Nonroad
Diesel
Engine
and
Fuel
Proposal
Overview
for
the
American
Farm
Bureau
Federation
September
16,
2003
Environmental
Protection
Agency
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2
Agenda

Presentation
will
cover:


HD2007
Rule
Context
&
Nonroad
Rule
Overview

Air
Quality
Impact

Fuel
Program

Engine
Program

Cost,
Cost
Effectiveness,
and
Economic
Impact
Assessment

Economic
Benefits
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3
2007
Highway
Rule
Background

Nonroad
Tier
4
proposal
must
be
viewed
in
the
context
of
the
2007
highway
rule
which
was
finalized
three
years
ago

Systems
approach
for
fuel
and
engine
controls
to
address
significant
public
health
benefits
from
controlling
diesel
emissions

2007
Highway
Rule
Standards

15
ppm
highway
diesel
fuel
by
2006
(
80%)


Enables
use
of
advanced
emissions
technology

Particulate
matter
(
PM)
reductions
of
90%
or
better
through
use
of
catalyzed
diesel
particulate
filters
by
2007

Oxides
of
nitrogen
(
NOx)
reductions
phase
in:
averaging
50%
by
2007,

90%
or
better
by
2010
based
on
NOx
adsorber
catalysts

2007
Highway
Rule
Health
Benefits

The
program
will
prevent
annually

Over
8,300
premature
deaths

Over
750,000
respiratory
illnesses

1.5
million
lost
work
days

Monetized
benefits:
$
70
billion/
year
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4
Nonroad
Diesel
is
the
Major
Source
of
Mobile
Diesel
Pollution

Nonroad
Diesel
is
a
large
source
of
diesel
PM

Increasingly
a
focus
of
toxics
&
air
quality
concerns

High
priority
for
the
Agency

Direct
PM
reduction
potential
greater
than
for
highway

A
potential
for
major
NOx
reductions

Important
to
States'
ozone
and
future
PM
plans

Also
a
major
source
of
air
toxics

Provides
the
opportunity
for
significant
public
health
benefits
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5
Nonroad
Proposal
Overview

Developed
from
extensive
stakeholder
discussions
over
the
last
two
years

Includes
SBREFA
for
fuel
and
engine
issues

Proposal
addresses
serious
health
and
welfare
impacts
from
nonroad
diesel
fuel
and
equipment

A
systems
approach
of
reducing
NR
fuel
sulfur
levels
to
enable
high
efficiency
exhaust
aftertreatment
(
similar
to
2007
heavy­
duty
highway)


15
ppm
sulfur
nonroad
diesel
fuel
beginning
in
2010
to
enable
engine
standards

Also
500
ppm
for
nonroad
fuel
in
2007
based
on
substantial
health
benefits
from
sulfate
and
PM
reductions

Aftertreatment
based
standards
for
NR
engines
beginning
in
2011

Engine
standards
represent
reductions
of
>
95
%
PM
and
~
90%
NOx

Also
new
PM
standards
for
small
engines
beginning
in
2008
which
do
not
require
advanced
aftertreatment
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6
Benefits
Overview

When
fully
implemented
in
2030,
the
program
will
prevent
annually:


9,600
premature
deaths

16,000
nonfatal
heart
attacks

5,700
cases
of
chronic
bronchitis

8,300
hospital
admissions

14,000
annual
acute
bronchitis
attacks
in
children

nearly
1
million
lost
work
days

Comparable
to
benefits
of
2007
highway
truck
program

Will
also
help
reduce
crop
losses
from
ozone
and
improve
visibility

Overall,
on
a
dollar
basis:
$
81
billion/
year

Greatly
outweighs
$
1.5
billion/
year
program
cost
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7
Other
Considerations
for
Users

Healthier
workers
&
families­­
Those
who
live
and
work
around
diesels
will
especially
benefit
from
greatly
reduced
exhaust
exposure

Biodiesel
opportunity
for
farmers

Biodiesel
has
excellent
lubricity
and
no
sulfur

E­
diesel
will
also
benefit
due
to
its
near­
zero
sulfur
content

Improved
Engine
Durability
(
including
existing
fleet)
from
sulfur
removal

Sulfuric
acid
corrodes
cylinder
liners,
rings,
exhaust
system

Acid
also
degrades
lube
oil­­
oil
change
intervals
will
be
extended

Proposal
applies
only
to
new
equipment;
does
not
mandate
retrofits

Nonroad
and
highway
fuel
will
be
essentially
identical
for
the
first
time
in
18
years
­­
will
simplify
distribution
systems
and
on­
site
tankage
Air
Quality
Impacts
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9
Widespread
Need
for
Air
Pollution
Reductions
°
Based
on
available
1999­
2001
PM
2.5
data,
149
counties
where
74
million
people
live
nationwide
have
design
values
that
exceed
the
fine
particle
annual
standard.

°
22
million
people
live
in
counties
with
fine
PM
concentrations
greater
than
20
ug/
m3.

