1
John
Huber
<
jhuber@
nora­
oilheat.
org>
11/
10/
2003
11:
31
AM
To:
Jeff
Herzog/
AA/
USEPA/
US@
EPA
cc:
Subject:
Low
Sulfur
and
Heating
Oil
Jeff
Here
are
my
thoughts
on
this,
let
me
know
if
you
think
they
have
merit
or
I
should
try
a
different
approach.
John
Attachment:

November
10,
2003
Air
Docket
Environmental
Protection
Agency
Mailcode:
6102T
1200
Pennsylvania
Avenue,
N.
W.
Washington,
D.
C.
20460
ATTN:
Docket
ID
No.
A­
2001­
28
Dear
Sirs:

The
National
Oilheat
Research
Alliance
(
NORA)
is
the
national
organization
for
the
heating
oil
industry
representing
both
consumers
and
the
industry.
There
are
approximately
6000
heating
oil
retailers,
10
million
households
using
Oilheat,
and
approximately
9
billion
gallons
of
heating
oil
are
consumed
annually.
NORA
would
like
to
submit
comments
on
the
proposed
tracking
system
proposed
by
EPA,
and
in
particular
on
the
marking
system.

It
is
NORA's
understanding
that
EPA
is
proposing
the
marking
in
an
effort
to
separate
heating
oil
which
is
above
500
ppm,
from
NRLM
fuel
which
is
above
500
ppm,
but
is
still
suitable
for
use
in
off­
road
applications
due
to
the
credit
trading
program.
NORA
has
a
number
of
concerns
with
introducing
a
marker
into
heating
oil
including
the
cost
of
the
marker
($.
002,
which
would
translate
into
a
cost
of
nearly
$
20
million
per
year
on
heating
oil
customers),
the
cost
to
install
injection
machines
at
terminals,
which
as
a
cost
may
be
passed
onto
consumers,
and
the
use
of
an
untested
marker
in
a
fuel.
In
1993,
both
EPA
and
the
IRS
imposed
a
dye
in
heating
fuel
without
fully
evaluating
the
risks
to
the
homeowner
and
the
environment
from
such
a
product.
While,
NORA
is
pleased
to
know
the
EU
has
used
the
marker
for
one
year,
NORA
would
encourage
the
release
of
all
additive
testing
and
toxicological
tests
of
all
constituents
prior
to
release,
and
provide
an
opportunity
for
comment
on
those
tests.

It
is
also
NORA's
understanding
that
the
marking
system
proposed
by
EPA
is
designed
to
assist
in
the
implementation
of
a
tracking
system
which
is
designed
to
provide
for
a
averaging,
banking
and
trading
program
for
refiners
who
will
be
producing
the
low
sulfur
fuel
for
off­
road
(
other
than
heating
oil)
applications.
NORA
understands
EPA's
efforts
to
reduce
the
cost
of
the
low
sulfur
program
on
the
refiners.
However,
the
effectiveness
and
use
of
an
averaging,
banking
and
trading
program
in
reducing
costs
are
theoretical
at
this
time,
and
will
not
be
known
until
2010.
Unfortunately,
a
mandated
marking
system
will
almost
certainly
result
in
widespread
costs.
2
NORA
concurs
with
EPA
that
in
many
areas
of
the
country,
the
market
will
not
provide
for
every
potential
combination
of
diesel.
Generally,
the
dominant
product
(
highest
volume)
will
be
served
with
the
highest
sulfur
level
suitable
for
that
use,
since
it
is
likely
to
be
the
least
expensive.
However,
those
decisions
will
be
tempered
by
the
fact
that
higher
value
products
(
lower
sulfur)
may
be
a
better
value
since
they
can
serve
that
use
as
well
as
other
uses
that
may
require
a
lower
sulfur
standard.
NORA
also
concurs
with
EPA
that
equipment
issues
and
the
fungible
supply
system
may
make
it
difficult
for
a
high
sulfur,
credit
fuel
to
be
distributed.
NORA
would
note
that
this
may
be
particularly
important
in
the
northeast
which
has
a
limited
number
of
refineries,
and
a
distribution
system
reliant
on
a
fungible
distribution
system.

