# Low Sulfur Heating Oil in the

Northeast States: An Overview of Benefits, Costs and Implementation Issues

Prepared by:

NESCAUM 101 Merrimac Street, 10 th 

### Floor Boston, MA 02114



## December 2005ii



## Acknowledgements

NESCAUM gratefully acknowledges the financial suppo rt for this report provided by the Massachusetts Executive Office of Environmental Aff airs.

This report was developed by staff at NESCAUM and e ngineering consultant John Batey of the Energy Research Center. NESCAUM is an associ ation of the air pollution control agencies from Connecticut, Maine, Massachusetts, Ne w Hampshire, New Jersey, New York, Rhode Island and Vermont.

Thanks also go out to the following state staff tha t reviewed and commented on drafts of this report:

Tracy Babbidge, CT Department of Environmental Prot ection David Barnes, NY Department of Environmental Conser vation David Cash, MA Executive Office of Environmental Af fairs Anne Gobin, CT Department of Environmental Protecti on Glenn Keith, MA Department of Environmental Protect ion Barbara Kwetz, MA Department of Environmental Prote ction Ray Papalski, NJ Department of Environmental Protec tion

Disclaimer:

This document does not necessarily reflect the opin ions of the Massachusetts Executive Office of Environmental Affairs.iii TABLE OF CONTENTS

Executive Summary..................................

................................................... ....................... v 1. Introduction and Background .....................

................................................... .......... 1-1 1.1. Introduction..................................

................................................... ................. 1-1 1.2. Background....................................

................................................... ............... 1-2 1.3. Public Health and Environmental Impacts ....... ............................................... 1-2 1.3.1. Particulate Matter..........................

................................................... ........ 1-3 1.3.2. Oxides of Nitrogen..........................

................................................... ...... 1-3 1.3.3. Sulfur Dioxide..............................

................................................... ......... 1-3 1.3.4. Mercury.....................................

................................................... ............ 1-4 1.4. Proposed Northeast Low Sulfur Heating Oil Init iative.................................... 1-4 1.5. Current Fuel Sulfur Content of Heating Oil .... ................................................ 1-5 1.6. Fuel Sulfur Requirements in Other Countries ... .............................................. 1-6 1.7. Past Advances in Oil Heat Emissions Performanc e ........................................ 1-6 2. Emission Reduction Potentials of Low Sulfur Heat ing Oil and Biofuels................ 2-1 2.1. Low Sulfur (500 ppm) Home Heating Oil......... .............................................. 2-1 2.1.1. Sulfur Dioxide Emissions ....................

................................................... . 2-1 2.1.2. Nitrogen Oxide Reductions: .................. .................................................. 2 -2 2.1.3. Particulate Matter (PM) Reductions: ......... .............................................. 2-3 2.2. Low Sulfur (500 ppm) Heating Oil Blended with Biofuels............................. 2-4 2.2.1. Sulfur Dioxide Reductions...................

................................................... . 2-4 2.2.2. Nitrogen Oxide Reductions: .................. .................................................. 2 -4 2.2.3. Particulate Matter Reductions:..............

................................................... 2-5 2.2.4. Mercury Reductions..........................

................................................... .... 2-5 2.2.5. Greenhouse Gas Emission Reductions: ......... .......................................... 2-6 3. Cost-Benefit Analyses of Low Sulfur Home Heating Oil ....................................... 3-1 3.1. Reduced Maintenance Costs.....................

................................................... .... 3-2 3.2. Added Cost for Lower Sulfur Heating Oil and Hi storic Fuel Prices ............... 3-4 3.3. Net Cost Savings with Lower Sulfur Fuel Oil... .............................................. 3-5 3.4. Environmental and Health Benefits.............

................................................... . 3-6 4. Other Benefits of Low Sulfur Heating Oil........

................................................... .... 4-1 4.1. Improved Efficiency ...........................

................................................... .......... 4-1 4.2. Opportunity to Utilize Advanced Equipment ..... ............................................. 4-1 4.3. Harmonizing with Worldwide Standards.......... ............................................... 4-2 5. Overview of Supply and Distribution of Heating O il in the Northeast ................... 5-1 6. Conclusions.....................................

................................................... ...................... 6-1 7. References......................................

................................................... ....................... 7-1iv TABLES

Table ES-1: Emission Benefits of Low Sulfur Heatin g Oil and Biodiesel Blends............ v Table 1-1: State Sulfur Limits for Heating Oil ....

................................................... ........ 1-5 Table 2-1: Air Emission Rates for Home Oil Burners

................................................... . 2-1 Table 5-1: US Distillate Fuel Oil Supply (Thousand Barrels per Day).......................... 5-1 Table 5-2: Source of Annual Distillate Fuel Oil Su pplies on the East Coast (%) .......... 5-2 Table 5-3: Peak Distillate Fuel Oil Imports (%)...

................................................... ....... 5-2

FIGURES

Figure 1-1: #2 Fuel Oil Sulfur Content Percentage ..

................................................... .... 1-5 Figure 1-2: U.S. Annual Residential Fuel Oil Use ..

................................................... .... 1-7 Figure 1-3: Reductions in Oil Burner PM Emissions .

................................................... . 1-8 Figure 2-1: Relationship of Fuel Sulfur Content to SO 2 Emissions ............................... 2-2 Figure 2-2: Nitrogen Oxide Emission Reductions wit h Lower Sulfur Heating Oil ....... 2-3 Figure 2-3: Effect of fuel sulfur on PM 2.5 and PM 10 emissions...................................... 2-3 Figure 2-4: Nitric Oxide Emissions for Low Sulfur / Biofuel Blend ............................. 2-5 Figure 2-5: Global Warming Potentials of Various E nergy Sources.............................. 2-7 Figure 3-1: Boiler Fouling for Varying Fuel Oil S ulfur Contents................................. 3-1 Figure 3-2: Measured Boiler Deposits – Normal and Low Sulfur Fuel Oil ................... 3-2 Figure 3-3: Vacuum Cost Savings per 1000 Houses ...

................................................... 3-3 Figure 3-4: Home Heating Oil and Nat Gas Prices...

................................................... ... 3-4 Figure 3-5: Net Cost savings per 1,000 Houses Usin g Low Sulfur Oil.......................... 3-5v



## Executive Summary The Northeast states are considering adopting a reg ionally consistent low sulfur standard for heating oil to reduce air pollution fr om this source. This White Paper evaluates the benefits, costs and implementation is sues associated with reducing sulfur in #2 distillate heating oil from its current average of 2,000 to 3,000 parts per million (ppm) to 500 ppm. The states’ long-term goal is to bring the sulfur content of heating oil into line with the future highway and nonroad ultra-low sulfur diesel fuel requirement of 15
ppm. Heating oil burners emit particulate matter (PM), o xides of nitrogen (NO x ), sulfur dioxide (SO 2 ), mercury (Hg), carbon dioxide (CO 2 ) and other pollutants. Collectively, these pollutants have direct health impacts, contri bute to the formation of ozone and fine particulate matter, cause regional haze, contribute to acid deposition and nitrification of water bodies, add to the global mercury pool and co ntribute to the build up of greenhouse gasses in the atmosphere. The combustion of heatin g oil is a significant source of SO 2 emissions in the region – second only to electric p ower plants. The burning of heating oil also produces approximately 10 percent of total CO 2 emissions in the Northeast. As shown in Table ES-1, reducing the sulfur content of heating oil from 2,500 ppm to 500 ppm lowers SO 2 emissions by 75 percent, PM emissions by 80 percen t, NO x emissions by 10 percent, and CO 2 emissions by 1 to 2 percent. Other benefits assoc iated with lowering the sulfur content of heating oil inc lude heating system efficiency improvements, the opportunity to develop and market advanced high efficiency boiler and furnace technologies, and harmonizing with Euro pean and Canadian fuel standards.

Table ES-1: Emission Benefits of Low Sulfur Heatin g Oil and Biodiesel Blends

(% reduction compared to 2,500 ppm sulfur fuel)

Pollutant Reduction with 500 ppm

Sulfur Heating Oil Reduction with 500 ppm Sulfur Heating Oil/Biodiesel Blend (80/20) SO2 75 % 84 % PM 80 % >80 % 1
NOx 10 % 20 % Hg n/a 20 % 2
CO2 1 % - 2% 17-18 %

1 Additional PM reductions are expected with biodiesel blend s, but no known test data exists to substantiate this assumption.

