UNITED STATES ENVIRONMENTAL PROTECTION AGENCY WASHINGTON, DC. 20460

OFFICE OF AIR AND RADIAThON



### The Honorable Darrell Issa Chairman Committee on Oversight and Government Reform U.S. House of Representatives Washington D.C. 205 15-6143

Dear Chairman Issa: I am writing in response to your letter of April 4, 2012, co-signed by your colleagues, regarding the U.S. Environmental Protection Agency's anticipated Tier 3 proposed standards for gasoline. The enclosure provides detailed responses to your questions. If you have further questions, please contact me or your staff may call Cheryl Mackay in the EPA's Office of Congressional and Intergovernmental Affairs at (202) 564-2023.



### Gina McCarthy Assistant Administrator

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### The Honorable Jim Jordan Chairman Subcommittee on Regulatory Affairs, Stimulus Oversight and Government Spending U.S. House of Representatives Washington D.C. 20515-6143

Dear Chairman Jordan: I am writing in response to your letter of April 4, 2012, co-signed by your colleagues, regarding the U.S. Environmental Protection Agency's anticipated Tier 3 proposed standards for gasoline. The enclosure provides detailed responses to your questions. If you have further questions, please contact me or your staff may call Cheryl Mackay in the EPA's Office of Congressional and Intergovernmental Affairs at (202) 564-2023.



### Gina McCarthy Assistant Administrator

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### The Honorable Mike Kelly U.S. House of Representatives Washington D.C. 20515-6143 Dear Congressman Kelly: I am writing in response to your letter of April 4, 2012, co-signed by your colleagues, regarding the U.S. Environmental Protection Agency's anticipated Tier 3 proposed standards for gasoline. The enclosure provides detailed responses to your questions. If you have further questions, please contact me or your staff may call Cheryl Mackay in the EPA's Office of Congressional and Intergovernmental Affairs at (202) 564-2023.

Gina McCarthy Assistant Administrator

Internet Address (URL) http//wwwepa gos Recycled/Recyclable • Printed with Vegetable Oil Based Inks on 100% Postconsumer. Process Chlorine Free Recycled Paper1. Please explain EPA's anticipated regulatory actions with respect to Tier 3 gasoline standards,

including a detailed outline of EPA's anticipated timeline for proposing Tier 3 gasoline standards. In addition, please respond to the following questions.
Response: The EPA is developing Tier 3 standards to respond to the critical need to improve air quality, and to enable a harmonized national vehicle emissions control program. The EPA is designing these standards to reduce motor vehicle emissions and help state and local areas attain and maintain the existing health-based air quality standards in a cost-effective and timely way. The reductions in ozone and particulate matter would avoid premature mortality and other health impacts, including respiratory symptoms in children and exacerbation of asthma.
The approach the EPA is taking in developing Tier 3 standards considers the vehicle and its fuel as an integrated system, which would enable technologically feasible and cost-effective emission reductions beyond what would be possible looking at vehicle and fuel standards in isolation. Thus, the Tier 3 approach the EPA is considering includes more stringent vehicle emission standards, as well as reductions in gasoline sulfur content. The Tier 3 standards under consideration would, when finalized, create a comprehensive regulatory approach that would provide certainty for both the auto and oil industries. Under a single harmonized national vehicle program, the Tier 3 standards under consideration would provide for coordinated implementation with the California vehicle program and the EPA and Department of Transportation's recently proposed light-duty vehicle standards to reduce carbon pollution and improve fuel economy for model years 2017 through 2025.
The specific timeframe for issuing the Tier 3 proposal has not been determined.

a. Some reports indicate that EPA's anticipated Tier 3 standards will propose reducing sulfur content in gasoline from 30 ppm to 10 ppm.' Are these reports accurate? Please explain.
Response: The Tier 3 standards under consideration are national vehicle emissions standards that would harmonize with the Low Emission Vehicle (LEV III) standards recently adopted by the California Air Resources Board. To enable these vehicle emission standards to be achieved, the EPA has under consideration al 0 ppm average sulfur content for gasoline a level already being achieved in California. The cited reference assumed a 10 ppm average sulfur standard. However it also assumed a very stringent 20 ppm per gallon cap on the sulfur content of gasoline which is not part of the EPA's intended approach.

b. Some reports indicate that EPA's anticipated Tier 3 standards will not include reduced limits on Reid vapor pressure (RVP). 2Are these reports accurate?