It
is
NORA's
view
that
in
the
northeast,
there
will
be
a
high
volume
of
product
exceeding
500
ppm
sulfur
in
2007.
While,
NORA
is
encouraging
the
use
of
low
sulfur
product,
the
high
sulfur
product
will
continue
to
serve
the
needs
of
the
industry.
NORA
would
note
that
EPA's
program
of
marking
heating
oil
could
undermine
NORA's
efforts
to
encourage
a
low
sulfur
fuel
for
heating
oil
and
thus
undermine
the
environmental
achievements
NORA
has
worked
for.
EPA
should
note
that
NORA
has
invested
considerable
effort
into
a
voluntary
conversion
to
500
ppm
fuel,
http://
nora­
oilheat.
org/
PDF/
LOW_
SULFUR_
V5.
pdf.
While,
it
would
appear
that
EPA's
efforts
might
enhance
the
distribution
of
this
product,
NORA
believes
otherwise.
The
marking
requirement
will
require
terminal
operators
to
make
a
critical
decision
as
to
whether
they
mark
the
heating
oil
and
incur
a
capital
expense,
or
forego
marking
the
fuel
and
limit
their
ability
to
import
fuel
which
is
high
sulfur
heating
oil,
and
thus
commit
to
selling
only
500
ppm,
or
less
fuel.

If
they
choose
to
mark
the
fuel,
they
are
essentially
making
a
capital
investment
in
having
a
high
sulfur
fuel
in
place.
NORA
understands
that
some
commenters
have
indicated
that
these
costs
may
in
some
cases
approach
$
250,000
per
facility.
Any
terminal
operator
that
makes
that
investment
will
thus
have
a
substantial
stake
in
distributing
a
high
sulfur
product
into
the
future
and
may
seek
to
continue
in
that
business
through
aggressive
pricing
or
other
marketing
schemes
to
ensure
that
the
marked
product
has
a
role.
These
efforts
may
delay
NORA's
voluntary
and
to
date
successful
efforts
to
convert
the
heating
oil
pool
to
a
500
ppm
fuel.

Alternatively,
a
terminal
that
does
not
mark
the
fuel
will
be
unable
to
import
high
sulfur
product.
Unfortunately,
due
to
the
seasonal
demand
fluctuations
of
heating
oil,
refinery
production
is
difficult
to
predict,
and
imports
serve
a
vital
role
in
supplying
demand.
In
2001­
2002,
the
winter
was
nearly
20
percent
warmer
than
normal;
in
2002­
2003
the
winter
was
15
percent
colder
than
normal.
Neither
of
these
events
is
predictable
year
to
year,
or
even
within
a
season.
This
wide
swing
and
completely
unanticipated
change
in
demand
required
substantial
imports
to
keep
American
markets
in
balance.
As
the
wholesalers
searched
the
globe
for
product,
much
of
it
was
high
sulfur
and
not
up
to
American
specifications,
and
only
was
suitable
for
use
after
blending
with
diesel
fuel.
A
terminal
that
did
not
invest
in
marking
could
not
distribute
much
of
this
product.
Thus,
a
key
element
to
the
heating
oil
system's
ability
to
respond
to
changes
in
demand
would
become
unavailable.
Not
only
would
this
impact
the
current
residential
consumers
of
heating
oil,
it
would
also
impact
all
energy
users,
because
heating
oil
serves
as
a
backup
system
for
both
natural
gas
and
electricity.
NORA
also
believes
that
this
proposal
may
limit
the
ability
to
service
the
off­
road
consumer.
There
will
be
a
15
ppm
product
that
enters
that
market
which
will
be
designed
to
serve
on­
road
vehicles
and
could
be
sold
to
off­
road
users.
Alternatively,
that
fuel
could
be
blended
with
heating
oil
to
provide
for
the
500
ppm
product,
which
might
be
a
cost
efficient
way
of
delivering
that
product.
NORA
would
note
that
EPA's
proposed
marking
program
would
eliminate
this
blending
potential
since
a
marked
heating
oil
would
not
be
suitable
as
a
blended
NLRM,
even
though
the
sulfur
characteristics
are
appropriate.
Thus,
the
marking
program
may
eliminate
a
potentially
efficient
way
of
servicing
that
market.

In
the
south,
on­
road
and
off­
road
users
are
predominant.
In
those
markets,
it
is
unlikely
that
a
terminal
would
handle
a
heating
fuel
to
serve
the
minimal
number
of
customers.
Instead
it
is
likely
that
those
customers
would
use
the
500
ppm
fuel
for
heating
oil,
or
the
unmarked
high
sulfur
credit
fuel.