2 Value based on the assumption that biodiesel contains no m ercury. No known test data exist to substantiate this assumption

These benefits can be achieved at an overall saving s to heating oil marketers and consumers. The incremental cost of low sulfur (500 ppm) heating oil compared to the higher sulfur product varies over time, but histori cally has averaged about 1.5 cents per gallon. Lower sulfur heating oil is cleaner burnin g and emits less particulate matter which reduces the rate of fouling of heating equipm ent and can permit longer timevi

intervals between vacuum cleanings, if existing ser vice practices are converted from annual to “as needed” cleaning. The potential savi ngs for oil heated homes due to reduced maintenance costs is on the order of hundre ds of million of dollars a year on a national basis. The cleaning cost savings generate d by using lower sulfur fuel oil is two to three times higher than the added fuel cost base d on historic price differences between heating oil and highway diesel. Biofuels, including soy-based biodiesel, contain ne gligible amounts of sulfur and nitrogen and can be blended with low sulfur heating oil to further reduce air emissions, improve the environmental attractiveness of home he ating oil and extend supplies with renewable domestic feedstocks. Low sulfur (500 ppm ) heating oil blended with a 20 percent soy-based biodiesel can reduce SO 2 emissions by 84 percent, PM emissions by greater than 80 percent, NO x emissions by 20 percent, mercury emissions by 20 p ercent and carbon dioxide emissions by approximately 16 pe rcent compared to 2,500 ppm sulfur heating oil. The region’s heating oil comes from Gulf Coast refi ners, Northeast refiners, and foreign sources. Imports provide about a 20 percen t of demand on an annual average basis, but can rise significantly during periods of peak usage. The continued availability of adequate home heating oil through domestic sourc es and imports is an important consideration as states assess implementation issue s associated with a low sulfur oil heating oil initiative. This White Paper discusses a variety of steps that should be taken to ensure that a low sulfur heating oil program in the Northeast would not adversely affect supply and cost during periods of peak deman d. Potential solutions include: (1) increasing stocks of lower sulfur fuel oil; (2) inc reasing imports from countries with lower sulfur standards; (3) permitting seasonal ave raging of sulfur levels; (4) blending of lower sulfur diesel with higher sulfur imports; and (5) introducing greater amounts of domestic biofuels into the market. The analysis summarized in this White Paper support s the Northeast states’ conclusion that significant reductions in SO 2 , NO x , and PM emissions can be achieved by mandating lower sulfur heating oil. Importantly , these reductions can achieved with an expected cost savings to the consumer. Adding t he public health and environmental benefits associated with lower sulfur fuel increase s the favorable cost-benefit ratio of a regional 500 pm sulfur heating fuel program.Low Sulfur Heating Oil: An Overview of Benefits, Co sts and Implementation Issues Page 1-1



## 1. INTRODUCTION AND BACKGROUND

1.1. Introduction The combustion of heating oil containing sulfur lev els on the order of 2,500 parts per million (ppm) contributes to ambient concentrat ions of fine particles found in the Northeast. These particles have adverse health and environmental impacts. The Northeastern U.S. is one of the world’s largest mar kets for heating oil. In the eight state NESCAUM region (CT, ME, MA, NH, HJ, NY, RI and VT), approximately 4 billion gallons of heating oil are burned annually in resid ential furnaces and approximately 1 billion gallons are burned in commercial furnaces. Heating oil represents 54 percent of total demand for #2 distillate oil in the Northeast , compared to 38 percent for highway diesel. Due to the high level of sulfur currently found in heating oil, its combustion is a significant source of sulfur dioxide (SO 2 ) emissions in the region – second only to electric power plants. Regionally, the burning of high sulfur heating oil generates approximately 100,000 tons of SO 2 annually – an amount equivalent to the emissions from two average sized coal-burning power plants. Oil heating is also a source of particulate matter (PM), oxides of nitrogen (NO x ) and carbon monoxide (CO). While data are limited and uncertain, residential heating with fuel oil is estimated to produce almost 25 percent of mercury emissions in the six N ew England states. The burning of heating oil also produces approximately 10 percent of total CO 2 emissions in the region and is estimated to represent as much as 17 percent of Connecticut’s CO 2 inventory.
To address this concern, the Northeast states are c onsidering adopting regionally consistent standards to cap the sulfur content of h eating oil at 500 parts per million, by no later than 2010. The states’ long-term goal is to limit the sulfur content of heating oil to levels consistent with future ultra-low sulfur dies el standards for highway and nonroad fuels (15 ppm). However, more research and develop ment is needed to prevent the undesired impacts on home heating equipment that ha ve been experienced in Europe with ultra-low sulfur fuel including damage to oil burne r air tubes in blue flame oil burners. This analysis is intended to help states better und erstand the benefits and costs associated with the proposed regional low sulfur he ating oil initiative. While this analysis is preliminary in nature, it provides stat e regulators with additional information as they consider appropriate next steps. This White Paper includes six sections. Section 1 provides background information on the oil heat market, the environment al and public health impacts associated with emissions from this source, and a s ummary of the proposed Northeast low sulfur heating oil initiative. Section 2 summa rizes the emission reduction potential of lowering the sulfur content of heating oil and e valuates the potential benefits of adding biodiesel to heating oil. Section 3 summarizes the findings of the cost-benefit analysis undertaken for low sulfur heating oil. Section 4 d iscusses other benefits of this proposed initiative. Section 5 provides a brief overview of supply and distribution issues for the Northeast heating oil market. Section 6 presents c onclusions.Low Sulfur Heating Oil: An Overview of Benefits, Co sts and Implementation Issues Page 1-2



### 1.2. Background Lowering the sulfur content in heating oil will sig nificantly reduce the threats to public health and sensitive ecosystems posed by SO 2 emissions in the Northeast. Emissions of NO x , which contribute to a number of public health and environmental problems in the Northeast, will also decrease with lower sulfur heating oil. The use of cleaner fuel has the potential to improve furnace e fficiency by reducing fouling rates of boiler and furnace heat exchangers and other compon ents. Further, the availability of low sulfur heating oil will enable the introduction of highly efficient condensing furnace technology. Both outcomes will lower emissions of CO 2 and other pollutants from this source sector by reducing fuel use. The region’s heating oil comes from Gulf Coast refi ners, Northeast refiners, and foreign sources. Imports provide about a 20 percen t of demand on an annual average basis, but can rise significantly during periods of peak usage. The ability to bring in offshore product is important to heating oil availa bility and price stability. European supplies range from 13 percent on an annual average to 23 percent during January and February, with Russia supplying as much as 18 perce nt of the region’s total demand during peak periods, based on recent reports. Oil heat industry representatives have expressed co ncern that offshore suppliers will not have sufficient low sulfur product availab le for the North American market in the near to mid-term which will undermine the delicate supply balance that now exists. Industry representatives suggest that it will take a broader international shift toward low sulfur heating oil to drive offshore refiners to in vest in de-sulfurization technology for this portion of the product stream. Europe, a majo r market for heating oil, will require low sulfur (1000 ppm) product beginning in 2008 and Canada is committed to a similar requirement. To minimize supply concerns, the Nort heast states are considering an annual averaging compliance program that would allo w higher sulfur product into the market during peak demand periods, if necessary. F urther, as discussed in this paper, the blending of biodiesel into heating oil provides an additional stream of clean and renewable domestic feedstock to increase the supply of fuel for space heating. However, biofuels supplies are currently rather limited.



### 1.3. Public Health and Environmental Impacts The Northeast states are faced with developing stat e implementation plans (SIPs) to demonstrate compliance with the new 8-hour ozone and fine particulate matter national ambient air quality standards. The states must als o submit plans that include strategies for protecting visibility in national parks and wil derness areas. After three decades of controlling air pollution, the challenges of achiev ing sufficient additional emission reductions to attain these new standards are substa ntial. Heating oil burners emit significant levels of SO X , NO x , PM, and mercury. These burners also emit CO 2 , a greenhouse gas that contributes to global warmi ng. Collectively, these pollutants have direct health i mpacts, contribute to the formation of ozone and fine particulate matter, cause regional h aze, contribute to acid deposition and nitrification of water bodies, add to the global me rcury pool and contribute to the buildup of greenhouse gases in the atmosphere.Low Sulfur Heating Oil: An Overview of Benefits, Co sts and Implementation Issues Page 1-3



### 1.3.1. Particulate Matter Both solid particles and condensable liquid droplet s are generated from most combustion sources including heating oil burners. Most of the particulate matter emitted by combustion sources is classified as fine PM with diameters less than 2.5 microns (PM 2.5 ). Primary particulates include unburned carbonace ous materials (soot) that are directly emitted into the air. Secondary particula tes, such as sulfates, are formed after sulfur dioxide is emitted into the air from combust ion sources burning sulfur-containing fuels. Particulate matter less than 10 microns in size (PM 10 ) is linked to a number of adverse health outcomes including asthma, bronchiti s, cardiac arrhythmia, and heart attacks (reference 9). Sulfates are also the prima ry cause of regional haze and acid deposition in the Northeast.

Direct PM emissions from residential and small comm ercial oil burners in the form of soot have decreased by approximately 95 per cent over the past three decades (as will be discussed later in this section). Sulfates that condense in the outdoor air after being emitted by oil heating equipment are now the predominate form of PM associated with emissions from heating oil burners. Reducing the sulfur content of the fuel can lower sulfate emissions.



### 1.3.2. Oxides of Nitrogen

NO x is emitted during all types of fuel combustion. N itrogen dioxide (NO 2 ) and the secondary oxidants that are formed in the atmos phere contribute to numerous adverse health outcomes. NO 2 causes respiratory distress, respiratory infection , and irreversible lung damage. These are exacerbated by the secondar y oxidants that are produced including ozone and fine particulate matter. In ad dition these oxidants contribute to the formation of acid rain and regional haze. Efficiency advances in residential oil heat equipme nt have included the introduction of flame retention oil burners that pr oduce higher flame temperatures and enhanced heat transfer rates. These improvements h ave helped decrease PM emissions, however, the resultant elevated flame temperatures contribute to increased rates of nitric oxide production by oil burners (thermal NO x ). On the positive side, the higher emission rates are offset by the improved efficiency and red uced fuel use. New oil burners are currently under development in the U.S. that lower nitrogen oxide emissions substantially. The use of lower sulfur home heatin g oil also lowers the emissions of nitrogen oxide by reducing the nitrogen content of the fuel that contributes to total NO x emissions.