See Baker & O'Brien, Inc., Addendum to Potential Supply and Cost Impacts of Lower Sulfur, Lower RVP Gasoline (Mar. 2012). 2 Id.Response: The Tier 3 standards under consideration take a systems approach - more stringent vehicle emissions standards enabled by more stringent gasoline sulfur control. Thus, the Tier 3 standards under consideration focus on controlling the sulfur content of gasoline, and do not include any other fuel quality changes.

c. Does EPA intend to propose limits on RVP in subsequent rulemakings at some point in the future? Please explain.
Response: We are not currently planning to propose any further RVP control.

2. According to one study, EPA's anticipated Tier 3 standards will require $10 billion in capital investment and $2.4 billion in ongoing annual compliance costs. 3 These costs are likely to be passed on to the consumer. 4Has EPA completed its own analysis of the costs associated with its anticipated Tier 3 gasoline standards? Please explain and provide documents sufficient to support your response.
Response: See response to question 3 below.

3. The same study also estimates that EPA's anticipated Tier 3 standard would increase the cost of gasoline by six to nine cents per gallon. How much does EPA estimate that its Tier 3 standards would increase the cost of gasoline? Please explain and provide documents sufficient to support your response.
Response: The EPA's analysis of the costs associated with the gasoline sulfur control program under consideration, found them to be on average about a penny per gallon. Our evaluation of gasoline sulfur control costs has undergone independent peer review and is corroborated by an independent study by Mathpro Inc., 5which also estimated average gasoline sulfur control costs of 1.4 cents per gallon and capital costs of $3.9 billion using "conservative [high cost] assumptions." We have provided the Mathpro study for your reference; however, our own evaluation is not yet publicly available and is awaiting interagency review. The referenced Baker & O'Brien study estimates a slightly higher average cost increase of 2.1 cents per gallon, with marginal cost increases for the highest cost refineries of 6-9 cents per gallon; even this estimate, however, is based on a number of problematic assumptions that bias the study towards overstatement of costs, including exceptionally high capital costs assumptions that warrant independent peer review, a very high rate of return on capital investment assumption, a very stringent cap on gasoline sulfur content, and lack of programmatic flexibilities the Agency plans to propose. Even so, looking across all three studies places the cost for Tier 3 sulfur control in the range of 1 to 2 cents per gallon.

Baker & O'Brien, Inc., Addendum to Potential Supply and Cost Impacts of Lower Sulfur, Lower RVP Gasoline (Mar. 2012). See id. Mathpro Inc., Refining Economics of a National Low Sulfur, Low RVP Gasoline Standard, for The International Council for Clean Transportation, (October 25, 2011)4. According to some reports, EPA may delay its regulatory action on Tier 3 gasoline standards.

a. Does EPA intend to delay the proposal of Tier 3 standards?

b. Has any individual within the Executive Office of the President advised EPA to delay proposal of Tier 3 gasoline standards?

c. In determining when to issue its anticipated Tier 3 standards - and whether to delay the issuance of these standards will EPA factor in "political considerations" stemming from rising gasoline prices? Please explain.

d. Would a delay in EPA's issuance of proposed Tier 3 standards affect the "harmonization" of California and federal gasoline standards? Please explain.

