    [Senate Hearing 106-503]
    [From the U.S. Government Publishing Office]

                                                            S. Hrg. 106-503

         CLEAN AIR ACT: SULFUR IN THE TIER 2 STANDARDS FOR AUTOMOBILES

    =======================================================================

                                    HEARINGS

                                   BEFORE THE

      SUBCOMMITTEE ON CLEAN AIR, WETLANDS, PRIVATE PROPERTY, AND NUCLEAR
                                     SAFETY

                                     OF THE

                                  COMMITTEE ON
                          ENVIRONMENT AND PUBLIC WORKS
                              UNITED STATES SENATE

                           ONE HUNDRED SIXTH CONGRESS

                                 FIRST SESSION

                                   __________

                                  MAY 18, 1999
                                  MAY 20, 1999
                                  MAY 29, 1999

                                   __________

      Printed for the use of the Committee on Environment and Public Works

    _______________________________________________________________________
                For sale by the U.S. Government Printing Office
    Superintendent of Documents, Congressional Sales Office, Washington, DC
                                     20402
    ?

                   COMMITTEE ON ENVIRONMENT AND PUBLIC WORKS

                           ONE HUNDRED SIXTH CONGRESS
                     JOHN H. CHAFEE, Rhode Island, Chairman
    JOHN W. WARNER, Virginia             MAX BAUCUS, Montana
    ROBERT SMITH, New Hampshire          DANIEL PATRICK MOYNIHAN, New York
    JAMES M. INHOFE, Oklahoma            FRANK R. LAUTENBERG, New Jersey
    CRAIG THOMAS, Wyoming                HARRY REID, Nevada
    CHRISTOPHER S. BOND, Missouri        BOB GRAHAM, Florida
    GEORGE V. VOINOVICH, Ohio            JOSEPH I. LIEBERMAN, Connecticut
    MICHAEL D. CRAPO, Idaho              BARBARA BOXER, California
    ROBERT F. BENNETT, Utah              RON WYDEN, Oregon
    KAY BAILEY HUTCHISON, Texas
                         Jimmie Powell, Staff Director
                   J. Thomas Sliter, Minority Staff Director
                                     ------

           Subcommittee on Clean Air, Wetlands, Private Property, and
                                 Nuclear Safety

                      JAMES M. INHOFE, Oklahoma, Chairman
    GEORGE V. VOINOVICH, Ohio            BOB GRAHAM, Florida
    ROBERT F. BENNETT, Utah              JOSEPH I. LIEBERMAN, Connecticut
    KAY BAILEY HUTCHISON, Texas          BARBARA BOXER, California

                                      (ii)

                                C O N T E N T S

                                  ----------
                                                                       Page

                                  MAY 18, 1999
                               OPENING STATEMENTS

    Inhofe, Hon. Jim, U.S. Senator from the State of Oklahoma........     1
    Graham, Hon. Bob, U.S. Senator from the State of Florida.........    32
    Lieberman, Hon. Joseph I., U.S. Senator from the State of
      Connecticut....................................................    27
    Moynihan, Hon. Daniel Patrick, U.S. Senator from the State of New
      York...........................................................    32
    Thomas, Hon. Craig, U.S. Senator from the State of Wyoming.......     2
    Voinovich, Hon. George V. U.S. Senator from the State of Ohio....     3