In
the
upper
Midwest,
it
is
harder
to
predict
whether
the
infrastructure
would
support
the
distribution
of
one,
two,
3
or
three
levels
of
sulfur
in
fuel.
However,
a
marking
requirement
is
likely
to
eliminate
the
separate
heating
oil
product
in
this
market.

NORA
believes
that
limiting
the
credit
trading
program
to
PADDs
II­
V
will
eliminate
nearly
all
costs
on
the
heating
oil
sector,
and
may
not
impose
any
limits
on
the
use
of
the
credit
trading
program.
By
analyzing
EIA
statistics,
it
became
apparent
that
the
costs
of
the
program
as
currently
construed
are
not
only
shifted
from
refiners
to
heating
oil
consumers,
but
that
the
costs
are
geographically
driven
in
a
particular
region,
PADD
I.
Additionally,
it
became
apparent
that
the
costs
imposed
in
PADD
provided
only
limited
markets
for
the
use
of
a
high
sulfur
unmarked
fuel
suitable
for
use
in
off­
road
equipment.
Further,
that
limited
flexibility
came
at
a
significant
price.

Residential
Commercial
Farm
Railroad
Vessel
Off­
Highway
Ratio
Heating
to
Other
Padd
I
5,469,003
2,223,416
487,960
506,390
461,460
699,554
3.57
1A
2,144,186
546,531
27,341
27,719
40,579
65,206
16.73
1B
2,943,804
1,196,802
107,572
137,411
144,230
226,368
6.73
1C
381,013
48,083
353,047
341,260
276,652
407,980
0.31
Padd
II
618,286
668,808
1,793,792
1,051,950
317,628
671,157
0.34
Padd
III
2,571
298,265
627,368
883,259
1,152,632
590,626
0.09
Padd
IV
26,986
88,233
159,644
222,513
38
146,090
0.22
Padd
V
146,594
226,336
358,580
287,719
161,494
407,365
0.31
Ratio
Padd
1
to
Other
6.884124229
1.734818303
0.166007572
0.207075125
0.282793395
0.385378667
EIA
statistics
indicate
that
in
PADD
1A,
there
are
approximately
2.7
billion
gallons
of
heating
oil
that
are
consumed
annually.
Assuming
the
marginal
cost
for
the
marker
of
$.
002,
there
would
be
an
annual
cost
of
$
5.4
million
per
year
which
would
be
borne
by
heating
oil
consumers.
NORA
estimates
that
there
are
approximately
100
terminals
in
this
region
which
handle
heating
oil.
Assuming
a
marginal
cost
of
$
25,000
per
terminal
for
equipment
installation,
capital
costs
and
computer
programming,
the
cost
of
this
program
would
be
$
2.5
million,
or
$
800,000
per
year
for
the
three
years
of
the
program.
Thus,
the
heating
oil
customer
would
bear
a
total
cost
of
$
6.2
million
dollars
per
year.

In
that
sub­
PADD,
the
volume
of
railroad
fuel,
vessel
bunkers,
farm
and
railroad
fuel
is
156
million
gallons.
Thus,
marking
the
heating
oil
in
that
market
would
allow
for
a
credit
trading
and
banking
program
of
156
million
gallons.
Using
simple
arithmetic,
the
cost
for
providing
a
refiner
the
right
to
credit
bank
in
this
small
pool
of
gallons
is
approximately
$.
04
per
gallon.
NORA
believes
that
this
is
a
disproportionate
cost
which
only
provides
potential
flexibility
in
one
market,
which
may
prove
illusory
as
the
program
is
implemented
and
the
credit
program
is
not
used.

A
similar
analysis
yields
similar
results
for
the
whole
of
PADD
1.
In
fact
the
ratio
of
heating
oil
gallons
to
offroad
users
is
3.57
to
1.
Thus,
the
number
of
gallons
paying
for
this
credit
program
is
much
higher
than
the
potential
gallons
using
the
program.