°
111
million
people
live
in
291
counties
with
observed
ozone
concentrations
greater
than
85
ppb
°
Most
national
parks
have
impaired
visibility
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10
Estimated
Reductions
in
PM2.5
Emissions
From
Nonroad
Diesel
Engines
(
tons/
year
in
50
States)

0
50,000
100,000
150,000
200,000
250,000
2000
2005
2010
2015
2020
2025
2030
Base
Control
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11
Comments
Received
Concerning
Exposure
to
Workers
from
Nonroad
Diesel
Engines

Northeast
States
for
Coordinated
Air
Use
Management

Presented
results
of
a
study
indicating
high
exposure
to
construction
workers
from
nonroad
equipment

Next
phase
includes
agricultural
workers
as
same
concerns
would
be
expected
to
carry
over

EPA
received
support
for
the
rule
due
to
concerns
over
worker
exposure
from
several
organizations;


AFL­
CIO
Builders
and
Construction
Trades
Dept.


Labors'
Health
and
Safty
Fund
of
North
America

International
Brotherhood
of
Teamsters

International
Union
of
Operating
Engineers

Laborers
International
Union
of
North
America
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12
Air
Toxics

final
Diesel
Health
Assessment
Document
(
HAD)
released
by
EPA's
Office
of
Research
and
Development

Expert
peer
review
by
CASAC
in
public
process

Diesel
exhaust:
likely
human
carcinogen
due
to
inhalation
at
environmental
levels

Presently
unable
to
assign
a
carcinogenic
potency,
but
EPA
has
concluded
that
diesel
exhaust
ranks
with
other
substances
that
National­
Scale
Air
Toxics
Assessment
suggests
pose
the
greatest
relative
risks

HAD
included
a
perspective
on
risk
of
a
possible
range
of
upperbound
cancer
risk:
10­
3
to
10­
5

Above
10­
4,
diesel
exhaust
would
dominate
risk
from
all
Hazardous
Air
Pollutants

Diesel
PM
contributes
to
PM­
2.5
non­
cancer
concerns

Diesel
PM
listed
as
Mobile
Source
Air
Toxic
in
2001
Nonroad
Fuel
Program
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14
Proposed
Fuel
Coverage
and
Standards

Fuel
coverage

Number
1
or
2
distillate
fuels
used
in
nonroad,
locomotive,
or
marine
diesel
engines

Number
1
distillate
fuel
(
e.
g.,
kerosene)
added
to
number
2
diesel
fuel
for
cold
flow
improvement

We
initially
were
planning
on
doing
a
one­
step
control
program,
but
oil
companies
suggested
a
two­
step
approach

Proposed
fuel
sulfur
standards

500
ppm
sulfur
beginning
June
1,
2007
for
NRLM
diesel
fuel

August
1,
2007
at
terminals

October
1,
2007
at
wholesale
facilities

15
ppm
sulfur
beginning
June
1,
2010
for
nonroad
diesel
fuel

July
15,
2010
at
terminals

September
1,
2010
at
wholesaler
facilities

Compliance
may
be
met
through
actual
production
or
credits

Considering
extending
15
ppm
std
to
L&
M
as
well

Propose
to
extend
highway
diesel
cetane
index/
aromatics
standard
to
NRLM
diesel
fuel
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15
nonroad
equipment
10%
marine
2.5%

locomotive
3.5%
low
sulfur
fuel
(
highway)
67%
regulated
since
1993
home
heating,

etc
17%

not
covered
Distillate
Fuels
covered
by
the
proposal
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16
Flexibility
Provisions

Small
refiner
flexibilities

Delays
in
nonroad
diesel
fuel
sulfur
standards

3­
year
delay
for
500
ppm
 
until
June
1,
2010

4­
year
delay
for
15
ppm
 
until
June
1,
2014

Credit
for
500
ppm
NRLM
produced
before
June
1,
2010
and/
or
for
15
ppm
nonroad
produced
before
May
31,
2012;
or

Adjustment
of
interim
gasoline
sulfur
standards
for
100%

production
of
15
ppm
NRLM
by
June
1,
2006

General
hardship
for
any
refiner:
temporary
relief
from
the
NRLM
standards
based
on
hardship
circumstances

Extreme
unforeseen
circumstances
(
e.
g.,
natural
disaster)


Extreme
hardship
circumstances
(
e.
g.,
financial
hardship)


Large
refiner
that
buys
a
small
refiner
or
one
of
its
refinery
assets
 
Propose
a
24­
month
grace
period
for
compliance
with
the
national
program
standards
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17
Special
State
and
U.
S.
Territory
Provisions

Special
provisions
for
Alaska
and
the
U.
S.
Territories

Alaska

For
Federal
Aid
Highway
System
Areas:
National
Program

For
Rural
Areas:
Propose
no
fuel
requirements,
however,
engines
certified
to
run
on
15
ppm
sulfur
fuel
must
be
fueled
with
it

Propose
to
exclude
the
U.
S.
Territories
(
American
Samoa,
Guam,
and
the
Commonwealth
of
Northern
Mariana
Islands)
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18
Proposed
Fuel
Program
Design
­
2007

Marker
added
to
heating
oil
to
keep
it
from
being
used
in
NRLM
engines

Allows
unrestricted
production
of
heating
oil

Dye
requirement
for
non­
highway
fuel
would
be
made
voluntary,

allowing
for
500
ppm
NR
and
500
ppm
highway
to
become
fungible

Refineries
that
want
to
mix
their
highway
and
nonroad
fuels
would
comply
with
a
non­
highway
baseline
percentage

