Notes

Executive Summary

1 U.S. Environmental Protection Agency, “Control of Air Pollution from New Motor Vehicles: Heavy-Duty Engine and Vehicle Standards and Highway Diesel Fuel Sulfur Control Requirements: Final Rule,” Federal Register, 40 CFR Parts 69, 80, and 86 (January 18, 2001).

2 Energy Information Administration, Petroleum Supply Annual 1999, DOE/EIA-0340(99)/1 (Washington, DC, June 2000), Table 3.

3 Energy Information Administration, Fuel Oil and Kerosene Sales 1999, DOE/EIA-0525(99) (Washington, DC, September 2000), Tables 19-23.

4 PADDVwas not included in this analysis, because supply concerns are less of an issue in the transition period, and the requirement for California Air Resources Board diesel makes the PADD V market different from those in PADDs I-IV.

5 Cracked stocks are previously processed streams that are more difficult to treat.

6 The EPA used EIA data on refinery capacity and diesel production in its refinery-by-refiney analysis.

7 These are marginal costs on the industry supply curve, based on average refinery costs for producing ULSD. These cost estimates do not include additional costs for distribution, estimated at 1.1 cents per gallon in the mid-term analysis.

8 Additional demand estimates are analyzed in Chapter 5.

9 Results for the five sensitivity cases are provided in Chapter 6 and Appendix E.

10 U.S. Environmental Protection Agency, Regulatory Impact Analysis: Heavy-Duty Engine and Vehicle Standards and Highway Diesel Fuel Sulfur Control Requirements, EPA420-R-00-026 (Washington, DC, December 2000).

11 Analysis of 2006 is discussed above. As a partial year, 2006 is not included in the equilibrium analysis.

12 These cases are based on variations from a reference case similar to that in EIA’s Annual Energy Outlook 2001.

Chapter and Appendixes

1 U.S. Environmental Protection Agency, “Control of Air Pollution from New Motor Vehicles: Heavy-Duty Engine and Vehicle Stan-dards and Highway Diesel Fuel Sulfur Control Requirements: Final Rule,” Federal Register, 40 CFR Parts 69, 80, and 86 (January 18, 2001).

2 U.S. Environmental Protection Agency, “EPA Gives the Green Light on Diesel-Sulfur Rule,” Press Release (February 28, 2001).

3 Sources addressing the impact of the ULSD Rule on vehicle emissions and public health are included in the bibliography.

4 The State of Alaska and the U.S. Territories have been exempted from the program.

5 Credits for 15 ppm diesel fuel can be accrued before this date if the refiner can certify that the fuel is to be used in vehicles certified to meet the 2007 model year heavy-duty engine standards.

6 The Committee also asked about several issues relevant to the proposed rule but not to the Final Rule: how potential supply might change if the effective date of the diesel regulation were later and did not overlap those for gasoline sulfur requirements, and how potential supply would change if the ULSD requirement were phased in.

7 Energy Information Administration, Petroleum Supply Annual 1999, DOE/EIA-0340(99)/1 (Washington, DC, June 2000), Table 3.

8 U.S. Environmental Protection Agency, “Control of Air Pollution from New Motor Vehicles: Tier 2 Motor Vehicle Emissions Standards and Gasoline Control Requirements,” Federal Register, 40 CFR Parts 80, 85, and 86 (February 10, 2000).

9 National Petroleum Council, U.S. Petroleum Refining: Assuring the Adequacy and Affordability of Cleaner Fuels (June 2000), Chapter 3, U.S.A.

10 U.S. Environmental Protection Agency, EPA Staff Paper on Gasoline Sulfur Issues, EPA420-R-98-005 (Washington, DC, May 1998). The average sulfur content has declined since the sulfur content of reformulated gasoline was reduced substantially to meet Phase 2 reformu-lated gasoline emissions requirements, which became effective in 2000.

11 The EPA announced on May 4, 2001, that National Cooperative Refining Association and Wyoming Refining would be given addi-tional time to meet the sulfur standard for gasoline. Both refiners are planning to comply with the 2006 highway diesel requirements on time.

12 Energy Information Administration, Petroleum Supply Annual 1999, DOE/EIA-0340(99)/1 (Washington, DC, June 2000), Table 3.

13 Energy Information Administration, Fuel Oil and Kerosene Sales 1999, DOE/EIA-0525(99) (Washington, DC, September 2000), Tables 19-23.

14 U.S. Environmental Protection Agency, Reducing Air Pollution from Non-road Engines, EPA420-F-00-048 (Washington, DC, November 2000), p. 3.

