, that are already used 
and have been well established in the refining business for 100 
years, or 50 years, whatever.
    But the modifications to them to meet these new objectives, 
and the new approaches to how different catalysts react in 
different parts of the refinery stream, whether it be after the 
catalytic crack or before it, or any other streams that are 
flowing, are areas of innovation that are occurring. There are 
a number of processes that are already on the market, some have 
already been installed. We have confidential business 
information from a number of other refines who are some time 
between this summer or in the fall going to be announcing even 
new modifications of these technologies.
    So we're very confident that we're not talking about a leap 
here of insurmountable proportions by any stretch of the 
imagination, but rather, modifications to existing and 
improvements on existing technologies, to overcome some of the 
issues that have come up from the experience that happened in 
California when they did some of those.
    Senator Thomas. That's probably the way you have to go when 
you're sort of developing something. But when you're making out 
rules and regulations for something that is going to cost 
billions of dollars per year in the future, you have to base 
those on things that are pretty well tried and proven, it seems 
to me, before you do it.
    Thank you, Mr. Chairman.
    Senator Inhofe. Thank you, Senator Thomas.
    Senator Lautenberg. Thank you, Mr. Chairman. I'm sorry that 
I missed the presentation. But I have read it and I hope that 
we will be able to continue to pursue the course we're on, that 
is, to remove the emissions, toxic emissions.
    First, I would ask consent to include my statement in the 
record, the full statement in the record.
    Senator Inhofe. Without objection, so ordered.
    [The prepared statement of Senator Lautenberg follows:]
  Statement of Hon. Frank Lautenberg, U.S. Senator from the State of 
                               New Jersey
    Thank you, Mr. Chairman, for holding a hearing on this important 
topic.
    Mr. Chairman, Americans love their cars, but they love clean air, 
too. There's a lot we could do to make our air more breathable--by 
cutting down on unnecessary driving, congestion, and sprawl--but one 
essential step is to reduce tailpipe emissions.
    For that reason, Mr. Chairman, I support EPA's goal to limit the 
sulfur content of gasoline, because it is a relatively low cost way to 
keep our air clean. Sulfur is bad for catalytic convertors. And 
catalytic convertors that don't work right put a lot more nitrogen 
oxide, volatile organic compounds and carbon monoxide into our air. 
Another important point--catalytic converters exposed to high-sulfur 
gasoline are permanently damaged. Even if you go back to using low-
sulfur gas, those converters will perform at an average of 50-percent 
below capacity.
    EPA's proposed standard would require the Nation's refiners to meet 
an average sulfur level of 30 parts per million by 2004, down from the 
current average of more than 300 parts per million. Small refiners--
those with 1,500 employees or less--would have an additional 4 years to 
comply. Those who could prove a severe economic hardship could ask for 
an extension.
    The technology already exists to meet this standard. In fact, 
California already meets a standard that is essentially identical. The 
same thing goes for Japan. And the European Union and Canada are close 
behind. In fact, the rest of the industrialized world is moving more 
quickly than we are in taking this step.
    I look forward to hearing from our witness today. Thank you, Mr. 
Chairman.

    Senator Lautenberg. Mr. Perciasepe, if I missed this in 
either the dialog or your testimony, please feel free to say 
so. What's going to be the effect on the motorists if the plan 
goes through? It will cost more to operate a vehicle?
    Mr. Perciasepe. Our estimates, if you look at both the 
fuel, and we're looking at the automobile technologies and 
tailpipe emission control technologies and the fuel as a 
system, what we have analyzed is that for passenger cars, we're 
probably talking about around $100 for increased costs due to 
these improved catalytic converters. For larger light duty----
    Senator Lautenberg. Is that $100 annual cost?
    Mr. Perciasepe. No, cost of purchase. The annual cost shows 
up in the fuel costs. The larger light duty vehicles, like SUVs 
or some of the larger vans, pickup trucks, etc., we expect that 
equipment to cost about $200 a vehicle. So that gives you sort 
of a range on the vehicle costs, and you can do your comparison 
of the cost of a vehicle.
    At the pump, in terms of the cost of gasoline from reducing 
the sulfur, we estimate the cost to be between 1 and 2 cents a 
gallon.
    Senator Lautenberg. And again----
    Mr. Perciasepe. That's about $12 a year, I think, $12 to 
$20.
    Senator Lautenberg. If this has been reviewed, please tell 
me so, I don't want to tie up the time of the committee or 
yourself, what will the impact overall be on costs dealing with 
the environment, those that might result in reduced respiratory 
problems, might reduce wear and tear on structures, what kind 
of an estimate do we have on that?
    Mr. Perciasepe. Our estimates on all the benefits are 
between $3 billion to $19 billion a year, with the best 
estimate being around $16 billion. That would include all the 
things that you mentioned, and I would throw in also deposition 
in the estuaries from nitrogen oxide as well. There are some 
benefits there.
    Senator Lautenberg. And the $100 that you talked about for 
regular passenger vehicles would be a one-time charge for an 
improved catalytic converter?
    Mr. Perciasepe. That's right.
    Senator Lautenberg. Not about gasoline costs?
    Mr. Perciasepe. No, the catalytic converter cost for a 
passenger vehicle is about $100.
    Senator Lautenberg. Is there any wear on these? Does a car 
flunk inspections in those places where they test emissions?
    Mr. Perciasepe. If they see high sulfur fuel, there could 
be some irreversible damage to them. But our requirements would 
be that this equipment would work for 120,000 miles. Usually 
when there is a problem with the emissions from a vehicle, 
usually it's not because of the catalytic converter. It is 
because of the engine--it's hard to say tuning of an engine 
these days, because they're all electronic. But the engine 
ignition and fuel injection and air mixing system and how 
that's working.
    Senator Lautenberg. So the cost balance is one that I guess 
has been the subject of some discussion here.
    Mr. Perciasepe. I think it's on the list to talk about 
here.
    Senator Lautenberg. It's my understanding that lowering 
sulfur, gasoline sulfur, will encourage the development of more 
fuel efficient vehicles. Why might that occur?
    Mr. Perciasepe. The more fuel efficient engine technologies 
that engine manufacturers and automobile manufacturers are 
looking at now have more of a, there are enhancements on fuel 
engine type engines called direct injection. It also includes 
probably some additional, let me just say they burn leaner. 
They use less fuel per cycle of the pistons.
    That creates a challenge in the after-treatment. You can 
increase emissions, particularly nitrogen oxide, when you do 
that to an engine. So you have to have improved catalytic 
converters, nitrogen oxide absorption catalysts and other kinds 
of catalysts that require lower sulfur gasoline. Sulfur affects 
those catalysts even more than the kinds we were just talking 
about.
    And the same would be held true for even a clean diesel 
engine. As diesel engines are modified and they can meet these 
emission standards, which all indications are at some point 
they will be able to do that, they also burn very lean. They 
will require these kinds of after-treatment as well.
    In addition, they recirculate the exhaust gas in the 
engine. If there is sulfur in there, that can create a 
corrosivity problem and a durability issue with the engine in 
terms of the air handling system having more corrosivity in it 
due to acidic conditions or whatever. So lower sulfur fuel will 
enable those kinds of technologies. You can go beyond that and 
start talking about fuel cells and those kinds of things. But 
that's not subject to our--we want to make sure we don't 
preclude the kinds of technologies I was just talking about.
    Senator Lautenberg. Thanks, Mr. Chairman.
    Senator Inhofe. Senator Lautenberg, if you have any more 
questions, feel free to ask. Because I only have two more.
    Senator Lautenberg. I appreciate it. I know that you've 
gone over, as they say, some ground here. So we'll look at the 
record.
    Senator Inhofe. All right, sir.
    When Senator Lautenberg was talking about the benefits, I 
would just ask the question, isn't it true that 75 percent of 
these benefits, as we discussed here in the last hearing, came 
from the PM2.5 study? I think that's what was 
determined at the last committee hearing?
    Mr. Perciasepe. Yes, and I think you had a chart, if I 
remember, right out of the regulatory impact analysis. A big 
hunk of the estimated benefits are from reduced mortality and 
other factors from reduced PM.
    Senator Inhofe. That is the study, though, that the 
President claimed that he felt it wasn't, we should not be 
using at this time, as I mentioned in my opening statement.
    Mr. Perciasepe. I think what the President said is we 
shouldn't implement the PM standards, move forward on 
implementing the PM standards, until such time that another 
level of evaluation of that work was done, which of course is 
underway.
    We are not implementing PM standards here, we are 
controlling emissions from a vehicle to deal with ozone, which 
is primarily volatile organic compounds and nitrogen oxides. 
When you put these technologies on a car and you make these 
improvements to fuel, you are going to get PM reductions. And 
what we've done in the regulatory impact analysis is estimate 
the benefits of those reductions.
    But that is not, the purpose of this rule is not to 
implement the PM standards.
    Senator Inhofe. But still, when you are talking about the 
benefits, which is a significant question that needed to be 
answered for Senator Lautenberg, as I mentioned in my opening 
statement, 75 percent of the expected benefits came from that 
study that the President had stated should be subject to 
further scientific review before it is used for regulatory 
decisions. And maybe there are not other studies right now, and 
you are limited to what you can use.
    Mr. Perciasepe. When we do these cost benefit analyses and 
our regulatory impact analyses under the Executive order, we do 
them to inform our decision. But our regulatory decisions on 
this rule are based on the factors that are in the statute, 
which is the ability to attain or maintain a national ambient 
air quality standard. That in this case is predominantly ozone.
    Senator Inhofe. One last question I have before Senator 
Bennett resumes, this chart up here shows the States that favor 
the regional gasoline sulfur approach. Most of the western 
Governors, virtually all of them, have endorsed this. It is my 
understanding that phase one of the API proposal would get 78 
percent of the benefits of the EPA's proposal. Is that your 
understanding?
    Mr. Perciasepe. I don't have that information here. If you 
need a response to the record, I'll get it.
    Senator Inhofe. I think that's already in the record.
    Mr. Perciasepe. Obviously it would be less than all of 
them.
    Senator Inhofe. I'm taking that wording out of the RIA 
Table 3-9. It's also my understanding that the API phase II 
would achieve 91 percent of the EPA projected benefits by 2010. 
Again, that's out of a table.
    Considering and assuming that this is true, which I think 
we all could probably agree on, wouldn't it be prudent to go 
ahead and adopt this? You would be accomplishing virtually what 
you are trying to accomplish, and yet overcoming the objections 
to all of these that I had mentioned in my opening statement as 
well as those that came for questions. Are you subject to 
reconsideration of that two region approach?
    Mr. Perciasepe. We have put, and the fact that we were able 
to get that out of the regulatory analysis is that we've 
presented for comment the proposals that we have from the API. 
We are obviously going to consider everything that they have 
suggested.
    I think that those estimates that they make do not take 
into account, or that were subject there, I don't believe they 
take into account the damage to catalysts from the varying fuel 
sulfur levels that would be present in the United States. They 
also don't take into account the technology issues that Senator 
Lautenberg was just bringing up as well.
    So looking at the entire ability of the fuel and the car to 
work as a system, and optimizing that, we made a call in our 
proposal to go with a national program. Obviously, since we 
have put their proposal out for public comment, we are going to 
take comment on it and we are going to continue to discuss it 
with them.
    Senator Inhofe. All right. And I understand that there is 
disagreement with that position, but there is disagreement on 
both sides.
    Senator Bennett, we have completed everything. I am going 
to turn it over to you for your questions. At the conclusion of 
your questions, you can go ahead as chairman and conclude the 
meeting.
    Senator Bennett [assuming the chair]. Thank you, Mr. 
Chairman. I apologize that I wasn't able to be here earlier. I 
don't have a lot of questions. Let me just make one very brief 
philosophical statement.
    If we, I think, have learned anything in our relatively 
recent concern as a Nation with the environment, and it has 
been relatively recent, as we look over our 200-plus year 
history, it has only been in the last maybe 30, 40 years that 
we have paid attention to this. If we have learned anything in 
this last 30, 40 years, from my point of view, I think it 
should be humility in our ability to predict what really is 
happening with natural forces.
    To take an area unrelated to the one that you are talking 
about, I remember the headlines, the scientific studies, the 
great concern, about the new ice age that was coming. Headlines 
in the New York Times that said not only global cooling, global 
freezing was headed our way. The leading scientists were all 
saying that's what we were facing.
    Now we get information about global warming that's headed 
our way and the new set of studies that says that the 
information on which many of the projections about global 
warming were based was faulty, and the science on which it was 
based was, well, there were huge gaps that as they get filled 
in now are causing people to rethink some of the global warming 
circumstance.
    Unfortunately, we begin to give religious significance, if 
you will, to positions taken early. When additional scientific 
information comes in, we don't want to give up those earlier 
positions to which we have attached such great allegiance.
    You may very well be right in your scientific analysis and 
the need for a total national standard. And if indeed that 
proves to be the case, I'm one that is willing to embrace a 
national standard, even if it upsets the refineries in my own 
home State, from whom I have heard at great length on this 
issue.
    But I nonetheless have a sense of the requirement of 
humility in dealing with scientific data, and concern about 
rushing to locking into Federal regulations which then 
virtually can never be changed. I know legally they can be, I 
know the process is there that they can be. But I have learned 
by experience over the years that the power of inertia, not 
inertia of rest, but inertia of motion, in the Federal 
Government, is one of the strongest powers with which we deal.
    So I would simply ask you, as you go through this issue, to 
approach the scientific data with the humility that I have 
talked about, constantly keeping in mind the possibility that 
additional data may come along that says to you, your initial 
inertia in direction A now in the light of additional 
information should be tempered and it maybe should be A sub 1, 
or maybe even toward B, before we go charging ahead.
    I would like you to consider the possibility of a test 
along, taking that chart and map in front of us, along the 
eastern seaboard to see how it works, and see what really 
happens. Yes, theoretically someone might be able to drive to 
Yellowstone Park and ruin their catalytic converter because 
they get some bad gas.
    But statistically, that's a risk I'm willing to run to be 
absolutely sure we're right before we charge down a road that 
we have charged down in the past in the name of science, and 
then discover that science tells us something else, but it's 
too late. The regulation is in force, the bureaucracy has built 
up around it, the inertia is overwhelming and we can't change 
back.
    I think we've seen an example recently where an approach to 
clean air then scientifically turned out to have created dirty 
water. That just hit the headlines, so it's dangerous for me to 
quote it. I don't have it exactly at my fingertips.
    But that's the only comment I would make as a member of 
this committee. You're dealing with very, very serious issues. 
I know you take them seriously. But as we embrace scientific 
information that is before us, let's do so with a little bit of 
humility, rather than certainty, that the scientific 
information is always right and never will be altered, and 
therefore must be acted on immediately.
    If you have a comment, I'll be glad to hear it. Otherwise 
we can both go home.
    Mr. Perciasepe. Being a practical person, it's virtually 
impossible for me to disagree in general with what you just 
said. And I can only assure you that we will obviously, as we 
go to a final rule, look at all the available information, 
analyze all the studies that are currently being done, either 
by us or others, at some of these issues related to the 
interaction of the fuels and the vehicle technology.
    It's probably the big challenge of doing this kind of a 
proposal, but it's also the big opportunity of doing this kind 
of proposal, that you do have the opportunity to look at the 
fuel and the vehicles technology and how to optimize that for 
the long term, both for the automobile industry and for the oil 
industry.
    We will have many consultations between now and the final 
rule with the oil industry. So advice is well taken to keep an 
eye in the skeptical mode at all times. I appreciate it, and I 
can assure you that we will run all these questions aground.
    I know that this committee is extremely interested in this. 
This is at least the third hearing on it. So we will obviously 
want to get back to the committee, either in a hearing or in 
briefings for sure, as we move forward, as we get more answers 
or more questions. So I appreciate the comments.
    I don't want to get into a debate about it, because it's 
good common sense, that we keep an eye out on the side.
    Senator Bennett. All right, fine. Well, I would have some 
additional questions that I will look at and I will submit them 
to you in writing as we proceed. I thank you for your 
willingness to do that.
    We thank you for being here today. This subcommittee now 
stands adjourned.
    [Whereupon, at 11:17 a.m., the subcommittee was adjourned, 
to reconvene at the call of the chair.]
    [Additional statements submitted for the record follow:]
Prepared Statement of Robert Perciasepe, Assistant Administator, Office 
         of Air and Radiation, Environmental Protection Agency
    Thank you, Mr. Chairman and Members of the Subcommittee, for the 
invitation to appear here today to discuss our proposed Tier 2 
standards for cars and light-duty trucks and the accompanying low 
sulfur requirements for gasoline.
    Our proposal follows from sweeping changes over the past couple of 
decades in how Americans move around. We've gone from under 100 million 
light vehicles in 1970 to 200 million last year. And we're driving 
farther--from about one trillion miles per year in 1970 to over two 
trillion miles per year today. And as you probably know, there has been 
a dramatic shift in recent years toward sales of the larger light 
vehicles meeting emission standards 2 to 5 times less stringent than 
passenger cars. All indications are that these trends will continue 
indefinitely into the future, and they will have significant impacts on 
increasing emissions from motor vehicles without the progress in 
cleaner engines and gasoline that we propose.
    Our proposal, over the next decade, will improve and maintain the 
nation's air quality by phasing-in both cleaner engines and cleaner 
burning gasoline using flexible, market-driven mechanisms that we 
believe are fair to industry and will result in minimal consumer costs 
while preserving vehicle choice.
                        justification for action
    These issues were highlighted in the context of the Clean Air Act's 
requirement that we reassess light-duty standards. We reported to 
Congress last year on the three issues specified in the statute: 
whether there would be an air quality need for new tailpipe standards 
in the post-2004 timeframe, whether such standards could be 
technologically feasible, and whether they could be cost-effective. We 
presented evidence in the report that we believe supports our proposed 
determination that new standards are in fact needed and that 
significantly more stringent standards would be feasible and cost-
effective.
    In our proposed rule, published last May 13, we assessed these 
issues further and presented a sizable body of new data and analysis to 
support our conclusions. Before I summarize the content of the 
proposal, let me say a few more words about the strong case we see for 
new emission standards for passenger cars and light trucks. As we 
describe in much detail in the proposed rule, our air quality 
projections identified large parts of the country, involving about one 
hundred thirty million residents, that would be at or near unhealthy 
levels of pollution in the middle of the next decade, even with all 
expected control programs in place. A large part of that problem will 
be ozone, which reduces the lung function of otherwise healthy people 
and increases hospital admissions for people with respiratory ailments 
like asthma and which, under longer exposures, permanent lung damage 
can occur. Particles are the other major part of the problem because 
they can penetrate deep into the lungs and are linked with premature 
death, increased hospital admissions, and changes in lung tissue. Other 
environmental problems related to pollution from motor vehicles, such 
as agricultural damage, impaired visibility, and nitrogen deposition in 
our nation's waterways, also remain a concern across the nation.
    Although today's vehicles are over 90 percent cleaner than cars 
available 25 years ago, the vehicles covered by the proposal--cars, 
minivans and full-size vans, pickups, and SUVs--are big contributors to 
air quality problems. For example, they will be responsible for about 
20 percent of ozone causing NOx emissions nationwide and 
approach 40 percent in some metropolitan areas like Atlanta in 2004. 
And since more vehicles are being purchased and more miles are being 
driven, total emissions from these vehicles will increase after 2010, 
eroding the progress made by local and State government in cleaning the 
air. This was a large part of the evidence that led to our decision to 
propose new standards for this vehicle class.
    Based on a significant body of industry and government data, we 
have proposed that much lower vehicle emission standards are within 
reach of current and developing emission control technologies; 
improvements in today's technology, not new breakthroughs, are what 
will be needed. In fact, many vehicles being sold today in California 
and the Northeastern U.S. are already employing technologies that can 
achieve lower emission levels when operated on low sulfur gasoline. 
Based on data generated by industry test programs and our own vehicle 
certification process, we believe that substantially lower emission 
levels are technologically achievable. Since these large emission 
reductions would come at a fairly modest cost, we estimated that the 
program would be cost-effective compared to other programs that could 
achieve similar air quality results. All in all, our broader analyses 
for the proposed rule reinforce the findings on air quality need, 
feasibility, and cost- effectiveness that we reported to Congress last 
year and confirm our direction regarding new emission standards for 
light vehicles.
    On the fuel side of the equation, it became clear early on that 
lower sulfur gasoline will be needed to allow the improved emission 
control technologies to be effective in reducing emissions. There is 
widespread agreement that sulfur degrades emission control performance 
for all vehicles, reducing the effectiveness of the catalyst in 
converting pollutants such as hydrocarbons, carbon monoxide, nitrogen 
oxides, and particulate matter. Further, a joint industry research 
project by the Coordinating Research Council, a consortium of oil and 
auto companies, as well as other research, has found that high levels 
of sulfur permanently damages vehicle emission controls. Unfortunately, 
this problem will get worse in the future because as emissions levels 
are lowered, the more effective emission control systems are even more 
sensitive to sulfur. So we recognized that gasoline sulfur levels must 
be reduced--significantly--to enable cleaner emission control 
technologies to work their potential and to reduce the damage to 
current vehicles' emission control performance, and we have proposed a 
comprehensive program to reduce gasoline sulfur levels. Though our 
proposed program would not directly regulate California vehicles, ozone 
levels in California will be reduced through reductions in emissions 
from vehicles sold outside California that later enter California 
temporarily or permanently. According to California, about 7 to 10 
percent of all car and light truck travel in California takes place in 
vehicles originally sold outside of California.
    Shortly after we released our Tier 2/Gasoline Sulfur Control 
proposal, a panel of the Court of Appeals for the District of Columbia 
Circuit ruled, among other things, that the Clean Air Act provisions 
EPA relied on in promulgating national ambient air quality standards 
(NAAQS) for ozone and PM represented unconstitutional delegations of 
authority, and remanded the record to EPA for further consideration. We 
have since issued a Supplemental Notice that analyzes this decision in 
the context of our Tier 2/Gasoline Sulfur proposal. We stated that the 
decision of the panel does not change EPA's proposed requirements for a 
Tier 2 program and does not impact EPA's proposed determination that 
the Tier 2 program is a necessary and appropriate regulatory program 
that would provide cleaner air and greater public health protection. In 
addition, the Supplemental Notice also provides additional ozone 
modeling information that supports the need for the proposed program.
    For example, in our original proposal, we established that states 
will need the Tier 2/gasoline sulfur program to attain and maintain the 
old (1-hour) ozone standard and pre-existing PM-10 standard, 
as well as the new (8-hour) standard and revised PM-10 
standard. In the Supplemental Notice, we presented a more detailed 
description of the available ozone modeling data, which shows a strong 
need for additional emission reductions to meet the 1-hour standard. We 
concluded that more than 70 million people living in 17 areas will be 
affected by violations of the 1-hour standard. We also concluded that 
15 million people living in 21 counties will be impacted by violations 
of the pre-existing PM-10 NAAQS. In total, approximately 83 
million people in this country will live in areas that violate one or 
both of these air quality standards in 2007. Additional emission 
reductions will be needed to-meet these standards, and since light duty 
vehicles contribute a significant fraction of these emissions, the 
emission reductions that will be obtained from the Tier 2/gasoline 
sulfur proposal will help to address this need.
                                process
    Our proposal is the culmination of an extensive deliberative 
process during which we worked intensively with a wide range of 
stakeholders. Before completing the proposal, we met repeatedly with 
the vehicle manufacturing industry, the oil refining industry 
(including a special outreach process with small refiners), states, 
environmental organizations, and other parts of the Federal Government. 
We logged many hours at all management levels in meetings with 
individual companies and trade associations, State organizations, and 
others to understand the issues and the capabilities of each group to 
respond to these concerns. The perspectives of these many stakeholders 
are reflected in the design of our proposed program and the principles 
on which we based it.
                               principles
    Through this broad deliberative process, we developed a list of 
overarching principles for the design of a strong, national program, 
including:
     Do not constrain consumer choice of vehicles or driving 
styles, either due to cost or technical factors,
     Treat vehicles and fuels as one system;
     Hold cars and light trucks to the same emission standards, 
since in the vast majority of cases they are used for the same 
purposes, and the fleet mix is shifting toward larger vehicles;
     Set emission standards that build on the success of the 
National Low Emission Vehicle Program (NLEV) and that are fuel neutral, 
so that it won't matter whether the vehicle is fueled by gasoline, 
diesel, or an alternative fuel;
     Make sure that the standards and accompanying program not 
preclude the introduction of technologies that are both low emission 
and fuel efficient;
     Employ performance standards and provide both automakers 
and gasoline refiners a menu of flexible provisions for demonstrating 
compliance with the program; and
     Provide sufficient lead time to allow automakers to design 
even their heaviest light-duty trucks to meet our standards and to 
allow refiners to install the necessary equipment.
                            vehicle program
    The auto and oil industries and other stakeholders provided 
meaningful proposals during the development of the proposal. Based on 
our work with all stakeholders, including of floes within the 
Administration, we drafted a proposed set of standards which balance 
concerns regarding cost, benefits, and timing. We believe that the Tier 
2/gasoline sulfur standards that we proposed in May represent a common 
sense, cost-effective plan resulting from the many levels of 
interaction and cooperation we experienced in this process.
    Our proposal consists of two parts: Tier 2 emission standards and 
gasoline sulfur requirements. Even though the focus of this hearing is 
on gasoline sulfur levels, I want to briefly talk about the vehicle 
requirements included in the Tier 2 program since it is critical to 
treat vehicles and fuels as one system in order to achieve the full air 
quality benefits of additional control requirements. The emission 
standards require manufacturers to meet a corporate average 
NOx standard of 0.07 grams/mile--a 77 percent reduction from 
NLEV levels and approximately 90 percent reduction from Tier 1 levels. 
These standards are phased-in over time beginning in 2004, and the 
heavier vehicles (between 6,000 lbs. and 8,500 lbs GVWR) are given the 
greatest amount of time, until 2009. During the phase-in period, the 
remaining cars and smaller trucks will continue to meet NLEV emission 
levels, and the heavier trucks, which are currently certified to Tier 1 
standards, will have to meet much cleaner average levels of 0.2 g/mi 
NOx. The program as proposed should provide flexibility for 
manufacturers to comply with the Tier 2 standards while still meeting 
their customers' desires for larger trucks and SUVs, potentially 
including clean-technology diesel-fueled vehicles. For example, 
manufacturers that surpass their corporate average standard in a given 
year could bank NOx credits for future use or sell them for 
use by manufacturers that are having trouble meeting the corporate 
average standards.
    Based on vehicles already in development, including some on the 
road today, as well as technology demonstration at our own laboratory, 
we believe that these challenging levels are technically feasible and 
that manufacturers can comply with these standards in the proposed 
timeframe, even for the increasingly popular larger light trucks.
    Overall, we have estimated that these requirements will result in 
only modest increases to the cost of producing these vehicles. We 
estimate that the technologies required for cars and the smaller light 
trucks will average about $100/vehicle. The heavier trucks will require 
more changes, particularly since they are starting from less stringent 
standards; still, this technology will average about $200/vehicle.
                        gasoline sulfur program
    To enable the emission control technologies necessary to meet these 
proposed standards, we have proposed a national gasoline sulfur 
standard of 30 ppm on an annual average basis and a maximum cap of 80 
ppm, with a credit program to allow for compliance as late as 2006. 
Based on the air quality concerns I mentioned earlier, we believe a 
national program is the best option, due to the permanent damage that 
sulfur causes to vehicle emission control performance and the magnitude 
of environmental benefits to be achieved from this program. The 
technologies anticipated to be used to meet Tier 2 emission levels are 
expected to be even more sensitive to sulfur than today's technologies, 
and these new technologies simply cannot operate on high sulfur levels 
and continue to perform as designed.
    Current information also indicates that these catalysts will have a 
partial but permanent loss in performance if they are exposed to high 
sulfur levels for even a short period of time. This permanent damage 
can on average mean a loss of as much as 50 percent of the emission-
reducing capacity of a catalyst, which means some Tier 2 vehicles would 
have emissions performance similar to vehicles currently available. For 
example, a 1999 Ford Taurus designed to meet National LEV standards 
that was a part of an industry testing program only recovered 40 
percent of its capacity after a short exposure to gasoline with a 
sulfur content typical of current gasoline. As vehicles are required to 
maintain tighter controls on operations in order to meet low emission 
standards over a range of operating conditions, the ability of the 
catalyst to reverse the negative sulfur impact is further lost. Hence, 
tighter emission standards would require not only substantial 
reductions in sulfur levels, but timely and uniform reductions across 
the country to protect the new technology.
    There are additional reasons for a nationwide sulfur control 
program. NLEV vehicles being sold today in the Northeast and by 2001 in 
the rest of the country are currently using high sulfur fuels. As a 
result, NOx emissions from these vehicles may be on average 
140 percent higher than they would be for an NLEV vehicle operated on 
30 ppm gasoline. Sulfur reductions will thus result in emission 
benefits from existing vehicles as well as enabling future Tier 2 
vehicles. A low sulfur program will also be consistent with similar 
programs currently in place in California and Japan and in Canada and 
Europe by 2005, thereby helping facilitate introduction of cleaner 
vehicles worldwide.
    The role that sulfur irreversibility will play on vehicles which 
travel across the country also supports the need for a national 
program. A regional sulfur control program would compromise the ability 
of a vehicle/fuel program to achieve the air quality reductions needed 
to protect public health by limiting the effectiveness of the emission 
control systems in ``high-sulfur'' regions versus ``low-sulfur'' 
regions. In addition, clean vehicles which for any number of reasons 
might travel to a ``high-sulfur'' region would be irreversibly damaged. 
Along those lines, although the State of California already has a 
strong gasoline sulfur control program, that State will see additional 
air quality benefits from a national program from vehicles crossing the 
border as well as gasoline market benefits associated with the broader 
availability of clean gasoline.
    A national program will better provide broad environmental and 
health benefits including: reduced levels of criteria pollutants such 
as nitrogen oxides and particulate matter, reduced air tonics, reduced 
acid rain, improved visibility, reduced nitrogen deposition in our 
nation's waterways, and reduced agricultural damage. Finally, we 
believe that a national 30 ppm sulfur program would likely be 
sufficient to enable the introduction of fuel efficient technologies, 
such as gasoline direct injection.
    We believe that there are a number of promising technologies 
available to refineries to remove sulfur now or in the near future. 
Several technologies have been developed that reduce the capital 
investment, the loss of octane value, and the energy consumption 
involved in desulfurizing gasoline compared to conventional methods. 
Two specific technologies, CDTech's CDHydro/CDHDS and Mobil's OCTGAIN, 
were closely examined during the development of this proposal and we 
believe they will be cost-effective viable technologies for removing 
sulfur from gasoline. In addition, a number of refineries and other 
companies are exploring other technologies. We believe the industry 
will make extensive use of these technologies in meeting the proposed 
requirements.
    To enhance the flexibility of compliance for the oil industry, we 
have proposed to provide refiners with two additional years, until 
2006, to comply with the proposed requirements through a voluntary 
banking and trading credit program. This credit program will allow 
sulfur credits to be generated as early as 2000 by refineries making 
early reductions in sulfur levels. To provide some protection to the 
Tier 2 vehicles that will be phasing into the fleet in this same 
timeframe as the credit program for refiners, refiners will meet a 
maximum cap standard of 300 ppm in 2004 and of 180 ppm in 2005 as well 
as actual in-use average sulfur level standards that are substantially 
lower than current sulfur levels. The rule is expected to be finalized 
at the end of this year. Under this proposal, refiners will have 4 
years for planning and construction. If early credits are generated and 
sold, refiners purchasing those credits would have up to two additional 
years to phase-in the 30 ppm average standard.
    In addition to these provisions, the particular problems of small 
refiners have been carefully considered. We convened a panel under the 
Small Business Regulatory Enforcement Fairness Act (SBREFA) to evaluate 
the potential impact on small refiners of our proposed gasoline sulfur 
standards. The panel used the Small Business Administration (SBA) 
definition of small refiner based on the total number of employees in 
the corporation, including any nonrefining functions. Based on the 
panel's recommendations, we have proposed to allow refiners employing 
no more than 1,500 people an additional 4 to 6 years (beyond 2004) 
before they will be held to the 30 ppm average/80 ppm cap standards. In 
the interim, about half of these small refiners would have to reduce 
their sulfur levels below 300 ppm, but they would not have to meet the 
same levels that the majority of refiners will be held to in 2004. This 
delay would allow small refiners to make the required investments over 
a longer time, and we expect that all of them would be able to comply 
by the end of the delay period.
    Throughout the proposal development process a number of specific 
issues were identified as a concern. We listed these issues in the 
proposal and are asking for comment on how to address these concerns. 
As an example, we have asked for specific comment on other potential 
definitions for small refiners--ranging from the crude oil processing 
capacity of the refinery to counting employees only involved in 
gasoline production. While the purpose of these provisions is to 
provide some relief to the smallest refiners, we are looking forward to 
working with the entire industry to find the most appropriate 
definition.
    A number of other issues are outlined in the proposal where we are 
keenly aware of the concerns likely to be expressed and are seeking 
input and ideas from the public and the industry. A specific example is 
the concerns expressed by refiners regarding the time constraints on 
being able to construct the necessary desulfurization equipment in time 
to meet our standards or to generate credits through early reductions. 
We have proposed to work with industry and the states to streamline the 
construction permitting process to minimize the potential that 
permitting could be a roadblock to early compliance. In addition, we 
are requesting comments on a general hardship provision.
    Although I believe our proposal expresses a clear willingness to 
design the most workable program possible, I do not want to minimize 
the cost and effort that the oil industry will expend in meeting the 
proposed standards. We estimate that it will cost 1-2 cents/gallon to 
reduce gasoline sulfur levels to the proposed standards. However with 
the flexibilities we have outlined in the proposal and the advances in 
desulfurization technologies that have occurred in recent years, we 
believe we have outlined a sound and effective proposal for reducing 
sulfur from gasoline.
    Since diesel cars and light trucks will also be impacted by the 
proposed vehicle standards, we've also released an Advance Notice of 
Proposed Rulemaking which raises questions about the need to control 
diesel sulfur levels to enable these technologies to meet the Tier 2 
standards. After we consider the comments we received last week on the 
issues associated with controlling diesel sulfur levels, we plan to 
issue a Notice of Proposed Rulemaking late this year, so that refiners 
have this information at the same time that they receive our final 
regulations for gasoline sulfur control. Since this decision has 
significant implications for the refining industry, we would work with 
representatives of this industry to identify workable options and we 
would work with small refiners to address their unique concerns.
                            public hearings
    To gather reaction to our proposal, we held 5 days of public 
hearings in June in four sites across the country: Philadelphia, 
Atlanta, Denver, and Cleveland. We heard testimony from a large number 
of individuals, representing environmental and public interest groups, 
automotive and oil companies, states and State organizations and many 
private citizens. By and large, the responses we've received have been 
positive. While we received constructive feedback about specific 
aspects of our proposed program, the majority of testifiers expressed 
support for our proceeding with Tier 2 emission standards and the 
associated gasoline sulfur standards. The comment period for the 
proposal closes on August 2, 1999.
    We look forward to working with the states, environmental 
organizations, oil and auto industries, and other stakeholders to 
better understand their recommendations so that we can develop the 
strongest possible program. As an example, we are currently working 
with the Western Governor's Association to better address concerns of 
Western states and Western refiners in our program. We intend to 
complete this process and issue final requirements for Tier 2 vehicles 
and gasoline sulfur levels by the end of this year.
                               conclusion
    In conclusion, let me emphasize that we believe that the progress 
that has been made to date to bring cleaner vehicles to our nation's 
highways has been one of the reasons our air quality continues to 
improve. However, as we move into the next century, there is no doubt 
that even cleaner vehicles and gasoline need to continue to be part of 
the solution as we strive to ensure clean air across our nation.
    Thank you again for this opportunity to discuss our program with 
you. I would be happy to respond to any questions that you may have.