Any
production
up
to
the
baseline
would
have
to
either
be
500
ppm
or
marked
as
heating
oil

Any
production
above
the
baseline
would
have
to
meet
the
highway
requirements
(
80%
at
15
ppm
/
20%
at
500
ppm)
or
be
marked
as
heating
oil

The
refinery
baseline
would
be
set
based
on
the
percentage
of
diesel
fuel
it
produced
and
dyed
during
2003
through
2005

Also
took
comment
on
designate
and
track
approach
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19
Proposed
Fuel
Program
Design
 
2010
&
2014
2010

Baseline
disappears,
marker
for
heating
oil
disappears

Marker
added
to
500
ppm
locomotive
and
marine
diesel
fuel
to
keep
it
from
being
used
in
NRLM
engines
2014+


No
markers,
no
baselines,
no
dyes
(
except
IRS)


Enforced
based
on
sulfur
level

15
ppm
in
all
highway
and
nonroad
engines

500
ppm
in
all
locomotives
and
marine
vessels

High
sulfur
only
allowed
in
heating
oil
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20
Fuel
Cost
Methodology

Refinery­
by­
refinery
analysis
which
factors
in:


Economies
of
scale
based
on
actual
high
sulfur
distillate
production
from
EIA,


Blendstock
mix:
LCO,
coker,
straight
run
&
hydrocracked

Regional
cost
inputs
and
factors,


Similar
to
cost
model
developed
for
Highway
Rule
with
some
enhancements:


Added
hydrogen
cost
model,


Added
advanced
technology,


Updated
to
year
2000
low
sulfur
and
high
sulfur
distillate
volumes.


Where
heating
oil
market
is
small
(
PADD
2,
western
PADD
3,
PADD
4),

refineries
must
produce
500
ppm
fuel

Beyond
that,
lowest
cost
refineries
in
each
PADD
assumed
to
produce
15/
500
ppm
fuel
until
demand
is
satisfied.


Costs
in
$
2002
and
based
on
7%
ROI
before
taxes
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21
Distribution
Cost
Methodology

Methodology
similar
to
that
used
for
Highway
Rule:


Need
for
lubricity
additives
same
as
for
highway
fuel
(
0.2
c/
gal)


Need
to
distribute
more
fuel
due
to
reduced
energy
density

Hydrotreating
­
0.7%,
advanced
desulfurization
techs.
­
0.35%


Marker
cost
conservatively
estimated
to
be
same
as
that
for
IRS
red
dye
(
0.2
c/
gal)
likely
much
lower

Program
designed
to
maintain
existing
slate
of
diesel
fuel
grades

No
new
tankage
except
for
a
limited
number
of
bulk
plants

No
new
product
downgrade
or
transmix
Engine
Program

Standards
and
Implementation

Technological
Feasibility

Averaging,
Banking
&
Trading,

Flexibility
for
Equipment
Manufacturers,

Small
Business
Issues
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23
Engine
Standards
Program

Standards­
setting
is
based
on
engine
power
categories
as
in
past
nonroad
diesel
rules

Recognizes
limits
to
applying
sophisticated
technology.


Allows
for
phase­
ins
to
spread
workload
and
help
transfer
technology
from
highway
sector

workload
is
a
key
issue
­­


There
are
>
600
equipment
manufacturers
producing
>
7000
diesel
machine
models

Past
rules
in
1994
and
1998
set
Tier
1,
2
&
3
standards
(
see
next
p.).


This
proposal
sets
Tier
4
standards
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24
Phase­
In
of
Nonroad
Diesel
Standards
1998
2000
2002
2004
2006
2008
2010
Tier
3
Similar
to
highway
2004
Similar
to
highway
1998
Tier
1
Tier
2
2012
2014
Similar
to
highway
2007
(
advanced
aftertreatment)

Tier
4
1996
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25
Tier
4
Engine
Standards

Apply
to
nonroad
diesels
of
all
hp
sizes.


but
not
locomotive
or
marine
diesels
(
separate
programs).


Are
matched
to
the
proposed
fuel
changes

500
ppm
sulfur
fuel
in
mid­
2007:

PM
standards
(
not
PM
filter­
based)
for
<
75
hp
in
2008.


15
ppm
sulfur
fuel
in
mid­
2010:

begin
phase­
in
of
PM
filter/
NOx­
adsorber­
based
standards
in
2011.


NOx
&
NMHC
standards
phase­
in
between
2011
and
2014

Proposal
would
result
in
large
in­
use
PM
and
NOx
reductions
on
a
perengine
basis
 
similar
to
highway
program

>
95
%
PM
and
~
90%
NOx
compared
to
Tier
3
engines.