15 Nonroad Workgroup, Minutes of the Workgroup’s Meeting (Alexandria, VA, January 16, 2000).

16 Diesel Fuel News, Vol. 5, No. 3 (February 5, 2001).

17 Diesel Fuel News (March 19, 2001).

18 The coalition includes the Alliance of Automobile Manufacturers, the American Lung Association, the Association of International Automobile Manufacturers, the Association of Local Air Pollution Control Officials, the California Trucking Association, the Clean Air Network, the International, Truck and Engine Corporation, Manufacturers of Emission Control Association, the Natural Resources Defense Council, Northeast States for Coordinated Air Use Management, the Sierra Club, the State and Territorial Air Pollution Program Administrators, U.S. Public Interest Research Group, and the Union of Concerned Scientists.

19 Discussions with Mr. Bill Jordan, Texas Natural Resource Conservation Commission, and Mr. Tim Dunn, California Air Resources Board.

20 Diesel Fuel News, Vol. 5, No. 4 (February 19, 2001).

21 Energy Information Administration, National Energy Modeling System: An Overview 2000, DOE/EIA-0581(2000) (Washington, DC, March 2000), www.eia.doe.gov/oiaf/aeo/overview/index.html.

22 Contact with diesel engine manufacturers included Cummins, Inc., Mack Truck, Inc., and Caterpillar, Inc. Contact with emission con-trol manufacturers included Johnson Matthey and Engelhard Corporation. Refining industry contacts included the American Petroleum Institute (API), the Cenex Harvest States Cooperatives, UniPure Corporation, Equilon Enterprises, LLC, Lyondell Citgo Refining Company, Ltd., ExxonMobil Refining and Supply Company, Marathon Ashland Petroleum, LLC, and the National Petrochemical and Refining Association (NPRA). Government contacts included the U.S. Department of Energy’s Office of Policy and Office of Transportation Technologies and the U.S. Environmental Protection Agency.

23 Independent expert reviewers were Mr. Raymond E. Ory, Vice President, Baker and O’Brien, Inc.; Mr. Norman Duncan, Energy Institute, University of Houston; and Mr. Kevin Waguespack, PricewaterhouseCoopers.

24 The EPA and Baker and O’Brien also developed refinery-specific cost analyses, but their estimates did not reflect data related to the quality of crude oil inputs and the quality of diesel fuel components input to downstream units, collected by EIA.

25 The technology costs were developed in consultation with Mr. John Hackworth and were reviewed by Mr. Ray Ory, one of EIA’s independent expert reviewers, and by members of API.

26 The companies that participated in the interviews included Buckeye Pipe Line Company, Colonial Pipeline, Conoco Pipe Line Com-pany, Kaneb Pipeline Partners, L.P., Kinder Morgan Energy Partners L.P., Marathon Ashland Petroleum, LLC, TE Products Pipeline Com-pany, L.P., and Williams Energy Services.

27 U.S. Environmental Protection Agency, Regulatory Impact Analysis: Heavy-Duty Engine and Vehicle Standards and Highway Diesel Fuel Sulfur Requirements, EPA420-R-00-026 (Washington, DC, December 2000), Chapter V, web site www.epa.gov/otaq/regs/hd2007/frm/ria-v.pdf.

28 Turner, Mason & Company, Revised Supplement to Report: Costs/Impacts of Distributing Potential Ultra Low Sulfur Diesel (Dallas, TX, August 8, 2000).

29 The brake horsepower of an engine is the effective power output, sometimes measured as the resistance the engine provides to a brake attached to the output shaft. A bhp-hr is that unit of work or energy equal to the work done at the rate of 1 horsepower for 1 hour.

30 U.S. Environmental Protection Agency, Final Emission Standards for 2004 and Later Model Year Highway Heavy-Duty Vehicles and Engines, EPA420-F-00-026 (Washington, DC, July 2000), p. 4.

31 U.S. Environmental Protection Agency, Heavy-Duty Engine and Vehicle Standards and Highway Diesel Fuel Sulfur Control Requirements, EPA420-F-00-057 (Washington, DC, December 2000), p. 2.

32 Based on telephone interviews with engine manufacturers and the U.S. Environmental Protection Agency.

33 U.S. Environmental Protection Agency, Regulatory Impact Analysis: Control of Emissions of Air Pollution From Highway Heavy-Duty Engines, EPA420-R-00-010 (Washington, DC, July 2000), p. 21.

34 U.S. Environmental Protection Agency, Regulatory Impact Analysis: Control of Emissions of Air Pollution From Highway Heavy-Duty Engines, EPA420-R-00-010 (Washington, DC, July 2000), p. 46.

35 DieselNet, “Caterpillar Announces New Emission Technology,” web site www.dieselnet.com/news/0103cat.html (March 2001).