      Responses of Robert Perciasepe to Additional Questions from 
                             Senator Thomas
    Question 1. Small Refiners.--Why is EPA relying on an auto 
industry-funded study for purposes of determining the impact of its 
gasoline sulfur proposal on PADD IV refiners? Isn't it more appropriate 
for EPA to conduct this study as part of its rulemaking?
    Response. The impacts of our proposal are based primarily on our 
own cost analysis, documented in the proposal, which shows that 
refiners in PADD 4 will incur capital and per-gallon costs to meet our 
proposed standards that are only slightly higher than those estimated 
for the average U.S. refiner. In our proposal, we also do reference a 
study commissioned by the automotive industry and performed by MathPro, 
Inc., which evaluates the economic impacts of sulfur control on 
refiners located in PADD 4. We cite this study as further evidence that 
the costs of our proposed program would not be unreasonable for these 
refiners and that refinery closures would be unlikely to occur as a 
result of our proposal. Furthermore, we note that our proposed program 
for small refiners--many of whom are located in PADD 4--will help to 
lessen the costs and other burdens of our proposal on refiners in this 
region. As we develop our final rule, we continue to evaluate this 
issue and will update our analyses as appropriate.

    Question 2. What happened to small refineries in California as it 
proceeded to reduce gasoline sulfur levels?
    Response. California's reformulated gasoline standards (CaRFG 2) 
control many gasoline properties, not only gasoline sulfur. The sulfur 
reduction requirements, while significant, were responsible for only 
about one-third of the total costs and even less of the capital 
investments needed to meet the CaRFG 2 requirements. Some refineries in 
California closed or stopped producing gasoline for the California 
market beginning in the late 1980's, largely as a result of substantial 
overcapacity. Most of these closures or shifts in markets, including 
three refiners who closed or shifted their output to other markets in 
1995, happened prior to 1996, when the most stringent standards, 
including the 30 ppm average sulfur requirement, took effect. As a 
result of these closures and market shifts, the utilization rate for 
California refineries increased from 85 percent to 97 percent. While 
many of the refineries which closed in California were small, the 
refinery industry in California remains diverse with small refineries 
continuing to serve the California gasoline market today.

    Question 3. Given the limited number of the vendors, are you 
confident that small refiners will have adequate access to the 
emerging, low cost technologies?
    Response. Yes, we believe small refiners--and all refiners, for 
that matter--will have adequate access to the lowest cost technologies 
for reducing gasoline sulfur levels. Every refinery presents a unique 
engineering situation, and as a result, refiners would choose from a 
range of options to achieve our proposed standards. We have been very 
encouraged to see the recent development of several improved 
desulfurization processes that are now available at reduced capital 
investment and operating costs (and which avoid the octane loss that 
increases the costs of traditional technologies). While in our proposal 
we only specify two technologies being licensed by two vendors, we are 
aware of several other companies that are developing technologies right 
now. These other technologies appear to be capable of achieving low 
gasoline sulfur levels at costs substantially reduced from older 
technologies, and we believe still more companies will be developing 
alternative approaches shortly. For example, Black and Veatchis 
developing a process which removes sulfur in a different manner than 
the processes we analyzed in the proposal. In addition, Phillips 
Petroleum Company announced on August 31, 1999 that it has created a 
new technology, a regenerative sorbent that chemically attracts sulfur 
and removes it from gasoline blendstocks, that significantly lowers 
sulfur content in gasoline at lower costs than conventional 
desulfurization technology. Furthermore, since most of these companies 
license technology which, once licensed, can be designed for and 
installed in a specific refinery by any number of engineering and 
construction firms, we believe that all refiners will be able to 
install the needed equipment in the proposed timeframe.
    Addressing potential concerns about the availability of technology 
and resources to meet the sulfur program requirements was an important 
factor in developing the sulfur reduction proposal. We believe the 
averaging, banking, and trading provisions, the phase-in to the 30 ppm 
average, and the small refiner requirements included in our proposal 
would all help to provide for an orderly transition to a nationwide low 
sulfur requirement.

    Question 4. Regional Approach.--A letter signed by 10 western 
Governors (Governors from Wyoming, Utah, Alaska, South Dakota, Idaho, 
North Dakota, New Mexico, Nevada, Nebraska, and Oregon) discusses 
concerns with the severity of the EPA's gasoline sulfur proposal and 
its impact on small refineries. These Governors have asked EPA to work 
with the Western Regional Air Partnership and consider its 
recommendations before developing a final rule. Discuss steps that the 
Agency will take to address these concerns.
    Response. We have been working closely with the Western Regional 
Air Partnership, and specifically the subcommittee charged with 
developing recommendations to EPA to address the concerns of the 
Western Governors. While we are not a voting member of this 
subcommittee, we have sent staff to meetings and have provided 
extensive technical support to the group as they evaluate the range of 
options available to them. We look forward to receiving the formal 
recommendation from the Western Governors Association shortly and will 
be including it in our analysis of other similar components as we 
develop the final rule.

    Question 5. Permitting Questions.--What tools has EPA provided to 
states to assist them in expediting the permit process so refiners may 
install the technologies necessary to comply with the gasoline sulfur 
proposal? Are these tools adequate? What more should the Agency do?
    Response. We recognize that compliance with Clean Air Act 
permitting requirements--under both the New Source Review (NSR)and 
Title V Operating Permit programs--will be an integral component in any 
refiner's plan to implement a gasoline sulfur control program under our 
proposal. In order to achieve the significant environmental benefits 
from the proposed program as soon as possible, we are exploring a 
number of possible options to streamline the air permitting process. 
Our goal is to both simplify and accelerate the air permitting process, 
so that refiners can begin producing low sulfur gasoline well within 
the lead time provided by our proposal. In the proposal, we are seeking 
public comment on a number of ideas to help streamline the processing 
of permits for refinery gasoline sulfur control programs. We already 
have begun a constructive dialog with the refining industry to identify 
what specific permit streamlining options they would benefit from most, 
and we plan to continue this dialog with refiners, states, the 
environmental community, and other stakeholders as we work toward the 
final rule.
    The kinds of permit streamlining approaches we're evaluating 
include:
    (1) developing ``model'' permits and permit applications that would 
serve as templates for the refining industry;
    (2) developing clear Federal guidance on technology to control any 
pollutant emission increases at the refinery associated with a gasoline 
desulfurization project; and
    (3) in nonattainment areas, promoting the availability of emission 
``offsets'' (that is, emission reductions from other sources), which 
refineries may need prior to obtaining a construction permit.
    In addition to these and several other streamlining options we're 
exploring, if refiners and State permitting agencies are interested, we 
could hold a workshop to focus on refinery permitting arising from the 
gasoline sulfur control program.

    Question 6. If a facility does not meet the gasoline sulfur 
proposed regulatory deadline of January 1, 2004 because of a permitting 
issue, what will happen and who bears the responsibility?
    Response. It is EPA's experience that, on average, the major NSR 
permitting process takes less than 1 year to complete from the date a 
complete application is submitted to the permit reviewing agency. 
Although the 1-year timeframe should be sufficient for refiners to 
comply with the 2004 deadline, as discussed above and outlined in the 
preamble to the proposed rulemaking, EPA solicited comment on, and is 
currently evaluating, numerous options to ensure the timely issuance of 
any necessary Clean Air Act permits. While we believe that the 
application of one or more approaches to reducing the permit burden 
needed to incorporate the gasoline desulfurization requirements would 
provide flexibility to refiners, we note that the use of such 
approaches would have accompanying resource requirements. We note there 
has been some recent action that could indicate the scope of the 
permitting issue and actions required to develop workable solutions. 
For example, the Texas Natural Resource Conservation Commission 
recently told refiners at the BP Amoco Environmental Forum that Texas 
averages a 120-day turnaround on permits for their overall permitting 
programs. We understand that even major source NSR permits average a 6 
month turnaround in Texas. Thus, Texas doesn't anticipate any problem 
issuing permits for gasoline sulfur projects. There are approximately 
24 refineries in Texas that will be implementing gasoline sulfur 
projects, which is more than any other state. Other states have 
expressed an interest in expediting the permits for these changes. 
Given the amount of lead time already proposed, combined with our 
efforts to streamline the permitting process (described above), we 
believe refineries will have sufficient time to obtain air permits in 
time to meet the proposed compliance dates for gasoline sulfur control. 
Therefore, no relief from the deadline was included in the proposal.

    Question 7. Timing.--The refining industry will be hit with a 
regulatory blizzard over the next 5-10 years--proposed reductions in 
the sulfur content of diesel fuel, possible MTBE phaseout, mobile 
source air toxins, etc. What analysis has EPA performed to look at the 
cumulative impact of these fuels activities on the refining industry, 
motorists, petroleum supplies, and air quality?
    Response. We are sensitive to the impacts that other regulatory 
requirements besides sulfur reduction could have on the refining 
industry. We proposed compliance flexibilities in part to address these 
concerns. We continue to carefully evaluate the relationship between 
any sulfur reduction requirements and other potential impacts, like 
MTBE reductions, and will incorporate this analysis into our final 
rulemaking.

    Question 8. How many Tier II vehicles will be on the road on 
January 1, 2004 when the 30 ppm gasoline sulfur standard is effective? 
What percent of the U.S. fleet will Tier II vehicles represent in 2004?
    Response. Model year 2004 vehicles will go on sale in the Fall of 
2003, when we have proposed the initial per gallon sulfur cap to take 
effect. By January 1, 2004, we can assume that about 25 percent of the 
entire 2004 model year would be on the road. Given that only 25 percent 
of 2004 model year vehicles (passenger cars and light light-duty 
trucks) are required to meet Tier 2 standards, about 6 percent of the 
entire 2004 model year would be Tier 2 vehicles on the road by January 
1, 2004. It is important to note that manufacturers, in order to design 
their vehicles properly, have to know what type of fuel will be 
available to consumers. Having low sulfur fuel available in the 
marketplace in 2004 and knowing of this availability during the vehicle 
design stage would thereby facilitate the introduction of lower 
emitting Tier 2 vehicles.
    In our Regulatory Impact Analysis we project passenger car and 
light truck sales of 13.6 million in 2004 for the 49 states affected by 
Tier 2. Using the 6 percent figure above, approximately 850,000 
vehicles affected by Tier 2 requirements would be sold by January 1, 
2004 and about 3.4 million would be sold by the end of the 2004 model 
year. This would represent less than 1 percent of the passenger car and 
light truck fleet by January 1, 2004. By the end of 2004, Tier 2 
vehicles could be expected to represent just under 3 percent of the car 
and light truck fleet.
    In addition, as we stated in the proposal, the sulfur reductions 
would have a significant impact on the low emission vehicles already in 
the fleet by 2004 as well as those vehicles produced and sold after 
2004 that do not meet the final Tier 2 standards. In 2004, we estimate 
that 23 percent of the light-duty vehicles and trucks in the fleet 
would comply with either the National LEV standards or the proposed 
Tier 2 interim standards for trucks between 6,000 and 8,500 pounds 
GVRW. We estimated over 500,000 tons of NOx would be reduced 
nationwide in 2004 as a result of the Tier 2/gasoline sulfur program.
    As we stated in the proposal, low sulfur fuel will provide 
significant emission benefits to the National LEV fleet.