Large
reductions
in
toxic
hydrocarbons
as
well.
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26
Treatment
of
Small
Engines

Directed
toward
PM
and
NOx
control
technologies
for
<
75
hp
engines

Pull­
ahead
PM
requirements
for
2008

No
new
NOx
requirements
for
engines
under
75
hp
until
2013

Technology
review
to
include:


feasibility
review
for
0.02
PM
standard
on
25­
75
hp
engines

potential
for
adopting
PM
filter­
based
standards
for
engines
<
25
hp

potential
for
adopting
NOx
adsorber­
based
standards
for
engines
<
75
hp

2007
timeframe
allows
consideration
of
1st
year
of
highway
technology
experience
(
heavy­
duty
and
Tier
2
light­
duty)


Any
adjustment
in
standards
to
be
conducted
via
rulemaking
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27
Clean
Diesel
Engine
Technologies

New
technologies
for
diesel
engines
enabled
by
low
sulfur
diesel
fuel
(<
15ppm
S)
provide
dramatic
reductions
in
emissions
(>
90%)


Catalyzed
Diesel
Particulate
Filters
(
CDPFs)


NOx
Adsorber
Catalysts

These
technologies
form
the
basis
for
the
on­
highway
HD2007
standards
and
the
proposed
nonroad
Tier
4
standards.


The
Clean
Air
Act
mandates
technology
forcing
nonroad
standards

"
Such
standards
shall
achieve
the
greatest
degree
of
emission
reduction
achievable
through
the
application
of
technology
 
the
Administrator
shall
first
consider
standards
equivalent
in
stringency
to
standards
for
comparable
motor
vehicles
or
engines
 "
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28
Catalyzed
Diesel
Particulate
Filter
Mechanical
Filtration
of
PM
(~
like
an
air
filter
in
your
house)

Holds
soot
in
the
excess
O
2
exhaust
until
it
can
be
oxidized
(~
provides
residence
time
for
soot
to
burn)

Soot
burn
rate
>
soot
accumulation
rate
or
filter
will
"
plug"

Catalyst
promotes
faster
burn
Catalysts
are
sulfur
sensitive
­
oxidize
sulfur
to
sulfate
PM
­
are
poisoned
by
sulfur
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29
A
vivid
demonstration
of
what
this
is
all
about

Unused
test
filter

Typical
test
filter
 
current
standards

Test
filter
 
Tier
4
PM
standards
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30
Clean
Diesel
Technologies

CDPFs
can
virtually
eliminate
diesel
PM

Can
achieve
gasoline
like
levels
or
lower

Requires
low
sulfur
diesel
fuel

May
require
supplemental
heat
to
promote
soot
oxidation

We
have
projected
regeneration
system
technologies
for
all
Tier
4
nonroad
engines
(>
25
hp)
based
on
Tier
3
engine
control
technologies

NOx
Adsorbers
can
reduce
diesel
NOx
by
more
than
90
percent

Similar
to
gasoline
TWC
levels

Requires
low
sulfur
diesel
fuel

Requires
integration
with
engine
hardware
based
on
Tier
3
developments,
control
algorithms
from
on­
highway
HD2007
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31
Equipment
OEM
Flexibility
Program

TPEM
Flexibility
program
was
designed
primarily
to
address
concerns
of
small
equipment
manufacturers,
however
it
is
available
to
all
equipment
manufacturers

This
helps
the
equipment
manufacturers
transition
to
the
new
engine
standards

Small
volume
equipment
manufacturers
are
provided
additional
time
to
use
current
Tier
engines

Large
equipment
manufacturers
can
use
this
for
the
small
volume
equipment
lines

Reduce
costs
by
helping
manufacturers
align
equipment
redesigns
with
their
design
cycles
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32
Equipment
OEM
Flexibility
Program

Same
provisions
as
Tier
2/
Tier
3
Program

Two
main
program
options
­
7
year
program
duration

80%
of
1
year's
production

700
units
(
max.
200
in
any
1
year)


Hardship
Relief
provision
is
being
retained
from
Tier
2/
Tier
3
Program

Program
is
available
to
all
equipment
manufacturers
and
they
can
use
the
program
to
distribute
engineering
workload
and
reduce
costs

This
program
has
been
considered
important
to
the
industry
and
industry
has
asked
that
this
program
be
continued.
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33
Averaging,
Banking
and
Trading
(
ABT)


ABT
allows
engine
manufacturers
to
meet
the
standards
on
average

Banking
allows
manufacturers
to
average
over
model
years

Trading
allows
manufacturers
to
average
across
manufacturers

ABT
is
currently
allowed
for
Nonroad
Diesel
engines

We
are
retaining
the
basic
framework
of
the
current
ABT
program,

with
some
adjustments
as
described
in
the
proposal

We
are
also
seeking
comment
on
allowing
credits
from
Nonroad
retrofits
to
be
used
in
the
ABT
program

Would
be
a
voluntary
option
for
engine
manufacturers

Beyond
this
request
for
comment,
the
Tier
4
proposal
has
no
other
requirements
for
retrofits
on
nonroad
equipment
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34
Proposed
Provisions
for
Small
Business
(
Engine
Companies,
Equipment
Companies
and
Refineries)


Proposal
contains
a
number
of
provisions
for
small
buisnesses,

consistent
with
the
recommendations
of
the
SBREFA
panel

Small
Engine
Manufacturers

Transition
provisions/
flexibilities

PM

<
25
hp
&
75­
175
hp:
3
year
delay

25­
75
hp:
1
year
delay

NOx

<
25
hp
&
50­
75
hp:
no
special
provisions
proposed
(
there
is
no
change
in
the
standards
for
these
categories)