e. Will any delay in EPA's issuance of proposed Tier 3 standards affect the ability of auto manufacturers to comply with the MY 2017-2025 fuel economy/greenhouse gas emissions standards? Could a delay in lowering sulfur standards increase costs to automobile manufacturers?
Response: The specific timeframe for the Tier 3 rulemaking has not been determined.
California has for many years had more stringent gasoline standards than the rest of the Nation. The Tier 3 standards under consideration would not attempt to harmonize federal gasoline standards with the California gasoline standards. The purpose of the draft proposed Tier 3 gasoline sulfur control would be to enable the Tier 3 vehicle emission standards and allow them to be harmonized with the California LEV III vehicle emission standards. Since California has already taken action in the past to lower the gasoline sulfur content to 10 ppm, their recent action to finalize LEV III vehicle standards did not require action to further control gasoline sulfur within California to enable the LEV III standards.
Manufacturers are fully capable of complying with the MY 20 17-2025 fuel economy/greenhouse gas (GHG) emission standards independent of any action on Tier 3. However, Tier 3 standards would provide vehicle manufacturers with certainty of the full slate of standards that would apply to their MY 20 17-2025 vehicles as they begin product design efforts.
The proposed MY 2017-2025 GHG and fuel economy standards are performance-based standards; that is, they do not specify the technologies an auto company can use to comply with the standards. In the Joint NPRM for the MY2017-2025 standards, the EPA and NHTSA investigated a wide range of vehicle technologies, including a range of potential powertrain technologies capable of reducing GHG emissions and increasing fuel economy. These include gasoline engine technologies, diesel engines, hybrid-electric powertrains, plug-in hybrid electric vehicles, and all-electric vehicles. Among the gasoline technologies considered in the Joint NPRM are both stoichiometric gasoline engines and lean-burn gasoline engines. Stoichiometric gasoline engine technologies donot require any change in gasoline fuel properties. However, lean-burn gasoline technologies are projected to require lower sulfur gasoline than is currently used in the U.S. today in order to provide meaningful GHG reductions. Some auto companies have indicated that a 10 ppm cap on gasoline sulfur such as that currently in place in Europe, Japan, Korea, and the state of California would be necessary to enable lean-burn gasoline engines as a potential technology for the United States. The EPA, however, has not based the proposed MY 2017-2025 GHG standards on manufacturers employing this technology and there are a large number of other vehicle technologies which can be used to meet the proposed standards, as discussed in the Joint NPRM. Thus, while Tier 3 sulfur control may afford manufacturers some additional design options, it is in no way essential for meeting the proposed MY2O 17-2025 GHG standards.



### 5. Automakers have said it will be problematic if the EPA decides to move forward with autotechnology standards without also imposing tighter fuel standards. According to a spokesperson for the Alliance of Automobile Manufacturers, "If now is not the right time for fuels, then it may well not be the right time for autos."

a. Are the Tier 3 gasoline standards related to the Administration's proposed MY 20 17- 2025 fuel economy/greenhouse gas emissions standards?

b. Did EPA discuss future Tier 3 gasoline standards with the Executive Office of the President, the National Highway Traffic Safety Administration (NHTSA), CARB, any auto manufacturer, or any other entity during discussions on the MY 2017-2025 fuel economy/greenhouse gas emissions standards? If yes, please list with whom these meetings took place and describe these discussions.

c. Did EPA promise or otherwise represent that the agency would propose Tier 3 gasoline standards during negotiations with automobile manufacturers during discussions over the proposed MY 2017-2025 fuel economy/greenhouse gas emissions regulations? Please explain.
Response: As discussed in response to question 4 above, and as documented in the Joint NPRM for the proposed MY2O 17-2025 GHG standards, the EPA has not based the proposed GHG standards on any change to gasoline fuel properties. In the Joint NPRM (See 76 FR 74976), the EPA did discuss the potential for a Tier 3 program to change the vehicle certification fuel properties, and we discussed our intention that if such a change were to be made later in a Tier 3 rulemaking, then the EPA would consider in a future rulemaking action if any test procedure adjustment factor would be needed for the CAFE and GHG standard in order to take into account a change in the certification test fuel.
The EPA did have discussions with auto companies and other stakeholders regarding the potential interactions between a potential Tier 3 program and potential GHG standards for MYs 2017-2025. As discussed in response to Question 4 above, a number of auto companies encouraged the EPA and NHTSA to consider lower-sulfur fuel as a means to enable lean-burn gasoline technology. However, as discussed in response to Question 4, the EPA did not base the proposed MY2017-2025 GHG standards on the use of any lean-burn gasoline technology.