    Question 9. Supply.-- Discuss the research that EPA has conducted 
to look at the implications of the gasoline sulfur proposal on 
petroleum supplies. Do you believe that the Agency has adequately 
studied the impacts of this proposal on petroleum supplies?
    Response. We have considered the impacts of reducing sulfur on 
gasoline supply in our proposed rule. Generally, when concerns are 
raised about how this rule may impact supplies of gasoline, the 
concerns stem from one of two hypothetical scenarios of gasoline sulfur 
control: refiners may be unable to comply in the timeframe discussed 
and thus gasoline supplies will fall short, or the technologies used to 
desulfurize gasoline may reduce gasoline yield to the extent that there 
are insufficient supplies. In response to the first scenario, as stated 
in the proposal we believed our proposed program allows sufficient 
time, and provides refiners enough flexibility, to be able to comply 
fully with the requirements in the proposed timeframe. Our proposal 
discusses the reasons for why we think we have proposed a reasonable 
start date for our program, assuming we finalize our program 
requirements at the end of this year, and provides an example of how 
refiners might meet the requirements. Thus, as we stated, we do not 
expect there to be a shortfall of gasoline when refiners are first 
required to provide lower sulfur gasoline as a result of these proposed 
regulations.
    In response to the second scenario, while it is true that 
conventional gasoline desulfurization approaches tend to reduce the 
volume of gasoline produced by the refinery by affecting octane levels 
or gasoline yield, the improved technologies we believe most refiners 
will use in response to our regulations substantially reduce this 
impact. Furthermore, these technologies continue to evolve, as 
discussed in a previous response, and some of the newest approaches 
actually improve gasoline yield. We fully expect that the refining 
industry will find ways to minimize any yield losses and will continue 
to produce gasoline at the high volumes they do today.
    The various flexibilities incorporated into the gasoline sulfur 
proposal, such as the credit program, are designed to mitigate 
detrimental impacts on petroleum supply. In addition, we will continue 
to evaluate these scenarios as we develop our final gasoline sulfur 
program. We will also continue to work with the Department of Energy on 
issues related to this proposal. Overall, we believe our consideration 
of these issues has been adequate and that based on our current 
understanding and addressing the comments we have received on this 
issue, we expect to have sufficient information to make a reasonable 
decision as we finalize our program plans.

    Question 10. The refining industries Europe and Canada are also 
facing economic challenges, similar to the U.S., and announced plans to 
implement stringent new fuel requirements in a short timeframe. Discuss 
EPA's analysis of the impacts of international gasoline sulfur programs 
on domestic petroleum supplies.
    Response. Overall, we think the actions in Europe and Canada will 
help insure adequate supplies of gasoline in the U.S. There are several 
reasons for our confidence on this issue, though we note it is 
difficult to predict what actions foreign refiners would take to comply 
with low sulfur requirements coming into place around the world. First, 
since many European and Canadian refiners will have to make investments 
earlier than U.S. refiners, they will be able to test out some of the 
improved technologies before U.S. refiners have to make substantial 
investments. This will not only help to alleviate domestic refiners' 
concerns about the technologies, but will also help to ``trouble-
shoot'' these technologies to ensure that U.S. refiners select the most 
reliable processes. Second, since foreign refiners will likely be 
producing low sulfur gasoline, should an unforeseen shortage of 
gasoline occur somewhere in the U.S., these refiners will be able to 
temporarily send low sulfur gasoline to the U.S. to avoid a major 
supply disruption until the problem is resolved. Finally, because much 
foreign gasoline will also be low sulfur and thus will incur higher 
production costs, imported gasoline from these regions will not be at a 
substantial price advantage compared to domestic gasoline, which will 
help to limit the influx of imports based solely on economics.

    Question 11. Cost and Economic Impacts.--EPA has based its cost 
analysis for the gasoline sulfur proposal on emerging, unproven 
technologies. Is this prudent? Are you aware of other rulemakings based 
on cost estimates of unproven technologies?
    Response. We have been very encouraged to see the recent 
development of several improved desulfurization processes that are now 
available at reduced capital investment and operating costs (and which 
avoid the octane loss that increases the costs of traditional 
technologies). Examples of these technologies are CDHydro and CDHDS 
(licensed by the company CDTECH) and OCTGAIN 220 (licensed by Mobil 
Oil). The OCTGAIN process is actually only a slight variation on 
``conventional'' desulfurization technologies, relying on a new 
catalyst formulation to improve the performance of desulfurization 
equipment commonly found in refineries today. The CDTECH technologies 
use conventional refining processes combined in new ways, with improved 
catalysts and other design changes that minimize the undesirable 
impacts (such as the substantial loss in octane) and maximize the 
effectiveness of the desulfurization approach. Based on this 
understanding, we do not believe these technologies are ``unproven,'' 
although in some cases the specific combinations of proven technologies 
have not been commercially demonstrated. Since these processes provide 
less costly ways to reduce gasoline sulfur, we presume that they would 
be used by most refiners to meet the proposed gasoline sulfur standard, 
and have based our economic assessment on that presumption. We believe 
that the research and development on desulfurization technologies has 
reached a stage where significant cost savings over current technology 
are very practicable and feasible.
    It is quite typical for EPA to base our regulatory actions on 
technologies that have been demonstrated in the laboratory or in small-
scale demonstrations but have not been tested by widespread use in the 
field. Most of our vehicle emission control regulations are based on 
engineering developments achieved by EPA, other regulators, or some in 
industry, but not used widely by the entire industry at the time we 
promulgate our regulations. Hence, it is not unusual for EPA to use new 
and emerging technologies to justify and support our regulatory 
efforts.

    Question 12. EPA projects that gasoline purchases will increase by 
$2.2 billion per year in 2004. What studies have EPA undertaken that 
assess the impacts of this cost increase on the U.S. economy?
    Response. Our analysis is included in the Regulatory Impact 
Analysis. The $2.2 billion annual fuel cost estimate works out to be an 
increase to the consumer of approximately $10 per year, or $100 over 
the life of the vehicle, which we do not believe will have any 
noticeable effect on the U.S. economy. We considered the impacts of 
this cost on the U.S. economy in the context of our benefit cost 
analysis. In this analysis, we concluded that the economic value of the 
overall environmental and human health benefits of the proposed Tier 2/
gasoline sulfur standards is greater than the costs of the programs.
                                 ______
                                 
      Responses of Robert Perciasepe to Additional Questions from 
                            Senator Bennett
    Question 1. The Agency has decided to use the ``small refiner'' 
definition used by the Small Business Administration in its awarding of 
contracts to small businesses. The SBA definition is based on the 
number of corporate employees and not refinery size. In the Clean Air 
Act, Congress included a definition of small refiner based on size for 
purposes of the low sulfur diesel program. It defines a small refiner 
as one having refining of 50,000 bid or less and owned by a refiner 
with a total capacity less than 137,500 bid. Is the SBA definition 
appropriate for use in the gasoline sulfur rulemaking?
    Response. As you note, our proposed definition is based on the 
Small Business Administration's definition of small refiner, which 
looks at the total number of a company's employees, rather than on 
volume of throughput. EPA started with this approach because the 1996 
SBREFA amendments to the Regulatory Flexibility Act start with the SBA 
definition as a default. Like other definitions of small refinery used 
in past EPA programs and the Clean Air Act section you mention, our 
proposed definition is aimed at identifying those refiners that may 
face particular economic difficulties in complying, for example, 
because they don't have the ability of a larger corporation to raise 
capital for investment in desulfurization. When we conducted the Small 
Business Advocacy Review Panel convened under SBREFA requirements, we 
did not exclude any parties on the basis of their number of employees 
even though we focused on reaching those refiners we believe most 
clearly meet the SBA definition.
    While we have proposed a definition in light of the SBREFA Panel's 
recommendations, in our proposal we sought comment on alternative 
definitions of small refiner, including definitions based on volume of 
crude oil processed (at a given refinery and/or corporate-wide) or 
volume of gasoline produced. However, we do believe that any relief 
offered to refiners must not result in a substantial loss of the 
environmental benefits of the proposed program. We received comments on 
this issue and will be addressing them as we move forward with a final 
rule.

    Question 2. What will EPA do to ensure an equitable treatment of 
small refiners under SBREFA for purposes of the gasoline sulfur 
proposal?
    Response. Regardless of the definition of small refiner we 
ultimately adopt, we intend to provide all refiners who meet our 
criteria equitable treatment in terms of their requirements under our 
gasoline sulfur program. We believe it is important that small 
refiners' needs be addressed by our program.
    Whatever approach is adopted in the final rule, it should address 
those refiners facing particular economic difficulties in complying 
based on their size without unduly interfering with the environmental 
benefits of the program. There may be some refiners who fall outside of 
the SBREFA definition but believe that their needs should also be 
addressed in our final rule. As we develop our final program, we are 
considering what additional options may be appropriate to provide such 
refiners with flexibility in meeting the gasoline sulfur requirements. 
Such provisions may differ from those applicable to small refiners, but 
we will attempt to appropriately address their concerns without 
compromising the benefits of our program.

    Question 3. The flaw in the banking and trading program is that 
credits must be generated by 2003, and there simply isn't enough time 
to accomplish the necessary permitting and construction. What else 
could the Agency do to make banking and trading more useful? What 
prevents the Agency from extending the period to generate credits?
    Response. The proposal described one example of how the refining 
industry may respond to the sulfur banking and trading program that 
demonstrates that sufficient credits can in fact be generated prior to 
2004 to allow many refiners to delay construction of desulfurization 
equipment a year or two. We permit winter reformulated gasoline to 
generate credits if summertime sulfur levels are maintained (which is 
not required in the current RFG program). We know of several refiners 
who plan to install some desulfurization equipment in the near future--
these refiners will be positioned to generate credits prior to 2004. 
Some refiners could also modify their existing operations to reduce 
sulfur levels and possibly earn credits without having to install new 
equipment. We also believe that once the industry sees our final 
program requirements later this year, refiners will begin to snake 
investment plans and this will likely lead to some installing 
desulfurization capacity prior to 2004, thereby being able to generate 
sulfur credits. Finally, as we have explained in responses to previous 
questions, we will work to streamline the construction permitting 
process to ensure that the desulfurization equipment could be installed 
in sufficient time to generate credits. We look forward to working with 
the refining industry to improve on this proposal, but we believe our 
proposal has the potential to provide credits if we finalized it as 
currently designed.
    We have taken comment on alternative approaches and issues 
associated with this proposed program. The comments we have received 
thus far provide many suggestions for how to improve our credit 
program. A range of options are under consideration, from expanding the 
number of credits that can be generated by changing the sulfur baseline 
refiners use to eliminating the specification of a minimum level of 
sulfur reduction before credits can be generated. We've also received a 
number of comments suggesting that if we change the timing and rate of 
phase-in of our sulfur program we won't need a credit program. We'll 
consider all of these alternatives as we proceed. In addition, our 
efforts to streamline the permitting process and otherwise ensure that 
our final program is technologically feasible will help to ensure that 
sufficient credits will be generated.
    In response to the question about extending the time in which 
credits can be generated, in the proposal, we would allow credits to be 
generated in 2004 and beyond, but only for those refiners who produce 
gasoline below the 30 ppm average standard. We will certainly consider 
alternative approaches to credit generation and use.

    Question 4. Canada is also adopting a low sulfur program. As part 
of the proposal, Canadian officials studied their refining industry and 
concluded from 3-6 of their 18 refineries will close as a result of its 
gasoline sulfur proposal. This will be a significant loss of capacity. 
Shouldn't EPA conduct a similar analysis? Isn't it likely that we will 
see refinery if the EPA proposal is adopted?
    Response. We designed our proposal with a goal of trying to ensure 
that no refinery would cease operation based on these requirements. The 
proposed small refiner provisions and credit program would both provide 
significant flexibility to affected refiners and, we believe, 
sufficient time to reduce sulfur levels to a 30 ppm average. We believe 
we have proposed a program that provides enough flexibility and options 
for refiners to minimize the likelihood that refineries will be closed. 
A large number of factors impact a refiner's decision to close a 
refinery, and we have concerns about the ability to predict the degree 
to which such a decision will be made solely on the basis of a single 
regulatory requirement. Refineries owned by small businesses would 
benefit from special provisions in our proposal. Furthermore, as we are 
considering the comments that have been received to date, we are 
evaluating additional options for providing some refiners temporary 
relief to ensure that all refineries can comply with our requirements. 
Obviously, we do not want our program to result in refinery closures 
and will try to ensure that this does not happen as a result of our 
program.
    Although the potential loss of up to one-third of all Canadian 
refineries would indeed be a significant concern, we do not believe 
that Canada will experience the level of refinery closures that are 
cited. We have consulted with Canadian officials on this issue, and 
believe that the following information argues against the likelihood of 
a significant number of refinery closures in Canada or the U.S. as a 
result of gasoline sulfur controls.
    In May 1997, a study of the implications of various gasoline and 
diesel fuel sulfur standards on Canadian oil industry competitiveness 
was completed. This study projected that if a 30 ppm sulfur standard 
were implemented in 2001, 3-4 refineries in Canada may be at risk for 
closure due to a combination of factors, including the costs of 
desulfurization technology, the very poor refining margins currently 
experienced in the industry, and competition from U.S. refiners who 
were portrayed as larger and more sophisticated than most Canadian 
refineries. In addition, the Canadian program calls for a more 
stringent implementation schedule than the gasoline sulfur program we 
proposed.
    Since the time of that study, the improved, lower cost 
desulfurization technologies which we based our proposal on--and which 
the Canadian study had not considered--are being demonstrated 
commercially. These technologies would substantially reduce (we 
estimate by at least 50 percent) the capital costs assumed for 
desulfurization to 30 ppm. As a result, we and the Canadian officials 
we consulted believe that refiners will have a much improved ability to 
meet Canada's gasoline sulfur standards than was previously assumed 
Hence, the likelihood of refinery closures due to their proposed 
regulations will be substantially reduced.

    Question 5. California's achievement of a 30 ppm gasoline sulfur 
standard took place over a 20-year period. Given that the rest of the 
country does not have the severe California air quality problems, how 
can the Agency justify the rush to finalize a 30 ppm standard 
nationwide in less than 4 years?
    Response. California's reformulated gasoline standards (CaRFG 2) 
control many gasoline properties, not only gasoline sulfur. While 
California did have a 300 ppm cap on sulfur levels for about 20 years 
prior to the 1996 start of the CaRFG 2 program, California did not 
finalize their CaRFG 2 requirements until late 1991 (with further 
amendments adopting the Predictive Model not completed until 1994). 
Thus, California refiners were given only a few months more time to 
respond to the requirements that we expect refiners nationwide will 
have when we finalize our requirements. Furthermore, the time provided 
to California refiners required substantial refining changes beyond 
sulfur reduction; it is not clear that 4\1/2\ years would have been 
provided if sulfur levels were the only change made in CaRFG 2. The 
experience gained at California refineries, as well as the improvements 
in desulfurization technology which have occurred since then, will help 
the rest of the industry respond to the Federal requirements more 
efficiently. . However, we will consider comments about what would 
constitute adequate leadtime for refiners and will work to meet our 
intention that our final program requirements can be met by all 
refiners.

    Question 6. What happened to small refineries in California as it 
proceeded to reduce gasoline sulfur levels?
    Response. As stated in the response to a similar question from 
Senator Thomas, California's reformulated gasoline standards (CaRFG 2) 
control many gasoline properties, not only gasoline sulfur. The sulfur 
reduction requirements, while significant, were responsible for only 
about one-third of the total costs and even less of the capital 
investments needed to meet the CaRFG 2 requirements. Some refineries in 
California closed or stopped producing gasoline for the California 
market beginning in the late 1980's, largely as a result of substantial 
overcapacity. Most of these closures or shifts in markets, including 
three refiners who closed or shifted their output to other markets in 
1995, happened prior to 1996, when the most stringent standards, 
including the 30 ppm average sulfur requirement, took effect. As a 
result of these closures and market shifts, the utilization rate for 
California refineries increased from 85 percent to 97 percent. While 
many of the refineries which closed in California were small, the 
refinery industry in California remains diverse with small refineries 
continuing to serve the California gasoline market today.

    Question 7. Why is EPA requiring the implementation of the new 
gasoline sulfur standards in 2004 when only a small percentage of the 
Tier II vehicles will be on the road?
    Response. Sulfur reductions will benefit the in-use fleet in 2004. 
In 2004, we estimate that 23 percent of the light-duty vehicles and 
trucks vehicles in the fleet would comply with either the NLEV 
standards or the proposed Tier 2 interim standards for trucks between 
6,000 and 8,500 pounds GVRW. As discussed in our proposal, vehicles 
meeting these standards have demonstrated a strong sensitivity to 
gasoline sulfur. Hence, the emissions performance of these vehicles 
will be reduced as long as they are exposed to high sulfur levels, and 
will be permanently compromised to some degree. Delaying the gasoline 
sulfur requirements until a greater fraction of the fleet meets Tier 2 
standards would substantially reduce the air quality and other 
environmental benefits associated with the proposed sulfur program.
    As we explain in our proposal, we believe that Tier 2 vehicles 
would require gasoline sulfur levels meeting a 30 ppm average and 80 
ppm cap in order to achieve the emissions performance they were 
designed to achieve in-use. However, at the same time, we recognize 
that refiners need some flexibilities in meeting our proposed 
standards, to ensure that the program is implemented without supply 
shortages or substantial price spikes in the early months. Hence, in an 
attempt to balance the needs of the emission control technology with 
the regulatory burden, economic impact, and ability of the refining 
industry to reduce sulfur levels in this timeframe, we proposed to 
allow less stringent caps in 2004 and 2005. We believe that the 
potential damage during this time period to the future fleet of Tier 2 
vehicles would be minimized over because the vehicles would still be 
phasing in. By the time most new vehicles would be required to meet 
Tier 2 standards essentially all gasoline would meet the 80 ppm cap. 
However, individual Tier 2 vehicles sold in 2004 and 2005 and are 
exposed to higher sulfur levels might incur some irreversible damage to 
their emission control systems. While this is clearly undesirable, the 
only way to prevent this would be to require all gasoline to meet the 
80 ppm cap from the first day that Tier 2 vehicles are sold. We do not 
believe this would be a reasonable burden to place on the refining 
industry.

    Question 8. Are you aware of any energy security implications from 
the gasoline sulfur proposal that need to be acknowledged and 
addressed?
    Response. At the time of our proposal, we had no energy security 
concerns with our proposed program. We are reviewing the public 
comments and will address any comments related to this topic in the 
design of our final program. We will also continue to work with the 
Department of Energy and others in addressing any concerns related to 
this issue.

    Question 9. Would you summarize EPA's economic impact analysis on 
the refining industry? Is it comprehensive? What more will you do 
before the final rule is issued?
    Response. Based on this analysis we estimate that, on average, 
refiners in the year 2004 would be expected to invest about $45 million 
for capital equipment and spend about $16 million per year for each 
refinery to cover the operating costs associated with these 
desulfurization units. Since this average represents many refineries 
diverse in size and gasoline sulfur level, some refineries would pay 
more and others less than the average costs. When the average per-
refinery cost is aggregated for all the gasoline expected to be 
produced in this country in 2004, the total investment for 
desulfurization processing units is estimated to be about $4.7 billion 
dollars, and operating costs for these units is expected to be about 
$1.5 billion per year. We believe that the $4.7 billion in capital 
costs would be spread over several years, especially by the refiners' 
participation in the proposed averaging, banking, and trading program.
    Additional cost reduction is expected as refiners increase the 
throughput (debottleneck) of their refineries to lower their per-gallon 
fixed costs. This increase in throughput for the industry as a whole is 
termed ``capacity creep'' and it is has allowed a shrinking number of 
U.S. refineries to handle the increasing demand for refined products. 
Our analysis presumes that as an industry, refiners will debottleneck 
their refineries at a rate consistent with the forecasted increase in 
gasoline demand, which is about 2 percent per year. Thus, the fixed 
operating cost, and a portion of the capital costs for these 
desulfurization technologies, would decrease over time on a per gallon 
basis as the volume of gasoline processed at each refinery increased.
    Since, in developing the national average costs of the program, we 
have considered variations due to refinery location, size, and 
configuration, we believe our analysis was quite comprehensive. 
However, we continue to receive additional information about the costs 
of various desulfurization technologies and the impacts of gasoline 
desulfurization on different types of refineries. Much of this 
information was provided in comments from industry and others which we 
have only recently received. We will consider all of this information 
and will update our analysis as necessary for the final rule.

    Question 10. EPA estimated that a 30 ppm gasoline sulfur standard 
in PADD IV will cost twice the national average cost increase of 1.8 
cents per gallon. What problems will a 100 percent difference cause 
motorists in PADD IV?
    Response. Motorists in the Rocky Mountain region today often face 
higher costs for gasoline and other products than the average U.S. 
citizen. In the case of gasoline, these higher costs are due to a range 
of factors, including the limited number of refiners supplying the 
region, the generally small size of these refiners (which results in 
higher costs-per-gallon due to fewer economies of scale), the higher 
transportation costs, and many others. Many of these factors 
contributed to our estimate that refiners in PADD IV would incur higher 
than average costs to meet our proposed 30 ppm average standard. We did 
estimate that at least five refineries in PADD IV would be eligible for 
inclusion in the small refiner program, which would help to reduce 
costs to these refiners and thus to consumers. In addition, we have 
been in discussions with the Western Governors Association regarding 
their concerns and look forward to reviewing and analyzing their 
proposal for addressing the concerns of small refineries. If the cost 
of sulfur control in PADD IV is twice our estimated national average 
cost increase, this would result in an approximate $20/year increase in 
the cost of gasoline to the consumer in this region. The production 
cost of gasoline would likely increase everywhere as a result of a 30 
ppm standard. How this is translated in the marketplace will depend on 
a range of economic factors and market forces which we cannot predict 
nor control.

    Question 11. What are your plans to work with the refining and 
automobile industry to reach consensus fuel standards in the future?
    Response. We are currently reviewing the comments received from 
industry representatives, some of which we heard at our public hearings 
in June but most of which have just arrived in the last few weeks.
    We have ongoing discussions with technical and corporate staff in 
various companies to further understand their issues and concerns. As 
we narrow the range of options we will consider for our final program, 
we will continue to consider these concerns and will be proactive in 
trying to understand comments and develop creative solutions in trying 
to reach consensus. We are hopeful that our final program will meet the 
requirements of both industries.
                                 ______
                                 
      Responses of Robert Perciasepe to Additional Questions from 
                             Senator Inhofe
    Question 1. In 2004 and 2005, you have proposed basically three 
different sulfur standards. (a) An average gasoline sulfur content at 
each refinery to not more than 30 ppm. (b) A maximum sulfur content on 
every gallon of gasoline; (c) An average sulfur content on a corporate 
basis. The fact that you have all three at the same time is part of the 
reason I don't think the banking and trading program will work. The 
corporate average seems duplicative. Couldn't you simplify the program 
and increase the opportunity of using credits by dropping the corporate 
average?
    Response. In our proposal, we expressed different reasons for each 
of the standards that apply in 2004 and 2005. The 30 ppm average 
refinery standard represents a level we believe would enable Tier 2 
vehicles to achieve the desired environmental benefits. However, to 
provide sufficient flexibility to refineries in the country to help 
meet this standard in 2004, we would allow each refinery to use credits 
to meet this standard. Since Tier 2 vehicles would be sold beginning in 
2004 and their emission control systems can be damaged by high sulfur 
levels, we found it necessary to specify a maximum per gallon level in 
2004. However, this ``cap'' does not represent a level that we believe 
Tier 2 vehicles, designed to operate on an average of 30 ppm and a 
maximum of 80 ppm sulfur, should experience regularly. Had we not 
specified a corporate average standard in addition to the cap and the 
refinery standard (which can be met with credits), we were concerned 
that average sulfur levels experienced by Tier 2 vehicles in these 
interim years would be much higher than 30 ppm, depending on the 
availability of credits to bring averages down to 30 ppm. Hence, we 
specified a corporate average that we expect will bring sulfur levels 
across the country down to more reasonable levels for Tier 2 vehicles. 
The rest of the vehicles in the fleet, including specifically the NLEV 
vehicles, would also see improved emissions as a result of these lower 
sulfur levels.
    We are considering a range of alternative designs as we evaluate 
options for our final program. We intend to make appropriate 
enhancements to ensure the program works as we intended while ensuring 
that we achieve the stated environmental goals of this program while 
providing flexibility to the refining industry.