### 1.3.3. Sulfur Dioxide

SO 2 is a criteria air pollutant produced in significan t quantities by residential and commercial oil heat burners. Elevated levels of SO 2 in the atmosphere can cause wheezing, breathing difficulty, and shortness of br eath. Through its important role in fine particulate matter formation, SO 2 also contributes to cardiovascular disease, respir atory illness, and impaired lung function especially in i ndividuals with pulmonary diseases including asthma. Sulfur dioxide also contributes to acid rain and related crop and vegetation damage. Sulfates are the primary cause of regional haze in the Eastern U.S.Low Sulfur Heating Oil: An Overview of Benefits, Co sts and Implementation Issues Page 1-4

Burning home heating oil with lower sulfur content directly reduces SO 2 emissions and its negative impact on health and the environment.



### 1.3.4. Mercury Mercury is a potent neurotoxin, particularly damagi ng to the fetus and young child. Greater than 84,000 newborns in the Northea st are at risk for irreversible neurological deficits from exposure to mercury. Em erging data also suggest a link between mercury exposure and increased risk of adve rse cardiovascular effects. The Northeast is implementing a Mercury Action Plan tha t has reduced total in-region emissions by greater than 55 percent over the past five years. Much of this reduction has come from emission controls put on municipal waste combustors and medical waste incinerators. With emissions from these major stat ionary sources better controlled, the combustion of fuel oil in residential and commercia l burners is now considered a major source of mercury emissions in the region.



### 1.4. Proposed Northeast Low Sulfur Heating Oil Initiativ e The Northeast states are considering adopting consi stent low sulfur heating oil requirements as part of the larger plan to address the region’s air pollution problems. The decision to pursue a consistent regional strategy i s premised on the Northeast’s common airshed and the regional nature of the heating oil supply network. In order to achieve reductions in SO 2 emissions from home oil burners, a regional low su lfur initiative is proposed for the states in the Northeast where oil is a predominant energy source. This initiative is summarized in a DRAFT Memorandum of Understanding for Regional Fuel Sulfur Content Standards for Distillate Number 2 He ating Oil dated February 4, 2005 (reference 7). The memorandum proposes a reduction in the sulfur content of distillate fuel oil used for space heating from the typical ra nge of 2000 to 3000 part per million (ppm) down to 500 ppm, as now required for highway diesel fuel. The sulfur content of highway diesel will be lowered to 15 ppm beginning in 2006. Homeowners and fuel oil service companies will bene fit from reduced fouling of boiler and furnace heat transfer surfaces that perm its extended intervals between vacuum cleanings. This has the potential to substantially lower annual service costs for oil heating equipment. Nationwide, this translates to potential cleaning cost savings on the order of $200 million to $300 million a year; with much of this benefit accruing in the Northeast. As discussed in more detail in Section 3, the added cost for the cleaner fuel is expected to be more than offset by the savings resu lting from reduced maintenance and improved burner efficiency. The oil heat industry also benefits when the environmental impact of heating oil is reduced since it makes thi s product more competitive with natural gas as clean energy source for space heating. As shown in Table 1-1 (reference 7), current sulfur requirements for home heating oil vary widely from state to state in the Northeas t. The proposed limit on the sulfur content of distillate oil used for commercial and r esidential heating would establish a uniform standard across all states in the region at 500 parts per million.Low Sulfur Heating Oil: An Overview of Benefits, Co sts and Implementation Issues Page 1-5

Table 1-1: State Sulfur Limits for Heating Oil

State Sulfur Limit In percent Sulfur Limit

In parts per million Connecticut 0.3 3000 Maine 0.3 to 0.5 3000 to 5000 Massachusetts 0.3 3000 New Hampshire 0.4 4000 New Jersey 0.2 to 0.3 2000 to 3000 New York Upstate 1.0 to 1.5 10,000 to 15,000 New York Downstate 0.2 to 0.37 2000 to 3700 Rhode Island 0.5 5000 Vermont 2.0 20,000



### 1.5. Current Fuel Sulfur Content of Heating Oil According to sampling conducted over the past two d ecades, the average sulfur content of heating oil varies from year to year (se e Figure 1-1). These data are reported in Heating Oils, 2003 published by Northrop Grumman Mission Systems (ref erence 8). Historically, the sulfur content of home heating oi l was in the range of 0.25 percent or 2500 ppm. After lower sulfur diesel (500 ppm) was introduced for highway use, the average sulfur content of home heating oil decrease d.

Figure 1-1: #2 Fuel Oil Sulfur Content Percentage

(REF: NGMS – 231)

0.00 0.05 0.10 0.15 0.20 0.25 0.30

1987 1992 1997 2002

YEARFUEL SULFUR CONTENT %

From 1987 to 1993, the average sulfur content of he ating oil remained at approximately 0.25 percent. Between 1993 and 1999, the percentage of sulfur decreased steadily within the 1200 to 2000 ppm range. For th e period 1999 to 2002, the average sulfur content has increased, returning to historic levels. From 2002 to 2003 the averageLow Sulfur Heating Oil: An Overview of Benefits, Co sts and Implementation Issues Page 1-6

sulfur content was 0.22 percent. These results are based on relatively small sample sizes, however, and the actual average sulfur content of o il used in homes in the Northeast has not been accurately determined.



### 1.6. Fuel Sulfur Requirements in Other Countries Lower sulfur heating oil is gaining acceptance arou nd the world including in Canada and Europe. The sulfur content of distillat e oil in EU countries will be limited to 0.1 percent or 1000 ppm by January 1, 2008, based o n Directive 1999/32/ EC (reference 19). The average sulfur content of light heating o il in Canada from 1995 to 2001 was between 2000 ppm and 2700 ppm, with an average of 2 010 ppm in 2001 (reference 19), which is similar to sulfur levels in the U.S. The Minister of Environment in Canada has indicated an intention to reduce sulfur levels in f uel oil to improve public health and the environment with the goal of matching the sulfur re quirement set by the European Union (EU) for 2008. A presentation by the Institute for Wirtschaftliche Oelheizung, dated September 17, 2003, listed the current fuel sulfur standards for Europe in percent: Austria 0.005 to 0.1; Belgium 0.2 or less; France 0.2 or less; Germa ny 0.005 to 0.2; Great Britain 0.2 or less; Italy 0.2 or less; Sweden 0.1 or less; Switze rland 0.2 or less (reference 20). This presentation also showed a decreasing trend in sulf ur content with Switzerland moving toward 50 ppm to 500 ppm sulfur, and Scandinavia, G ermany, Austria and Belgium moving toward 50 ppm sulfur fuel limits.

Switzerland has an allowable limit for sulfur conte nt of 0.2 percent, but taxes fuel oil higher than 0.1 percent. Reportedly, most of t he fuel sold had sulfur content of 0.1 percent or lower. There are low sulfur fuels with 0.03 to 0.05 percent sulfur on the market in Europe and its use is reported to represe nt up to 20 percent of the fuel sold in Germany.



### 1.7. Past Advances in Oil Heat Emissions Performance Important advances have occurred over the past thre e decades that have helped to reduce air emissions from residential oil heating e quipment through the efforts of oil heat marketers and equipment manufacturers. These inclu de voluntary energy conservation initiatives that have lowered fuel use and technolo gy advances that have substantially lowered the emission rate for particulate matter fr om oil burners. Prior to 1973 and the first substantial oil price i ncreases, oil heated homes typically consumed 1400 gallons of fuel annually. Efforts by the oil heat research program at Brookhaven National Laboratory and the o il heat equipment manufacturers resulted in the development of more efficient equip ment that contributed to a decrease in oil consumption by the average house to less than 9 00 gallons a year. The plot that follows, based on data published by the Energy Info rmation Administration (U.S. Department of Energy), shows a 40 percent reduction in fuel use from the mid 1970s to the present time. Between 1977 and 1992 residentia l annual fuel oil use decreased from 1,994 to 865 trillion BTU. The number of oil heate d homes fell by about 25 percent, and energy efficiency improvement is credited with lowe ring fuel use by approximately 40 percent (references 1,2). The annual residential c onsumption of distillate fuel oil averaged 861 trillion BTU from 1995 through 1999.Low Sulfur Heating Oil: An Overview of Benefits, Co sts and Implementation Issues Page 1-7

Figure 1-2: U.S. Annual Residential Fuel Oil Use

In addition to energy conservation programs, the hi storical reduction in fuel oil use has been spurred by the development and use of new higher efficiency oil heating equipment. The flame retention oil burner, which i ncreases fuel efficiency by about 15 percent, was developed through industry-sponsored r esearch and development efforts and began to dominate the market in the late 1970s (reference 3). The efficiency of new oilpowered boilers and furnaces also increased substan tially from the late-1970s to the present with average annual fuel utilization effici encies rising from less than 70 percent (estimated) to more than 85 percent.
The increases in oil burner, boiler, and furnace ef ficiencies directly contributed to the 40 percent reduction in average annual fuel con sumption. Annual emissions of air pollutants including PM, SO x , NO x , and CO 2 have also decreased by 40 percent as a direct result of the reduction in annual fuel consu mption in homes. In fact, calculations indicate that from 1977 to 1992, greenhouse gases f rom oil heat were lowered by 470 million tons (reference 1).