The EPA did not make any commitments to auto companies or any other stakeholder that, as a condition of the proposed or final MY2017-2025 GHG standards, the EPA would in a separate rulemaking propose and finalize Tier 3 vehicle emissions and gasoline fuel standards. The proposed MY2017-2025 GHG standards stand on their own, and compliance with those proposed standards would not require any change in gasoline fuel properties.
6. Section 209 of the Energy Independence and Security Act (EISA) required EPA to conduct a study to determine whether "renewable fuel volumes.. .will adversely impact air quality as a result of changes in vehicle and engine emissions of air pollutants." Although EISA required the study to be issued eighteen months after EISA's enactment in December 2007, EPA still has not completed the study and there are indications that EPA will release the study simultaneously with its Tier 3 proposal.

a. Why has EPA failed to complete the study according to the statutory timeline in EISA? When does EPA intend to complete the study?
Response: After EISA was enacted, the EPA's first priority was to draft regulations and implement the Renewable Fuel Standards mandated by section 2 11(o) of the CAA. As part of that rulemaking effort, the EPA assessed the emission and air quality impacts of the standards. That regulatory analysis showed increases in air pollution resulting from the increased use of renewable fuels, but it was only for the incremental increase in renewable fuel volumes required by EISA, and was based on emissions data from older vehicles that were available at the time. Consequently, in parallel, the EPA undertook the long lead-time work needed for the anti-backsliding study, including extensive vehicle testing to quantify the impacts of fuel changes in modern vehicles and update the motor vehicle emissions model.
The EPA is currently conducting analysis and peer review for the anti-backsliding study, which is the culmination of years of vehicle testing, data analysis and emissions modeling that the EPA has been conducting since the Energy Policy Act and EISA were enacted.

b. Because Congress intended the study to be used to inform future fuel regulations, will EPA commit to completing and releasing the study - with sufficient time for public comment - prior to proposing Tier 3 gasoline standards?
Response: The Tier 3 standards under consideration are independent of the antibacksliding study required by sections 211(q) and 211(v) of the Clean Air Act. The Tier 3 standards under consideration focus on vehicle emissions standards in response to our obligations and authority under section 202(a) and the fuel necessary to enable them inresponse to our obligations and authority under section 211(c). In contrast, the antibacksliding study will examine the broader issues related to impacts of renewable fuels,and it is required as a prerequisite to regulations under section 211(v). The antibacksliding study will not affect any decisions about gasoline sulfur, which are beinginformed by a thorough analysis of the impact of gasoline sulfur on vehicle emissions and the air quality benefits of reduced motor vehicle emissions. We are not promulgating standards under section 211(v) in the Tier 3 rulemaking.

7. Please provide all documents and communications between or among EPA, NHTSA, CARB, and the Executive Office of the President referring to or relating to the impact of Tier 3 gasoline standards on the development of the MY 20 17-2025 fuel economy/greenhouse gas emissions regulations.
Response: As discussed in response to questions 4 and 5 above, during discussions with auto companies, several auto companies have told the EPA that lower sulfur gasoline could expand the available technologies a company could use to include lean-burn gasoline engines, which could provide another technology option for companies to reduce GHG emissions. However, as discussed in response to questions 4 and 5, the proposed MY 20 17-2025 GHG standards do not require or presuppose any change in gasoline fuel properties, the EPA did not propose any such changes, and the EPA did not project the use of any lean-burn gasoline engines as a potential technology companies would use to meet the proposed GHG standards. We do not recall any significant discussions among the federal agencies and CARB on this subject. Some information regarding this topic was shared by some auto companies during meetings with the EPA, and these meetings also usually included NHTSA, CARB, and possibly others. It is likely that most if not all of the information provided by auto companies was claimed to include confidential business information.
In response to question 7 and 8, the EPA is performing a search for responsive documents and will be in touch with your staff with regard to any such documents as soon as practicable, once the necessary search and review is completed.

8. Please provide all documents and communications between EPA and any auto manufacturer referring or relating to the impact of Tier 3 gasoline standards on the development of the MY 2017-2025 fuel economy/greenhouse gas emissions regulations.
Response: Please see our response to question 7.

Attachment: Mathpro study