25­
50
hp
&
75­
175
hp:
3
year
delay

Hardship
provisions

Additional
lead
time
for
up
to
2
years,
after
other
allowances
are
exhausted
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35
Small
Businesses
­
Equipment
Manufacturer
Provisions

Small
Equipment
Manufacturers

Transition
provisions/
flexibilities

Similar
to
1998
Rulemaking

`
Borrowing'
of
Tier
4
flexibilities
for
the
Tier
2/
3
timeframe
allowed
for
all
manufacturers

Comment
requested
on
the
need
for
"
application
specific"

flexibilities

Hardship
provisions

Hardship
provision
of
an
additional
2
years
of
relief
is
being
offered
to
all
manufacturers
Costs,
Costs
per
Ton,
and
Economic
Impact
Assessment
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QUOTE
37
Diesel
Fuel
Refiner,

Distributor,
&
User
Impacts

500
ppm
avg
fuel
cost
(
ref,
distr,
additives):
2.4
c/
gal

15
ppm
Average
fuel
cost:
4.8
¢
/
gal

Maintenance
savings
to
nonroad
equipment
operator
from
cleaner
fuel:
3.3

Net
consumer
cost
of
fuel
change:
1.5
¢
/
gal

Fuel
costs
expected
to
vary
by
region
of
the
country
(
3.0
to
8.9
¢
/
gal)
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38
Maintenance
Savings

Nonroad
equipment
is
sold
into
world
markets
with
different
fuel
sulfur
levels
(<
500ppm
in
California,
<
5,000
in
USA,
>
10,000
in
some
regions).


Nonroad
engine
manufacturers
currently
recommend
different
service
intervals
for
oil
change
depending
upon
fuel
sulfur
level.


Based
on
manufacturer
recommended
service
intervals
as
a
function
of
expected
fuel
sulfur
levels,
EPA
estimated
the
oil
change
interval
that
would
be
expected
for
a
change
in
nonroad
diesel
fuel
sulfur.


EPA
estimated
that
a
change
from
today's
nonroad
diesel
fuel
sulfur
level
to
15
ppm
sulfur
fuel
will
result
in
a
35%
extension
in
oil
changes,
which
we
estimate
to
be
a
3.3
cents/
gallon
savings

This
extension
is
reduced
proportionally
for
500
ppm
sulfur
fuel.
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39
Estimating
Engine
and
Equipment
Costs

RIA
provides
a
detailed
description
of
our
cost
methodology

The
data
used
in
EPA's
engineering
analysis
of
the
technology
costs
is
extensive
and
is
documented
in
the
draft
RIA.
It
includes:


Catalyst
manufacturer
cost
estimates
and
review

Outside
expert
contractor
reports

Submissions
and
review
by
engine
and
nonroad
equipment
manufacturers

Previous
EPA
rulemakings
(
which
included
stakeholder
review)


Engineering
and
scientific
literature

Independent
engine
and
equipment
databases

Engine
manufacturer
certification
data

New
technology
costs
estimated
to
be
approximately
1­
2%
of
total
equipment
costs

Program
designed
to
phase
in
over
seven
years
so
costs
will
be
spread
as
well

Flexibilities
provide
additional
opportunities
to
spread
costs
until
2018
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­
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QUOTE
40
Aggregate
Costs
of
Rule
­$
500
$
0
$
500
$
1,000
$
1,500
$
2,000
2004
2008
2012
2016
2020
2024
2028
2032
2036
Year
Program
Costs
($

Millions)
Engine
Costs
Equipment
Costs
Fuel
Costs
Net
Maintenance
Costs
Total
Program
Costs
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­
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NOT
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OR
QUOTE
41
Cost
per
Ton

Cost
of
program
(
2004
thru
2036
NPV
at
3%
discount)


$
20.7B

Cost
per
Ton
(
Aggregate
2004­
2036
at
3%
discount)


$
810
per
ton
NOx+
NMHC

$
8,700
per
ton
PM

$
200
per
ton
SOx

Cost
per
Ton
(
Long
term
in
year
2036)


$
530
per
ton
NOx+
NMHC

$
6,900
per
ton
PM

$
170
per
ton
SOx
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42
Economic
Impact
Analysis

Purpose
of
EIA:
estimate
potential
economic
impacts
of
the
proposal
on
producers
and
consumers
of
affected
engines,
equipment
and
fuel

Market
analysis:
estimated
price,
quantity
impacts

Welfare
analysis:
estimated
social
welfare
impacts
­
who
bears
the
burden?