36 Newport’s Truckinginfo.com, “Mack To Use EGR To Meet ’02 Emissions Standards,” web site http://www.trcukinginfo.com/news/ news_print.asp?news_id=42839 (March 20, 2001).

37 DieselNet, “Cummins in Support of Cooled EGR Technology,” web site www.dieselnet.com/news/0103cummins.html (March 2001).

38 U.S. Department of Energy, Office of Transportation Technologies, “Impact of Diesel Fuel Sulfur on CIDI Emission Control Technol-ogy” (August 21, 2000), p. 2.

39 Based on telephone interviews with manufacturers of heavy-duty diesel engines.

40 U.S. Environmental Protection Agency, Technical Support Document for the Heavy-Duty Engine and Vehicle Standards and Highway Diesel Fuel Sulfur Control Requirements: Air Quality Modeling Analyses, EPA420-R-00-028 (Washington, DC, December 2000), p. V-3.

41 U.S. Department of Energy, Office of Transportation Technologies, “Diesel Emission Control: Sulfur Effects (DECSE) Program Phase II Summary Report: NOx Adsorber Catalysts” (October 2000), p. 21.

42 Manufacturers of Emission Controls Association, Catalyst-Based Diesel Particulate Filters and NOx Adsorbers: A Summary of the Technol-ogies and the Effects of Fuel Sulfur (August 14, 2000), p. 19.

43 U.S. Environmental Protection Agency, Technical Support Document for the Heavy-Duty Engine and Vehicle Standards and Highway Diesel Fuel Sulfur Control Requirements: Air Quality Modeling Analyses, EPA420-R-00-028 (Washington, DC, December 2000), p. V-34.

44 Based on phone interviews with emission control equipment manufacturers.

45 U.S. Environmental Protection Agency, Regulatory Impact Analysis: Control of Emissions of Air Pollution From Highway Heavy-Duty Engines, EPA420-R-00-010 (Washington, DC, July 2000), p. 88.

46 U.S. Environmental Protection Agency, Technical Support Document for the Heavy-Duty Engine and Vehicle Standards and Highway Diesel Fuel Sulfur Control Requirements: Air Quality Modeling Analyses, EPA420-R-00-028 (Washington, DC, December 2000), p. V-38.

47 Although this case reflects a scenario in which losses in efficiency from emission contol are not overcome by new technology, the considerable time available for research and development may provide government and industry ample time to resolve the fuel efficiency loss issues associated with advanced emission control technologies.

48 B. van der Linde (Shell), R. Menon (ABB Lummus), D. Dave&S. Gustas (Criterion), “SynTechnology: An Attractive Solution for Meet-ing Future Diesel Specifications,” presentation to the 1999 Asian Refining Technology Conference, ARTC-99.

49 L.A. Gerritson, F. Stoop (Akzo Nobel Catalyst), P. Low, J. Townsend, D. Waterfield, and K. Holdes (BP Amoco), “Production of Green Diesel in the BP Amoco Refineries,” presented at the WEFA Conference (Berlin, Germany, June 2000).

50 Now part of BP Amoco.

51 “Arco’s EC Diesel Dominates CARB Advisory Discussion,” Diesel Fuel News (April 26, 1999), p. 5.

52 “Equilon Offers 15 PPM Sulfur Diesel for N. California,” Diesel Fuel News (April 10, 2000), p. 10.

53 L. Allen (Criterion Catalyst Co.), “Economic Environmental Fuels with SynTechnologies,” presented at the World Fuels Meeting, EAA-World Fuels-98 (Washington, DC, Fall 1998).

54 Diesel Fuel News (April 11, 2000), p. 17.

55 The type of improvement in catalyst activity is illustrated by Akzo Nobel new KF757 cobalt-molybdenum (CoMo) catalyst. Comparing KF 757 with its predecessor catalyst Akzo states, “A diesel unit designed to achieve 500 wppm product sulfur with KF 752 can easily achieve less than 250 ppm product sulfur with KF 757 while maintaining the same operating cycle.” Source: C.P. Smit, “MAKFining Premium Distil-lates Technology: The Future of Distillate Upgrading,” presentation to Petrobras (Rio de Janeiro, Brazil, August 24, 2000), p. 4.

56 National Petroleum Council, U.S. Petroleum Refining: Assuring the Adequacy and Affordability of Cleaner Fuels (June 2000) , Chapter 7, pp. 132-133.

57 U.S. Environmental Protection Agency, Regulatory Impact Analysis: Heavy-Duty Engine and Vehicle Standards and Highway Diesel Fuel Sulfur Requirements, EPA420-R-00-026 (Washington, DC, December 2000), Chapter V, p. V-69.

58 Charles River Associates, Inc., and Baker and O’Brien, Inc., An assessment of the Potential Impacts of Proposed Environmental Regulations on U.S. Refinery Supply of Diesel Fuel, CRA No. D02316-00 (August 2000), p. 26.