Extending
that
analysis
to
the
other
PADDs
yields
distinctly
different
results.
In
PADD
III,
the
ratio
of
heating
oil
to
other
off­
road
uses
is
.09
to
1,
PADD
II
it
is
.34
to
1,
PADD
IV
it
is
.22
to
1
and
PADD
V,
it
is
.31
to
1.
Similarly
looking
at
the
last
row,
it
is
also
clear
that
the
ratio
of
heating
oil
gallons
in
PADD
I
to
the
other
regions
is
significant,
but
that
the
gallons
of
off­
road
fuel
in
that
market
available
for
credit
trading
is
a
small
fraction
of
4
U.
S.
consumption.
Assuming
a
cost
of
$.
02
for
marking
the
product
in
PADDs
II­
V,
the
cost
of
providing
flexibility
is
$.
0005
per
gallon
of
heating
oil,
or
1/
80th
of
the
cost
of
providing
this
flexibility
in
PADD
IA.

NORA
believes
that
this
data
provides
a
way
for
EPA
to
accomplish
its
goals
of
having
a
strong
environmental
program,
one
that
provides
flexibility
to
the
refiners,
minimizes
costs,
and
eliminates
many
theoretical
and
potential
problems
with
marking
heating
fuel.

NORA
believes
that
these
goals
can
be
accomplished
by
not
providing
for
a
marking
system,
and
therefore
no
trading
and
banking
program
in
any
PADD
where
the
ratio
of
heating
fuels
to
off­
road
fuels
exceeds
1.
This
would
effectively
eliminate
PADD
1
from
this
program
and
continue
to
allow
flexibility
in
all
of
the
other
PADDs.

By
not
requiring
heating
oil
to
be
marked
in
PADD
1,
the
marginal
costs
of
marking
heating
oil
would
be
eliminated
reducing
the
cost
of
this
rule
by
nearly
$
11
million
per
year,
and
the
costs
at
the
terminals
in
this
entire
region
would
be
eliminated.

The
refiners
in
the
Midwest,
west
and
south
could
participate
in
the
credit
trading
program;
however,
fuel
that
they
intend
for
that
use
would
have
to
be
shipped
to
PADDs,
other
than
1.
Given
that
many
of
the
small
refiners
that
this
rule
is
designed
to
protect
are
in
that
region
and
serve
limited
local
markets,
this
would
have
no
impact
on
the
distribution
system.

Heating
oil
consumers
in
those
PADDs
other
than
PADD
I
are
unlikely
to
have
a
segregated
product
provided
for
them,
and
thus
any
fuel
produced
in
that
market
would
be
produced
as
if
it
were
destined
for
the
off­
road
universe
and
a
lower
sulfur
product
would
be
available
in
those
markets.
We
believe
that
this
would
generally
benefit
the
environment,
and
not
having
to
mark
a
product
would
be
one
more
incentive
to
use
a
lower
sulfur
product
in
heating
equipment.
And
unlike
PADD
I,
very
little
of
the
product
is
imported
into
Padds
II­
V,
and
thus
does
not
rely
on
foreign
imports
to
balance
the
heating
oil
demand.

NORA
believes
that
EPA's
enforcement
system
and
costs
of
compliance
would
also
fall
significantly.
The
elimination
of
the
marker
in
PADD
I
by
this
rule
would
eliminate
many
costs,
and
EPA
would
not
have
to
buy
test
equipment
for
the
marker
in
that
region.
A
sulfur
test
would
be
sufficient
to
determine
non­
compliant
fuel.
In
the
rest
of
the
country,
it
is
unlikely
that
the
heating
oil
would
be
marked.
Again,
this
would
eliminate
the
need
to
purchase
test
equipment
for
the
marker.
However,
the
elimination
of
the
marker
would
in
no
way
impact
on
an
effective
and
widespread
credit
trading
program
and
product
transfer
documents
would
be
sufficient
to
verify
the
presence
of
high
sulfur
fuel
that
is
part
of
the
averaging
banking
and
trading
program.

NORA
believes
that
this
approach
would
yield
significant
gains
to
all
concerned.
We
would
welcome
the
opportunity
to
work
with
EPA
on
developing
this
approach
more
fully,
and
addressing
any
issues
that
might
arise.

I
would
note
that
as
discussed
on
Friday
with
Mr.
Herzog,
marking
the
credit
gallons
could
be
a
reasonable
alternative
to
this
system.
NORA
would
be
sympathetic
to
any
system
that
imposes
the
cost
of
the
flexibility
on
those
who
will
use
the
flexibility
as
opposed
to
consumers
of
Oilheat,
who
will
gain
no
financial
reward
from
this
flexibility.

Very
truly
yours,

John
Huber
President
5