Methodology
used
is
consistent
with
other
OAR
EIA's

Stationary
sources;
recent
Recreational
Vehicle
rule

Proposal
affects
many
entities,
so
the
model
is
complex

More
than
50
inter­
related
markets
are
modeled

Engine
markets:
7
hp
categories

Equipment
markets:
7
user
categories

Fuel
markets:
4
PADD
categories

Application
user
markets:
3
categories

All
relationships
are
estimated
simultaneously

Multi­
market
model
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43
Economic
Impact
Analysis

Model
based
on
economic
relationships
between
supply
and
demand

Model
begins
with
current
supply
and
demand
relationships

Model
is
then
shocked
by
the
estimated
compliance
costs

Engines
and
equipment:
variable
costs
only

Fixed
costs
are
primarily
R&
D
costs
that
would
be
incurred
regardless
of
the
proposal
­­
mfrs
will
not
increase
R&
D
because
of
the
rule

But
fixed
costs
are
added
into
welfare
analysis
because
they
are
an
opportunity
cost

Fuels:
average
total
(
variable+
fixed)
costs

Model
settles
on
new
equilibrium
price
and
quantity

This
information
is
used
to
estimate:


Model
impacts

Expected
change
in
price

Expected
change
in
quantity
produced

Social
cost
impacts

Expected
change
in
social
welfare
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44
Economic
Impact
Analysis

Social
Cost
Results

2013:
Expected
social
costs
are
about
$
1.1billion
($
2001)


87%
borne
by
producers
and
consumers
in
the
application
markets

8%
borne
by
equipment
manufacturers

This
is
primarily
the
fixed
costs
for
equipment
redesign

3%
borne
by
engine
manufacturers

This
is
primarily
the
fixed
costs
for
R&
D

1%
borne
by
fuel
refiners

2020:
Expected
social
costs
are
about
$
1.3
billion
($
2001)


99%
borne
by
producers
and
consumers
in
the
application
markets

In
the
long
run,
as
expected,
all
costs
are
passed
on
to
the
consumers
of
goods
and
services
that
use
diesel
equipment
and
fuel
Economic
Benefits
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46
Economic
Benefits

Total
annual
monetary
benefits
roughly
$
80
billion
in
2030
for
proposal

Net
present
value
of
program
in
2004
of
$
540
billion

This
estimate
does
not
include
visibility
benefits
or
ozone
benefits;
assumes
3%
discount
rate

Benefits
calculation
relies
on
air
quality
modeling
and
a
benefits
transfer
technique
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47
Reductions
in
Incidence
of
PM­
related
Adverse
Health
Effects
Associated
with
the
Proposed
Nonroad
Diesel
Engine
Standards
Endpoint
Avoided
IncidenceAA
(
cases/
year)

2020
2030
Premature
mortalityB
­
Long­
term
exposure
(
adults,
30
and
over)
5,200
9,600
Chronic
bronchitis
(
adults,
26
and
over)
3,600
5,700
Non­
fatal
myocardial
infarctions
(
adults,
18
and
older)
9,200
16,000
Hospital
admissions
 
Respiratory
(
adults,
20
and
older)
C
2,400
4,500
Hospital
admissions
 
Cardiovascular
(
adults,
20
and
older)
D
1,900
3,800
Emergency
Room
Visits
for
Asthma
(
18
and
younger)
3,600
5,700
Acute
bronchitis
(
children,
8­
12)
8,400
14,000
Lower
respiratory
symptoms
(
children,
7­
14)
92,000
150,000
Upper
respiratory
symptoms
(
asthmatic
children,
9­
11)
77,000
110,000
Work
loss
days
(
adults,
18­
65)
650,000
960,000
Minor
restricted
activity
days
(
adults,
age
18­
65)
3,900,000
5,700,000
A
Incidences
are
rounded
to
two
significant
digits
.

B
Premature
mortality
associated
with
ozone
is
not
separately
included
in
this
analysis
C
Respiratory
hospital
admissions
for
PM
includes
admissions
for
COPD,
pneumonia,
and
asthma.

D
Cardiovascular
hospital
admissions
for
PM
includes
total
cardiovascular
and
subcategories
for
ischemic
heart
disease,
dysrhythmias,
and
heart
failure.
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OR
QUOTE
48
Additional
unquantified
benefits
Pollutant
Unquantified
Effects
PM
Health
Infant
mortality
Low
birth
weight
Changes
in
pulmonary
function
Chronic
respiratory
diseases
other
than
chronic
bronchitis
Morphological
changes
Altered
host
defense
mechanisms
Cancer
Non­
asthma
respiratory
emergency
room
visits
PM
Welfare
Visibility
in
many
Class
I
areas
Residential
and
recreational
visibility
in
non­
Class
I
areas
Soiling
and
materials
damage
Damage
to
ecosystem
functions
Ozone
Health
Premature
mortalitya
Increased
airway
responsiveness
to
stimuli
Inflammation
in
the
lung
Chronic
respiratory
damage
Premature
aging
of
the
lungs
Acute
inflammation
and
respiratory
cell
damage
Increased
susceptibility
to
respiratory
infection
Non­
asthma
respiratory
emergency
room
visits
Increased
school
absence
rates
Ozone
Welfare
Decreased
yields
for
commercial
forests
(
for
example,
Western
US)