59 U.S. Environmental Protection Agency, Reducing Air Pollution from Non-road Engines, EPA420-F-00-048 (Washington, DC, November 2000), p. 3.

60 NEMS was developed by EIA for mid-term forecasts of U.S. energy markets (currently through 2020). NEMS documentation can be found at web site www.eia.doe.gov/bookshelf/docs.html. PMM documentation can be found at web site www.eia.doe.gov/pub/pdf/model.docs/m059(2001).pdf.

61 The PMM incorporates the technology database from EnSys Energy & Systems, Inc., a consultant to EIA, for refinery processing modeling.

62 Within the PMM, the refinery sector is modeled by a linear programming representation for three refining regions. The first region consists of Petroleum Administration for Defense District (PADD) I; the second of PADD’s II, III, and IV; and the third of PADD V. Each model region represents an aggregation of the individual refineries in the region, rather than a notional refinery.

63 It is believed that, to comply with the new ULSD cap of 15 ppm, a refiner would require about 4 years lead time to secure a permit and to design, build, and optimize a new desulfurization process before commercial production is ready.

64 Small refiners, which may delay ULSD production under special provisions of the Rule, could adopt emerging technologies later in the decade when any of those technologies becomes cost-competitive.

65 U.S. Environmental Protection Agency, Regulatory Impact Analysis: Heavy-Duty Engine and Vehicle Standards and Highway Diesel Fuel Sulfur Requirements, EPA420-R-00-026 (Washington, DC, December 2000), Chapter IV.

66 U.S. Environmental Protection Agency, Regulatory Impact Analysis: Heavy-Duty Engine and Vehicle Standards and Highway Diesel Fuel Sulfur Requirements, EPA420-R-00-026 (Washington, DC, December 2000), Chapter IV, pp. IV-63–IV-64.

67 National Petroleum Council, U.S. Petroleum Refining: Assuring the Adequacy and Affordability of Cleaner Fuels (June 2000), p. 23.

68 Buckeye Pipe Line Company, Colonial Pipeline, Conoco Pipe Line Company, Kaneb Pipeline Partners, L.P., Kinder Morgan Energy Partners L.P., Marathon Ashland Petroleum LLC, TE Products Pipeline Company, L.P., and Williams Energy Services.

69 Joanne Shore, Energy Information Administration, “Supply of Chicago/Milwaukee Gasoline Spring 2000,” web site www.eia.doe.gov/pub/oil_gas/petroleum/presentations/2000/supply_of_chicago_milwaukee_gasoline_spring_2000/ cmsupply2000.htm (August 9, 2000).

70 According to the Association of Oil Pipe Lines, Shifts in Petroleum Transportation: 1999 (2001), pipelines account for 75 percent of the ton-miles of oil transported in the United States. (One ton of oil transported one mile equals one ton-mile.)

71 U.S. Environmental Protection Agency, Regulatory Impact Analysis: Heavy-Duty Engine and Vehicle Standards and Highway Diesel Fuel Sulfur Requirements, EPA420-R-00-026 (Washington, DC, December 2000), Chapter IV, p. IV-93.

72 Cited in the EPA’s documents as “Comments of Association of Oil Pipelines (AOPL) on the NPRM, Docket Item IV-D325.” Cited here as “AOPL Comments.”

73 AOPL Comments, p. 2.

74 U.S. Environmental Protection Agency, Regulatory Impact Analysis: Heavy-Duty Engine and Vehicle Standards and Highway Diesel Fuel Sulfur Requirements, EPA420-R-00-026 (Washington, DC, December 2000), Chapter IV, p. IV-93.

75 U.S. Environmental Protection Agency, Regulatory Impact Analysis: Heavy-Duty Engine and Vehicle Standards and Highway Diesel Fuel Sulfur Requirements, EPA420-R-00-026 (Washington, DC, December 2000), Chapter IV, pp. IV-93–IV-94.

76 AOPL Comments, Attachment, p. 2

77 U.S. Environmental Protection Agency, Regulatory Impact Analysis: Heavy-Duty Engine and Vehicle Standards and Highway Diesel Fuel Sulfur Requirements, EPA420-R-00-026 (Washington, DC, December 2000), Chapter IV, p. IV-96.

78 U.S. Environmental Protection Agency, Regulatory Impact Analysis: Heavy-Duty Engine and Vehicle Standards and Highway Diesel Fuel Sulfur Requirements, EPA420-R-00-026 (Washington, DC, December 2000), Chapter IV, p. IV-94.

