3. Findings by the EPA

• 3.1 Benefits and Costs
• 3.2 Diesel Supply
• 3.3 Refining Technology
• 3.4 Lubricity
• 3.5 Pipeline Management

EPA documentation on its rule includes a vast amount of information in support of the heavy-duty vehicle program and the accompanying diesel fuel sulphur requirements. A key finding in regards to the reduction of sulphur in on-road diesel was that the new heavy-duty diesel vehicle emission standards "will not be feasible without the fuel change". Other important findings by the EPA are summarized below.

The benefits of the new heavy-duty vehicle standards and the accompanying diesel sulphur reduction are very substantial. The EPA found that "benefits outweigh costs by 16 to one".

The focus of the heavy-duty vehicle program is to reduce emissions of NO_x and PM₁₀. In addition to these reductions, emissions of carbon monoxide (CO), sulphur oxide (SO_x), volatile organic compounds (VOCs) and air toxics will also be significantly reduced. Annual emission reductions when the heavy-duty vehicle program is fully implemented (c. 2030 when the vehicle fleet has completely turned over) will be significant, as shown in the table below:

These emission reductions in turn result in large health benefits for Americans⁶, as summarized below:

The EPA estimated the annualized cost of its heavy-duty vehicle program to be US $3.6 billion for the year 2010. The costs of low-sulphur diesel fuel is estimated to be between 4½ and 5 US cents per gallon or between 1.8 and 2.0 Cdn cents per litre⁷ (not including a vehicle maintenance savings of 1 US cent per gallon).

The EPA noted that there will be "significant costs" for pipeline operators and owners of storage facilities as a result of its decision to allow some high-sulphur diesel fuel in the on-road market during the transition period. In other words, some of the costs of compliance have been shifted from refiners to companies engaged in transporting and marketing of diesel fuel. However, the EPA believes that "the existing system is capable of handling two grades [of on-road diesel]... in a limited fashion during the transition period".

The rule proposed by the EPA in May 2000 had a straightforward requirement of 15 ppm effective in 2006. U.S. refiners and the U.S. Department of Energy expressed considerable concern regarding the effect of such a rule on overall supply of on-road diesel in the U.S. It was in response to this concern about supply that the EPA added the safety valve provisions to its final rule.

In its final rule, the EPA found that there would be sufficient supply even if all on-road diesel fuel were required to be 15 ppm in 2006. With the safety valve provisions included, the EPA concluded that "there is ample capability in the [U.S.] refining industry". At safety valve levels above 20%, there would be local regions of the U.S. with likely shortages of 15-ppm diesel. Given the flexibility of the credit banking and trading scheme, the EPA believes that most U.S. refineries will choose to produce either all 15-ppm or all 500-ppm on-road diesel fuel, and that more than half the refineries (presumably the smaller ones) will delay capital cost investments by some degree by buying sulphur credits.

The EPA determined that no new refining technology is needed to meet the 15-ppm requirement, although technology under development has the potential to reduce costs by up to 25%. The EPA found that all refiners will be technically capable of meeting the 15-ppm requirement with extensions to the same conventional hydrotreating technology currently used to meet the 500-ppm requirement. About 20% of U.S. refiners will likely invest in new two-stage hydrotreaters rather than revamp their current units.

On the issue of lubricity and possible effects of low-sulphur diesel on current engines, EPA found that:

The EPA decided not to include any requirements for lubricity in its low-sulphur diesel rule, but instead to rely on a voluntary approach. The EPA did however include a cost for lubricity additives of 0.2 U.S. cents per gallon in its overall cost estimates. One oil company (BP-Arco) has stated that "lubricity is addressed in all our products. We continue to work on optimizing lubricity for both performance and cost."⁸ It is expected that other companies will make similar efforts.

The EPA examined how pipelines would have to be managed to minimized contamination of low-sulphur diesel by other (much higher sulphur) fuel products. The EPA found that more careful pipeline management, including larger product interface and increased volumes of reblending contaminated batches would occur. The EPA estimated the costs of these additional pipeline and distribution system management issues, as summarized in the table below⁹ :

From the EPA's analysis, it is noted that about half of the distribution costs are associated with having a second grade of on-road diesel. Most of the remainder of the distribution costs are on-going costs related to contamination issues.

Canada differs from the U.S. in that at least one Canadian pipeline company (Trans Mountain) ships crude oil and fuel products in the same pipeline. Crude oil can have higher sulphur levels than most fuel products; however, heavy fuel oil has sulphur levels as high or higher than those of crude oil.

⁶ Appendix A provides a comparison of the U.S. benefits for the total heavy-duty vehicle and fuel program and estimates for Canada for just reducing sulphur in on-road diesel.
⁷ Appendix B provides estimates of costs for Canadian refiners based on several methodologies.
⁸ "ULSD supply, demand spreading much wider across the U.S." Diesel Fuel News, February 19, 2001, p. 3.
⁹ Source: Regulatory impact analysis for the U.S. diesel sulphur rule, EPA-420-R-00-026, chapter V, page V-124, table V.C-26.