Decreased
yields
for
fruits
and
vegetables
Decreased
yields
for
non­
commercial
crops
Damage
to
urban
ornamental
plants
Impacts
on
recreational
demand
from
damaged
forest
aesthetics
Damage
to
ecosystem
functions
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­
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NOT
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OR
QUOTE
49
Additional
unquantified
benefits
Pollutant
Unquantified
Effects
Nitrogen
and
Sulfate
Deposition
Welfare
Impacts
of
acidic
sulfate
and
nitrate
deposition
on
commercial
forests
Impacts
of
acidic
deposition
to
commercial
freshwater
fishing
Impacts
of
acidic
deposition
to
recreation
in
terrestrial
ecosystems
Reduced
existence
values
for
currently
healthy
ecosystems
Impacts
of
nitrogen
deposition
on
commercial
fishing,
agriculture,
and
forests
Impacts
of
nitrogen
deposition
on
recreation
in
estuarine
ecosystems
Damage
to
ecosystem
functions
CO
Health
Premature
mortalitya
Behavioral
effects
HC
Healthbb
Cancer
(
benzene,
1,3­
butadiene,
formaldehyde,
acetaldehyde)

Anemia
(
benzene)

Disruption
of
production
of
blood
components
(
benzene)

Reduction
in
the
number
of
blood
platelets
(
benzene)

Excessive
bone
marrow
formation
(
benzene)

Depression
of
lymphocyte
counts
(
benzene)

Reproductive
and
developmental
effects
(
1,3­
butadiene)

Irritation
of
eyes
and
mucus
membranes
(
formaldehyde)

Respiratory
irritation
(
formaldehyde)

Asthma
attacks
in
asthmatics
(
formaldehyde)

Asthma­
like
symptoms
in
non­
asthmatics
(
formaldehyde)

Irritation
of
the
eyes,
skin,
and
respiratory
tract
(
acetaldehyde)

Upper
respiratory
tract
irritation
and
congestion
(
acrolein)

HC
Welfare
Direct
toxic
effects
to
animals
Bioaccumulation
in
the
food
chain
Damage
to
ecosystem
function
Odor
STAFF
DRAFT
­
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QUOTE
50
Comparison
of
Benefits­
Costs
$
0
$
20,000
$
40,000
$
60,000
$
80,000
$
100,000
2007
2009
2011
2013
2015
2017
2019
2021
2023
2025
2027
2029
Million
2000$
Benefits
Costs
Net
Benefits
STAFF
DRAFT
­
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NOT
CITE
OR
QUOTE
51
Conclusions

Strong
air
quality
case
for
baseline

Future
PM
and
ozone
nonattainment

Health
and
public
welfare
effects

Large,
positive
net
benefits
for
program

Net
Present
Value
in
2004
of
the
Stream
of
Benefits
and
Costs
(
Billions
of
2000$)


Social
Costs
$
13
billion

Social
Benefits
$
540
billion

Net
Benefits
$
520
billionA

A
Numbers
do
not
add
due
to
rounding
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52
Next
Steps

Public
hearings
held
in
June
(
New
York,
Chicago
&
Los
Angeles

Public
comment
period
ended
on
August
20

>
150,000
written
comments
received

EPA
analyzing
comments

Final
rule
planned
for
Spring,
2004

Will
also
be
issuing
an
ANPRM
addressing
locomotive
and
marine
emission
controls
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­
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53
Appendix
STAFF
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­
DO
NOT
CITE
OR
QUOTE
54
hp
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
<
25
Tier
1
25­
75
Tier
2
Tier
3
0.01
PM
175­
750
50%:
Tier
3
NOx+
NMHC
0.30
NOx
>
750
Tier
1
Tier
2
50%
Tier
2
50%
0.01
PM
&
0.30
NOx
100%
0.01
PM
50%
0.30
NOx
0.22
PM,
Tier
2/
3
NOx+
NMHC
0.30
PM,
Tier
2
NOx+
NMHC
75­
175
0.02
PM,
3.5
NOx+
NMHC
Tier
4
Engine
Emission
Standards
(
g/
bhp­
hr)

For
>
75
hp:
Percentages
are
U.
S.­
directed
production
required
to
comply
with
the
Tier
4
standards
in
the
indicated
model
year.
Averaging
allowed
as
in
highway
program.
0.14
g/
bhp­
hr
NMHC
standard
applies
to
any
engine
subject
to
a
0.30
g/
bhp­
hr
NOx
standard.

For
25­
75
hp:
3.5
g
NOx+
NMHC
is
the
existing
Tier
3
standard
level
for
the
50­
75
hp
engines;
in
2013
it
would
apply
to
the
25­
50
hp
engines
as
well.

For
50­
75
hp:
A
manufacturer
has
the
option
of
skipping
the
0.22
g/
bhp­
hr
PM
standard
for
all
50­
75
hp
engines;
the
0.02
g/
bhp­
hr
PM
standard
would
then
take
effect
one
year
earlier
for
all
50­
75
hp
engines
(
in
2012).
STAFF
DRAFT
­
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NOT
CITE
OR
QUOTE
55
Fuel
Credit
Banking
and
Trading
Provisions

Credits
for
early
500

Generation:
from
June
1,
2006
­
June
1,
2007
above
a
refinery's
highway
obligation
(
100%
­
non­
highway
baseline)


Use:
to
produce
high
sulfur
NRLM
from
June
1,
2007
through
May
31,
2010

Any
high
sulfur
NRLM
must
be
segregated
in
distribution
until
dyed
for
IRS
and
properly
labeled

Credits
can
be
banked
for
use
to
produce
500
ppm
from
June
1,
2010
through
May
31,
2012