79 AOPL Comments, Attachment, p. 2 and p. 5.

80 U.S. Environmental Protection Agency, Regulatory Impact Analysis: Heavy-Duty Engine and Vehicle Standards and Highway Diesel Fuel Sulfur Requirements, EPA420-R-00-026 (Washington, DC, December 2000), Chapter V, p. V-124.

81 U.S. Environmental Protection Agency, “Control of Air Pollution from New Motor Vehicles: Heavy-Duty Engine and Vehicle Stan-dards and Highway Diesel Fuel Sulfur Control Requirements: Final Rule,” Federal Register, 40 CFR Part 80.527 (January 18, 2001).

82 U.S. Environmental Protection Agency, “Control of Air Pollution from New Motor Vehicles: Heavy-Duty Engine and Vehicle Stan-dards and Highway Diesel Fuel Sulfur Control Requirements: Final Rule,” Federal Register, 40 CFR, Preamble (January 18, 2001), p. 281.

83 Operators at Explorer Pipeline, which formerly carried crude oil and refined products as batches in the same pipeline, also observed that refined products following high sulfur crude oil in the pipeline experienced a material increase in sulfur content. (The physical charac-teristics of crude oil are distinct from refined products, and its sulfur content can be considerably higher than the sulfur content of refined petroleum products shipped in a pipeline.)

84 U.S. Environmental Protection Agency, Regulatory Impact Analysis: Heavy-Duty Engine and Vehicle Standards and Highway Diesel Fuel Sulfur Requirements, EPA420-R-00-026 (Washington, DC, December 2000), Chapter IV, p. IV-99.

85 U.S. Environmental Protection Agency, “Control of Air Pollution from New Motor Vehicles: Heavy-Duty Engine and Vehicle Standards and Highway Diesel Fuel Sulfur Control Requirements: Final Rule,” Federal Register, 40 CFR Part 80.580(a)(2) (January 18, 2001).

86 U.S. Environmental Protection Agency, “Control of Air Pollution from New Motor Vehicles: Heavy-Duty Engine and Vehicle Standards and Highway Diesel Fuel Sulfur Control Requirements: Final Rule,” Federal Register, 40 CFR Part 80.580(a)(4) (January 18, 2001).

87 [(9,965 x 7) + 935 x (35 x 3,000)] / 10,000 = 17.5 ppm.

88 U.S. Environmental Protection Agency, Regulatory Impact Analysis: Heavy-Duty Engine and Vehicle Standards and Highway Diesel Fuel Sulfur Requirements, EPA420-R-00-026 (Washington, DC, December 2000), Chapter V, p. V-134.

89 U.S. Environmental Protection Agency, Regulatory Impact Analysis: Heavy-Duty Engine and Vehicle Standards and Highway Diesel Fuel Sulfur Requirements, EPA420-R-00-026 (Washington, DC, December 2000), Chapter V, p. V-134.

90 John Huber, Petroleum Marketers Association of America, “Letter to U.S. EPA, Re: AMS-FRL-6705-2.” Submitted to the public docket on August 11, 2000.

91 John Huber, Petroleum Marketers Association of America, “Letter to U.S. EPA, Re: AMS-FRL-6705-2.” Submitted to the public docket on August 11, 2000.

92 U.S. Environmental Protection Agency, Regulatory Impact Analysis: Heavy-Duty Engine and Vehicle Standards and Highway Diesel Fuel Sulfur Requirements, EPA420-R-00-026 (Washington, DC, December 2000), Chapter V, p. V-133.

93 Other rate administration methods are available from the Commission, but they are even less frequently used.

94 U.S. Environmental Protection Agency, Regulatory Impact Analysis: Heavy-Duty Engine and Vehicle Standards and Highway Diesel Fuel Sulfur Requirements, EPA420-R-00-026 (Washington, DC, December 2000), Chapter V, p. V-121.

95 U.S. Environmental Protection Agency, Regulatory Impact Analysis: Heavy-Duty Engine and Vehicle Standards and Highway Diesel Fuel Sulfur Requirements, EPA420-R-00-026 (Washington, DC, December 2000), Chapter V, p. V-121.

96 U.S. Environmental Protection Agency, Regulatory Impact Analysis: Heavy-Duty Engine and Vehicle Standards and Highway Diesel Fuel Sulfur Requirements, EPA420-R-00-026 (Washington, DC, December 2000), Chapter IV, p. IV-33.

97 U.S. Environmental Protection Agency, Regulatory Impact Analysis: Heavy-Duty Engine and Vehicle Standards and Highway Diesel Fuel Sulfur Requirements, EPA420-R-00-026 (Washington, DC, December 2000), Chapter IV, p. IV-33.