Particulate matter emissions from oil burners have been lowered by more than 95 percent over the past three decades as a result of the development and deployment of the flame retention oil burner. In addition to increas ing efficiency and lowering fuel use, the rate of PM emissions is much lower with the flame r etention design. The plot that follows shows the reduction in the rate of PM emiss ions by oil burners over the past 30 years (reference 4).Low Sulfur Heating Oil: An Overview of Benefits, Co sts and Implementation Issues Page 1-8

Figure 1-3: Reductions in Oil Burner PM Emissions

The rate of filterable particulate emissions decrea sed by a factor of 20 from the 1960s to the 1990s as oil burner design evolved and fuel-air mixing improved as a result of increased air supply pressure. Enhanced fuel-ai r mixing produces more complete combustion and lowers PM (smoke and soot) emissions . These substantial reductions in PM emissions from residential oil burners were reco gnized by the U.S. Environmental Protection Agency in the mid 1990s when the standar d emissions factor for oil burners was lowered by a factor of seven to 0.003 pounds of PM per million BTU of fuel burned during cyclic operation (references 4, 5). Properl y adjusted oil burners now produce particulate mater emissions that are similar to nat ural gas burners. While the oil heat industry has compiled an impress ive record of energy conservation and lowered air emissions over the pas t several decades, the high sulfur content of the fuel used for space heating continue s to represent a significant source of SO 2 . These emissions can be lowered dramatically thro ugh the introduction of lower sulfur heating oil as will be discussed in the next section. Given the nature of this source (i.e., millions of individual units), there are fewer options for reducing air pollution from residential and commercial heating units than large industrial source. Since traditional regulat ory measures, such as the addition of emission control technology to existing facilities, are not practical for this sector, the use of cleaner fuel represents the best near-term optio n for controlling emissions from oil burners.Low Sulfur Heating Oil: An Overview of Benefits, Co sts and Implementation Issues Page 2-1



## 2. EMISSION REDUCTION POTENTIALS OF LOW SULFUR HEATING OIL AND BIOFUELS This section summarizes the emission reduction pote ntial associated with the use of lower sulfur home heating oil for SO 2 , NO x , PM and CO 2 . Additionally, the potential environmental benefits that could be achieved by bl ending biofuels into low sulfur heating oil are discussed.



### 2.1. Low Sulfur (500 ppm) Home Heating Oil As described earlier, the introduction of lower sul fur heating oil can reduce emissions of several key air pollutants. Table 2-1 shows typical emission rates for residential oil burners using fuel with sulfur cont ents of 500 and 2500 parts per million, based on emission factors published by the U.S. Env ironmental Protection Agency (references 1,5).

Table 2-1: Air Emission Rates for Home Oil Burners

Pollutant Emission Rate In lbs/MMBTU PM Total 0.012 PM Condensable 0.0094 PM Filterable 0.0030 CO 0.036 TOC / VOC (non methane) 0.0051 NOx 0.13 SOx 0.05% 0.05 SOx 0.25% 0.26
Reference: Oil Burner Emissions: AP-42 Sept 98 (Jan 2004)



### 2.1.1. Sulfur Dioxide Emissions

The SO 2 emission rate for home heating oil with 0.25 perce nt (2500 ppm) sulfur is 0.26 pounds per Million BTU of fuel burned. Usi ng oil containing 0.05 percent sulfur (500 ppm) lowers the sulfur oxide emissions to 0.05 pounds per million BTU. Figure 1-1 indicates that typical sulfur contents of distillat e fuel oil are currently in the 0.22 percent range. The graph in Figure 2-1 shows the change in SO 2 emissions as the sulfur content of heating oil changes (reference 10). SO 2 emissions from home oil burners are directly related to the sulfur content of the fuel. Reducin g the sulfur content of heating oil from an average of 0.20 percent to 0.05 percent lowers t he rate of sulfur oxide emissions by 75 percent. If the fuel sulfur content is lowered by 80 percent, the sulfur dioxide emissions decrease by 80 percent.Low Sulfur Heating Oil: An Overview of Benefits, Co sts and Implementation Issues Page 2-2

Figure 2-1: Relationship of Fuel Sulfur Content to SO 2 Emissions

0 50 100 150 200 250 300 350

0 1000 2000 3000 4000 5000 6000 7000 Fuel sulphur (ppm)Flue gas SO2 (ppm)



### 2.1.2. Nitrogen Oxide Reductions: Figure 2-2 shows measured reductions in NO x emissions associated with using lower sulfur heating oil for several oil burner typ es (reference 11). The chart shows the measured reduction in nitrogen oxide emissions for three oil burner designs and three fuel sulfur contents. “FR-Std” refers to a standard fla me retention oil burner, “FR-Hi Perf” is a new high performance flame retention oil burner, and “LowEmis” refers to a new generation of low NO x oil burners. The three test fuels were: standard fuel oil (nominally 2100 ppm S), low sulfur fuel at 250 ppm (LS), and an ultra low sulfur fuel oil (ULS) at 91 ppm. For each burner type, as the fuel sulfur content decreased, the NO x emission rate also dropped. The standard flame ret ention oil burner produced 10 percent lower NOx emissions when the 500 ppm sulfur fuel wa s used in place of normal sulfur (2000 ppm) fuel. These tests clearly demonstrate t hat NO x emissions from residential heating systems decrease when low sulfur heating oi l is burned. Further, these test data point to the additional NO x reductions that could be realized by reducing heat ing sulfur below 500 ppm.
For a standard flame retention oil burner, the most common burner type now used in homes, the lower sulfur heating reduced NO x emissions by about 12 percent. However, the test fuel contained 250 ppm of sulfur, so the expected NO x reduction for a 500 ppm fuel would be slightly less. The expected reduction in nitrogen oxide emissions from conventional flame retention oil burners is in the range of 10 percent when conventional heating oil (>2000 ppm sulfur) is repl aced with 500 ppm sulfur oil. These reductions can be achieved by changing only the fue l properties, without any burner modifications.Low Sulfur Heating Oil: An Overview of Benefits, Co sts and Implementation Issues Page 2-3

Figure 2-2: Nitrogen Oxide Emission Reductions wit h Lower Sulfur Heating Oil



### 2.1.3. Particulate Matter (PM) Reductions: Figure 2-3 relates PM emissions (filterable and con densable) from home oil burners to fuel sulfur content (reference 10). The x-axis shows the fuel sulfur content of heating oil in parts per million and the y-axis sho ws the total loading in milligrams per cubic meter of exhaust for both PM 10 and PM 2.5 . There is a linear relationship between total PM loading and fuel sulfur content: as the s ulfur content of fuel decreases, the PM loading decreases proportionally. These data indic ate that lowering the sulfur content of the fuel from 2500 ppm to 500 ppm reduces total PM emissions by a factor of five, and lowering the sulfur content from 2000 ppm to 500 pp m reduces PM emissions by a factor of four. PM emissions from oil burners using low s ulfur heating oil approach the particulate emissions of natural gas burners which are widely recognized as one of the cleanest combustion sources.

Figure 2-3: Effect of fuel sulfur on PM 2.5 and PM 10 emissions

Reduction in NOx - Fuel Effects Petroleum-based fuels

0% 20% 40% 60% 80% 100%

FR-Std. FR-Hi Perf. Low Emis.

Burner type% of Std Fuel, Std F.R.burner Std Fuel

LS fuel

ULS fuelBaseline = 100%% of Std Fuel, Std F.RBurner

0 5 10 15 20 25 30

0 1000 2000 3000 4000 5000 6000 7000 Fuel sulphur (ppm)PM loading (mg/m3)

PM 2.5

PM 10Low Sulfur Heating Oil: An Overview of Benefits, Co sts and Implementation Issues Page 2-4



### 2.2. Low Sulfur (500 ppm) Heating Oil Blended with Biofu els Low sulfur heating oil can be blended with biofuels to further reduce air emissions, improve the environmental attractiveness of home heating oil and extend supplies with domestic feedstocks. Biofuels, inclu ding soy-based biodiesel, contain negligible amounts of sulfur and nitrogen and can f urther lower SO 2 and NO x emissions from oilheat burners. In addition, smoke and soot emissions from biofuel blends are less than for petroleum-based distillate oil. Biodiesel is not known to contain mercury. Greenhouse gas emissions are also lowered as the fe edstocks for biofuels are re-grown and sequester carbon from the air. Lower sulfur heating oil blended with biofuels repr esents a premium fuel with excellent combustion characteristics and lower air emission rates than conventional petroleum-based distillate heating oil. In fact, l ow sulfur (500 ppm) heating oil combined with a 20 percent soy-based biodiesel has comparabl e environmental characteristics to natural gas (reference 12).



### 2.2.1. Sulfur Dioxide Reductions

Tests of sulfur dioxide emissions with a blend of 8 0 percent heating oil containing 500 ppm sulfur and 20 percent soy-based biodiesel w ere conducted for the Massachusetts Oilheat Council at the New England Fuel Institute i n 2003 (reference 13). Because the sulfur content of biofuels is near zero, adding 20 percent biodiesel lowers the fuel sulfur content of the final blend. The measured reduction in SO 2 emissions was 84 percent compared to the normal sulfur distillate fuel used for these tests. Compared to a 2000 ppm base fuel, an 80 percent reduction in SO 2 emissions is expected for a blend of 80 percent low sulfur (500 ppm) distillate fuel and 20 percent biofuel. This is greater than the 75 percent reduction expected when 500 ppm sulf ur fuel oil replaces 2000 ppm sulfur fuel.



