Doe Analyst: Epa Missing The Point On Diesel Rules

Diesel Fuel News, Oct 1, 2001 by Jack Peckham

Washington, DC -- U.S. Department of Energy policy analyst Barry McNutt told the Hart World Fuels Conference here that U.S. EPA wrongly continues to focus on technical feasibility for producing ultra-low-sulfur diesel (ULSD), when the real issues are market requirements and costs.

On one hand, McNutt said he was encouraged by EPA's Assistant Administrator Jeff Holmstead suggesting here that the agency wants to improve its process and try to reduce the cost of regulations. McNutt also pointed out that the White House's national energy policy urges federal agencies to "be more intelligent and sensitive about our energy infrastructure," as DOE Deputy Secretary Frank Blake said at the Hart conference here.

Likewise, President George Bush recently signed an executive order "saying that we're supposed to pay attention to energy impacts of our rules." However, "my concern is that we haven't paid attention to infrastructure impacts" of EPA's recent clean-fuels rules, McNutt argued.

"My opinion is that EPA has only been looking at technical capability of the diesel rule, but the technology will be there [for ULSD fuel production] and we're hopeful that the light duty/heavy duty vehicle emissions technology will be there, too. But the question is: Will we get there in a sensible way? Cost matters, capital recovery matters and size [of the job required to hit the sulfur target] matters.

*'Lack of Understanding'

"I think EPA has a fundamental lack of understanding and a fundamental lack of concern about this. We're very concerned about market impacts and the behavior of industries affected by the rules. Will there be enough of this fuel? We don't have market models of how people behave, and we need a better understanding of that.

"When [EPA acting deputy director Karl Simon] said he wasn't disappointed that litigation followed these rules, I say these rules ought not to wind up in litigation. Reformulated gasoline was a better-thought-out rule -- it's possible to do these rules right, and I'm hopeful we can get it right -- and there's enormous pressure from our [DOE] deputy secretary to get this right.

"Vehicle [catalyst] technology is still not fully understood. What are the average and peak levels of sulfur that these catalysts can handle? While DOE supports the need for an average ULSD sulfur level of below 10 ppm, do we really need a 15 ppm sulfur cap? That will affect the supply of ULSD, since there will be off-spec product batches," as pipeline contamination with higher-sulfur fuels seems inevitable.

*Demand/Supply Imbalance

Likewise, EPA's mandate requiring 80% of highway diesel to be ULSD in mid-2006 will produce vastly more gallons of fuel required for the rather small number of catalyst-equipped engines in 2007 -- but potentially not enough total fuel for all the other engines, he said.

EPA could instead mandate a much smaller percentage of ULSD production -- perhaps starting even earlier than 2006 -- coupled with a retail availability mandate, at far lower total cost to industry and consumers, he argued.

While retailers will howl over the cost of installing double-storage during such a transition, and auto and engine makers will complain that widespread misfueling likely would result, the introduction of unleaded gasoline 25 years ago (alongside leaded gasoline) shows that such a transition can be workable and problems can be minimized, if regulatory will can be mustered, he argued.

On the other hand, if EPA mandates that non-road customers also use exhaust catalyst controls -- along with ULSD -- later this decade, then total demand for ULSD could increase, and "that will do the refining industry a favor," McNutt said. However, if EPA merely imposes another hefty ULSD production mandate (this time for non-road), then the same triple-threat problem -- excess ULSD supply/high fuel cost/shortage of total diesel supply -- could be made even worse.

For the near future, the question for EPA shouldn't be how to get fuels to 15 ppm sulfur, but rather try to determine "what's really necessary," he said. "To get this program working right, we need fuel at a reasonable price and widespread availability, and a refinery gate overproduction mandate doesn't meet those goals."