    Question 2. Most companies making expensive equipment changes will 
only try proven technologies, particularly the smaller the company, the 
less risk, because they have more to lose in a bad business decision. 
New desulfurization technologies have been announced and it's expected 
that more will be in the near future. How will EPA ensure that the 
Banking and Trading program will allow refiners time to select the new 
technologies?
    Response. We designed the banking and trading program for two main 
reasons, to encourage early sulfur reductions by rewarding refiners who 
make investments prior to 2004, and to provide other refiners some 
flexibility in meeting the standards in the first years of the program 
rather than having to make these same investments by 2004. If we adopt 
the proposed trading and banking program in concert with the proposed 
standards, refiners who want to demonstrate new approaches to gasoline 
desulfurization prior to 2004 will be compensated in terms of sulfur 
credits. We believe that these demonstrations will help to alleviate 
the industry concerns about the ``newness'' of these technologies and 
will help other refiners to be more comfortable in selecting some of 
these lower cost alternatives to meeting the standards. Furthermore, as 
indicated in the proposal, we believe that our overall program provides 
adequate time to refiners to consider all of their options before 
making their investments. The refiners have identified the start of the 
program as a critical issue, and we are seriously evaluating this issue 
as we develop our final program.

    Question 3. Have you considered the ``disbenefits'' or the negative 
impact of reducing NOx in the formations of ozone? Which 
areas of the country might experience this increase in ozone when 
NOx are reduced?
    Response. Our analysis of the benefits of the proposed Tier 2/
Sulfur rule accounted for the full range of NOx effects on 
ozone and particulate matter levels, including those cases where ozone 
levels were projected to increase. We also accounted for the 
significant VOC reductions from the proposed Tier 2/Sulfur program, 
which would help mitigate any disbenefits associated with 
NOx reductions. Based on these analyses, we concluded that 
the expected air quality benefits of our Tier 2/Sulfur proposal would 
greatly outweigh its potential disbenefits. We also concluded that the 
proposed program's economic benefits would exceed its costs by a 
substantial margin. These analyses took into account the location and 
magnitude of ozone changes due to the proposed Tier 2/Sulfur program 
and the number of people exposed to those changes.
    We looked at areas of disbenefits using two approaches: the 
exceedance approach (which is detailed in the Supplemental Notice of 
the Tier 2 NPRM), and the roll-back approach (which is detailed in the 
RIA of the NPRM). In no area does the projected number of exceedences 
increase with implementation of the Tier 2 and sulfur controls. The 
roll-back method comparing design values actually measured in 1995-1997 
to those expected to occur after implementation of the NOx 
SIP Call and Tier 2 programs shows ozone increases in 1 hour of a 
particular day in 2 counties (Cook County, Illinois, Bronx County, New 
York) under the 8-hour ozone NAAQS. None of these projections account 
for the impact of future Federal controls on VOC emissions from sources 
like nonroad gasoline engines and recreational marine engines nor do 
they account for the impact of future local controls on VOC emissions 
from stationary and area sources. These counties experience 
improvements in ozone concentrations for other hours and days in the 
year.
    While it is possible for specific NOx reductions to lead 
to slightly higher ozone peaks at specific locations and times under a 
specific set of conditions, it is nonetheless true that overall 
reductions in NOx must lead to the production of lower 
amounts of ozone overall and reduced areawide peak ozone 
concentrations. Both the National Research Council (NRC) and the Ozone 
Transport Assessment Group (OTAG) have concluded that efforts to reduce 
ozone should include strategies to reduce NOx emissions, 
despite the potential for NOx disbenefits. In fact, the 
Ozone Transport Assessment Group concluded that ``On balance (across 
the full domain and all modeling days), NOx reductions are 
beneficial. NOx reductions, especially urban NOx 
reductions, produce widespread decreases in ozone concentrations on 
high ozone days.''
    We have received comments on this issue and will be addressing them 
in our analyses for the final rule. Any additional information on this 
issue will also be placed in the public docket.

    Question 4. Has EPA done a feasibility assessment to determine that 
the recommended desulfurization technology will be (1) feasible, (2) 
applicable to most refineries and, (3) in sufficient supply to address 
the needs of over 100 refineries that will need to install the new 
technology in short order?
    Response. Yes, we considered all of these issues in our proposal 
and are continuing to evaluate them as new information becomes 
available. We believe the two technologies we profiled in our 
Regulatory Impact Analysis are certainly feasible. While some in the 
refining industry view them as ``new,'' they use known refining 
techniques, simply applied in a different way than in the past. Hence, 
we expect them to work. Since we released our proposal, we've learned 
of several other technologies and approaches for sulfur control. We 
will continue to monitor these technologies. Refiners will thus have a 
range of options available to choose from in making their investments, 
and what is most cost-effective will vary by refinery depending on a 
range of factors. As for whether the entire industry can make these 
investments in the time available, we believe they can. Our proposal 
encourages early compliance and allows investments to be stretched out 
over many years through the banking and trading program to ensure an 
orderly transition. We have consulted with the licensers of these new 
technologies, as well as other experts in the industry, to reassure 
ourselves that these parties will be able to meet the demands of the 
industry in this timeframe. We will consider all of this input as we 
develop our final program.

    Question 5. The original Regulatory Impact Analysis for this rule 
showed that the entire country except for eight metro areas and two 
rural areas would reach attainment for the 1-hour ozone standard by 
2007, without this rule. In the Supplemental Notice you switched to a 
different modeling system. Instead of the extensive modeling and 
analysis that was prepared in the years leading to the proposal, EPA 
now points to ``preliminary analysis,'' which is not yet available for 
public comment. What is this ``analysis'' and when will it be available 
for public comment?
    Response. In the Tier 2 Supplemental Notice, we provided additional 
information regarding the air quality need for further ozone precursor 
emissions controls. This information focused on the need for such 
reductions to help areas attain the current 1-hour ozone standard and 
discussed the use of the ``exceedence'' method to estimate future ozone 
levels from modeling. We had provided similar information in the Tier 2 
NPRM, based on an analysis approach called the ``rollback technique.'' 
Both approaches utilize the same air quality inventory and merely 
represent different ways of analyzing the data. Additional information 
describing both approaches can be found in the May 13, 1999 and June 
30, 1999 Federal Register notices.
    Recognizing this fact, we evaluated the need for additional ozone 
reductions to attain the existing 1-hour ozone NAAQS using the 
exceedence method in the Tier 2 Supplemental Notice. That information 
is presented in the SNPRM and has been placed in the Tier 2 docket for 
public review. We are also updating our air quality emission 
inventories and analyses to more accurately reflect the impact of the 
Tier 2 program. We have also received comments on our modeling 
assumptions and results and we will be incorporating this information 
into our analyses done for the final rule.

    Question 6. In the Regulatory Impact Analysis EPA assumes that 
construction of new desulfurization units will be strung out with 28 
units installed during 2004 and 30 installed during 2005. Are you 
confident that these 58 refineries can get sufficient early credits and 
wait and defer construction? What assurances will these refineries have 
in 2000 that early credits will be available?
    Response. The analysis in the Regulatory Impact Analysis portrayed 
one of many examples of how the credit program could work to spread out 
investments and provide refiners flexibility in meeting the 30 ppm 
average standard. Any such analysis is based on the assumptions made 
about how many credits would be generated prior to 2004. We believed 
that this represented a reasonable scenario. However, there are many 
ways that the industry can respond. As we consider alternative designs 
for the credit program in response to comments received, we will be 
able to reevaluate these assumptions and conclusions. We've also 
proposed, or sought comment on, a number of additional flexibilities 
that could further ensure the availability of sufficient credits. For 
example, we sought comment on the concept of a government-created and 
operated compliance supplement pool. Under this concept, the government 
would create a pool of additional credits that could be provided to 
refiners/importers. This pool would build refiner confidence that a 
supply of credits would be available in the market and that credits 
could in fact be considered as part of the business plan for 2004-2005 
compliance. We will continue to evaluate this and other options and 
intend to develop a final program in which refiners can be confident 
that credits will be available should they make the business decision 
to defer investments for a year or two.

    Question 7. Relatively low oil prices and low refining margins have 
resulted in major restructuring of the refining industry with 
considerable merger activity. Has the Agency looked at the ability of 
the refining industry to raise $4.65 billion in capital in less than 4 
years to meet the proposed gasoline sulfur rule?
    Response. We agree that the large number of mergers within the 
refining industry are due in large part to the relatively low oil 
prices and low refining margins that have been experienced in recent 
years. Those companies who have exploration and production components 
have found those businesses to be reasonably profitable of late, 
particularly in light of recent increases in crude oil prices, but 
companies which only focus on refining and marketing have not generally 
made profits. Because the refining industry is highly competitive, 
refiners are not often able to command the prices for finished gasoline 
that would generate higher margins.
    In response to your question, in our proposed rule we presented an 
analysis of the ability of the refining industry to raise billions of 
dollars in capital to finance the investments required to desulfurize 
gasoline. We found that when these investments are spread out over 
several years (2001-2005, in our analysis), the individual capital 
expenditure in any given year is no greater than--and in most cases 
less than--historic capital expenditures made by the refining industry 
for environmental programs. In the early 1990's, companies invested $1-
2 billion per year for environmental controls; this represented about 
one-third of total capital investments during this time period. Since 
these environmental capital investments reflect costs incurred by less 
than three-quarters of the industry (since many refiners were 
unaffected by the programs that came out of the 1990 Clean Air Act 
Amendments), and since our estimated annual capital expenditures are in 
this same range, we believe the industry would be able to finance the 
required capital investments to meet the demands of our proposed 
program.

    Qustion 8. EPA estimates that its proposal will result in an 
increase in CO2 emissions across the domestic refining 
industry of 6.9 million tons per year. This looks to be very large. 
Will this Tier 2/Sulfur proposal initiate greenhouse gas emissions 
reductions elsewhere to offset this increase? Are you concerned about 
the size of this increase? Will refiners later be penalized for this 
increase if the Kyoto treaty is implemented?
    Response. The increase of 6.9 million tons CO2 from 
domestic refiners, as calculated in the proposed Regulatory Impact 
Analysis, is a relatively small increase in CO2 emissions in 
the context of the scope and benefits of the proposed Tier2/Sulfur 
program. This represents only 0.1 1 percent of total U.S. carbon 
emissions from CO2, and 0.36 percent of U.S. transportation 
carbon emissions from CO2 relative to 1997 emissions as 
cited in the most recent edition of ``Emissions of Greenhouse Gases in 
the United States 1997,'' (DOE/EIA, October 1998). The estimated 
increase was a one-time step increase addressing the potential 
CO2 increases of desulfurization across the entire industry. 
The proposal indicated this estimate may be high because the analysis 
was based on conservative assumptions and the actual increase will 
likely be lower when refiners optimize their desulfurization processes. 
In addition, refiners may choose to use one of the adsorption 
desulfurizing technologies recently announced by Black and Veatch and 
Phillips Petroleum which are lower in carbon emissions. We are 
encouraged there appears to be process improvements and technology 
development addressing sulfur reductions which might minimize the 
impact on CO2 emissions.
    We have not proposed any sort of greenhouse gas reductions as part 
of the Tier 2 gasoline sulfur program to offset this increase. The 
Administration has made no policy determinations as to how a domestic 
implementation program would be structured. Thus, it is premature at 
this time to determine what impact this might have on refiners if the 
Kyoto Protocol were ratified after Senate advice and consent.

    Question 9. For purposes of the gasoline sulfur proposal, states 
with multiple refining facilities will have to process permits for 
technology and operating changes at approximately at the same time. 
Based on your experience with State environmental agencies, will these 
officials able to handle this increased permit activity in an expedited 
manner? What type of relief has EPA offered--if the gasoline sulfur 
schedule cannot be met because of permitting requirements and backlogs?
    Response. As discussed in responses to questions on permitting from 
Senator Thomas, EPA is committed to both simplifying and accelerating 
the air permitting process, so that refiners can begin producing low 
sulfur gasoline within the lead time provided by our proposal. While we 
believe that the application of one or more approaches to reducing the 
permit burden needed to incorporate the gasoline desulfurization 
requirements would provide flexibility to refiners, we note that the 
use of such approaches would have accompanying resource requirements We 
note there has been some recent action that could indicate the scope of 
the permitting issue and the actions required to develop workable 
solutions. For example, we are currently working with Exxon on a pilot 
permit program. Also, the Texas Natural Resource Conservation 
Commission recently told refiners at the UP Amoco Environmental Forum 
that Texas averages a 120-day turnaround on permits for their overall 
permitting programs. We understand that even major source NSR permits 
average a 6-month turnaround in Texas. Thus, Texas doesn't anticipate 
any problem issuing permits for gasoline sulfur projects. There are 
approximately 24 refineries in Texas that will be implementing gasoline 
sulfur projects which is more than any other state. We believe that all 
of the other states will also be able to process the permits in a 
timely manner and we will work with them to ensure the schedules are 
met. Given the amount of lead time already proposed, combined with our 
efforts to streamline the permitting process (described above), we 
believe refineries would have sufficient time to obtain air permits and 
meet the proposed compliance dates for gasoline sulfur control. 
Therefore, no relief from the deadline was included in the proposal.
                                 ______
                                 
               Mercatus Center Regulatory Studies Program
    Summary of RSP Comment.--EPA should not proceed with the proposed 
stringent vehicle and gasoline standards. It has not demonstrated that 
they are (1) necessary, (2) feasible, and (3) cost-effective, as 
required by the Clean Air Act. EPA's lack of support for the emission 
and sulfur levels it has proposed reflects the same flaws that led the 
District Court to rule on its 1997 ambient air quality standards, that 
EPA had interpreted sections of the CAAA ``so loosely as to render them 
unconstitutional delegations of legislative power.''
    EPA has not demonstrated that its proposal is necessary to meet the 
current ozone air quality standard, since the vast majority of the 
Nation will be in compliance with them by the time the effects of this 
proposal are seen. Furthermore, its evaluation of cost-effectiveness is 
based solely on estimates of average cost-per-ton of ozone precursor 
emissions removed, which does not capture the very large differences in 
costs and benefits across the nation. Our own analysis of EPA data 
reveals that consumers in some western states will pay 10 times EPA's 
national average to reduce one ton of emissions. Furthermore, these 
consumers will derive no benefit, since they already enjoy air quality 
that meets the standards, and in some areas, they will actually see a 
decline in air quality. In addition, the cost-effectiveness of emission 
controls for different classes of vehicles varies significantly.
    Given State and regional track records for instituting necessary 
controls (including reformulated gasoline and inspection and 
maintenance programs), EPA should leave decisions regarding the sulfur 
content of gasoline to individual states, perhaps with the cooperation 
of, or recommendations from, the Ozone Transport Assessment Group 
(OTAG). If EPA feels compelled to issue Federal regulations governing 
gasoline sulfur content, it should seriously evaluate a petroleum 
industry proposal whereby low-sulfur gasoline would be provided only 
for the eastern half of the nation. Furthermore, California's low 
emission vehicle rules, and the OTAG-state-initiated NLEV program offer 
evidence that even vehicle standards do not need to be mandated at the 
Federal level.
 Proposed Tier 2 Motor Vehicle Emissions Standards and Gasoline Sulfur 
                          Control Requirements
    The Regulatory Studies Program (RSP) of the Mercatus Center at 
George Mason University is dedicated to advancing knowledge of 
regulations and their impacts on society. As part of its mission, RSP 
produces careful and independent analyses of agency rulemaking 
proposals from the perspective of the public interest. Thus, the 
program's comments on EPA's proposed Tier 2 motor vehicle emissions 
standards and gasoline sulfur control requirements do not represent the 
views of any particular affected party or special interest group, but 
are designed to protect the interests of American citizens.
    The first section of these comments provides background on the 
statutory authority for regulating vehicle emissions, and summarizes 
EPA's May 13, 1999 proposal. Section II evaluates EPA's proposal 
against the criteria set forth by Congress, including air quality need, 
technological feasibility, and cost-effectiveness. Section III examines 
whether the proposal would improve the health and welfare of American 
citizens. Section IV presents RSP's recommendations and conclusions. 
Appendix 1 presents RSP's Checklist for the proposal, and Appendix 2 
provides detail on the cost-effectiveness estimates presented in 
Section II.
                             i. background
A. What is the legal basis for EPA's proposal?
    The Clean Air Act Amendments of 1990 (CAAA) set numerical ``Tier 
1'' exhaust standards that applied to certain light-duty vehicles 
(LDVs) and light-duty trucks (LDTs) beginning with the 1994 model year. 
The Amendments also directed EPA to determine whether to establish more 
stringent standards specified in the Act (CAAA Tier 2) for vehicles 
with a loaded weight of 3,750 lbs. or less, for model years commencing 
after January 1, 2003. While the Amendments specified emission levels 
(see Table 1, below) and a useful life of 10 years or 100,000 miles, it 
directed that EPA consider other standards and useful life periods that 
are either more or less stringent than the default Tier 2 standards set 
forth in the Act, based on three considerations:
     the need for further reductions to meet national ambient 
air quality standards (NAAQS),
     the availability of technology (including the costs 
thereof, and considering lead time, safety and energy impacts), and
     the need for, and cost-effectiveness of further reductions 
from vehicles (compared to other approaches to attaining the NAAQS).
    This proposal reflects EPA's determination that Tier 2 standards 
more stringent than the default levels specified in the CAAA are 
necessary and appropriate. Further, EPA proposes to apply the same 
standards to vehicles weighing up to 8,500 lbs. rather than restricting 
them to vehicles weighing 3,750 lbs. or less. (Appendix 3 lists the 
type of vehicles by class that would be covered by this rulemaking.) 
EPA proposes a useful life (the period during which vehicle 
manufacturers are formally responsible for the vehicle's emission 
performance) of 120,000 miles instead of 100,000 miles. In addition, 
because sulfur may poison new catalytic converters needed to meet the 
vehicle exhaust standards, EPA proposes to determine that gasoline 
sulfur standards are also necessary.

                              Table 1.--Emission Standards for Light Duty Vehicles
                                    Grams/mile over 100,000 mile useful life
----------------------------------------------------------------------------------------------------------------
                                                                     NOx\1\  NMHC\1\      PM\1\         CO\1\
----------------------------------------------------------------------------------------------------------------
Tier 1.............................................................   0.60    0.31           0.10           4.2
CAA Tier 2\2\......................................................   0.20   0.125             NA           1.7
NLEV\3\............................................................   0.30    0.09           0.08           4.2
Proposed Tier 2....................................................   0.07   0.09\4\         0.01    2.4-4.2\4\
----------------------------------------------------------------------------------------------------------------
\1\Oxides of nitrogen (NOx), nonmethane hydrocarbons (NMHC), particulate matter (PM), and carbon monoxide (CO).
\2\Emission levels specified in Table 3 of the CAAA.
\3\Vehicles will generally be required to meet LEV emission levels nationally under the voluntarily agreed to,
  but federally enforceable, NLEV program by model year (MY) 2001.
\4\While the proposal does not explicitly define average standards for pollutants other than NOx, average NMHC,
  PM and CO emission limits are implicit in the proposed bin structure. (Preamble Section IV-B).

            1. ``There is a substantial need for further emission 
                    reductions in order to attain and maintain NAAQS.''
    In the preamble to the proposal, EPA justifies the need for 
emission reductions by widespread and significant nonattainment with 
the new ozone (and, to a lesser extent, particulate matter) NAAQS, 
which were promulgated in 1997. However, the day after the Tier 2 
proposal was published, these NAAQS were struck down in a decision of a 
three-judge panel of the U.S. Court of Appeals for the District of 
Columbia.\1\ In a supplemental notice published on June 30, 1999, EPA 
states that the panel decision does not change its proposed 
requirements. The supplemental notice offers ozone modeling information 
to support the proposal based on the ozone and PM NAAQS that were in 
effect prior to the promulgation of the 1997 standards (``the 
preexisting standard''). The preexisting (and now current) ozone 
standard set maximum ozone concentrations at .12 parts per million 
(ppm), compared to .08 ppm set by the overturned 1997 standard.\2\
---------------------------------------------------------------------------
    \1\ American Trucking Associations, Inc., et. al. v. United States 
Environmental Protection Agency. 1999 U.S. App. LEXIS 9064.
    \2\ There are also differences in the ``form'' of the ozone 
standard, with the preexisting standard measuring compliance based on 
exceedances of the standard over one-hour intervals, and the 1997 
standard basing compliance on 8-hour average concentrations.
---------------------------------------------------------------------------
            2. ``More stringent standards for light-duty vehicles and 
                    trucks are technologically feasible.''
    EPA asserts that the technological feasibility of controlling 
vehicle emissions beyond the Tier I standards is demonstrated by 
manufacturers' voluntary agreement to meet national low emission 
vehicle (NLEV) standards in model year (MY) 1999,\3\ and compliance 
with more stringent California standards. In order to assure compliance 
over the 100,000-mile life of the vehicle (as required by the NLEV 
program) manufacturers have certified new vehicles at emission levels 
equivalent to or lower than the default Tier 2 standards set by the 
CAAA. While EPA recognizes that manufacturers must certify vehicles to 
levels lower than the standard to ensure compliance after 100,000 miles 
of use,\4\ it uses these margins to justify its determination that even 
more stringent emission standards will be feasible by 2004. This 
determination is most questionable for heavy light duty trucks, such as 
full-sized pick up trucks and vans, however, EPA proposes to offer them 
relief through a longer phase-in period, and the ability to average and 
trade emissions.
---------------------------------------------------------------------------
    \3\ The NLEV program is a voluntary program between automakers and 
the OTAG states, under which manufacturers committed to meet tailpipe 
standards for cars and light light-duty trucks that are more stringent 
than EPA could mandate, in return for regulatory stability from states 
and the EPA. NLEV vehicles became available in Connecticut, Delaware, 
Maryland, New Hampshire, Rhode Island, Virginia, and the District of 
Columbia in the 1999 model year, and will be available throughout the 
country by 2001.
    \4\ Tier 2 Report to Congress, IV.A. July 1998.
---------------------------------------------------------------------------
            3. ``More stringent standards for light-duty vehicles and 
                    trucks are needed and cost effective compared to 
                    available alternatives.''
    EPA estimates that it will cost less to meet the ozone and 
particulate matter standards using the proposed emissions and gasoline 
controls than with other alternatives. EPA bases this conclusion on the 
average cost-per-ton of NOx and NMHC removed once all 
vehicles on the road meet the new standard.
B. What would EPA's proposal do?
    EPA's proposal, published in the Federal Register on May 13, 1999, 
has two main components:
     It would set stringent new emission standards for 
passenger cars and light trucks. The proposal would limit emissions of 
oxides of nitrogen (NOx) from new vehicles to an average of 
0.07 grams per mile (g/mi.). For comparison, model year 1999 vehicle 
emissions based on the recent NLEV standards range from 0.30 to 1.53 g/
mi. It would also limit emissions of nonmethane hydrocarbons (NMHC), 
carbon monoxide (CO) and particulate matter (PM). The Tier 2 standard 
would be phased in between 2004 and 2007 for passenger cars (LDVs or 
light duty vehicles) and light light-duty trucks (LLDTs or LDT1s and 
LDT2s), and between 2008 and 2009 for heavy light-duty trucks (HLDTs or 
LDT3s and LDT4s). Manufacturers could meet the standard by averaging 
across their fleet, and trading.
     It would significantly reduce the sulfur content of 
gasoline. Sulfur in gasoline would be reduced to an average of 30 ppm, 
with a cap of 80 ppm. By comparison, the average sulfur content of 
gasoline sold outside of California in 1996 was 340 ppm. Refiners would 
be allowed to meet the average standard by trading sulfur credits.
       ii. is epa's proposal justified by the rulemaking record?
A. EPA has not adequately justified the need for its proposal.
    In the preamble to the proposal, EPA relies on expected widespread 
nonattainment with the overturned 1997 (.08 ppm) NAAQS to justify the 
``need'' for the proposed vehicle and gasoline standards. However, the 
recent court decision diminishes EPA's argument that the stringent 
national standards are ``needed,'' as nonattainment with the 
preexisting (.12 ppm) NAAQS is much less widespread, and less 
significant than nonattainment with the remanded NAAQS. Figure 1 of 
these comments reproduces a map from EPA's air quality analysis, which 
illustrates that, with the exception of California, which is not 
covered by this rulemaking, expected nonattainment with the .12 ppm 
NAAQS for ozone in 2010 is limited to a handful of localized areas.\5\ 
(Note that even the few dark shaded areas on this map, which represent 
single maximum concentrations greater than the standard, overstate the 
degree of nonattainment with the standard because noncompliance is 
actually determined by the third highest 1-hour maximum ozone level.)
---------------------------------------------------------------------------
    \5\ ``Tier II Proposed Rule: Air Quality Estimation, Selected 
Health and Welfare Benefits, and Benefit Analysis Results,'' April 
1999. Prepared by Abt Associates for EPA, Air Docket A-97-10, document 
No. II-A-28. Exhibit A-14.
---------------------------------------------------------------------------
    In a supplemental notice published in the Federal Register on June 
30, 1999, EPA estimates that only eight metropolitan areas and two 
rural counties will be out of attainment with the .12 ppm ozone 
standard in 2007. These 10 areas contain about 39 million people.\6\ 
This EPA table is reproduced as Table 2, below. Note that, since 
concentrations as high as 124 ppb would be classified as in attainment 
(as they would be rounded down to .12 ppm) several of these areas are 
very close to attaining the standard. In fact, almost 15 million of the 
39 million people who are expected to live in nonattainment areas (over 
38 percent of the population in this table) live in areas that are 
within .002 ppm of attaining the standard.
---------------------------------------------------------------------------
    \6\ An alternative modeling approach, which EPA says is more 
consistent with the exceedance form of the 1-hour standard, predicsts 
that seventeen areas affecting a population of 74,479,686 will be 
unable to attain the 1-hour ozone standard in the absence of Tier 2 
controls. Even under this approach, however, ozone nonattainment is 
largely limited to the eastern part of the U.S.