### 2.2.2. Nitrogen Oxide Reductions: Nitrogen Oxide emissions are significantly lower fo r the 20 percent biofuel blend in 500 ppm fuel oil compared to the reductions achi eved with lower sulfur fuel alone. In fact, typical measured NO x reductions for the biofuel blend were double those for the 500 ppm sulfur heating oil. In one case, for a boiler with an atypically high combustion chamber temperature, the NO x levels did not decrease for the biofuel/low sulfur blend. The figure below shows the results of a typical tes t.Low Sulfur Heating Oil: An Overview of Benefits, Co sts and Implementation Issues Page 2-5

Figure 2-4: Nitric Oxide Emissions for Low Sulfur / Biofuel Blend

0.0 20.0 40.0 60.0 80.0 100.0 120.0

0 5 10 15

FLUE O2 PERCENTNO ppm

Biodiesel

#2 Fuel Oil

Note: NO ppm (at 3% excess air) versus FLUE O 2 %; Unit 13, 0.75 gph

Figure 2-4 shows measured flue gas emissions of Nit ric Oxide (NO) as the burner excess air is varied and the flue gas oxygen conten t increases. These data are corrected to 3 percent excess air. The biofuel/low sulfur oil b lend emits much less NO than conventional higher sulfur home heating oil. These preliminary tests suggest that about one-half of the reduction is produced by the lower sulfur fuel oil and the other half is produced by the biofuel. The lower sulfur fuel oil and biofuel blends can substantially reduce NO x emissions without requiring burner or boiler modif ications.



### 2.2.3. Particulate Matter Reductions: Lower sulfur content in heating oil reduces PM emis sions and biofuels can lower these emissions even further. Combustion test resu lts showed that biofuel blends lower smoke emissions. In one test program, a burner was adjusted for zero smoke using the blend of biofuel and low sulfur oil. When the conv entional (higher sulfur) home heating oil was used at the some burner air setting, the sm oke level increased from zero to a number 3 on the Bacharach (ASTM 2156) scale. While these tests cannot measure actual PM loading, it is clear that the biofuel blend lowe rs smoke and soot emissions.



### 2.2.4. Mercury Reductions While there is a paucity of data, it is expected th at adding biodiesel to heating oil will reduce Hg emissions by an amount equivalent to the blend percentage. Soy-based biofuel is not known to contain mercury and therefo re will dilute the mercuryLow Sulfur Heating Oil: An Overview of Benefits, Co sts and Implementation Issues Page 2-6

concentration of the final fuel when blended with p etroleum-based heating oil. Additional testing is needed to more accurately qua ntify the emission coming from residential and commercial oil heating and to verif y the relationship between the addition of biodiesel and changes in mercury emissions from the combustion of the blended fuel. Further, the relationship between the sulfur and me rcury content of distillate is not well understood. The Northeast states will begin a test ing program in 2006 to measure both the sulfur and mercury content of heating oil and h ighway diesel in an effort to better quantify mercury content and the potential relation ship between sulfur and mercury concentrations in distillate.



### 2.2.5. Greenhouse Gas Emission Reductions:

An additional benefit of biodiesel blends is that t he biofuel component is regrown which removes carbon dioxide from the atmosph ere. While some energy is required to re-grow and process the soy-based biodi esel, research indicates a net reduction in greenhouse gases of 80 percent for soy -based biofuels. This means that a 20 percent soy biodiesel blend will lower carbon dioxi de emissions by approximately 16 percent. The chart in Figure 2-5 shows the net global warmin g impact potentials for a range of fuels including fuel oil with varying perc entages of soy biodiesel. Values are in pounds per million BTU of fuel burned, and are base d on emission factors published by the U.S. Environmental Protection Agency (reference 5). “Biod 100%” is heating oil consisting of 100 percen t soy-based biodiesel fuel. The next three values shown are biodiesel fuels at 70 percent, 35 percent, and 20 percent respectively. “NG 1.4% Leak” is for natural gas in cluding a gas leakage rate during transmission and distribution of 1.4 percent of thr oughput, and an average methane-toCO 2 global warming ratio of 30. “NG 2% Leak” is for n atural gas including a gas leakage rate of 2.0 percent of throughput. “Biod 1 0%” is heating oil consisting of 10 percent biodiesel fuel. “NG 2.6% Leak” is for natu ral gas including a gas leakage rate of 2.6 percent. “Number 2 oil” shows emissions for st andard distillate heating oil used in homes. Coal emissions are higher because of the hi gher carbon-to-hydrogen ratio. Electric energy has the highest greenhouse gas emis sions based on U.S. Department of Energy Publications showing total CO 2 emissions and total energy generated.Low Sulfur Heating Oil: An Overview of Benefits, Co sts and Implementation Issues Page 2-7

Figure 2-5: Global Warming Potentials of Various E nergy Sources

0 50 100 150 200 250 300 350 400 450

B IO D 1 00 % BIOD 70% BIOD 3 5 %

B IO D 20 % NG 1. 4 % L eak NG 2% L ea k

B IO D 10 % NG 2.6 % L e ak #2 O IL NG 3.5% Leak

COAL ELECT RIC

Note: Equivalent CO 2 Emissions Pounds Per Million BTU for Oil and Natur al Gas (Ref: USEPA AP-42)

The lowest global warming potentials for all fuels are the biodiesel-heating oil blends. The 100 percent biodiesel blend (B100) pro duces the lowest global warming potential. The B20 blend is lower than all other s ources including natural gas. For the 10 percent biodiesel in petroleum-based heating oil, t he total global warming potential is lower than for natural gas within the range of expe cted gas leakage rates. One important factor in comparing the climate impac ts of natural gas and heating oil is methane leakage that occurs during natural g as transmission and distribution given the higher global warming potential of methane comp ared to carbon dioxide. Because biofuel are renewables, when blended with home heat ing oil, they reduce the global warming potential below that of natural gas.EQUIV. LBS PER MMBTU CO2Low Sulfur Heating Oil: An Overview of Benefits, Co sts and Implementation Issues Page 3-1



## 3. COST-BENEFIT ANALYSES OF LOW SULFUR HOME HEATING OIL Lower sulfur heating oil is cleaner burning and emi ts less particulate matter which reduces the rate of fouling of heating equipment an d permits longer time intervals between vacuum cleanings. The potential costs savi ngs for oil heated homes due to reduced maintenance is on the order of hundreds of million of dollars a year, most of which accrues in the Northeast and Mid-Atlantic sta tes where oil is a dominant fuel for space heating. The added cost for the lower sulfur fuel is expected to be less than the savings produced by cleaner operation. Figure 3-1 shows the impact of various fuel oil sul fur contents on the rate of fouling depositions inside a residential cast iron boiler based on research conducted by Brookhaven National Laboratory. These photos clear ly show that more boiler fouling occurs as the sulfur content of the fuel increases. The reduced rate of deposits with lower sulfur fuel oil lowers cleaning costs.

Figure 3-1: Boiler Fouling for Varying Fuel Oil S ulfur Contents

The lower sulfur fuel produces minimal boiler depos its as shown in the upper left photograph for the 0.04 percent sulfur fuel (refere nce 10).Low Sulfur Heating Oil: An Overview of Benefits, Co sts and Implementation Issues Page 3-2



### 3.1. Reduced Maintenance Costs Figure 3-2 summarizes the results of a comprehensiv e field study of the impacts of low sulfur fuel oil (0.05 percent) funded by the New York State Energy Research and Development Authority (NYSERDA). See Reference 10 for details of this multi-year study. Boiler deposits were collected and analyzed for houses burning normal sulfur and low sulfur heating oil. The results showed a signi ficant reduction in boiler deposits for the low sulfur houses, consistent with the laborato ry tests conducted by Brookhaven National Laboratory and in Canada on boiler deposit ion rates.

Figure 3-2: Measured Boiler Deposits – Normal and Low Sulfur Fuel Oil

0 0.05 0.1 0.15 0.2 0.25 0.3

Normal Sulfur Low Sulfur
(Without Heating Only Units)Depositon Rate - Lbs per 1000Gallons

Boiler deposits were reduced by a factor of two by lowering the fuel sulfur content from 0.14 percent to 0.05 percent for the h ouses in the study. Larger reductions in boiler depositions are produced when the initial sulfur content is higher. These reduced deposits translate into much lower costs fo r vacuum cleaning by extending the service interval. When the existing heating oil su lfur content is 2000 to 2500 ppm and 500 ppm sulfur fuel is substituted, the service int erval can be extended by a factor of three or more (e.g., cleaning at three year interva ls rather than annually). This produces substantial savings in service costs for oil-heated homes. The reduced boiler and furnace fouling rates achiev ed by using lower sulfur fuel oil translate directly into lower vacuum-cleaning c osts for fuel oil companies and homeowners. The chart that follows summarizes expe cted savings for a range of hourly service rates and for varying initial fuel oil sulf ur percentages (reference 10).Low Sulfur Heating Oil: An Overview of Benefits, Co sts and Implementation Issues Page 3-3

Figure 3-3: Vacuum Cost Savings per 1000 Houses

Per 1000 Customers

0 10000 20000 30000 40000 50000 60000 70000 80000 90000

0.10 0.15 0.20 0.25 0.30 0.35 0.40
ORIGINAL SULFUR CONTENT OF FUEL OIL (%)$ SAVED EACH YEAR $100.4 per Hour

$94.9 per Hour

$89.3 per Hour

$83.7 per Hour

$78.1 per Hour

$72.5 per Hour

$67.0 per Hour

$61.4 per Hour

$55.8 per Hour

$50.2 per Hour

$44.6 PER Hour

Note: The cost savings in dollars per year, by using 0.05% Su lfur Fuel Oil per 1,000 customers