Credits
for
early
15

Generation:
from
June
1,
2009
through
May
31,
2010

Use:
to
produce
500
ppm
from
June
1,
2010
through
May
31,
2012

Post­
2010
500
ppm
nonroad
must
be
segregated
through
to
the
end­
user
and
properly
labeled

Small
refiners
can
generate
credit
for
any
500
ppm
they
produce
from
June
1,
2007
through
May
31,
2010
and
any
15
ppm
they
produce
from
June
1,
2010
through
May
31,
2012
­
can
sell
these
credits
to
non­
small
refiners

Credit
life
 
all
credits
expire
May
31,
2012

No
discounting

Nationwide
trading
STAFF
DRAFT
­
DO
NOT
CITE
OR
QUOTE
56
Downstream
Provisions
Application
of
the
highway
diesel
program
provisions:


Product
segregation
requirements

15
ppm,
500
ppm,
high
sulfur
diesel
fuel,
and
heating
oil
must
be
segregated

500
ppm
&
high
sulfur
NRLM
diesel
fuel
can
be
mixed
once
dyed

Downgrade
limitation
for
15
ppm
sulfur
diesel
fuel
through
May
31,
2010

2
ppm
allowance
for
test
variability

Product
Transfer
Document
(
PTD)
requirements

Diesel
fuel
pump
labeling
requirements
to
mitigate
misfueling

Blending
15
ppm
sulfur
diesel
fuel
with
other
products

Diesel
fuel
additives

Kerosene

Used
Oil

End
user
requirements

Liability
provisions
STAFF
DRAFT
­
DO
NOT
CITE
OR
QUOTE
57
Downstream
Provisions
Provisions
that
are
different
from
the
highway
diesel
program:


Sampling
and
testing
requirements

Propose
batch
testing
for
refiners
and
importers

No
proposed
requirement
for
downstream
parties
though
they
would
likely
sample
and
test
for
liability
defense
purposes

Sulfur
test
method
 
a
performance­
based
criteria
approach

No
designated
test
method

Based
on
specified
precision
and
accuracy
criteria
from
existing
approved
methods
(
i.
e.,
derived
from
the
June
2002
ASTM
round
robin
results)


Allows
for
greater
flexibility
in
instrument
selection
and
encourages
the
development
and
use
of
better
instrumentation

Would
also
require
QA/
QC
records
documenting
initial
and
continuing
demonstration
of
method
performance
STAFF
DRAFT
­
DO
NOT
CITE
OR
QUOTE
58
Conventional
Desulfurization
Technology

Conventional
Desulfurization

Licensed
by
Akzo
Nobel,
Criterion
Catalysts,
Haldor
Topsoe,

IFP
and
UOP

Evolving
fixed
bed
technology
using
gas/
liquid
phase
reactors

Improved
catalysts
announced
regularly
(
every
2
­
4
years)


Demonstrated
commercially
for
500
ppm
highway
standard

Used
for
10
years
in
over
100
refineries
for
500
ppm
highway
diesel
sulfur
standard
and
elsewhere
in
refining

Will
also
be
demonstrated
for
15
ppm

Some
upgrading
units
now
treating
to
low
sulfur
level
(
10­
50
ppm)
both
in
the
U.
S.
and
in
Europe

Will
be
used
for
15
ppm
sulfur
highway
diesel
program
in
2006
and
for
the
diesel
fuel
program
in
Europe
STAFF
DRAFT
­
DO
NOT
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OR
QUOTE
59
Advanced
Desulfurization
Technology

Linde
Isotherming

Developed
by
Process
Dynamics
and
Licensed
by
Linde.


New
hydrotreating
process
which
uses
liquid
phase
reactors.


Dissolves
hydrogen
in
diesel
fuel
thus
all
reactions
occur
in
the
liquid
phase
at
a
much
faster
rate

Requires
recycle
to
provide
sufficient
hydrogen

Heat
is
conserved
so
lower
utility
costs.


Smaller
heater
and
reactors,
no
distributor
nor
recycle
stripper
nor
recycle
compressor;
thus
much
lower
capital
costs

Demonstration
unit
operating
in
Giant
Refinery
as
revamp
to
existing
highway
HT
unit
for
complying
with
15
ppm
highway.


Much
lower
cost
than
conventional
HT.
STAFF
DRAFT
­
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NOT
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OR
QUOTE
60
Advanced
Desulfurization
Technology

Phillips
S­
Zorb

Adsorbent
technology
by
Phillips
for
hydrotreating
gasoline
and
diesel
fuel,


Specifically
designed
adsorbent
adsorbs
and
cleaves
sulfur
from
the
hydrocarbon
in
the
reactor.


Adsorbent
with
sulfur
is
moved
out
of
the
reactor
to
a
regenerator
where
the
sulfur
is
burned
off.


Adsorbent
is
recycled
to
the
reactor
except
for
a
small
purge.


Gasoline
desulfurization
unit
operating
now
at
Borger
refinery,

more
units
being
installed
for
Tier
2
sulfur
standard.


Diesel
desulfurization
unit
being
installed
for
2004
startup.


May
only
be
competitive
for
the
500
to
15
ppm
sulfur
reduction
increment.


Overall
lower
cost
compared
to
conventional
HT,
(
much
lower
operation
cost,
higher
capital
cost)