  Table 2.--Metropolitan areas/ rural counties projected to exceed the
        0.12 ppm standard in 2007 without Tier 2/Sulfur Controls*
------------------------------------------------------------------------
               Name                    Ozone (ppm)         Population
------------------------------------------------------------------------
Iberville County LA...............               .132             31,049
La Porte County IN................               .131            107,066
Beaumont-Port Arthur, TX MSA......               .129            361,218
Hartford, CT MSA..................               .125          1,157,585
Houston-Galveston-Brazoria, TX                   .175          3,731,029
 CMSA.............................
Longview-Marshall, TX MSA.........               .129            193,801
Memphis, TN-AR-MS MSA**...........               .125          1,007,306
New York-Northern New Jersey-Long                .136         19,549,649
 Island, NY-NJ-CT-PA CMSA.........
Philadelphia-Wilmington-Atlantic                 .126          5,893,019
 City, PA-NJ-DE-MD CMSA...........
Washington-Baltimore, DC-MD-VA-WV                .126          6,726,395
 CMSA.............................
  Total population................  .................         38,758,117
                                     # of metro areas                  8
                                           metro pop.         38,620,002
                                        # of counties                  2
                                          county pop.           138,115
------------------------------------------------------------------------
*Table 1 of EPA, ``Clarification of Proposed Rule, Provision of
  Supplemental Information and Request for Comment,'' June 30, 1999.
**1-hour ozone NAAQS no longer applies in a portion of the MSA.

    While EPA presents the modeled degree of nonattainment with the 
pre-existing .12 ppm standard in its supplemental notice, it does not 
estimate the extent to which Tier 2 controls will help achieve 
attainment in those areas. Instead, the supplemental notice simply 
asserts that ``[t]o the extent that significant additional reductions 
in precursors are needed for the areas discussed above to attain or 
maintain the 1-hour [.12 ppm] ozone NAAQS, EPA believes that reductions 
from LDVs and LDTs in particular will be necessary.''\7\ EPA does not 
ever make the necessary determination that reductions in precursors are 
necessary.
---------------------------------------------------------------------------
    \7\ ``Clarification of Proposed Rule, Provision of Supplemental 
Information and Request for Comment,'' p. 16.
---------------------------------------------------------------------------
    Indeed, EPA's April 1999 air quality analysis reveals that, while 
the proposal may result in a decrease in seasonal mean ozone 
concentrations of up to .0025 ppm in some eastern sections of the 
country, it may actually increase ozone concentrations (up to .0016 
ppm) in other areas, including parts of the Great Lakes region, parts 
of Texas, New Mexico, Arizona, Southern California, Utah, Washington, 
Colorado, Southern Florida, and even parts of the Northeast.\8\ (Figure 
2 of these comments reproduces EPA's map that documents this 
deterioration in air quality.) This outcome is not discussed or 
explained in the air quality analysis nor elsewhere in the proposal or 
the Regulatory Impact Analysis.
---------------------------------------------------------------------------
    \8\ Tier 2 Air Quality Estimation, Abt Associates, op. cit. Exhibit 
A-19.
---------------------------------------------------------------------------
    It is important to recognize, as EPA does in the quote above, that 
NOx and NMHC are precursors to ozone, but they do not create 
ozone in a simple, direct fashion. A 1992 National Academy of Sciences 
report explains that ``NOx reductions will have 
significantly different effects depending on the particular VOC/
NOx ratio, which varies significantly within an air 
basin.''\9\ In ``Rethinking the Ozone Problem in Urban and Regional Air 
Pollution,'' NAS observes that ``lowering NOx can, under 
some conditions, lead to increased ozone, [as a result of] the complex 
chemistry involved in ozone formation in VOC NOx 
mixtures.''\10\ This complex chemistry sometimes results in lower ozone 
levels in urban cores than in surrounding areas, and may explain why 
EPA predicts that NOx reductions from the Tier 2 proposal 
will actually increase seasonal ozone levels in the New York City area. 
(See Figure 2.)
---------------------------------------------------------------------------
    \9\ Page 168.
    \10\ Page 167.
---------------------------------------------------------------------------
B. The technological feasibility of the proposal has not been 
        demonstrated.
    The Clean Air Act Amendments direct EPA to determine whether more 
stringent standards are appropriate based on:

the availability of technology (including the costs thereof), in the 
case of light-duty vehicles and light-duty trucks with a loaded vehicle 
weight (LVW) of 3,750 lbs. or less, for meeting more stringent emission 
standards than [the default Tier 1 standards] for model years 
commencing not earlier than after January 1, 2003, and not later than 
model year 2006, including the lead time and safety and energy impacts 
of meeting more stringent emission standards.\11\ (emphasis added)
---------------------------------------------------------------------------
    \11\ Clean Air Act Subsection 202(i)(2)(i).

    EPA appears to have embraced its statutory mandate selectively, 
focusing mainly on whether technologies available and under development 
could be applied to vehicles, while giving little attention to the 
cost, lead time, safety and energy impacts inherent in these 
technologies. EPA also assumes that technologies available for vehicles 
would be feasible for trucks weighing up to 8,500 lbs. This includes 
most sport utility vehicles, mini vans, and pick-up trucks, which weigh 
more than 3,750 lbs., and thus were not included by the statutory 
language.
            1. Feasibility of vehicle emission standards
    EPA determines that more stringent standards for light-duty 
vehicles and trucks are technologically feasible. While the agency 
expresses confidence ``that by 2004, all LDVs should be capable of 
meeting Tier 2 standards,'' it admits that ``fewer data are available 
addressing the ability of LDTs to meet the design targets implied by 
the proposed Tier 2 [NMHC] and NOx standards,'' and that 
``no current LDTs have been certified at such low emission 
levels.''\12\
---------------------------------------------------------------------------
    \12\ RIA Chapter IV.B.1.b.v.
---------------------------------------------------------------------------
    Manufacturers have argued that the technological feasibility of the 
standard for heavier vehicles (particularly light duty trucks over 
6,000 lbs. or LDT3s and LDT4s) has not been demonstrated and is 
questionable. In particular, the Alliance of Automobile Manufacturers, 
in written comments to EPA, argued that technology to meet the combined 
NOx and NMHC levels required by the bin structure was not 
available, due to tradeoffs between NOx and NMHC control for 
3-way catalysts.\13\ Recognizing that ``HLDTs will face the greatest 
technological challenge in complying'' with the proposed standard, EPA 
proposes a later compliance date, and requests comment on need for a 
``technology review'' for HLDTs (heavy light duty trucks, or trucks 
weighing over 6,000 lbs.).
---------------------------------------------------------------------------
    \13\ Alliance of Automobile Manufacturers proposal to EPA, 
communicated in a letter from Josephine Cooper to Robert Perciasepe 
dated March 26, 1999.
---------------------------------------------------------------------------
    Manufacturers have also questioned the technological feasibility of 
the proposed evaporative standards and raised concerns about testing 
variability and non-fuel background emissions.\14\
---------------------------------------------------------------------------
    \14\ Alliance of Automobile Manufacturers, op.cit.
---------------------------------------------------------------------------
    By focusing on its expectations regarding the availability of 
technologies, EPA does not adequately address cost, safety or energy 
impacts, as required by the CAAA. In particular, there appear to be 
real tradeoffs between fuel efficiency and NOx emissions, 
and EPA's proposal, with its stringent emission limits and short lead 
time, are likely to preclude promising fuel-efficient technologies 
(such as gasoline direct-injection (GDI) engines sold in Japan and 
Europe) from competing in the U.S. market.\15\ Diesel vehicles and 
trucks also hold promise for increasing fuel-efficiency, but they are 
less likely to be able to comply with the proposed standards without 
expensive after-treatment devices (that also have other effects, such 
as a requirement to refuel periodically with urea, which EPA observes 
``has a very objectionable odor.'')\16\ An April 1999 report of the 
National Research Council expressed concerns that the standards ``could 
jeopardize research efforts of the public-private program to create a 
highly fuel-efficient, affordable car.''\17\ Furthermore, neither the 
preamble nor the Tier 2 study submitted to Congress discusses whether 
the new technologies pose any safety concerns.
---------------------------------------------------------------------------
    \15\ RIA Chapter IV.B.1.c.
    \16\ RIA Chapter IV.B.5
    \17\ NRC press release issued April 29, 1999, citing report titled, 
``Review of the Research Program of the Partnership for a New 
Generation of Vehicles.'' 1999.
---------------------------------------------------------------------------
    This information suggests that EPA has not, in fact, demonstrated 
that its vehicle emission standards are technologically feasible, 
according to the factors specified in the statute. At a minimum, a 
technology review in 2004 is advisable, but we question EPA's decision 
to proceed at this time without adequate assurance that these standards 
are feasible, fuel efficient, and safe. While the CAAA forbids EPA to 
promulgate mandatory standards more stringent than Tier 1 until the 
2004 model year, nothing in the statute requires EPA to rush to a 
determination on the need for more stringent standards commencing in 
2004.\18\ (Check with a lawyer on that. See EPA footnote 4 of preamble, 
pg. 15)
---------------------------------------------------------------------------
    \18\ See EPA footnote 4 of preamble and Section 202(b)(1)(C).
---------------------------------------------------------------------------
            2. Gasoline sulfur content
    According to EPA, the feasibility of the emission standards depends 
not only on technological improvements in vehicles, but on the 
availability of low-sulfur gasoline. EPA observes that refiners are 
already able to produce low-sulfur gasoline in compliance with 
California laws,\19\ and offers this as evidence that refineries 
nationally can produce gasoline that is an order of magnitude lower 
than current average levels (30 ppm vs. 330 ppm). However, the 
California requirements were phased in over a 15-year period, during 
which many small refineries went out of business.
---------------------------------------------------------------------------
    \19\ The State of California requires gasoline sold in the state to 
meet the same sulfur-content standards (30 ppm average sulfur content 
with an 80 ppm cap) as in the proposed rule.
---------------------------------------------------------------------------
    The cost estimates that form the basis of this determination are 
much lower than the costs EPA estimated for removing sulfur from 
gasoline in its May 1998 Staff Paper on Gasoline Sulfur Issues. A year 
ago, EPA estimated the cost of achieving a 40 ppm sulfur standard at 
between 5.1-8.0 cents per gallon, while the current proposal predicts 
national average costs of 1.7 cents per gallon for the proposed 30 ppm 
standard and 1.5 cents per gallon for a 40 ppm standard.
    The dramatic 3- to 4-fold reduction in cost estimates is based on 
two new technologies that are currently in the pilot stage, yet EPA 
assumes a perfectly elastic supply of these new units--enough to supply 
all refiners by 2003 at these low costs. These are very unrealistic 
assumptions for technologies that are not commercially proven and have 
yet to be installed and operated at a refinery.\20\ They serve to 
understate cost, and overstate the cost-effectiveness of achieving the 
proposed gasoline sulfur standard.
---------------------------------------------------------------------------
    \20\ RIA IV.B.6.
---------------------------------------------------------------------------
    EPA's conclusion that its sulfur standards are technologically 
feasible also depends heavily on its projection that excess credits 
will be generated by refiners that must meet the Phase 2 requirement of 
the reformulated gasoline (RFG) program starting in 2000, and that the 
availability of these credits will ease compliance with the sulfur 
standards starting in 2003.\21\ However, the projected availability of 
these credits is subject to numerous assumptions, and EPA admits that 
the generation of early credits may be optimistic.\22\ Whether the 
reductions achieved by compliance with the RFG program would actually 
offer credits is also questionable, since those reductions would be 
attributable to existing, not new programs.
---------------------------------------------------------------------------
    \21\ The reformulated gasoline program (RFG) was introduced for 
nonattainment areas in 1994. Phase 2, which becomes effective in 
January 2000, would require gasoline in certain areas to meet more 
stringent levels of different constituents, including sulfur.
    \22\ RIA IV.B.8 identifies several assumptions underlying its 
prediction of excess credits which it recognizes may not hold true, 
such as alternate schedules for phasing in desulfurization units, or 
higher baseline sulfur levels resulting in the need for more than one 
desulfurization unit.
---------------------------------------------------------------------------
    EPA promises expedited permitting of desulfurization units needed 
to comply with the new standard, but since the permit programs (such as 
New Source Review and Prevention of Significant Deterioration) are 
delegated to individual states, EPA actually does not have the 
authority to offer such relief. Unless EPA declares the new 
desulfurization units ``pollution prevention programs,'' and allows 
facilities to take mobile source credits for installing them; they are 
likely to endure typical permit reviews, which can take years.
    Furthermore, EPA data reveal that the desulfurization process 
itself will actually increase refinery emissions of NOx by 
4,500 tons per year, VOC by 7,840 tons per year, SOx by 410 
tons per year, PM by 96 tons per year, and carbon moNOxide 
by 1,130 tons per year.\23\ State concerns over these emissions may 
further delay permits.
---------------------------------------------------------------------------
    \23\ Office of Mobile Sources, March 22, 1999 memorandum from Karl 
Simon, EPA to Eric Haxthausen, OMB.
---------------------------------------------------------------------------
            3. Diesel vehicles and fuels
    EPA intends for this proposal to be ``fuel-neutral'' (i.e., one 
uniform standard would apply to all vehicles, regardless of the type of 
fuel used) yet it has not proposed fuel standards for diesel fuel. This 
creates considerable uncertainty for both petroleum refiners and 
automotive manufacturers. At this time, the technological feasibility 
of the proposed fuel-neutral principle has not been established.
C. EPA has not adequately examined the cost-effectiveness of its 
        proposal
    EPA estimates the cost-effectiveness of the proposed emission/
gasoline standards by calculating an average national cost-per-ton of 
combined NOx plus NMHC removed, and comparing this cost-per-
ton with other cost-per-ton estimates from other programs. EPA 
estimates that its proposal will cost $2,134 per ton in the near term 
and $1,748 per ton in the long term\24\ to remove NOx and 
NMHC, which it finds are in the range of previously implemented mobile 
source programs, including Tier 1 vehicle controls and the NLEV 
program, which was entered into voluntarily.
---------------------------------------------------------------------------
    \24\ EPA also calculates a near- and long-term ``credited'' cost 
per ton of $1,599 and $1,213, respectively. These credited cost-
effectiveness figures reflect a deduction to the cost numerator to 
account for the fact that the required controls will achieve reductions 
in sulfur dioxide (SO2) and particulate matter (PM) as well 
as NOx and NMHC. The problem with this approach is that EPA 
implicitly assumes that the average cost-effectiveness (in $/ton) of 
other regulations designed to reduce SO2 and PM is equal to 
the incremental value society places on their reduction, which may not 
be true for several reasons. First, the marginal benefit of reducing 
further increments of SO2 and PM are not likely to equal the 
average cost of existing programs. Second, EPA has not based the 
regulation of SO2 and PM on any balancing of benefits and 
costs, so there is little reason to believe that the social benefits of 
reducing those pollutants reflects the social costs imposed by EPA 
regulations. In fact, in comments on the 1997 PM NAAQS, RSP highlighted 
flaws in EPA's selection of the standard and the benefit estimates that 
lead to the $10,000/ton figure EPA is using as a credit in this 
proposal. (RSP 1997-1)
---------------------------------------------------------------------------
    There are several problems with this approach:
    1. This focus on average cost-per-ton masks important information, 
and does not permit EPA to examine the merits of individual components 
of its proposal, nor more or less stringent standards.
    2. The use of tons of pollutants in the denominator of EPA's cost-
effectiveness calculation is inappropriate, because tons of 
NOx and NMHC removed is not a good proxy for the risk of 
concern (health risks from human exposure to high ozone concentrations 
in non-attainment areas during peak ozone periods).
    3. EPA compares the average cost-per-ton figures with the cost-per-
ton of a few existing programs, but not against available alternatives 
to the Tier 2 standards, as directed by the CAAA.
    We discuss each of these problems, and using data provided in the 
rulemaking record, we make some adjustments to develop rough estimates 
of cost-effectiveness that are both more meaningful and more consistent 
with EPA's mandate under the CAAA.
            1. The cost-per-ton of individual components of the 
                    proposal are significantly higher than the average 
                    EPA presents.
    Using data in Regulatory Impact Analysis Tables V-12, V-45, VI-3 
and Appendix VI-A, we have estimated, for each category of vehicle, the 
cost-per-ton of meeting the proposed 0.07 g/mi. vehicle emission 
standards, and the cost-per-ton of achieving the 30 ppm sulfur standard 
for gasoline. Table 3 of this comment summarizes our results on a 
nationwide basis for the ``near-term'' cost-per-ton of components of 
EPA's proposal.\25\ Appendix 2 explains our calculations and provides 
more detail.\26\
---------------------------------------------------------------------------
    \25\ Based on information in RIA Chapter III, it appears that 
annual emissions of about 50 pre-Tier 2 vehicles would comprise one ton 
of NOx.
    \26\The fuel costs vary across vehicle classes because different 
vehicles are modeled to have different fule consumption over a 
lifetime.

            Table 3.--Cost-ton by Vehicle Class* and Control Measure ``Near-term'' Nationwide Average
----------------------------------------------------------------------------------------------------------------
                                                                  Cost/ton Vehicle          Cost/ton Gasoline
                                                                  Emission Controls          Sulfur Controls
                        Vehicle Class                        ---------------------------------------------------
                                                                  NOx        NOx+NMHC       NOx        NOx+NMHC
----------------------------------------------------------------------------------------------------------------
LDV (all passenger cars)....................................       $2,198       $2,198       $3,766       $2,818
LDT1 (e.g., small mini vans and SUVs up to 3450 lbs.).......       $1,398       $1,398       $4,897       $4,283
LDT2 (e.g., avg.-sized mini vans 3450 to 6000 lbs.).........        2,341        2,220        5,285        4,573
LDT3 (e.g., full-sized vans and trucks).....................        2,558        1,903        4,241        3,748
LDT4 (e.g., pick-up trucks, SUVs and vans over 5750 lbs.)...        1,460        1,157        3,897       3,472
----------------------------------------------------------------------------------------------------------------
* Vehicle class weights are from EPA's 1998 Tier 2 Report to Congress

    Our estimates show that the variance in the per-ton-costs of 
emission controls across different classes of vehicles is high. For 
example, the cost-per-ton of NOx removed is over $1,000 more 
for full-sized vans and compact trucks than for small light trucks 
weighing less than 3450 lbs.
    One counter-intuitive result from this disaggregation is that the 
cost-per-ton of achieving the standards for full-sized trucks is among 
the lowest, and lower even than for passenger cars. This result may be 
partly due to greater emission reductions from those vehicles (i.e., a 
larger number in the denominator), but it may also suggest that costs 
are underestimated for these heavier trucks. This result may not be 
consistent with EPA's expressed concerns about the technological 
feasibility of achieving emission reductions for these heaviest 
vehicles.
    Also, the data reveal that the gasoline sulfur component of the 
rule costs significantly more than the vehicle controls, with costs-
per-ton of NOx removed as high as $5,285. Note that in all 
likelihood, this is a significant underestimate of the cost-per-ton, as 
it depends on unlikely assumptions about the availability of, and low 
cost of, unproven desulfurization technologies, as discussed above. 
Further, these national statistics disguise regional variations in cost 
and true ``effectiveness.''
    To understand the regional consequences of the sulfur standard, we 
adjusted EPA's average cost estimates using data on the per-gallon 
costs of meeting a 30 ppm average sulfur level in two of five regions, 
as presented in Regulatory Impact Analysis Table V-34. Tables 4 and 5, 
below, present the cost-per-ton estimates for the two Western regions 
of the country, which, according to EPA data, would face the highest 
costs associated with removing sulfur from gasoline. The cost-per-ton 
figures in these tables reflect the mix of conventional vs. 
reformulated gasoline, and the presence of inspection and maintenance 
(I&M) programs in these states.\27\ Details of our calculations are 
provided in Appendix 2.
---------------------------------------------------------------------------
    \27\ Memorandum from David J. Korotney to EPA Air Docket A-97-10, 
``Nationawide and regional population fractions,'' document No. II-B-
07.)

  Table 4.--Table 4 Near Term Cost-per-ton of Gasoline Sulfur Controls
    Rocky Mountain Region (Montana, Idaho, Wyoming, Utah & Colorado)*
------------------------------------------------------------------------
                                                Cost/ton Gasoline Sulfur
                                                         Controls
                 Vehicle Class                 -------------------------
                                                    NOx        NOx+NMHC
------------------------------------------------------------------------
LDV (all passenger cars)......................       $6,487       $4,830
LDT1 (e.g., small mini vans and SUVs up to            8,431        7,343
 3450 lbs.)...................................
LDT2 (e.g., avg.-sized mini vans 3450 to 6000         9,101        7,839
 lbs.)........................................
LDT3 (e.g., full-sized vans and trucks).......        7,303        6,428
LDT4 (e.g., pick-up trucks, SUVs and vans over        6,710        5,957
 5750 lbs.)...................................
------------------------------------------------------------------------
*EPA's data are based on Petroleum Administrative Districts for Defense
  (PADD), and this region encompasses PADD IV.

 Table 5.--Near Term Cost-ton of Gasoline Sulfur Controls  Pacific Coast
          & Southwest (Washington, Oregon, Nevada, & Arizona)*
------------------------------------------------------------------------
                                                Cost/ton Gasoline Sulfur
                                                         Controls
                 Vehicle Class                 -------------------------
                                                    NOx        NOx+NMHC
------------------------------------------------------------------------
LDV (all passenger cars)......................       $6,014       $4,134
LDT1 (e.g., small mini vans and SUVs up to            7,878        5,873
 3450 lbs.)...................................
LDT2 (e.g., avg.-sized mini vans 3450 to 6000         8,542        6,348
 lbs.)........................................
LDT3 (e.g., full-sized vans and trucks).......        6,813        5,203
LDT4 (e.g., pick-up trucks, SUVs, and vans            6,248        4,743
 over 5750 lbs.)..............................
------------------------------------------------------------------------
*PADD V, excluding California.