For example, at a median hourly service cost of $72 .50 and an initial fuel sulfur content of 0.25 percent (2500 ppm), the expected re duction in vacuum cleaning costs is $29,000 a year per 1000 houses. If the hourly serv ice rates are higher, the annual savings are also higher. The service rates shown here are for illustrative purposes, actual costs may be higher than the maximum values or lower than the minimum values shown on the graph. The potential vacuum-cleaning cost savings for the U.S., for a starting fuel sulfur content of 0.20 percent, ranges from approximately $200 million a year to $390 million a year for service costs of $50 to $100 per hour. Th erefore, if all oil heated homes switched to 500 ppm sulfur heating oil, more than $ 200 million a year could be saved, which would significantly lower the overall operati ng costs of fuel oil marketers (reference 10). Given the dominant share of the U. S. heating oil market represented by the Northeast states, a large percentage of the pro jected national benefits would accrue in the region.Low Sulfur Heating Oil: An Overview of Benefits, Co sts and Implementation Issues Page 3-4



### 3.2. Added Cost for Lower Sulfur Heating Oil and Histori c Fuel Prices The incremental cost of low sulfur (500 ppm) home h eating oil compared to the higher sulfur product varies over time. Fuel oil p rices reported in the Weekly Petroleum Status Report published by the U.S. Department of Energy (referen ce 15) were used to compare New York Harbor spot market prices of # 2 h eating oil and # 2 diesel (low sulfur). From January 2003 through March 2004, the price of the low sulfur diesel ranged from $ 0.0022 per gallon to $ 0.0378 per gal lon higher than the price of the higher sulfur heating oil. The average price increment fo r the lower sulfur product was 1.6 cents per gallon for the 15 month period examined. Data collected by the Oilheat Manufacturers Associa tion, which tracks fuel oil and natural gas prices, shows that the retail price of home heating oil has cycled up and down over the past twenty years (reference 16). Fi gure 3-4 shows dollar per gallon equivalent prices for heating oil and natural gas b etween 1982 and 2004.

Figure 3-4: Home Heating Oil and Nat Gas Prices

(CT, ME, MA, NH, RI, VT, DE, MD, NJ, NY, PA, DC, VA )

0.00 0.20 0.40 0.60 0.80 1.00 1.20 1.40 1.60 1.80 2.00

1 9 8 2 1 9 8 4 1 9 8 6 1 9 8 8 1 9 9 0 1 9 9 2 1 9 9 4 1 9 9 6 1 9 9 8 2 0 0 0 2 0 0 2 2 0 0 4$ PER GALLON OR EQUIVALENT

Nat Gas Home Heating Oil

Residential oil prices have increased and decreased over this period. From 1984 to 1988 oil prices fell about 27 percent, and then increased from 1984 to 1991 by about the same amount. This represents a cyclical change of more than 25 percent. From 2001 to 2002 average oil prices increased by more than 5 0 percent, and then decreased for the next two years. The added cost of low sulfur heating oil is on the order of 1.6 cents per gallon; representing approximately 1 percent of the average oil price. The incremental cost of low sulfur heating oil is much smaller than histori cal oil price fluctuations. Therefore, the added cost for lower sulfur heating oil is expe cted to have a minimal overall economic impact on home heating oil consumers.Low Sulfur Heating Oil: An Overview of Benefits, Co sts and Implementation Issues Page 3-5



### 3.3. Net Cost Savings with Lower Sulfur Fuel Oil The chart in Figure 3-5 presents the net cost savin gs of lower sulfur heating oil including the effect of added fuel costs (reference 10). The net savings are shown for a range of added fuel costs and for various hourly se rvice rates. For an added cost of low sulfur home heating oil of 1.5 cents per gallon, an d for an hourly service rate of $78 per hour, the net cost savings by reduced vacuum cleani ng intervals is $18,000 or about $18 per customer. This chart can be used to estimate t he net savings associated with the use of lower sulfur home heating oil for a range of fue l and maintenance costs.

Figure 3-5: Net Cost savings per 1,000 Houses Usin g Low Sulfur Oil

For: 0.25% S (initial) and 865 Gal per Year

0 5000 10000 15000 20000 25000 30000 35000 40000 45000

0.0000 0.0025 0.0050 0.0075 0.0100 0.0125 0.0150 0.0175

ADDED FUEL COST - $ PER GALLONCLEANING SAVINGS - $ PER 1000 CUSTOMERS $100 per hour $89 per hour $78 per hour $67 per hour $56 per hour $45 per hour

The cleaning cost savings generated by using lower sulfur fuel oil are greater than the added cost of the fuel. The NYSERDA study indi cates that the expected savings in vacuum cleaning costs is approximately two to three times higher than the added fuel cost for service rates of $75 to $100 per hour. Other r eductions in service costs, in addition to the vacuum cleaning cost savings, were also observe d during NYSERDA’s multi-year field demonstration of low sulfur home heating oil (reference 10). This further improves the benefit to cost ratio for lower sulfur fuel oil

.Low Sulfur Heating Oil: An Overview of Benefits, Co sts and Implementation Issues Page 3-6



### 3.4. Environmental and Health Benefits In addition to the cost savings that would accrue t o oil heat marketers and consumers due to reduced maintenance, substantial p ublic health and environmental benefits would be realized through the introduction of low sulfur heating oil. According to the NYSERDA study referenced earlier, the potent ial reductions in SO 2 emissions by using 500 ppm sulfur oil to replace 2000 ppm sulfur is approximately 60,000 tons per year nationwide. These emission reductions occur p rimarily in the Northeast where a majority of the home heating oil is consumed. In N ew York State alone, the projected SO 2 reductions associated with the shift to low sulfur home heating oil is about 13,000 tons per year (reference 10). In summary, this section suggests that lower sulfur fuel oil and lower sulfur/biofuel blends can provide important public health and environmental benefits in a very cost-effective manner. In fact, the cost savi ngs due to reduced need for heating system cleaning and maintenance alone more than off set the incremental cost of the lower sulfur fuel. When the public health and envi ronmental benefits are added to the equation, a 500 ppm sulfur heating oil program repr esents one of the most cost-effective air pollution control strategies available to the N ortheast states. The next section discusses other benefits associated with the introd uction of lower sulfur heating oil.Low Sulfur Heating Oil: An Overview of Benefits, Co sts and Implementation Issues Page 4-1



## 4. OTHER BENEFITS OF LOW SULFUR HEATING OIL Additional benefits derived from the use of heating oil with lower sulfur content include efficiency improvements, the opportunity to develop and market advanced boiler and furnace technologies, and harmonizing with Euro pean and Canadian fuel standards.



### 4.1. Improved Efficiency Lower sulfur fuel oil produces less fouling of the heat transfer surfaces inside boilers and furnaces as discussed earlier. This he lps improve the long-term efficiency of the boiler or furnace by maintaining high heat tran sfer rates from the hot flame gases to the boiler water or furnace warm air. Research con ducted by Brookhaven National Laboratory indicates that the drop in heating equip ment efficiency is on the order of one or two percent each year, with higher decreases in some cases. After the heating unit is cleaned, the thermal efficiency returns to the high er levels. Therefore, using lower sulfur home heating oil can improve the efficiency of oil heating equipment on the order of one to two percent. The added benefits of improved efficiency are two-f old. First, heating costs are reduced, as less fuel is required to supply the req uired heating demand. Second, the emissions of all pollutants are reduced, as less fu el is consumed by more efficient boilers and furnaces. On an individual basis this is a sma ll increment. However, when applied to the more than 10 million home heating systems in the U.S., the reductions in fuel use and air emissions are meaningful.



### 4.2. Opportunity to Utilize Advanced Equipment Part of the energy loss from heating equipment is i n the form of water vapor in the exhaust gases. Each pound of water vapor removes 9 70 BTUs, which represents about 6.5 percent of the energy content of the fuel oil. Brookhaven National Laboratory conducted research in the 1980’s on developing “con densing” furnaces and boilers that operate at very low exhaust temperatures that permi t some of the water vapor heat loss to be recovered. One problem with heating oil is that the fuel sulfur content increases the acidity of the condensed water vapor. This require s measures to protect the heat transfer surfaces from acid attack and damage. Recently, th e National Oilheat Research Alliance funded the development of oil-powered condensing he ating equipment and the availability of lower sulfur heating oil will suppo rt expanded use of this new technology. The use of lower (500 ppm) and eventually ultra low sulfur (15 ppm) heating oil offers the opportunity to improve boiler and furnac e designs to include flue gas condensation and increase efficiencies into the mid to upper 90 percent range. This is comparable to the highest efficiencies now availabl e from natural gas-powered equipment. Historically, condensing oil furnaces have been ava ilable. However, design and maintenance problems associated with the use of hig her sulfur heating oil limited widespread use of condensing oil equipment. The av ailability of lower sulfur oil can lower equipment and service costs and permit expand ed use of higher efficiency warm air oil furnaces and hot water boilers. This is an imp ortant option for oil heat consumers asLow Sulfur Heating Oil: An Overview of Benefits, Co sts and Implementation Issues Page 4-2

both oil and natural gas prices continue to rise. Higher efficiency equipment can help assure that oil heat remains an economically viable option for residential consumers to maintain a mix of fuels needed for energy diversity . The use of this higher efficiency equipment will reduce the emissions of all air poll utants, including CO 2 , as less fuel is needed to produce the same heat output. Market dem and for condensing furnaces is likely to increase as prices for heating oil rise.