98 U.S. Environmental Protection Agency, Regulatory Impact Analysis: Heavy-Duty Engine and Vehicle Standards and Highway Diesel Fuel Sulfur Requirements, EPA420-R-00-026 (Washington, DC, December 2000), Chapter IV, p. IV-34.

99 U.S. Environmental Protection Agency, “Control of Air Pollution from New Motor Vehicles: Heavy-Duty Engine and Vehicle Stan-dards and Highway Diesel Fuel Sulfur Control Requirements: Final Rule,” Pre-publication Final Rulemaking (December 21, 2000), pp. 158-160. 100Diesel Fuel News (March 5, 2001), p. 3.

100 Diesel Fuel News (March 5, 2001), p. 3.

101 Calculated by taking the difference in total cost (1.88 × 32.4 - 1.31 × 20.7) divided by the change in volume (32.4 - 20.7), expressed in cents per gallon.

102 Public Works and Government Services Canada, Canada Gazette, Vol. 135, No. 7 (February 17, 2001), p. 454.

103 Diesel Fuel News (March 5, 2001), p. 11.

104 Oil Daily (February 27, 2001), p. 2. 105EIA’s Office of Oil and Gas is planning to issue a report in 2001 on the availability of product imports.

105 EIA’s Office of Oil and Gas is planning to issue a report in 2001 on the availability of product imports.

106 PADDVwas not included in this analysis because supply concerns are less of an issue in the transition period and the requirement for CARB diesel makes the PADD V market different from PADDs I-IV.

107 A range of demand estimates are shown in Figure 6, but no feedback effects are represented. Feedback effects are included in the mid-term analysis (Chapter 6).

108 U.S. Environmental Protection Agency, Regulatory Impact Analysis: Heavy-Duty Engine and Vehicle Standards and Highway Diesel Fuel Sulfur Requirements, EPA420-R-00-026 (Washington, DC, December 2000), Chapter V, p. V-134.

109 These are marginal costs on the industry supply curve, based on average refinery costs for producing ULSD. These cost estimates do not include additional costs for distribution, estimated at 1.1 cents per gallon in the mid-term analysis. Costs were not adjusted to take sulfur credit trading into account, because of the uncertainty about whether trading would occur and the value of the credits. If credit trading occurred, costs could be reduced.

110 The highest estimated costs by region are 9 cents per gallon for PADD I, 13 cents per gallon for PADD II, 7 cents per gallon for PADD III, and 12 cents per gallon for PADD IV.

111 Many analysts contend that the prices of ULSD and 500 ppm diesel will converge in the phase-in period, because most trucks can use 500 ppm fuel but only 20 to 25 percent of production will be 500 ppm fuel. The higher demand than supply will tend to push the price to the same level as ULSD. The need to purchase credits to sell 500 ppm product will also tend to push up its price.

112 Short-term responses are possible, such as the regulatory response that took place when the 500 ppm diesel fuel requirements came into effect on October 1, 1993. As a result of localized outages and price spikes, the EPA sent a letter to marketers and major consumers of diesel fuel granting “enforcement discretion” in cases of extreme difficulty in obtaining supplies, extending through October 22, 1993.

113 In its Regulatory Impact Analysis, the U.S. EnvironmentalProtection Agency included investment by small refineries in cost esti-mates for full compliance but not for the transition period. See U.S. Environmental Protection Agency, Regulatory Impact Analysis: Heavy-Duty Engine and Vehicle Standards and Highway Diesel Fuel Sulfur Requirements, EPA420-R-00-026 (Washington, DC, December 2000).

114 U.S. Environmental Protection Agency, Regulatory Impact Analysis: Heavy-Duty Engine and Vehicle Standards and Highway Diesel Fuel Sulfur Requirements, EPA420-R-00-026 (Washington, DC, December 2000), Table V.C-9.

115 U.S. Environmental Protection Agency, Reducing Air Pollution from Non-road Engines, EPA420-F-00-048 (Washington, DC, November 2000), p. 3.

116 Germany and the United Kingdom have proposed tax incentives for sales of 10 ppm diesel.

117 Based on financial information from Form EIA-28 (Financial Reporting System). 118EIA did not assess the validity of these asumptions.

119 The capital costs used in this case are based on recent work by EnSys, with revisions based on correspondence with Mr. Martin Tallett, April 23, 2001.

120 This assumption is based on interviews with engine and technology manufacturers. Although this case reflects a scenario in which losses in efficiency from emission contol are not overcome by new technology, the considerable time available for research and development may provide government and industry ample time to resolve the fuel efficiency loss issues associated with advanced emission control tech-nologies.

121 The National Petrochemical and Refining Association provided data indicating that energy loss may be greater than assumed by the EPA. Letter from Terrence S. Higgins to James M. Kendell, February 8, 2001.