    These tables present a very different picture of the cost-
effectiveness of the sulfur standard than EPA's average near-term cost-
per-ton estimate of $2,134. The cost per ton of NOx removed 
reaches as high as $9,101, which is very close to the $10,000 per ton 
upper limit that EPA would consider in its ozone NAAQS analysis.
    Note that these tables are based on regional aggregate estimates of 
refinery costs, so individual refineries in these regions will face 
even higher costs. Furthermore, within these regions, some states will 
face higher costs than others will. For example, parts of Arizona would 
face costs of over $13,000 per ton of NOx removed, as Table 
6 shows.

                                      Table 6.--Near Term  Cost-ton of Gasoline Sulfur Controls for Western States
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                                Idaho
                                                      Utah       Arizona      Arizona      Colorado      Nevada       Oregon     Washington    Montana
                                                                (non-API)      (API)                                                           Wyoming
--------------------------------------------------------------------------------------------------------------------------------------------------------
LDV.............................................       $7,077        5,937        9,135        7,050        6,295        5,111        5,903        3,010
LDT1............................................        9,402        7,806       12,357        9,358        8,394        6,448        7,750        5,757
LDT2............................................       10,275        8,483       13,629       10,222        9,194        6,839        8,415        5,947
LDT3............................................        8,109        6,746       10,623        8,072        7,235        5,618        6,700        5,087
LDT4............................................        7,411        6,181        9,665        7,379        6,606        5,200        6,141        4,774
--------------------------------------------------------------------------------------------------------------------------------------------------------

            2. The variation in cost-effectiveness is more dramatic 
                    when effectiveness is defined in terms of health 
                    and welfare impacts
    The fact that consumers in Western states will pay between two and 
four times EPA's estimated national average cost per ton for reducing 
NOx and NMHC is striking in itself. However, even more 
significant is the fact that the tons of NOx and NMHC that 
will be reduced in these western states will not contribute to 
compliance with the ozone standard. These states are all expected to be 
in attainment with the .12 ppm ozone standard (see Figure 1), so 
reductions in ozone precursors (NOx and NMHC) are not 
necessary to meet the health and welfare based standard, and will offer 
little in the way of public health benefits. In fact, as Figure 2 above 
illustrates, EPA estimates that seasonal ozone levels will actually 
increase in parts of these western states.\28\
---------------------------------------------------------------------------
    \28\ ``Tier II Proposed Rule: Air Quality Estimation, Selected 
Health and Welfare Benefits, and Benefit Analysis Results,'' April 
1999. Air Docket A-97-10, document No. II-A-28. Exhibit A-19. While we 
did not find an explanation for (or even recognition of) this result in 
the rulemaking record, it may be due to complex chemical interactions 
between NOx and volatile organic compounds in the 
atmosphere, as described in NAS, 1992.
---------------------------------------------------------------------------
    This illustrates another major flaw in EPA's approach to cost-
effectiveness. EPA states in Chapter VI of the Regulatory Impact 
Analysis,

        The object of our cost-effectiveness analysis is to compare the 
        costs to the emission reductions in an effort to assess the 
        program's efficiency in helping to attain and maintain the 
        NAAQS.\29\ (emphasis added)
---------------------------------------------------------------------------
    \29\ Chapter VI.B.3.

    Yet, precursor emission reductions are not a good measure of the 
program's efficiency in helping to attain and maintain the ozone and PM 
NAAQS. This flaw is fatal, given the statutory basis of this rule to 
meet the ozone NAAQS. (Note that gasoline-powered vehicle emissions, 
such as NOx and NMHCs, contribute very little to PM levels.) 
As discussed in detail in RSP's comments on EPA's NOx 
Trading rule,\30\ tons of NOx reduced are not a good proxy 
for an action's effectiveness at meeting the NAAQS or achieving the 
desired health benefits for several reasons:
---------------------------------------------------------------------------
    \30\ RSP 1998-1, ``Comments on the U.S. Environmental protection 
Agency's Supplemental Notice for the Finding of Significant 
Contribution and Rulemaking for Certain states in the Ozone Transport 
Assessment Group Regions for Purposes of reducing Regional Transport of 
Ozone; Proposed Rule,'' submitted June 25, 1998.
---------------------------------------------------------------------------
     The relationship between NOx emissions and 
ozone concentrations is not linear. In the presence of heat and 
sunlight NOx can react to form ozone, but each unit of 
NOx emitted does not form an equivalent unit of ozone.
     Nonattainment with the ozone standard is primarily a 
problem for urban areas, mainly in the eastern part of the country. Not 
only are ozone concentrations in a particular area more heavily 
affected by NOx emissions from nearby sources than from 
distant ones, but they also depend on a variety of other factors, 
including complex meteorological conditions.
     Ozone has been linked to acute, rather than chronic health 
risks, which result from a few high ozone days that occur during 
certain weather conditions in the summer months.
    Adding the tons of NOx and NMHC emissions together 
provides an even less meaningful metric of the program's effectiveness 
at improving health and welfare. As the National Academy of Sciences 
pointed out, depending on the relative ratios of NOx to 
volatile organic compounds or VOCs (of which NMHCs are a component), 
reductions of one or the other precursor can actually increase ozone 
concentrations. As a result, combined nation-wide NOx and 
NMHC emissions, which are the focus of this proposal, are not a good 
proxy for either effectiveness at meeting the ozone NAAQS, nor 
achieving the public health effects that are of concern with ozone.
    This is particularly important considering the large cost 
differences among regions of the country. Clearly, reducing 
NOx and NMHC emissions in western regions of the country 
will have trivial impacts, at best, on attainment with the ozone NAAQS. 
(See EPA's predicted impacts in Figure 2.) Yet, according to EPA's 
estimates, residents of western states will pay much higher prices for 
the controls EPA has proposed to reduce NOx and NMHC than 
eastern states. If EPA defined effectiveness in terms of incremental 
improvements in attainment with the ozone air quality standard, rather 
than tons of pollutant removed, the denominator of the cost-
effectiveness calculation for attainment areas would have to be zero. 
This implies that, for many parts of the nation, the proposed national 
standards will impose high costs with no corresponding clean air 
benefit.
            3. EPA does not compare the cost-effectiveness of the 
                    proposal against viable alternatives
    The third major flaw in EPA's cost-per-ton approach is that it does 
not compare the cost-effectiveness of the proposal against viable 
alternatives. This is not only good public policy, as described in the 
Administration's Economic Analysis Guidelines of Federal Regulations 
(Best Practices), but it is required by the Clean Air Act 
Amendments.\31\
---------------------------------------------------------------------------
    \31\ CAAA Subsection 202(i)(2)(A)(ii) requires EPA to examine ``the 
need for, and cost effectiveness of, obtaining further reductions in 
emissions from such light-duty vehicles and light-duty trucks, taking 
into consideration alternative means of attaining or maintaining the 
national primary ambient air quality standards pursuant to State 
implementation plans and other requirements of this Act, including 
their feasibility and cost effectiveness.''
---------------------------------------------------------------------------
    Rather than compare a national average cost-per-ton figure for all 
the elements of the proposal against the cost-per-ton of previously 
implemented actions,\32\ EPA should, at a minimum, examine the cost-
per-ton of each component of its proposal against other components of 
the proposal and alternative approaches to achieving the NAAQS. Our 
tables 3 through 6 above reveal that the gasoline sulfur controls will 
be significantly more costly per ton of pollutant removed than vehicle 
controls.\33\ They also suggest that costs-per-ton for vehicle controls 
vary by vehicle class. Furthermore, the per-ton cost of sulfur controls 
varies significantly by region, as do the benefits of NOx 
emission reductions. A comparison of the incremental cost-per-ton of 
the different elements of EPA's proposal suggests that targeted 
approaches can more effectively achieve ambient air standards. In this 
section, we discuss some key alternatives that would be significantly 
more cost-effective than the proposed approach.
---------------------------------------------------------------------------
    \32\ Other actions initiated by EPA's Office of Mobile Sources 
offer NOx reductions at costs significantly below those of 
this proposal.
    \33\ The cost-per-ton of vehicle controls in these tables assumes 
vehicles are operated on high sulfur fuel, while the cost-per-ton of 
fuel controls is the marginal, or incremental, cost of adding fuel 
controls once vehicle controls are in place. If EPA's assertion that 
fuel controls act as complements to vehicle controls, our approach to 
estimating marginal cost per ton should overstate the effectiveness of 
fuel controls (since the synergistic emission reductions are attributed 
to fuel). However, that does not seem to be supported by EPA's data, as 
discussed below and in appendix 2.
---------------------------------------------------------------------------
     (a) Regional and local initiatives and individual responsibility 
                    should receive greater attention
    The proposal is driven by ozone, which is expected to pose 
temporary, reversible health threats to certain individuals with pre-
existing respiratory conditions in a few urban areas on certain summer 
days when atmospheric conditions combine to create elevated ozone 
levels. Regional, or even state, programs could target these concerns 
more cost-effectively, and avoid imposing unnecessary costs on all 
parts of the country throughout the entire year.
    RSP's comments on EPA's NOx Trading rule argued that a 
trading mechanism covering a wide geographic area could actually 
increase the ozone concentrations on peak days in nonattainment areas 
by allowing trading of emissions into those areas from other regions. 
The sulfur-trading program envisioned by this rule could have the same 
effect, but it would cover an even larger area (the whole nation).
    Subsequent to the 1990 CAAA, under EPA's direction and with its 
participation, the Environmental Council of States (ECOS) formed the 
Ozone Transport Assessment Group (OTAG), an organization of 
environmental agencies from the 37 eastern-most states. This group has 
recommended strategies for achieving ozone air quality standards in the 
half of the country where the standard has been most difficult to 
achieve, and offers one mechanism for instituting a regional program of 
sulfur control. Also, individual State and local efforts for inspection 
and maintenance programs and reformulated gasoline provide further 
evidence that regional controls can effectively target regional 
problems. Finally, the petroleum industry has proposed a regional 
program, whereby it would make low-sulfur gasoline for the eastern half 
of the nation, except those areas already using reformulated 
gasoline.\34\
---------------------------------------------------------------------------
    \34\ API Info Brief, ``Lower Sulfur Gasoline,'' 10/09/98.
---------------------------------------------------------------------------
    Given State and regional track records for instituting necessary 
controls, EPA should leave decisions regarding the sulfur content of 
gasoline to individual states, perhaps with the cooperation of, or 
recommendations from, OTAG. If EPA feels compelled to issue Federal 
regulations governing gasoline sulfur content, it should seriously 
evaluate the industry proposal.
    EPA is concerned that because sulfur may have irreversible impacts 
on a vehicle catalyst, permitting higher sulfur fuel in some parts of 
the country poses the risk that vehicles that operate in non-attainment 
areas could be contaminated. However, EPA has not justified its 
contention that sulfur effects on catalysts are irreversible. In fact, 
its test vehicle studies suggest the opposite is true.
    The rulemaking record is not clear on how much, and to what extent 
exposure to sulfur in different concentrations (e.g., 80 ppm vs. 100 
ppm or over 300 ppm) would affect catalysts and, thereby, vehicle 
emissions. However, interagency correspondence suggests that the 
incremental effect of extended exposure to sulfur may be small (e.g., a 
vehicle designed to meet a .07 g/mi. NOx standard might only 
be able to recover to .09 g/mi. after extended exposure to high sulfur 
fuel).\35\
---------------------------------------------------------------------------
    \35\ Suggested changes to preamble languate during interagency 
review, available in OMB docket.
---------------------------------------------------------------------------
    Another relevant question that has not been addressed is whether 
engine or catalyst designs could be cost-effectively modified to 
minimize irreversibility. The American Petroleum Institute reports that 
tests of the Coordinating Research Council revealed that some current 
vehicles designed to operate on 30 ppm sulfur fuel were able to meet 
the default CAAA Tier 2 standards when operating on gasoline with 
sulfur levels over 500 ppm.\36\
---------------------------------------------------------------------------
    \36\ API Info Brief, op. cit.
---------------------------------------------------------------------------
    Furthermore, EPA's assertion that high sulfur fuel poisons 
catalysts such that significant synergies are offered by a combined 
vehicle/fuel approach to regulating emissions is not supported by its 
emissions modeling results. If EPA's assertion were true, one would 
expect to see fewer tons of NOx reduced by initiating just 
one control (either vehicles only or fuel only) and greater relative 
reductions from initiating the second measure (because only with the 
addition of the second measure would we see the synergies from both 
combined). This is not what the emission data in Appendix VI-A reveal. 
For areas with I&M controls and conventional fuels, for example, EPA's 
data suggest that, with the exception of the heavy light duty trucks, 
the incremental emission reduction of instituting either fuel standards 
or vehicle standards once the other standard is in place is less than 
the emission reduction achieved by either alone. This result suggests 
that vehicle and fuel controls are more accurately viewed as 
substitutes than complements.
    California's low emission vehicle rules and the NLEV program, 
initiated by the OTAG states and voluntarily entered into by vehicle 
manufacturers, offer evidence that even vehicle standards do not need 
to be mandated at the Federal level.
    A national standard may reduce per-vehicle costs, but it does so by 
spreading capital, research and development, and production costs to 
those who don't benefit from them. Thus, while it may be that the 
proposal could reduce costs to consumers in California and the OTAG 
region, (due to economies of scale), this is only because consumers in 
other regions are forced to pay for vehicle attributes they don't want 
or need.
    The requirement that vehicles have a useful life of 120,000 miles, 
during which period vehicle manufacturers are formally responsible for 
the vehicle's emission performance, reduces consumer responsibility for 
maintaining their vehicles. Manufacturers must design vehicles with 
emissions significantly lower than the standard to ensure that after a 
decade of use under conditions over which manufacturers have no 
control, emissions still remain below the standard.\37\
---------------------------------------------------------------------------
    \37\ There may be a valid argument for placing this burden on the 
manufacturer due to asymmetic information about the durability of 
emission controls. EPA should examine this question explicity before 
extending the useful life.
---------------------------------------------------------------------------
    The averaging program, discussed in more detail below, not only 
requires that manufacturers produce vehicles that meet the standard but 
also requires that consumers buy the right mix of cars. Whether a 
company is in compliance with the average emission standard is 
determined by the sales-weighted average emission level of their fleet. 
This type of program introduces many other inefficiencies and may have 
unintended effects. For example, how would it interact with corporate 
average fuel economy (CAFE) standards, and how would it affect the 
pricing of vehicles?
         (b) The ``bin'' structure on which EPA's vehicle emission 
 ``averaging and trading'' program is based would constrain efficiency 
                         and hinder innovation
    Manufacturers would have to certify different vehicles in their 
fleet to certain ``bins'' with each bin delimiting maximum emission 
levels for 5 different pollutants. For example, to certify at Bin 2, a 
vehicle, under EPA's test conditions, would have to emit no more than 
0.02 g/mi. of NOx, 2.1 g/mi. of carbon monoxide (CO), 0.01 
g/mi. of PM, etc. Bin 6, on the other hand, would have maximum 
emissions that are above the standard (0.15 g/mi., 4.2 g/mi., and 0.02 
g/mi. of NOx, CO, and PM, respectively).
    In addition to certifying that each vehicle meets the requirement 
for a specific bin, the manufacturer must also meet a corporate average 
emission standard based on the bin levels (rather than actual vehicle 
emissions) averaged across the cars and trucks actually sold to 
consumers. So if consumers do not buy enough cars and trucks to meet 
the corporate average emission level, the manufacturer must buy 
emission credits or alter price levels to induce consumers to purchase 
the appropriate vehicle mix.
    This approach reduces manufacturers' flexibility, needlessly 
constrains the ratios of pollutants emitted, and encourages 
manufacturers to innovate to meet bin emission levels under EPA test 
conditions rather than to improve air quality. For example, once a 
vehicle met Bin 4 (with a NOx standard of 0.07 g/mi.) 
manufacturers would have no incentive to introduce further controls to 
lower vehicle emissions to .06 g/mi. or .05 g/mi., because they would 
not get credit until they lowered emissions a full .03 g/mi. and 
thereby moved the vehicle into Bin 3 (with a NOx standard of 
0.04 g/mi.).
    The full social cost of inhibiting innovation to improve air 
quality cannot be known, since it is impossible to predict what 
technologies might have been developed under different incentives. 
However, EPA's rulemaking record offers evidence that several promising 
technologies would be discouraged under the proposed approach. For 
example, EPA admits that its test conditions for the bin approach would 
not permit a novel technology that would convert ozone (O3) 
to oxygen (O2). In addition, new fuel-efficient lean-burn 
technologies, supported by the private-public Partnership for a New 
Generation of Vehicles (PNGV), could not meet bin levels.\38\
---------------------------------------------------------------------------
    \38\ Alliance op. cit. 3/26 p.5
---------------------------------------------------------------------------
    Furthermore, the bin structure constrains the ratio of 
NOx and NMHC emissions for each vehicle, and thus would 
hinder the development of 3-way catalysts, which are limited in their 
ability to reduce emissions of both constituents simultaneously.\39\ A 
simple averaging approach for each pollutant would not impose such 
constraints, because while one vehicle could be designed to emit very 
low levels of NOx, another could emit low levels of NMHC, 
but their total emissions of each pollutant would meet an average 
standard.
---------------------------------------------------------------------------
    \39\ Alliance op. cit. 3/26 p.3
---------------------------------------------------------------------------
    This structure is problematic not only because of the impact on 
innovation as described above, but also because of the additional 
requirement that manufacturers must meet an average level across cars 
and trucks that are sold. These corporate average emission levels may 
interfere with manufacturers' pricing decisions and could unnecessarily 
complicate their marketing strategies and their compliance with 
corporate average fuel economy standards.
    EPA offers an alternative ``family emission limit (FEL)'' approach 
that is not subject to the constraints of the bin approach. Under this 
approach, which EPA has used in other mobile source programs, 
manufacturers declare an FEL for each family of vehicles manufactured, 
and the number of credits generated or needed are determined based on 
the sales-weighted average emissions for each pollutant at the end of 
the model year. EPA observes that this approach is equivalent to an 
unlimited continuum of bins, and that it adds flexibility and could 
increase incentives for cost-effective improvements in vehicle 
emissions performance. Unlike a bins approach, in which manufacturers 
incentives are limited to large step-wise improvements, an FEL approach 
offers incentives to achieve smaller, lower-cost emission improvements, 
as well as large improvements.
    The preamble expresses concerns that the FEL approach poses greater 
compliance monitoring burdens for the agency. The Regulatory Impact 
Analysis observes that, under the bin structure, manufacturers would 
have to design vehicles to meet 50 to 70 percent of the bin emission 
level to ensure compliance. It notes that manufacturers would thus be 
more likely to ``over-qualify'' under the bin approach, thereby 
achieving a standard tighter than .07 ppm.\40\ While EPA suggests that 
over-compliance is a benefit of the bin approach, it really reflects 
the inefficiency and lack of flexibility of the approach. Finally, EPA 
is worried that changes in a declared FEL would not reflect real 
changes in vehicle emissions. This also is not a legitimate concern, as 
long as the 0.07 g/mi. average is met.
---------------------------------------------------------------------------
    \40\ RIA V.B.1.a.
---------------------------------------------------------------------------
    The FEL approach appears to both be more cost-effective and offer 
more incentives for innovation than the bin approach, although it also 
adds constraints on manufacturer production and pricing policies, which 
when combined with CAFE constraints may be daunting and have unintended 
effects. EPA should examine the difference in cost-effectiveness, by 
vehicle class, of the two approaches. At a minimum, EPA should add more 
bins to increase flexibility and efficiency. Since manufacturers would 
still be constrained by average standards for different pollutants, the 
addition of bins will not limit incentives to develop advanced 
technologies.
     (c) EPA has not demonstrated that the proposed average and cap on 
                     sulfur levels are appropriate
    EPA has proposed an average sulfur content of 30 ppm and a cap, 
applicable to every batch of gasoline produced at the refinery, of 80 
ppm. The selection of these levels is not well justified. EPA's lack of 
support for 30 ppm compared to 20 or 80 ppm, for example, reflect the 
same flaws that led the District Court to rule on the recent ozone and 
PM NAAQS, that EPA had interpreted sections of the CAAA ``so loosely as 
to render them unconstitutional delegations of legislative power.''
    The preamble justifies the 30 ppm average standard by observing 
that ``even very low levels of sulfur have some negative impact on 
catalyst performance,''\41\ but it presents no evidence that 30 ppm is 
more appropriate than 20 ppm or 80 ppm. Chapter V of the Regulatory 
Impact Analysis presents cost curves for reducing gasoline sulfur in 
each of five regions of the nation. These reveal graphically that the 
incremental cost of achieving a 30 ppm average is significantly higher 
than achieving 40 ppm or 80 ppm. This is true nationally,\42\ but most 
dramatic in the western states.\43\ EPA should examine the cost-