### 4.3. Harmonizing with Worldwide Standards Clearly, the trend in Europe, Canada and elsewhere is toward lower sulfur heating oil. Home heating oil sulfur contents are being lo wered to 0.1 percent or 1000 ppm in the near-term with a target of 500 ppm to 50 ppm in man y European countries and other nations around the world as reviewed earlier. The U.S. can keep pace with these changes and encourage fuel refiners and suppliers toward l ower sulfur products by joining with other nations in requiring lower sulfur oil. Joini ng forces with other major fuel users around the world will help to move sulfur standards to lower levels so that the many benefits of the lower sulfur product that are summa rized in this report can be realized as soon as possible. Reducing the number of products transported and stored around the world by harmonizing sulfur limits is the most expe ditious way to achieve the goal of lower sulfur fuel oil.Low Sulfur Heating Oil: An Overview of Benefits, Co sts and Implementation Issues Page 5-1



## 5. OVERVIEW OF SUPPLY AND DISTRIBUTION OF HEATING OIL IN THE NORTHEAST The continued availability of adequate supplies of heating oil from domestic sources and imports is an important consideration i n assessing the costs and benefits of establishing low sulfur standards. This section pr esents a brief overview of some key issues and potential strategies that will enable th e use of lower sulfur home heating oil in the U.S. in the near-term without significant suppl y disruptions or price spikes. In April 2005, total petroleum use in the U.S. was 20.4 million barrels per day (MMBPD) of which 13.2 MMBPD was from imports (refer ence 21). Imports accounted for approximately 65 percent or almost two-thirds o f the total petroleum products in the U.S. supplied for domestic uses. In contrast, the percentage of distillate fuel imported into the U.S. is much smaller. Table 5-1 is based on data related to distillate fuel oil supply from reference 21.

Table 5-1: US Distillate Fuel Oil Supply (Thousand Barrels per Day)

Year Refiner

Output Imports % Imports 2002 3,592 267 7.4 2003 3,707 333 9.0 2004 3,819 320 8.4 2005 3,627 384 10.5 (Jan to April 2005)

Distillate fuel use in the U.S. is less than 20 per cent of total petroleum use. The percentage of distillate fuel oil imported to U.S. from 2002 to 2005 ranged from 7.4 to 10.5 percent. This does not include exports of dis tillate fuel oil that ranged from 87 to 112 thousand barrels per day, or changes in stocks. The percentage of imported fuel is considerably higher in the Northeast where the majo rity of the nation’s heating oil is consumed, especially during periods of peak demand. Nationally, residential distillate fuel oil consump tion is only a small percentage of total U.S. distillate use, ranging from 10.7 to 11. 4 percent of the total from 1999 to 2003 (reference 22). Residential consumption represents less than two percent of total U.S. petroleum use. Highway diesel fuel consumption is five times higher than that of residential distillate, ranging from 55.5 to 58 per cent of total U.S. distillate demand for the same time period. However, the situation in th e Northeast is dramatically different where heating oil represents 54 percent of total de mand for #2 distillate oil, compared to 38 percent for highway diesel. Distillate fuel oil is brought into the Northeast f rom a combination of sources that include a pipeline that runs from the Gulf States t o New Jersey, refineries in New Jersey and Pennsylvania, imported fuel from Canada by truc ks, and from other countries by tanker. Distillate imports come from three main so urces: Canada, the Virgin Islands, and Venezuela with a combine volume of 196 thousand bar rels per day for the peak year from 2000 to 2003. These three countries provide about two-thirds of total distillate imports to the Northeast on an annual average basis (reference 23).Low Sulfur Heating Oil: An Overview of Benefits, Co sts and Implementation Issues Page 5-2

An important consideration regarding a requirement for lower sulfur heating oil is the availability of lower sulfur distillate fuel im ports during times of peak fuel consumption, in January and February when the outdo or temperature is the coldest. A presentation by Allegro Energy Consulting on August 23, 2004 (reference 23) compared the annual percentage of imported distillate fuel o il (high sulfur) in the Northeast to the percentage of total demand met by domestic refiners . Table 5-2 summarizes this information.

Table 5-2: Source of Annual Distillate Fuel Oil Supplies on the East Coast (%)

Year East Coast

Refineries Golf Coast

Receipts Imports

2000 39% 36% 24%

2001 33% 38% 29%

2002 37% 37% 26%

2003 34% 37% 29%

The annual percentage of high sulfur distillate oil imports used for heating ranged from 24 to 29 percent from 2000 to 2003. This is h igher than the national average for all distillate fuel oil that ranged from 7.4 to 10.5 pe rcent. The percentage of imports to the East Coast during the first quarter of the years 20 00 to 2003 when the peak demand occurs are shown in Table 5-3 (Reference 23).

Table 5-3: Peak Distillate Fuel Oil Imports (%)

Year To East

Coast

2000 30%

2001 41%

2002 24%

2003 39%

These data indicate a significant year-to-year fluc tuation in wintertime demand met by imports. In 2002, imports accounted for 24 percent of peak quarter demand, which is similar to the average annual East Coast v alues. By contrast, 41 percent of peak demand was met by imports in 2001. The peak volume of imported distillate fuel oil to the East Coast, approximately 400 thousand BPD, occ urred during the first quarter of 2001. It is important to note that distillate stoc ks were not available to meet the peak demand in 2001, as it was in subsequent years, whic h caused imports to increase.Low Sulfur Heating Oil: An Overview of Benefits, Co sts and Implementation Issues Page 5-3

The Allegro presentation indicates that about two-t hirds of distillate imports to the Northeast during the peak year come from Canada, th e Virgin Islands, and Venezuela that supply 74, 71, and 51 thousand BPD of distilla te fuel, respectively. The next largest suppliers of imported fuel have been: Europe at 31 TBPD; Russia at 28 TBPD; Africa at 14 TBPD; and Asia, South America, Caribbean, Middle East, and Mexico for a total of 27 TBPD. Concern has been expressed regarding the ability of offshore marketers to supply lower sulfur distillates fuel as needed to m eet peak demand in the near-term. Russia and Africa are two historic suppliers that a re not expected to lower sulfur content of their distillate fuels in the near-term. Howeve r, together, they supplied only about 14 percent of imports during the peak year examined. It seems likely that other suppliers will be able to make up the difference. However, d uring episodic cold spells, the demand for imports can be significantly higher than the fi rst quarter averages discussed above. Based on the concern expressed by industry represen tatives about potential nearterm adverse supply impacts associated with a low s ulfur heating oil requirement, the Northeast states are assessing potential strategies for ensuring needed supplies during peak heating demand periods. These include: (1) i ncreasing pre-season stocks of lower sulfur fuel oil; (2) increasing imports from countr ies with lower sulfur standards; (3) permitting seasonal averaging of sulfur levels; (4) blending of lower sulfur distillate with higher sulfur imports; and (5) introducing greater amounts of domestic biofuels into the market over time. The Irving presentation (reference 24) indicates th at during peak heating demand, in the 2001 to 2004 period, heating oil stocks help ed supply the needed fuel. Fuel stocks supplied approximately 200 thousand BPD for that ti me period. This limited the amount of imports during periods of peak demand between 20 02 and 2004. The exception was in 2001, when adequate distillate stocks were not avai lable, and the peak demand for imports increased to about 400 thousand BPD. There fore, building adequate stocks of distillate fuel at the start of the heating season is an important mechanism for lowering reliance on imports. Some sources of imported distillate oil may not be able to supply the lower sulfur fuel oil in the near-term, but other sources are ex pected to have low sulfur product available. For example, European countries are lea ding the way with 0.1percent sulfur oil required in 2008. Canada plans to meet the EU target, and other nations are also expected to meet the lower sulfur mandates. Small increases in imports from some of the larger suppliers who will produce reduced sulfur fu el can compensate for the countries that lag in sulfur reduction. Seasonal averaging would diminish supply constraint s by allowing providers to bring in “non-specification” fuel during periods of peak demand as long as the higher sulfur gallons are offset by lower sulfur fuel over the course of the heating season. The objective is to have an average seasonal or yearly fuel delivery that meets the new sulfur limit. This provision permits flexibility when fue l supplies are tight and fuel marketers must rely more on imports to meet the heating deman d. Fuel blending is another approach for meeting lower fuel sulfur standards. The ultra-low sulfur (ULS) or 15 ppm standard for highw ay use is approaching and diesel fuel with very low sulfur content will be widely availab le. If this lower sulfur product isLow Sulfur Heating Oil: An Overview of Benefits, Co sts and Implementation Issues Page 5-4

added to a higher sulfur stock, the average sulfur content drops rapidly. For example, a blend of 80 percent fuel with 500 ppm sulfur and 20 percent 15 ppm fuel produces an average sulfur content of 403 ppm. This fuel blend ing method can be used to comply with lower sulfur standards for heating oil. It is important to remember that in the U.S., diesel production and fuel use is approximately fiv e times higher than home heating oil use. Therefore, if all home heating oil was blende d with 20 percent ULS diesel, it would require only about 4 percent of the diesel supply. In reality, much less than 4 percent of the ULS diesel supply would be needed, given the ot her compliance methods available. The supply of imported fuel oil is strongly depende nt on the fuel price differential. Historically, the volume of net impo rts increases as the price of heating oil increases on spot markets. After October 1989, the heating oil spot market price increased by 5 to 10 cents per gallon and the volum e of imports doubled from less than 250 to 500 thousand BPD. A similar increase in imp orts occurred after October 2002. Even increases of 5 cents per gallon have historica lly produced substantial increases in the rate of distillate fuel imports. Higher fuel o il prices for the lower sulfur product must be minimized so that the balance between oil, natur al gas and other energy sources is not disrupted. The strong relationship between distill ate import rates and changes in fuel prices suggests that imports could help offset temp orary fuel shortages during times of peak demand. Many environmental, public health, and equipment se rvice cost benefits are produced by using lower sulfur home heating oil. T he use of lower sulfur distillate heating oil is gaining acceptance, with Europe, Can ada and other nations leading the way, much as the U.S. led the way for lower sulfur diese l fuel. An immediate question is how much can the sulfur limits be lowered without distu rbing normal fuel supplies around the world. The good news is that distillate heating oi l in the U.S. represents a much smaller fraction of the barrel than diesel fuel use whose s ulfur content has already been reduced to 500 ppm and is slated to go to 15 ppm beginning in 2006. The challenge is to develop a plan for implementing lower sulfur heating oil st andards that will minimize supply problems in the Northeast especially during times o f peak heating demand in January and February.Low Sulfur Heating Oil: An Overview of Benefits, Co sts and Implementation Issues Page 6-1