122 Public Works and Government Services Canada, Canada Gazette, Vol. 135, No. 7 (February 17, 2001), p. 454.

123 Maureen Monaghan, Natural Resources Canada, “Canadian Sulfur Standards for Gasoline and Diesel Sulfur,” presentation to the U.S. Department of Energy (March 12, 2001).

124 This assumption is based on interviews with engine and technology manufacturers.

125 In the NEMS PMM projections, the U.S. price is the average of the marginal prices in the three model regions.

126 According to financial information from Form EIA-28 (Financial Reporting System) refiners and marketers averaged a 7-percent before-tax return on investment between 1977 and 1999.

127 U.S. Environmental Protection Agency, “Control of Air Pollution from New Motor Vehicles: Heavy-Duty Engine and Vehicle Stan-dards and Highway Diesel Fuel Sulfur Control Requirements: Final Rule,” Federal Register, 40 CFR Parts 69, 80, and 86 (January 18, 2001).

128 Total cost per gallon of 15 ppm diesel is the sum of 4.1 cents per gallon refining cost and 1.1 cent per gallon distribution cost.

129 U.S. Environmental Protection Agency, Regulatory Impact Analysis: Heavy-Duty Engine and Vehicle Standards and Highway Diesel Fuel Sulfur Requirements, EPA420-R-00-026 (Washington, DC, December 2000), Chapter V, p. V-106.

130 Distribution costs include the capital cost of additional storage tanks, additional operating costs, yield losses, product downgrades, and testing costs.

131 U.S. Environmental Protection Agency, Regulatory Impact Analysis: Heavy-Duty Engine and Vehicle Standards and Highway Diesel Fuel Sulfur Requirements, EPA420-R-00-026 (Washington, DC, December 2000), Chapter V, p. V-103, web site www.epa.gov/otaq/regs/hd2007/ frm/ria-v.pdf.

132 Mathpro, Inc., Refining Economics of Diesel Fuel Sulfur Standards: Supplemental Analysis of 15ppm Sulfur Cap (Bethesda, MD, August 2000).

133 Mathpro, Inc., Refining Economics of Diesel Fuel Sulfur Standards: Supplemental Analysis of 15ppm Sulfur Cap (Bethesda, MD, August 2000).

134 National Petroleum Council, U.S. Petroleum Refining: Assuring the Adequacy and Affordability of Cleaner Fuels (June 2000), Chapter 3. Investment and cost estimates have been converted to 1999 dollars from 1998 dollars reported by NPC.

135 Charles River Associates, Inc. and Baker and O’Brien, Inc., An assessment of the Potential Impacts of Proposed Environmental Regulations on U.S. Refinery Supply of Diesel Fuel, CRA No. D02316-00 (August 2000).

136 U.S. Environmental Protection Agency, Regulatory Impact Analysis: Heavy-Duty Engine and Vehicle Standards and Highway Diesel Fuel Sulfur Requirements, EPA420-R-00-026 (Washington, DC, December 2000), Chapter V, web site www.epa.gov/otaq/regs/hd2007/ frm/ria-v.pdf.

137 Turner, Mason & Company, Costs/Impacts of Distributing Potential Ultra Low Sulfur Diesel (Dallas, TX, February 2000); Revised Supple-ment (August 2000).

138 Telephone conversation with Ray Ory of Baker and O’Brien, January 25, 2001.

139 EnSys Energy & Systems, Inc, Modeling Impacts of Reformulated Diesel Fuel (Flemington, NJ, August 2000).

140 M.K. Singh, Analysis of the Cost of a Phase-in of 15 ppm Sulfur Cap on Diesel Fuel, Revised (Argonne, IL: Center for Transportation Research, Argonne National Laboratory, November 2000).

141 M.K. Singh, Analysis of the Cost of a Phase-in of 15 ppm Sulfur Cap on Diesel Fuel, Revised (Argonne, IL: Center for Transportation Research, Argonne National Laboratory, November 2000), Appendix A.

142 M.K. Singh, Analysis of the Cost of a Phase-in of 15 ppm Sulfur Cap on Diesel Fuel, Revised (Argonne, IL: Center for Transportation Research, Argonne National Laboratory, November 2000), Table 1.

143 Turner, Mason & Company, Costs/Impacts of Distributing Potential Ultra Low Sulfur Diesel (Dallas, TX, February 2000).

144 M.K. Singh, Analysis of the Cost of a Phase-in of 15 ppm Sulfur Cap on Diesel Fuel, Revised (Argonne, IL: Center for Transportation Research, Argonne National Laboratory, November 2000), Appendix C.

145 EPA corroborated the vendors’ cost estimates in discussions with two other vendors. E-mail from Lester Wyborny, U.S. Environmen-tal Protection Agency, March 30, 2001.