effectiveness of its proposed 30 ppm average against other average 
standards. (Note that these comparisons should be based on the cost-
effectiveness of the sulfur component alone, not combined vehicle 
emission and sulfur content.)
---------------------------------------------------------------------------
    \41\ Preamble, IV.C3.a.ii.
    \42\ RIA figure V-7.
    \43\ RIA figure V-5 and V-6.
---------------------------------------------------------------------------
       (d) The per-gallon sulfur cap is unnecessary, and inefficient
    EPA justifies the 80 ppm per-gallon cap on its belief that it 
``would be required to provide appropriate insurance for maintaining 
Tier 2 standards in use and to give automakers an indication of the 
maximum sulfur levels for which they would need to design their 
vehicles.''\44\ However, if sulfur's irreversibility is not a big 
concern, as discussed above, then neither a maximum cap nor a national 
standard is necessary.
---------------------------------------------------------------------------
    \44\ Ibid.
---------------------------------------------------------------------------
    A cap on sulfur content at the refinery level may ease enforcement, 
but it also imposes costs and reduces efficiency. It could constrain 
refiners' ability to blend fuel and take advantage of the trading 
program. EPA does not estimate the cost associated with the sulfur cap, 
but it is real. An average standard assumes a distribution of costs 
around a mean of 30 ppm, while a cap adds further constraints by 
cutting off one tail of the distribution. EPA should examine what 
effect that would have on the average sulfur content of gasoline. It 
should evaluate the tradeoffs in terms of enforcement, costs, and 
benefits of imposing a cap.
        (e) A longer phase-in would be more feasible and less costly
    EPA should carefully consider a longer phase-in period. 
Particularly for the heavier trucks, for which EPA is under no 
statutory obligation to issue Tier 2 standards, a longer phase in 
period could greatly increase the likelihood that the standards will be 
technologically feasible and cost-effective.
    EPA's prediction that achieving the sulfur standards will be 
technologically feasible and cost-effective by 2003 depends heavily on 
a few new desulfurization technologies that have not been commercially 
tested. During the comment period on this rulemaking, an additional 
potential technology has emerged. Extending the deadline would allow 
other innovative solutions to develop and offer a much more efficient 
transition to lower sulfur fuel.
    (f) Targeted approaches could better achieve air quality and health 
                                 goals
    Other, more targeted approaches to address violations of the 
standards on peak ozone days are likely to be more cost-effective. As 
we concluded in our 1997 comments on the proposed .8 ppm ozone NAAQS, 
non-regulatory approaches are available to achieve the public health 
benefits targeted by the NAAQS. As EPA's Clean Air Science Advisory 
Committee (CASAC) recommended in its November 30, 1995 closure letter 
on the primary standard, public health advisories and other targeted 
approaches may be an effective alternative to standard setting.
    Because there is no apparent threshold for responses and no 
``bright line'' in the risk assessment, a number of panel members 
recommended that an expanded air pollution warning system be initiated 
so that sensitive individuals can take appropriate ``exposure 
avoidance'' behavior. Since many areas of the country already have an 
infrastructure in place to designate ``ozone action days'' when 
voluntary emission reduction measures are put in place, this idea may 
be fairly easy to implement.
      iii. would epa's proposal improve the health and welfare of 
                           american citizens?
    Government actions should make people better off. Benefit-cost 
analysis attempts to quantify the consequences, both benefits and 
costs, of a regulatory action to determine whether it achieves this 
objective. EPA estimates that the annual long-term benefits of the 
proposal will range from $3.2 billion to $19.5 billion, and that annual 
long-term costs will be $3.5 billion. This is based on a snapshot 
approach that reflects maximum emission reductions, and lowest costs, 
thus resulting in net benefits ``close to their maximum point.'' In 
other words, for the next 40 years (between 2004 and 2040), the costs 
of the rule will be higher, and the benefits lower, than EPA's benefit-
cost figure suggests. A much more informative measure would involve 
estimating the net present value of the streams of costs and benefits 
over time.
    These benefit and cost estimates are also based on numerous 
assumptions, as benefit-cost analyses necessarily are. In this case, 
though, EPA appears to have relied on assumptions that consistently 
bias its benefit estimates upward. Since the key assumptions driving 
the Tier 2 benefit estimates have been discussed at length in reviews 
of EPA's Section 812 reports, and its Regulatory Impact Analyses for 
the ozone and PM NAAQS, we address them only briefly here. While EPA's 
benefits are biased upwards, EPA's cost estimate suffers from 
assumptions and approaches that may understate social costs, as 
discussed below.
A. The proposal would offer very small improvements air in quality.
    EPA estimates that the change in seasonal ozone values would 
decline by at most .0028 ppm as a result of the implementation of this 
proposal. Thus, its most optimistic estimate is a 16.7 percent 
improvement. At the other end of the range, EPA's analysis indicates 
that the proposal could result in an increase in ozone concentrations 
of .0016 ppm (2.6 percent). EPA's population-weighted average decline 
in air quality is expected to be .0004 ppm or only 1.3 percent.\45\ To 
put this air quality improvement in perspective, EPA's current proposal 
would improve air quality levels by an amount that is only one-third of 
1 percent of the .12 ppm ambient ozone standard.
---------------------------------------------------------------------------
    \45\ RIA VII.B.1.f.
---------------------------------------------------------------------------
    Moreover, EPA notes that urban areas will have smaller reductions 
in ozone than less populated areas, revealing that the majority of even 
these small reductions will contribute less to improvements in ozone 
levels in the heavily populated urban areas where ozone is believed to 
pose health risks than to less populated parts of the country where 
ozone concentrations pose no health threats.\46\
---------------------------------------------------------------------------
    \46\ Ibid.
---------------------------------------------------------------------------
    In some regions, these air quality improvements are less than in 
others. For example, the Rocky Mountain region, where the costs are 
highest, comprise a small fraction (less than 4 percent) of national 
vehicle miles traveled (VMT), so emissions reductions and air quality 
improvements from Tier 2 compliance will be small.\47\ The eastern OTAG 
region would achieve the majority of the emission reductions--1.6 
million tons of NOx per year compared to 1.8 million tons 
per year for all 47 contiguous states.\48\
---------------------------------------------------------------------------
    \47\ The Pacific Northwest and Southwest, excluding California, 
comprise 7 percent of VMT.
    \48\ Interagency correspondence. A similar pattern holds true for 
emissions of sulfur dioxide and volatile organic compounds.
---------------------------------------------------------------------------
    Though reductions in particulate matter (PM) do not drive the Tier 
2 standards, EPA also concludes that PM ``concentration changes are 
generally very small.'' Indeed, the population-weighted average 
improvement is .20 micrograms per cubic meter for both PM10 
and PM25, which represents 0.4 percent and 1.3 percent of 
those standards, respectively.
    Furthermore, as we highlighted in our 1997 comments on the proposed 
revision to the ozone NAAQS, even in the urban areas of the Mid-
Atlantic and Northeast states, reductions in ambient ozone 
concentrations (the objective of this proposal) would, at best, result 
in small changes in the health of a small number of sensitive 
individuals.\49\ As EPA's Science Advisory Board (SAB) scientists 
confirmed in Senate hearings on that rule, the vast majority of the 
population will observe no effect in their health or well-being from 
reductions in ambient ozone concentrations that are more than ten times 
greater than reductions expected from the Tier 2 proposal.\50\
---------------------------------------------------------------------------
    \49\ RSP 1997-2. As discussed in our comment, the uncertain 
scientific evidence suggests that the 8-hour standard would provide 
benefits in the form of transient, reversible, and largely asymptomatic 
respiratory effects. In its comments to EPA dated 12/13/96, the 
President's Council of Economic Advisors concluded: ``Reductions in 
adverse health effects, even for `sensitive' populations, are small.''
    \50\ See Dr. Lippman's response to questions by Senator Allard on 
February 5, 1997. Compliance with the remanded ozone standard, which 
Dr. Lippman and Senator Allard were discussing, would have resulted in 
ozone reductions of approximately o.01 ppm, compared to spatial average 
reductions of 0.0008 predicted for Tier 2 in RIA Chapter VII.
---------------------------------------------------------------------------
B. EPA examines the health impacts only peripherally
    As discussed in section II.C of these comments, EPA fails to 
consider effectiveness in a meaningful way. Defined correctly, a focus 
on cost-effectiveness should guide decisions to policies that are 
likely to improve public health and welfare. However, EPA's 
construction of cost-effectiveness (defined as cost per ton of 
NOx and NMHC reduced), without regard to where or when those 
emissions occur, is unlikely to minimize health risks.
            1. EPA fails to consider risk in a broader context
    EPA does not consider either comparative risks or potential 
indirect health effects of the standard. The 1997 final report of the 
Presidential/Congressional Commission on Risk Assessment and Risk 
Management (Presidential Commission) points out that ``many risk 
management failures can be traced to . . . not considering risks in 
their broader context'' and that traditionally ``most risk management 
has occurred in an artificially narrow context'' without regard for 
other risks.\51\ For example, at the low end of EPA's range, air 
quality actually gets worse. Additionally, EPA predicts that the 
process of removing sulfur from gasoline would increase carbon dioxide 
emissions by 6.9 million tons per year.
---------------------------------------------------------------------------
    \51\ The Presidential/Congressional Commission on risk Assessment 
and Risk Management, Framework for Environmental Health Risk 
Management, Final Report, Vol. I, January 1977, pp 5, 9.
---------------------------------------------------------------------------
    The Presidential Commission emphasizes that ``tradeoffs among 
different risks must be identified and considered.'' It concludes that 
``analysis must consider whether an option may cause any adverse 
consequences,''\52\ but EPA appears not to have done so. For example, 
while EPA admits in the Regulatory Impact Analysis supporting the 
proposal a reduction in ground-level ozone ``is likely to increase the 
penetration of ultraviolet light, specifically UV-b,'' it claims it is 
not able to quantify those effects. Yet, as we pointed out in our 
comments on the 1997 ozone NAAQS proposal, EPA's own analysis 
supporting its Stratospheric Ozone rule reveal that increases in 
malignant and non-melanoma skin cancers and cataracts, as well as other 
health risk from ultraviolet radiation are significant and could dwarf 
the positive benefits EPA attributes to the proposed standard. As 
detailed in Appendix B to our earlier comments, a 10 ppb change in 
ozone levels could result in 25 to 50 new melanoma-caused fatalities, 
130 to 260 incidents of cutaneous melanoma, 2,000 to 11,000 new cases 
of non-melanoma skin cancer, and 13,000 to 28,000 new incidents of 
cataracts each year.\53\
---------------------------------------------------------------------------
    \52\ Presidential Commission, p. 35.
    \53\ RSP 1997-2.
---------------------------------------------------------------------------
    Ignoring important tradeoffs can have serious public health 
consequences; a study conducted at the Harvard Center for Risk Analysis 
found that a reallocation of current spending from lower risk to higher 
risk problems could more than double the life-saving results of Federal 
regulatory programs.\54\ Significant gains are likely even when various 
bureaucratic constraints are left untouched; if each agency kept 
imposing the same total regulatory cost but merely targeted its efforts 
more efficiently, the life years saved in the cases the Harvard study 
examined would have nearly doubled.
---------------------------------------------------------------------------
    \54\ Tammy O. Tengs and John D. Graham, ``The Opportunity Cost of 
Haphazard Social Investments in Life-Savings,'' in R. Hahn (editor), 
Risks, costs, and Lives Saved: Getting Better Results from Regulation 
(New York: Oxford University Press, 1996).
---------------------------------------------------------------------------
            2. EPA ignores other health tradeoffs
    Furthermore, regulatory costs themselves affect public health. The 
Risk Commission recognizes the importance of such cost-health 
tradeoffs, noting that risk management decisions should consider 
``diversion of investments, or opportunity costs such as having to 
spend money on environmental controls instead of using those resources 
to build a school or reduce taxes.''\55\
---------------------------------------------------------------------------
    \55\Risk Commisison, p. 33
---------------------------------------------------------------------------
    As the Risk Commission points out, there may be even broader public 
health or ecological contexts that local governments and public health 
agencies have to confront and weigh against chemical exposures for 
example, a high incidence of HIV or other infections, a low rate of 
childhood vaccination, a high drug use and crime rate, or a high rate 
of alcoholism and its contribution to liver disease, birth defects, and 
injuries from automobile accidents.\56\
---------------------------------------------------------------------------
    \56\ Risk Commisison, p. 10
---------------------------------------------------------------------------
    As we observed in our 1997 comment on the ozone NAAQS, the main 
health effect attributed to reductions in ozone concentrations is 
aggravated respiratory problems, particularly asthma, yet recent 
studies suggest that poverty is a more important risk factor for asthma 
than air quality.\57\ The large costs of the Tier 2 rule, then, may 
well increase the very disease it is targeted at improving. Even 
without this direct link between poor living conditions and asthma, it 
is widely recognized that, as family incomes rise, health improves. 
There is a growing body of empirical evidence regarding the negative 
public health impacts of regulatory programs that reduce incomes. As 
described in the Regulatory Program of the United States, Health-health 
analysis computes the unintended risk increase attributable to the 
decline in spending on other risk reduction efforts that results when 
resources are shifted to comply with a regulation aimed at specific 
risks. Regulations have these unintended risk-increasing effects 
because families and other entities spend less on such items as health 
care, nutritious diets, and home and auto safety devices when their 
incomes decline.\58\
---------------------------------------------------------------------------
    \57\ American Thoracic Society, 1996 Conference Articles.
    \58\ Regulatory Program of the United States Government, April 1, 
1992-March 31, 1993. p. 19.
---------------------------------------------------------------------------
    Recent empirical studies reveal that every $15 million in 
regulatory costs results in one additional statistical death.\59\ That 
suggests that, if one accepts EPA's cost estimate, this proposal would 
result in 233 more fatalities each year.
---------------------------------------------------------------------------
    \59\ Lutter, Morrall and Viscusi, ``The Cost per Life Saved Cutoff 
for Safety-Enhancing Regulations,'' Journal of Economic Literature, 
forthcoming.
---------------------------------------------------------------------------
C. EPA's benefit estimates are overstated
    Perhaps the most striking observation about EPA's benefit estimate 
is that, though the proposed Tier 2 requirements are driven by the need 
to attain the ozone NAAQS, monetary benefits attributed to PM 
reductions comprise the vast majority of the total benefits. Section 1 
below describes how these PM benefits are overstated. The benefits of 
reducing NOx and NMHC emissions, which include the health 
and welfare gains associated with lower ozone concentrations, improved 
visibility, and reduced acid rain, comprise between $0.5 billion and 
$3.6 billion per year, or only 17 or 18 percent of the total benefits. 
Yet even these are overstated, as described below.
            1. Problems with estimates of PM benefits
    EPA uses the same approach to quantify and value mortality due to 
particulate matter as it used in the PM NAAQS Regulatory Impact 
Analysis and its Section 812 efforts. These approaches have been 
extensively reviewed, and criticized for the extent to which they 
vastly overstate benefits. (The Section 812 study estimates $16.6 
trillion in annual benefits from PM mortality alone). The lack of a 
biological mechanism linking PM exposure to premature mortality and 
possible confounding factors in PM epidemiological studies are two main 
criticisms lodged against these estimates.\60\ The quantification and 
valuation of mortality effects are also based on numerous questionable 
assumptions. Lutter shows that simply substituting plausible 
alternative assumptions for four of EPA's assumptions reduces the 
Section 812 study's estimated benefits of PM mortality from $16.6 
trillion to $1.1 trillion.\61\
---------------------------------------------------------------------------
    \60\ See, for example, RSP 1997-1.
    \61\ Randall Lutter, ``An Analysis of the Use of EPA's Clean Air 
Benefit Estimates in OMB's Draft Report on The Costs and Benefits of 
Regulation,'' AEI-Brookings Joint Center for Regulatory Studies, 
Regulatory Analysis 98-2, October 1998.
---------------------------------------------------------------------------
    Based on these analyses, it appears that even the low end of the PM 
mortality effects ($2.3 billion per year) used in the Tier 2 rule is 
significantly overstated. Substituting alternative plausible 
assumptions for just three of EPA's assumptions reduces these benefits 
to $413 million as follows:
     Valuing lost statistical life-years at $100,000 each, as 
done by Lutter based on Garber and Phelps, reduces Tier 2 PM mortality 
benefits from $2.3 billion to $815 million.\62\
---------------------------------------------------------------------------
    \62\ This based on EPA's estimate that the average exposure to 
particulate matter would shorten a statistical life by 9.8 years.
---------------------------------------------------------------------------
     Assuming an 8 year lag rather than a zero lag between 
exposure and mortality, (a mid-point suggested as by EPA's Science 
Advisory Board on June 30, 1999) reduces benefits from $815 million to 
$551 million.\63\
---------------------------------------------------------------------------
    \63\ A real discount rate of 5 percent implies a factor of about 
two-thirds over 8 years.
---------------------------------------------------------------------------
     Assuming the observed association between PM and mortality 
reflects causal relationships with only a 75 percent probability, the 
expected value of this mortality benefits declines from $551 million to 
$413 million per year.\64\ These calculations are tabulated in Table 7, 
below.
---------------------------------------------------------------------------
    \64\Lutter, op. cit. 
---------------------------------------------------------------------------
    The Regulatory Impact Analysis also estimates large benefits due to 
a decline in PM-induced chronic bronchitis. Yet these estimates also 
assume no lag between exposure to PM and the onset of illness, while 
others argue that an 8-year lag is a more appropriate assumption.\65\ 
Also, the high end of EPA's estimate relies on a contingent valuation 
survey that was critiqued during interagency review. An undated memo 
from Art Fraas to Ron Evans and Bill Harnett reveals that the 
contingent valuation studies EPA relies on for estimating willingness-
to-pay to avoid chronic bronchitis (a) were not designed for that 
purpose, and (b) do not meet the conditions government's panel of 
distinguished economists set out for a reliable contingent valuation 
survey. For our adjustments in Table 7 below, we rely on EPA's low end 
estimate and adjust that to reflect a 8 year lag and a 75 percent 
probability that the observed association reflects a causal 
relationship, to derive an expected value of chronic bronchitis 
benefits of $190 million.
---------------------------------------------------------------------------
    \65\ See SAB 6/30 and Lutter 1998, who argues that a 15-year lag is 
appropriate.
---------------------------------------------------------------------------
            2. Problems with estimates of Ozone benefits
    Ozone benefits, which range from $49 million to $2.6 billion, are 
very small in relation to costs. The high end of the range is dominated 
by an estimated $2.3 billion in benefits from reduced mortality. 
However, despite the availability of 28 studies that examine the 
relationship between ozone and human mortality, EPA relies on only 4 
recent studies for these mortality effects. These 4 studies have not 
been reviewed by EPA's Clean Air Science Advisory Committee (CASAC) nor 
its Science Advisory Board (SAB), but these panels have previously 
determined that other studies linking ozone and premature mortality 
were not conclusive. Furthermore, these four studies are short-term 
mortality studies, rather than long-term studies of chronic effects. 
EPA's science panels have advised, and EPA recognizes, that short-term 
study mortality estimates may be misleading because they may reflect 
terminally ill individuals who die a few days or weeks earlier than 
they otherwise would.\66\
---------------------------------------------------------------------------
    \66\ RIA VII.C.3.a.
---------------------------------------------------------------------------
    The Regulatory Impact Analysis also suggests large benefits from 
improved visibility. EPA admits that ``all of the average regional 
changes in visibility are substantially less than one deciview,'' which 
is the smallest change that is perceptible to the eye, ``and thus less 
than perceptible.'' \67\ Yet, based on two contingent valuation surveys 
of individuals' willingness to pay to preserve visibility in 
residential and national park areas, the Regulatory Impact Analysis 
attributes between $330 million and $701 million to these imperceptible 
changes.
---------------------------------------------------------------------------
    \67\ RIA VII.C.4.d. In fact, a technical support document (Abt 
Associates April 1999, op. cit. Exhibit A-12) reveals that the majority 
of improvements are less than 0.2 deciviews, and that half the nation 
(largely the west) would experience no improvement in visibility.
---------------------------------------------------------------------------
    Interagency memoranda reveal that neither of the 2 studies on which 
EPA relied for its visibility benefits meet the government panel's 
conditions for a reliable contingent valuation survey.\68\ For example, 
forty percent of those who participated in the national park visibility 
survey offered the same willingness-to-pay value for each of three 
substantially different changes in visibility scenarios, suggesting 
they either did not understand the scenarios, or they were willing to 
pay zero for incremental improvements in visibility that were much 
larger than those expected from the Tier 2 proposal. Due to the serious 
problems with these studies, the Office of Management and Budget 
recommended that EPA only include a qualitative description of 
visibility benefits. Table 7 below reflects no quantitative valuation 
of visibility effects.
---------------------------------------------------------------------------
    \68\ See memoranda from Art Fraas to Ron Evans and Bill Harnett 
(undated) and from Rich Theroux to Brian Hubbel (3/31/99).
---------------------------------------------------------------------------
    As Table 7 illustrates, these adjustments to EPA's lower bound 
benefits estimate suggest that a more reasonable estimate of the total 
benefits of the proposal is $840 million; about 25 percent of EPA's 
estimate.