                                   WITNESSES

    Austin, James D., Assistant Commissioner, New York State
      Department of Environmental Conservation, Albany, NY...........     6
        Charts.......................................................    64
        Prepared statement...........................................    62
        Responses to additional questions from:
            Senator Chafee...........................................    69
            Senator Graham...........................................    68
            Senator Moynihan.........................................    67
    Beard, Loren K., senior manager of Materials and Fuels, Daimler
      Chrysler Corporation, Auburn Hills, MI.........................    17
        Charts.......................................................    82
        Prepared statement...........................................    80
    Ensign, Clint W., vice president, Government Relations, Sinclair
      Oil Corporation, Salt Lake City, UT............................    21
        Charts.......................................................97-109
        Prepared statement...........................................    91
        Responses to additional questions from:
            Senator Chafee...........................................   109
            Senator Graham...........................................   110
            Senator Voinovich........................................   111
    Frank, Louis J., president, Marathon Ashland Petroleum LLC,
      Findlay, OH....................................................    15
        Charts.......................................................    73
        Prepared statement...........................................    69
        Responses to additional questions from:
            Senator Chafee...........................................    76
            Senator Graham...........................................    77
            Senator Moynihan.........................................    78
            Senator Voinovich........................................    79
    Myers, Hon. Nettie H., Cabinet Secretary, South Dakota Department
      of Environment and Natural Resources, Pierre, SD...............     5
        Charts.........................................49-51, 53, 54, 58-62
        Letters:
            Several Governors........................................ 38-47
            Environmental Council of the States......................    52
        Prepared statement...........................................    33
        Responses to additional questions from:
            Senator Chafee...........................................    57
            Senator Graham...........................................    55
            Senator Moynihan.........................................    54
        Table, Gasoline sulfur reduction analysis....................    48
    Nasser, William E., chief executive officer, Energy Biosystems
      Corporation, The Woodlands, TX.................................    23
        Article, Energy Biosystems...................................   114
        Prepared statement...........................................   113
        Responses to additional questions from:
            Senator Chafee...........................................   118
            Senator Inhofe...........................................   117
            Senator Graham...........................................   118
    Stanfield, Rebecca, Clean Air Advocate, U.S. Public Interest
      Research Group.................................................    19
        Prepared statement...........................................    87
        Responses to additional questions from:
            Senator Chafee...........................................    90
            Senator Graham...........................................    89

                              ADDITIONAL MATERIAL

    Articles:
        Energy Biosystems............................................   114
        Reversibility of Gasoline Sulfur: Effects of Low Emission
          Vehicles..................................................123-166
    Statement, Catalytic Distillation Technologies...................   119
                                     ------

                                  MAY 20, 1999
                               OPENING STATEMENTS

    Bennett, Hon. Robert F., U.S. Senator from the State of Utah.....   179
    Boxer, Hon. Barbara, U.S. Senator from the State of California...   177
    Chafee, John H., U.S. Senator from the State of Rhode Island,....   186
    Inhofe, Hon. James M., U.S. Senator from the State of Oklahoma...   167
    Thomas, Hon. Craig, U.S. Senator from the State of Wyoming.......   168

                                    WITNESS

    Browner, Hon. Carol M., Administrator, Environmental Protection
      Agency.........................................................   169
        Memorandum, Implementation of Revised Air Quality Standards
          for Ozone and Particulate Matter, President Clinton........   200
        Prepared statement...........................................   193
        Responses to additional questions from:
            Senator Baucus..........................................215-218
            Senator Graham..........................................220-222
            Senator Inhofe..........................................201-215
            Senator Moynihan.........................................   219

                              ADDITIONAL MATERIAL

    Article, Weird Science at the EPA, Reader's Digest...............   182
                                     ------

                                 JULY 29, 1999
                               OPENING STATEMENTS

    Inhofe, Hon. James M., U.S. Senator from the State of Oklahoma...   223
    Lautenberg, Hon. Frank R., U.S. Senator from the State of New
      Jersey.........................................................   233

                                    WITNESS

    Perciasepe, Hon. Robert, Assistant Administrator, Office of Air
      and Radiation, Environmental Protection Agency.................   224
        Prepared statement...........................................   239
        Responses to additional questions from:
            Senator Bennett.........................................251-255
            Senator Inhofe..........................................255-258
            Senator Thomas..........................................246-251

                              ADDITIONAL MATERIAL

    Report, Mercatus Center Regulatory Studies Program..............258-286

         CLEAN AIR ACT: SULFUR IN THE TIER 2 STANDARDS FOR AUTOMOBILES

                                  ----------

                             TUESDAY, MAY 18, 1999

                                   U.S. Senate,
             Committee on Environment and Public Works,
    Subcommittee on Clean Air, Wetlands, Private Property, and
                                                Nuclear Safety,
                                                        Washington, DC.
        The subcommittee met at 11:06 a.m., in room 406, Senate
    Dirksen Building, Hon. James M. Inhofe (chairman of the
    subcommittee) presiding.
        Present: Senators Inhofe, Voinovich, Bennett, and
    Lieberman.
        Also present: Senator Thomas.