146 M.K. Singh, Analysis of the Cost of a Phase-in of 15 ppm Sulfur Cap on Diesel Fuel, Revised (Argonne, IL: Center for Transportation Research, Argonne National Laboratory, November 2000), p. 132.

147 National Petroleum Council, U.S. Petroleum Refining: Assuring the Adequacy and Affordability of Cleaner Fuels (June 2000), p. 77.

148 Turner, Mason & Company, Costs/Impacts of Distributing Potential Ultra Low Sulfur Diesel (Dallas, TX, February 2000).

149 M.K. Singh, Analysis of the Cost of a Phase-in of 15 ppm Sulfur Cap on Diesel Fuel, Revised (Argonne, IL: Center for Transportation Research, Argonne National Laboratory, November 2000), Appendix C.

150 Turner, Mason & Company, Costs/Impacts of Distributing Potential Ultra Low Sulfur Diesel (Dallas, TX, February 2000); Revised Supple-ment (August 2000).

151 Total distribution and retail cost estimates for 5 ppm from Costs/Impacts of Distributing Potential Ultra Low Sulfur Diesel were adjusted based on update of downgrade costs for 15 ppm diesel provided in the Revised Supplement.

152 Telephone conversation with Bob Cunningham of Turner Mason, March 21, 2001. 153U.S. Environmental Protection Agency, Regulatory Impact Analysis: Heavy-Duty Engine and Vehicle Standards and Highway Diesel Fuel Sulfur Requirements, EPA420-R-00-026 (Washington, DC, December 2000), Chapter V, p. V-124,

153 U.S. Environmental Protection Agency, Regulatory Impact Analysis: Heavy-Duty Engine and Vehicle Standards and Highway Diesel Fuel Sulfur Requirements, EPA420-R-00-026 (Washington, DC, December 2000), Chapter V, p. V-124.

154 Turner, Mason & Company, Costs/Impacts of Distributing Potential Ultra Low Sulfur Diesel (Dallas, TX, February 2000), p. 6.

155 Muse, Stancil & Co., Alternative Markets for Highway Diesel Fuel Components (September 2000).

156 Energy Information Administration, Fuel Oil and Kerosene Sales, DOE/EIA-0535 (Washington, DC, 1995-1998).

157 Energy Information Administration, Annual Energy Outlook 2000, DOE/EIA-0383(2000) (Washinton, DC, December 1999).

158 Energy Information Administration, Petroleum Supply Annual 1999, Volume 1, DOE/EIA-0340(99/1) (Washington, DC, June 2000).

159 Muse, Stancil & Co., Alternative Markets for Highway Diesel Fuel Components (September 2000), pp. 19-32.

160 Energy Information Administration, Annual Energy Outlook 2001, DOE/EIA-0383(2001) (Washington, DC, December 2000), web site www.eia.doe.gov/oiaf/aeo/. See also web sites www.eia.doe.gov/oiaf/assumption/pdf/0554(2001).pdf and www.eia.doe.gov/oiaf/supplement/index.html.

161 Model documentation reports for NEMS and its modules as well as a summary report, NEMS: An Overview, are available at web site www.eia.doe.gov/bookshelf/docs.html.

162 Based on ton-miles. See Association of Oil Pipe Lines, Shifts in Petroleum Transportation—1999 (2001).

163 Final Report: 1996 American Petroleum Institute/National Petrochemical and Refining Association Survey of Refining Operations and Product Quality (July 1997).

164 U.S. Environmental Protection Agency, Regulatory Impact Analysis: Heavy-Duty Engine and Vehicle Standards and Highway Diesel Fuel Sulfur Requirements, EPA420-R-00-026 (Washington, DC, December 2000), Chapter IV, web site www.epa.gov/otaq/regs/hd2007/frm/ria-iv.pdf.

165 U.S. Environmental Protection Agency, Regulatory Impact Analysis: Heavy-Duty Engine and Vehicle Standards and Highway Diesel Fuel Sulfur Requirements, EPA420-R-00-026 (Washington, DC, December 2000).

166 Charles River Associates, Inc., and Baker and O’Brien, Inc., An assessment of the Potential Impacts of Proposed Environmental Regulations on U.S. Refinery Supply of Diesel Fuel, CRA No. D02316-00 (August 2000).

167 National Petroleum Council, U.S. Petroleum Refining: Assuring the Adequacy and Affordability of Cleaner Fuels (June 2000).

168 Energy Information Administration, Annual Energy Outlook 2001, DOE/EIA-0383(2001) (Washington, DC, December 2000), Figure 112.

169 Energy Information Administration, Annual Energy Outlook 2001, DOE/EIA-0383(2001) (Washington, DC, December 2000), Figure 88.