                 Table 7.--Adjusted Estimate of the Lower-Bound Benefits of the Tier 2 Proposal
----------------------------------------------------------------------------------------------------------------
                                                                   RSP estimates adjusted for:
                                               -----------------------------------------------------------------
                                    EPA lower     $100,000   Lag between
                                      bound*     per life-     exposure    75% casual    Visibility
                                                    year      and effect  relationship
----------------------------------------------------------------------------------------------------------------
PM Mortality (long-term exposure        $2,275         $815         $551          $306           NA  ...........
 30+)............................
Chronic bronchitis (PM)..........          281           NA          190           105           NA  ...........
Other PM.........................          180           NA           NA            NA           NA  ...........
Ozone............................           49           NA           NA            NA           NA  ...........
Visibility.......................          330           NA           NA            NA            0  ...........
Nitrogen Deposition..............          200           NA           NA            NA           NA  ...........
                                  -------------
  EPA Lower Bound................       $3,315  ...........  ...........  ............  ...........  ...........
                                                                                                    ------------
  RSP Adjusted Estimate..........  ...........  ...........  ...........  ............  ...........         $985
----------------------------------------------------------------------------------------------------------------
*RIA Table VII-6

D. EPA's focus on a snapshot of compliance costs does not fully capture 
        social costs.
    EPA's estimated $3.5 billion annual cost for the proposal reflects 
an approximation of the steady-state cost that would likely prevail in 
2015 and beyond. These long-term costs assume that capital costs of the 
new technologies required to meet the vehicle and fuel standards have 
been fully recovered, and that a manufacturing learning curve reduces 
annual costs below those expected in the near term.
    This snapshot of costs is not as meaningful as a net present value, 
nor does it reflect true annual costs, and it is particularly 
misleading when used in benefit-cost comparisons. The long run benefits 
to which EPA compares these long-term costs are at their predicted peak 
(reflecting a nationwide fleet of vehicles and trucks composed entirely 
of low-emission vehicles running on low-sulfur fuel) yet the costs are 
at their lowest point.
    The estimate of cost reflects only the direct compliance costs of 
the proposed standards, or the estimated costs of the technologies EPA 
expects would be applied to meet them. As such, they understate the 
true social cost of the proposal. Hazilla and Kopp have shown that 
social costs can be one-and-a-half times compliance costs.\69\
---------------------------------------------------------------------------
    \69\ Hazilla and Kopp, ``Social Cost of Environmental Quality 
Regulations: A General Equilibrium Analysis,'' Journal of Political 
Economy, Vol. 98, No. 4.
---------------------------------------------------------------------------
    For vehicles, EPA does not estimate costs for the interim standards 
that apply to the heavier light duty trucks. The assumption that a 
manufacturing learning curve will reduce variable costs by 20 percent 
for each doubling of cumulative production, and that continuing 
research and development will also lower costs may be optimistic, 
particularly since EPA attributes no cost to continuing research and 
development efforts. The assumption that fixed costs will be recovered 
in first 5 years is also unrealistic. Further, EPA does not recognize 
any potential for increased operating costs with the new technologies.
    Nationwide costs for both vehicle and fuel standards hide 
variations across the country, however, EPA data reveal that the costs 
of the proposal vary significantly from region to region. For example, 
the average cost per-gallon for the Rocky Mountain region is almost 
twice the national average. Even these regional average costs may not 
reflect the costs within different parts of the region because they 
combine costs associated with different refinery technologies and crude 
oils and, therefore, obscure important cost differences among 
individual refineries.\70\ The cost of achieving the 80 ppm cap may be 
particularly high for some regions. As mentioned above, EPA assigns no 
cost to the cap on sulfur content, yet it estimates that the cap would 
preclude 5 percent of production (on average across the nation). EPA 
should estimate the costs of changing refinery operations, including 
consideration of the costs associated with the 5 percent of batches 
that exceed the proposed cap of 80 ppm, and reveal how those costs are 
distributed across the country.
---------------------------------------------------------------------------
    \70\ RIA p. V-59.
---------------------------------------------------------------------------
    EPA finds capital costs of $1.5 billion per year associated with 
removing sulfur from gasoline are ``reasonable'' because the major 
energy producing companies already spend $1 to $2 billion per year in 
capital costs for environmental controls, comprising one-third of their 
annual capital expenditures.\71\ It offers no further justification for 
why expecting these companies to spend two-thirds of their annual 
capital expenditures on environmental controls (a non-productive 
investment) should be presumed to be reasonable.
---------------------------------------------------------------------------
    \71\ RIA p. V-50.
---------------------------------------------------------------------------
    As noted above, EPA's current estimates of the desulfurization 
costs necessary to meet the Tier 2 proposal are much lower than the 
costs that were presented 1 year ago in the Staff Paper on Gasoline 
Sulfur Issues. The difference is due to unrealistic assumptions about 
the availability and cost of new technologies currently in pilot stage.
                iv. rsp conclusions and recommendations
A. EPA has not adequately justified its proposal.
    EPA should not proceed with stringent vehicle and gasoline 
standards without adequate assurance that these standards are (1) 
necessary, (2) feasible, and (3) cost-effective, as required by the 
Clean Air Act. While the Act forbids EPA to promulgate mandatory 
standards more stringent than Tier 1 until the 2004 model year, nothing 
in the statute requires EPA to rush to a determination on the need for 
more stringent standards commencing in 2004.\72\
---------------------------------------------------------------------------
    \72\ Section 202(b)(1)(C).
---------------------------------------------------------------------------
    More specifically, EPA does not adequately support the selected 
standards for vehicle emissions or sulfur content. EPA's lack of 
support for a sulfur standard of 30 ppm compared to 20 or 80 ppm, or 
for a NOx emission standard of 0.07 g/mi. vs. 0.06 or 0.20 
g/mi., reflects the same flaws that led the District Court to rule on 
the recent ozone and PM NAAQS, that EPA had interpreted sections of the 
CAAA ``so loosely as to render them unconstitutional delegations of 
legislative power.''
    The focus of the proposal is on reducing ozone precursors, 
particularly NOx and NMHC, yet EPA's estimated costs of the 
proposal far outweigh the benefits it estimates from improvements in 
ozone quality. Rather, the quantified benefits of the proposal are 
dominated by PM effects, even though gasoline-powered vehicle 
emissions, particularly NOx and NMHC emissions, have little 
effect on PM.
            1. Stringent new standards are not needed to meet the ozone 
                    NAAQS.
    EPA relies on expected widespread nonattainment with the 1997 (.08 
ppm) NAAQS to justify the ``need'' for the proposed vehicle and 
gasoline standards. However, the recent court decision diminishes EPA's 
argument that the stringent national standards are ``needed,'' as 
nonattainment with the preexisting (.12 ppm) NAAQS is much less 
widespread, and less significant than nonattainment with the remanded 
NAAQS. Figure 1 of these comments reproduces a map from EPA's air 
quality analysis, which illustrates that, with the exception of 
California, which is not covered by this rulemaking, expected 
nonattainment with the .12 ppm NAAQS for ozone is limited to a few 
localized areas.\73\ Furthermore, EPA's April 1999 air quality analysis 
reveals that the proposal will not improve air quality significantly in 
those nonattainment areas, and will actually increase ozone 
concentrations in many parts of the country.\74\ (See Figure 2.)
---------------------------------------------------------------------------
    \73\ Abt Associates, ``Tier II Proposed Rule: Air Quality 
Estimation, Selected Health and Welfare Benefits, and Benefit Analysis 
Results,'' April 1999. Air Docket A-97-10, document No. II-A-28. 
Exhibit A-14.
    \74\ Abt Associates, op. cit. Exhibit A-15 and A-17.
---------------------------------------------------------------------------
            2. EPA has not demonstrated the technological feasibility 
                    of its vehicle and sulfur controls
    The Clean Air Act Amendments direct EPA to determine whether more 
stringent standards are appropriate based on ``the availability of 
technology (including the costs thereof)'' and considering ``the lead 
time and safety and energy impacts of meeting more stringent emission 
standards.'' \75\ However, EPA has embraced its statutory mandate 
selectively. The analysis focuses on EPA's expectations regarding the 
availability of technologies, and does not adequately address cost, 
safety or energy impacts, as required by the CAAA. In particular, there 
appear to be real tradeoffs between fuel efficiency and NOx 
emissions. Thus, EPA's proposal, with its stringent emission limits and 
short lead time, is likely to preclude promising fuel-efficient 
technologies (such as gasoline direct-injection (GDI) engines sold in 
Japan and Europe) from competing in the U.S. market. Diesel vehicles 
and trucks also hold promise for increasing fuel-efficiency, but they 
are less likely to be able to comply with the proposed standards 
without expensive after-treatment devices. An April 1999 report of the 
National Research Council expressed concerns that the standards ``could 
jeopardize research efforts of the public-private program to create a 
highly fuel-efficient, affordable car.'' \76\ Furthermore, neither the 
preamble nor the Tier 2 study submitted to Congress discusses whether 
the new technologies pose any safety concerns.
---------------------------------------------------------------------------
    \75\ Clean Air Act Subsection 202(i)(2)(i).
    \76\ NRC press release issued April 29, 1999, citing report title, 
``Review of the Research Program of the Partnership for a New 
Generation of Vehicles.'' 1999.
---------------------------------------------------------------------------
    EPA bases its determination that the gasoline-sulfur component of 
the proposal is technologically feasible by drawing analogies to the 
California experience, and on the presumed availability of new 
desulfurization technologies that have not be commercially tested. 
According to EPA's analysis, these new technologies will offer a 3- to 
4-fold reduction in cost compared to current technology, but that 
assumes a perfectly elastic supply of these new units--enough to supply 
all refiners by 2003 at low costs. These are very unrealistic 
assumptions for technologies that are not commercially proven and have 
yet to be installed and operated at a refinery. EPA's conclusion that 
its sulfur standards are technologically feasible also depends heavily 
on the projected availability of excess credits, however, these 
projections are subject to numerous assumptions that EPA recognizes may 
not hold true.
    EPA intends for this proposal to be ``fuel-neutral'' (i.e., one 
uniform standard would apply to all vehicles, regardless of the type of 
fuel used) yet it has not proposed fuel standards for diesel fuel. This 
creates considerable uncertainty for both petroleum refiners and 
automotive manufacturers. At this time, the technological feasibility 
of the proposed fuel-neutral principle has not been established.
            3. The per-ton costs of components of EPA's proposal are 
                    high relative to viable alternatives
    EPA estimates that its proposed emission/gasoline standards will 
cost, on average, $2,134 per ton of combined NOx plus NMHC 
removed in the near term and $1,748 per ton in the long term, which it 
finds are in the range of previously implemented mobile source 
programs, including the voluntary NLEV program and Tier 1 vehicle 
controls.
    This focus on average cost-per-ton masks important information, 
such as the relative merits of the sulfur component vs. the vehicle 
component of the proposal, and the relative cost of the vehicle 
emission standard for different vehicle types. Our tables 3 through 6 
illustrate the variance in cost-per-ton for different components of the 
proposal. For example, using EPA's estimates of cost and emission 
reductions, the average per-ton costs of meeting the sulfur standard in 
the Rocky Mountain states could be over $9,000.
    Furthermore, the use of tons of pollutants in the denominator of 
EPA's cost-effectiveness calculation is inappropriate, because tons of 
NOx and NMHC removed is not a good proxy for the risk of 
concern (health risks from human exposure to high ozone concentrations 
in non-attainment areas during peak ozone periods). This is 
particularly important considering the large cost differences among 
regions of the country. Clearly, reducing NOx and NMHC 
emissions in western regions of the country will have trivial impacts, 
at best, on attainment with the ozone NAAQS. (See EPA's predicted 
impacts in Figure 2.) Yet, according to EPA's estimates, residents of 
western states will pay much higher prices for the controls EPA has 
proposed to reduce NOx and NMHC than eastern states. If EPA 
defined effectiveness, not as tons of pollutant removed, but in terms 
of incremental improvements in attainment with the ozone air quality 
standard, the denominator of the cost-effectiveness calculation for 
attainment areas would have to be zero. This implies that, for the 
western states discussed above, the proposed national standards would 
have costs per unit of clean air that are undefined, approaching 
infinity.
    EPA compares the average cost-per-ton figures with the cost-per-ton 
of a few existing programs, but not against available alternatives to 
the Tier 2 standards, as directed by the CAAA. A comparison of the 
incremental cost-per-ton of the different elements of EPA's proposal 
suggests that targeted approaches can more effectively achieve ambient 
air standards. In Section C, below, we recommend some key alternatives 
that would be significantly more cost-effective than the proposed 
approach.
B. EPA's proposal would not improve the health and welfare of American 
        citizens
    An objective analysis of the benefits and costs of a proposal 
should guide decisionmakers to policy choices that improve public 
health and welfare. However, EPA's estimated benefits for the Tier 2 
proposal is dominated by questionable benefits attributable to small 
changes in PM concentrations, and fraught with unrealistic assumptions. 
In fact, the proposal would likely offer little in the way of public 
health and welfare benefits, and could actually make public health 
worse.
            1. The proposal would result in small air quality 
                    improvements
    EPA predicts very small improvements in seasonal ozone values as a 
result of the implementation of this proposal. The population-weighted 
average change in air quality is expected to be -.0004 ppm or an 
improvement of only 1.3 percent.\77\ EPA's analysis also indicates that 
the proposal could result in an increase in ozone concentrations in 
some areas of as much as .0016 ppm (2.6 percent). Moreover, EPA notes 
that urban areas will have smaller reductions in ozone than less 
populated areas, revealing that the majority of even these small 
reductions will contribute less to improvements in ozone levels in the 
heavily populated urban areas where ozone is believed to pose health 
risks than to less populated parts of the country where ozone 
concentrations do not pose health threats.\78\ EPA estimates that 
changes in PM air quality are also ``generally very small.''
---------------------------------------------------------------------------
    \77\ RIA VII.B.1.f.
    \78\ Ibid.
---------------------------------------------------------------------------
            2. The health benefits are likely to be small
    As we highlighted in our 1997 comments on the proposed revision to 
the ozone NAAQS, reductions in ambient ozone concentrations (the 
objective of this proposal) would, at best, result in small changes in 
the health of a small number of sensitive individuals.\79\ As 
scientists on EPA's Science Advisory Board confirmed in Senate hearings 
on that rule, the vast majority of the population will observe no 
effect in their health or well-being from reductions in ambient ozone 
concentrations that are more than ten times greater than reductions 
expected from the Tier 2 proposal.\80\
---------------------------------------------------------------------------
    \79\ RSP 1997-2. As discussed in our comment, the uncertain 
scientific evidence suggests that the 8-hour standard would provide 
benefits in the form of transient, reversible, and largely asymptomatic 
respiratory effects. In its comments to EPA dated 12/13/96, the 
President's Council of Economic Advisors concluded: ``Reductions in 
adverse health effects, even for `sensitive' populations, are small.''
    \80\ See Dr. Lippman's response to questions by Senator Allard on 
February 5, 1997. Compliance with the remanded ozone standard, which 
Dr. Lippman and Senator Allard were discussing, would have resulted in 
ozone reductions of approximately 0.01 ppm, compared to spatial average 
reducations of 0.0008 predicted for Tier 2 in RIA Chapter VII.
---------------------------------------------------------------------------
            3. Compliance with the proposal could make public health 
                    worse.
    In some parts of the nation, EPA's models predict ozone air quality 
will get worse as a result of the proposed standards. EPA predicts that 
the process of removing sulfur from gasoline would increase carbon 
dioxide emissions by 6.9 million tons per year.
    EPA does not quantify important health tradeoffs, such as the 
increase in skin cancers, fatalities and cataracts that would result 
from an increased penetration of ultraviolet radiation as ozone levels 
decline. Furthermore, regulatory costs themselves affect public health. 
As we observed in our 1997 comment on the ozone NAAQS, the main health 
effect attributed to reductions in ozone concentrations is aggravated 
respiratory problems, particularly asthma. Yet recent studies suggest 
that poverty is a more important risk factor for asthma than air 
quality.\81\ The large costs of the Tier 2 rule, then, may well 
increase the very disease it is targeted at improving. Even without 
this direct link between poor living conditions and asthma, it is 
widely recognized that, as family incomes rise, health improves. Recent 
empirical studies reveal that every $15 million in regulatory costs 
results in one additional statistical death.\82\ That suggests that, if 
one accepts EPA's cost estimate, this proposal would result in 233 more 
fatalities each year.
---------------------------------------------------------------------------
    \81\ American Thoracic Society, 1996 Conference Articles.
    \82\ Lutter, Morrall and Viscusi, ``The Cost per Life Saved Cutoff 
for Safety-Enhancing Regulations, Journal of Economic Literature, 
forthcoming.
---------------------------------------------------------------------------
C. Recommendations
            1. Allow states and regions to institute controls as 
                    necessary to meet NAAQS and protect public health 
                    and welfare
    The CAAA does not require EPA to rush to regulate, and neither 
need, technological feasibility, nor cost-effectiveness considerations 
compel EPA to do so. The proposal is driven by ozone, which is expected 
to pose health threats to certain individuals with pre-existing 
respiratory conditions in a few urban areas on certain summer days when 
atmospheric conditions combine to create elevated ozone levels. EPA's 
own analysis predicts that a national proposal would actually increase 
ozone levels in parts of the nation. Regional, or even state, programs 
could target any health concerns more cost-effectively, and avoid 
imposing unnecessary costs on all parts of the country throughout the 
entire year.
    Our results, using EPA data, reveal that consumers in certain 
regions of the country (particularly in the west) will pay as much as a 
ten times more per ton of NOx emissions removed than EPA's 
estimated national average. Furthermore, these very consumers will 
receive no benefit (and may actually experience an increase in ozone 
levels) as a result of these emission reductions. This clearly suggests 
that a regional, rather than a national, approach to the fuel standard 
is more appropriate.
    Given State and regional track records for instituting necessary 
controls (including reformulated gasoline and inspection and 
maintenance programs), EPA should leave decisions regarding the sulfur 
content of gasoline to individual states, perhaps with the cooperation 
of, or recommendations from, OTAG. If EPA feels compelled to issue 
Federal regulations governing gasoline sulfur content, it should 
seriously evaluate a petroleum industry proposal whereby low-sulfur 
gasoline would be provided only for the eastern half of the nation.
    California's low emission vehicle rules, and the NLEV program 
initiated by the OTAG states offer evidence that even vehicle standards 
do not need to be mandated at the Federal level.
            2. Examine the cost-effectiveness of individual components 
                    of the proposal
    Rather than compare a national average cost-per-ton figure for all 
the elements of the proposal against the cost-per-ton of previously 
implemented actions, EPA should, at a minimum, examine the cost-per-ton 
of each component of its proposal against other components of the 
proposal and alternative approaches to achieving the NAAQS. Table 3 of 
this comment reveals that EPA expects the gasoline sulfur controls to 
be significantly more costly per ton of pollutant removed than vehicle 
controls, and that costs-per-ton for vehicle controls vary by vehicle 
class. Tables 4, 5 and 6 also show that the per-ton cost of sulfur 
controls varies significantly by region, as do the benefits of 
NOx emission reductions.
            3. Design averaging and trading programs to minimize cost 
                    of achieving goals
    Harnessing market incentives, through the use of averaging, banking 
and trading programs, for example, is generally more cost-effective 
than traditional command and control approaches to pollution control. 
However, the proposed design of the Tier 2 trading programs suffers 
from serious flaws. As discussed in detail in RSP's comments on EPA's 
NOx Trading rule,\83\ and summarized in section II.C.3.a of 
these comments, tons of NOx reduced are not a good proxy for 
an action's effectiveness at meeting the NAAQS or achieving the desired 
health benefits.
---------------------------------------------------------------------------
    \83\ RSP 1998-1, ``Comments on the U.S. Environmental Protection 
Agency's Supplemental Notice for the Finding of Significant 
Contribution and Rulemaking for Certain States in the Ozone Transport 
Assessment Group Region for Purposes of Reducing Regional Transport of 
Ozone; proposed Rule,'' submitted June 25, 1998.
---------------------------------------------------------------------------
    RSP's comments on EPA's NOx Trading rule argued that a 
national trading mechanism could actually increase the ozone 
concentrations on peak days in nonattainment areas by allowing trading 
of emissions into those areas from other regions. The sulfur-trading 
program envisioned by this rule could have the same effect. A regional 
program would not only be much more cost-effective, it would actually 
be more protective of public health.
    If EPA proceeds with its sulfur program despite the regional 
inequities and health impacts it would impose, it should carefully 
examine the costs and emission reduction benefits of imposing a cap on 
sulfur content. A cap will constrain efficient behavior and hinder 
beneficial market incentives of a trading program.
    The proposed ``bin'' approach to the vehicle standard reduces 
manufacturers' flexibility, needlessly constrains the ratios of 
pollutants emitted, and encourages manufacturers to innovate to meet 
bin emission levels under EPA test conditions rather than to improve 
air quality. The bin approach and the requirement that manufacturers 
sell the mix of cars and trucks to meet a corporate average emission 
level could interfere with their pricing and marketing strategies and 
could also complicate their ability to comply with the corporate 
average fuel economy standards.
    The alternative ``family emission limit (FEL)'' approach adds 
flexibility and could increase incentives for cost-effective 
improvements in vehicle emissions performance. Unlike a bins approach, 
in which manufacturers incentives are limited to large step-wise 
improvements, an FEL approach offers incentives to achieve smaller, 
lower-cost emission improvements, as well as large improvements.
    The FEL approach appears to both be more cost-effective and offer 
more incentives for innovation than the bin approach. EPA should 
examine the difference in cost-effectiveness, by vehicle class, of the 
two approaches. At a minimum, EPA should add more bins to increase 
flexibility and efficiency.
            4. EPA should carefully consider a longer phase-in period
    Particularly for the heavier trucks, for which EPA is under no 
statutory obligation to issue Tier 2 standards, a longer phase-in 
period could greatly increase the likelihood that the standards will be 
technologically feasible, and cost-effective.
    EPA's prediction that achieving the sulfur standards will be 
technologically feasible and cost-effective by 2003 depends heavily on 
a few new desulfurization technologies that have not been commercially 
tested. During the comment period on this rulemaking, an additional 
potential technology has emerged. Extending the deadline would allow 
other innovative solutions to develop and offer a much more efficient 
transition to lower sulfur fuel.

  Appendix I  RSP Checklist.--EPA Tier 2 Vehicle Emission and Gasoline
                            Sulfur Standards
------------------------------------------------------------------------
             Element                Agency Approach      RSP Comments
------------------------------------------------------------------------
1. Has the agency identified a    EPA bases the
 significant market failure?.      proposal on a
                                   need for further
                                   reductions in
                                   certain
                                   pollutants in
                                   order to meet
                                   National Ambient
                                   Air Quality
                                   Standards (NAAQS)
                                   for ozone.
                                                      The agency has not
2. Has the agency identified an   The agency
 appropriate Federal role?.        proposes national
                                   vehicle standards
                                   and national
                                   limits on the
                                   amount of sulfur
                                   in gasoline.
                                                      Ground level ozone
3. Has the agency examined        EPA examines the
 alternative approaches?.          cost-
                                   effectiveness of
                                   the entire
                                   proposal and
                                   compares that to
                                   the cost-
                                   effectiveness of
                                   existing
                                   requirements.
                                                      EPA's aggregate
4. Does the agency attempt to     EPA bases the
 maximize net benefits?.           proposal in part
                                   on cost-per-ton
                                   of pollutant
                                   removed. It also
                                   performs a
                                   benefit-cost
                                   analysis.
                                                      EPA defines
5. Does the proposal have a       The determination
 strong scientific or technical    that the proposal
 basis?.                           is needed depends
                                   heavily on
                                   assumptions
                                   regarding
                                   available
                                   technology and
                                   costs. The
                                   benefit estimates
                                   are very
                                   sensitive to
                                   underlying
                                   assumptions.
                                                      EPA's conclusion
6. Are distributional effects     EPA's average cost-
 clearly understood?.              per-ton measures
                                   masks the
                                   distributional
                                   effects of the
                                   proposal.
                                                      Our analysis of

7. Are individual choices and     The proposal does
 property impacts understood?.     not address these
                                   issues..
                                                      The proposal will
------------------------------------------------------------------------

    Appendix 2.--Cost-per-Ton of Individual Components of Proposed 
                           Tier 2 Regulation
    We calculated the incremental cost-effectiveness for different 
components of the rule using data provided in Tables V-12, V-45, and 
Appendix VI-A of EPA's Regulatory Impact Analysis (RIA). We calculated 
cost-per-ton of emissions reduced for near term costs, relying on 1st 
and 2nd year costs from table V-12, and ``near term'' costs from table 
V-45.
    For the numerator of our calculation, we relied on EPA's estimate 
of the per-vehicle cost of the vehicle component of the standard from 
Table V-12, and the per-vehicle cost of low sulfur gasoline from Table 
V-45. These tables provide both vehicle and fuel costs separately by 
class of vehicle (LDV, LDT1, LDT2, LDT3, LDT4).
    For the denominator, we turned to Appendix VI-A of the RIA. To 
estimate the emission reductions due to vehicle standards without the 
fuel standards, we calculated the difference in baseline (NLEV) 
emissions and Tier 2 emissions with high sulfur fuel for different 
scenarios that account for the presence or absence of an inspection and 
maintenance (I&M) program and reformulated gasoline:
    1. I&M, conventional fuel at 330 ppm
    2. I&M, RFG at 300 ppm
    3. I&M, RFG at 150 ppm
    4. No I&M, Conventional fuel at 330 ppm
    To estimate the incremental emission reductions attributable to the 
fuel standards, assuming vehicle controls are already in place, we 
calculated the difference between Tier 2 emissions with high sulfur 
fuel and Tier 2 emissions with low sulfur (30 ppm) fuel.
    We calculated the weighted average cost per ton for the Nation 
using EPA's weights for each of the four scenarios above (from Table V-
3). The cost of the vehicle standards divided by the emissions reduced 
by the vehicle standard alone produces the nationwide costs-per-ton 
attributable to vehicle controls presented in Table 3 of our comment. 
The fuel cost-per-ton estimates presented in Table 3 reflect the per-
vehicle fuel costs divided by the incremental emission reductions 
attributable to the fuel standards.\1\
---------------------------------------------------------------------------
    \1\One would expect, based on EPA's assertion that vehicle 
standards would be ineffective at reducing emissions unless vehicles 
are run on low-sulfur fuel, that our approach of calculating cost per 
vehicle emission reductions first, and then the incremental cost of 
sulfur content reductions, would overstate the cost per ton removed for 
the vehicle standard compared to the fuel standard. IF EPA's assertion 
were true, one would expect to see fewer tons of NOx reduced 
by initiating just one control (either vehicles only or fuel only) and 
greater relative reductions from initiating the second measure (because 
only with the addition of the second measure would we see the synergies 
from both combined). This is not what the emission data in Appendix VI-
A reveal. For areas with I&M controls and conventional fuels, for 
example, EPA's data suggest that, with the exception of the heavy light 
duty trucks, the incremental emission reduction of instituting either 
fuel standards or vehicle standards once the other standard in place is 
less than the emission reduction achieved by either alone.
---------------------------------------------------------------------------
    To examine the difference in cost-effectiveness by region, we 
adjusted average per-vehicle fuel costs by the ratio of regional to 
average fuel costs in RIA Table V-34. Data on the population in each 
State subject to I&M controls and reformulated or conventional gasoline 
from Korotney memo to A-97-10 docket, II-B-07 allowed us to calculate 
per-ton costs for the states in the Rocky Mountain and Pacific 
Northwest and Southwest regions. Table 6 of our comment lists cost-per-
ton for the individual states in these regions. Combining these State 
data (weighted by population) yielded the data in Tables 4 and 5 of our 
comment.

  Appendix 3.--Example of Light Duty Trucks, by Vehicle Classification
------------------------------------------------------------------------
               Manufacturer                            Models
------------------------------------------------------------------------
                                  LDT1
Chevrolet.................................  Tracker
Ford......................................  Ranger
Honda.....................................  CR-V (SUV)
Isuzu.....................................  Amigo
Jeep......................................  Cherokee Sport, Wrangler
Mazda.....................................  B2500, B3000
Subaru....................................  Forester
Toyota....................................  RAV4
------------------------------------------------------------------------
                                  LDT2
Chevrolet.................................  Blazer, Suburban, Tahoe
Daimler Chrysler..........................  Caravan, Voyager
Dodge.....................................  Durango
GMC.......................................  Jimmy, Suburban, Yukon
Ford......................................  Expedition, Explorer, F-150
Ford, Mazda...............................  Ranger, B3000
Jeep......................................  Grand Cherokee
Nissan....................................  Frontier, Xterra, Pathfinder
Toyota....................................  4Runner, Landcruiser
Volvo.....................................  V70
------------------------------------------------------------------------
                                  LDT3
Dodge.....................................  Ram Wagon 1500,
Chevrolet.................................  C/K Crew Cab
Ford......................................  F-150, F-350 (full-sized
                                             pick-up trucks)
------------------------------------------------------------------------
                                  LDT4
Chevrolet.................................  Express Cargo Van, Express
                                             Passenger Van
Dodge.....................................  Ram Conversion
GMC.......................................  Savana Passenger Van
Ford......................................  Expedition, F-250 (pick-up
                                             truck), Navigator,
                                             Econoline Van
------------------------------------------------------------------------

  

                                
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