## 6. CONCLUSIONS The Northeast states are in the process of developi ng long-term strategies to meet national ambient air quality standards and visibili ty goals and regional targets for mercury and greenhouse gas reductions. As part of the planning effort, a wide range of pollution control strategies are being evaluated. Residential and commercial space heating with fuel oil has been identified as an imp ortant source of emissions. Given the relative lack of regulation of this sector, the imp lementation of lower sulfur fuel standards appears to represent a cost-effective emission redu ction option.

The emissions from residential and commercial oil h eating contribute to ozone and particulate matter formation, mercury depositio n and the build up of greenhouse gasses in the atmosphere. Given the impracticality of applying source-by-source emission control technology, the best option for re ducing emissions from fuel oil heaters is the introduction of cleaner-burning fuel.

SO 2 emission reductions of 75 percent can be achieved by lowering the sulfur content of heating oil from current levels to 500 p pm. A ten percent reduction in NO x emissions from this source sector can also be achie ved. The benefits of this approach are realized immediately upon introduction of the clean er fuel and therefore can help states meet specific near to mid-term emission reduction t argets. The Northeast states are also evaluating the merits of blending biofuels with lower sulfur heating oil to improve the emission characte ristics and open up the market for domestically produced clean-burning renewable fuels . Blending twenty percent biodiesel with 80 percent 500 ppm sulfur #2 distillate furthe r lowers SO 2 and PM emissions compared to 500 ppm sulfur heating oil and doubles the NO x benefits. The addition of twenty percent soy-based biodiesel also lowers gree nhouse gas emissions by almost twenty percent and through dilution, reduces averag e mercury concentrations in the emission stream. The significant emission reductions associated with the introduction of lower sulfur heating oil standards can be achieved in a c ost-effective manner. The incremental cost of 500 ppm highway diesel fuel has averaged 1. 5 cents per gallon more than heating oil over the past decade. Further, the use of lowe r sulfur heating oil reduces the fouling of heating oil equipment and consequently extends m aintenance intervals. Assuming that maintenance is needed only every third year, rather than annually, the cleaning cost savings are projected to be two to three times grea ter than the added fuel cost. With the recent increase in fuel oil cost, the 1.5 cent per gallon increment is a smaller percentage of total heating oil cost. The volatile nature of heating supply and demand pr esents unique challenges to the fuel oil industry. The success of a low sulfur fuel oil program is predicated on meeting these challenges. The Northeast states are assessing a variety of business strategies and regulatory approaches that could be used to minimize any potential adverse supply and price impacts that could result from a r egional 500 ppm sulfur standard for heating oil. Suppliers can increase pre-season res erves and look to increase imports from offshore refiners producing low sulfur product. Bl ending domestically produced biodiesel into heating oil offers opportunity to re duce imports, stabilize supplies andLow Sulfur Heating Oil: An Overview of Benefits, Co sts and Implementation Issues Page 6-2

minimize supply-related price spikes. Air quality regulators are also considering permitting seasonal averaging of sulfur content whi ch would allow higher sulfur imports to be brought to the Northeast market during period s of peak demand. Over the course of the year, the higher sulfur fuel would have to be o ffset by heating oil with a sulfur content below the standard. The analysis summarized in this White Paper support s the Northeast states conclusion that significant reductions in SO 2 , NO x , PM and CO 2 emissions can be achieved by mandating lower sulfur heating oil. Im portantly, these reductions can achieved at an overall savings to the consumer. Ad ding the public health and environmental benefits of a lower sulfur fuel furth er substantiate the favorable costbenefit ratio of a regional 500 ppm sulfur heating fuel program.Low Sulfur Heating Oil: An Overview of Benefits, Co sts and Implementation Issues Page 7-1



## 7. REFERENCES

1. Greenhouse Gas Reductions and the Oilheat Research Program at Brookhaven National Laboratory, Technical Update, Oilheat Manu facturers Association, John E. Batey, 2001.

2. State Energy Data Report, US Department of Energy, Energy Information Administration, Publication DOE/EIA-0214(99), May 2 001

3. Direct Measurement of Overall Efficiency and Annual Fuel Consumption of Residential Oil Boilers, J.E. Batey, T.W. Allen, R. J. McDonald, R.J. Hoppe, F.J. Salzano, and A.L. Berlad, Brookhaven National Labor atory report 50853, January 1978.

4. Emissions Characteristics of Modern Oil Heating Equ ipment, R. Krajewski, Y.Celebi, R. Coughlin, T. Butcher, R.J McDonald, Br ookhaven National Laboratory report 52249, July 1990.

5. Compilation of Air Pollution Emission Factors, Volu me I, External Combustion Sources, US Environmental Protection Agency, Public ation AP-42, Chapter 1.3, Fuel Oil Combustion, September 1998.

6. Air Emissions from Home Oil Burners and Other Sourc es, Technical Update, Oilheat Manufacturers Association, John E. Batey, A pril 2004.

7. Memorandum of Understanding, Regional Fuel Sulfur C ontent Standards for Distillate No. 2 Heating Oil, Among the States of M aine, Massachusetts, New Hampshire, New Jersey, New York, Rhode Island and V ermont, DRAFT, February 4, 2005.

8. Heating Oils, Northrop Grumman Mission Systems, Che ryl L. Dickson, NGMS-221 PPS 2003/4, August 2003.

9. Latest Findings on National Air Quality – 2001 Stat us and Trends, US Environmental Protection Agency, Office of Air Qual ity Planning and Standards Emissions, Monitoring and Analysis Division, EPA 45 4/K-02-001, September 2002.

10. Low Sulfur Home Heating Oil Demonstration Project, Energy Research Center, Inc and Brookhaven National Laboratory, funded by the N ew York State Energy Research and Development Authority, Final Report, M arch 2005.

11. Factors Affecting Oil Burner NOx Emissions, Victor J. Turk, PE, RW Beckett Corporation, Paper No. 01-10, presented at the Oil Heat Technology Conference, BNL 52670, August 2002Low Sulfur Heating Oil: An Overview of Benefits, Co sts and Implementation Issues Page 7-2

12. Oilheat Air Emissions and the Advantages of Low Sul fur Fuel, a presentation to the New York State Department of Environmental Conserva tion by John Batey, May 30, 2003.

13. Combustion Testing of a Bio-Diesel Fuel Oil Blend i n Residential Oil Burning Equipment, work funded by the Massachusetts Oilheat Council and National Oilheat Research Alliance, John E. Batey, July 2003.

14. The Role of Home Heating Oil in Lowering Greenhouse Gases and Other Air Emissions in Connecticut, John E. Batey, submitted to the Residential, Commercial, and Industrial Working Group, Connecticut Climate C hange Stakeholders Dialogue, October 2003.

15. Weekly Petroleum Status Report, US Department of En ergy, 2003-2004.

16. Recent and 20-Year Oil and Gas Prices and Compariso n to Other Consumer Products, Technical Update, Oilheat Manufacturers A ssociation, John E. Batey, June 2004.

17. Sulfur Oxide Emissions Reduction Credits, Cantor Fi tzgerald, Daily Emissions Trading Updates, 2002 to 2003.

18. Oilheat Advantages Project – Engineering Analysis a nd Documentation, Oilheat Manufacturers Association, John E. Batey, Robert He dden, 1995

19. Fuels Report, Setting Canadian Standards for Sulfur in Heavy and Light Heating Oils, Environment Canada, June 9, 2005.

20. International Forum: Fuel oil for Heating, Cooling and Power, Fuel Standard and Issues, IWO - Institut fur wirtschaftliche Oelheizu ng e.V., Aachen, September 17, 2003.

21. Monthly Energy Review, US Department of Energy, Ene rgy Information Administration, May 2005.

22. Fuel Oil and Kerosene Sales, US Department of Energ y, Energy Information Administration, 2003

23. Global Sulfur Regulations and Heating Oil Availabil ity, Allegro Energy Consulting, presented on August 23, 2004.

24. Overview of Home Heating Oil Market, Irving Energy, presented April 1, 2005 at state/industry meeting Waltham, MA.