              OPENING STATEMENT OF HON. JAMES M. INHOFE,
                U.S. SENATOR FROM THE STATE OF OKLAHOMA

        Senator Inhofe. The meeting will come to order.
        I'll start by apologizing to all the panelists. Don't blame
    me, blame American Airlines. I sat on the runway in Tulsa last
    night for 4\1/2\ hours, from 6 to 10:30, and then, just as we
    arrived in Chicago, they closed the airport, and so I sat in a
    chair for the next 5 hours and had to catch one this morning,
    so I'm sorry I wasn't here.
        I know some of you have transportation concerns. We're
    going to go through this pretty fast. We have a number of other
    Members who have an intense interest in this who are going to
    be submitting questions for the record. This is very meaningful
    to people in my part of the United States, and I think the same
    for Senator Thomas.
        Today is the first of two hearings this week on the EPA's
    proposed new standards for sulfur levels in gasoline. Sulfur
    standard is a part of the new proposed Tier 2 auto emissions
    standards. These standards were proposed on May 1 and are
    expected to go final by the end of the year. I said, ``expected
    to go final by the end of this year,'' because EPA has a lot of
    work ahead of itself if they plan to accomplish this.
        For over a year, the subcommittee and my office have raised
    a number of issues with the EPA, and they seemingly have
    ignored many of our concerns and many of the issues that we
    have brought to their attention.
        At this point I'd just like to note a couple of concerns in
    hopes that the witnesses on both panels today might address
    these.
        The EPA has decided to provide very limited relief for
    small refiners, based on the number of employees of the entire
    corporation. This is, I believe, an unfair way to do it,
    because there are many corporations that have refineries as
    subsidiaries, and EPA refers to the entire corporation. The EPA
    has ignored small facilities owned by large corporations. Now,
    they have the same problems, even though they may be a small
    part of a large corporation. The numbers would still be the
    same, and it is easy for them to close down a small part of
    their total operation. I have reason to believe this might be
    the case.
        The phase-in time--the EPA has talked about phasing in
    automobile standards over a 4-year period, starting in 2004,
    yet all but the smallest 18 or 17 refineries will be forced to
    undergo their large investments well before 2004.
        In order to undertake what limited relief the small
    companies will have will probably require significant
    investments by them, as well.
        Can this be done in a less-disruptive manner? Perhaps with
    the same lead-in time given to auto manufacturers.
        Because of the effect on small refineries and small
    refiners and the lead-in time for major equipment changes, we
    can expect to see energy supply disruptions. One example is the
    availability of equipment. For the EPA's preferred technology,
    there are only two vendors to date, and they have only
    installed equipment at one refinery. Now the EPA and State
    permit process, alone, takes 1 to 2 years to complete. The EPA
    has said that they can shorten this period of time, but, I've
    heard that before.
        Those are some of the issues that I have raised to the
    Administration over the last year which have not been addressed
    in the proposed rule. Because of their failure to deal with
    these hard issues in their proposal, I have decided to move
    forward with legislation that will address sulfur levels in
    fuel. I intend to use the hearings this week to help gather
    information for our proposed legislation.
        Senator Thomas, do you have an opening statement?

     OPENING STATEMENT OF HON. CRAIG THOMAS, U.S. SENATOR FROM THE
                            STATE OF WYOMING

        Senator Thomas. Yes, Sir. Thank you, Mr. Chairman.
        I am not a member of this subcommittee, but you and I have
    worked on some of these things together, and I appreciate you
    holding this meeting.
        As you pointed out, the Administration has announced EPA's
    proposed gasoline sulfur reduction program. As usual, we are
    faced with this question of trying to say, ``Well, we're for
    clean air and you're not.'' That's not the issue here, as is
    almost always the case. Everyone is for clean air. The question
    is: How do we get there? I think that's really what this is all
    about, similar to our clean water hearings that we had last
    week.
        This, I think, is another effort to implement the CATO
    agreements without ratification and to put out a very severe
    and inflexible proposal, so that's what we're dealing with.
        As you know, Wyoming has some of the cleanest air in the
    United States. We have an attainment to the national ambient
    air standards. In fact, we do not have a mobile source problem
    due to our low density. So the point is that we need to deal
    with some flexibility as we go about these things, and that the
    needs are different in California than they are in Wyoming.
        We understand the need to address the mobile sector,
    studying the regional haze problem. Wyoming was very active in
    the Grand Canyon Visibility Transportation Commission and
    totally realizes that air quality is not an issue constrained
    to State borders.
        Having said that, in recognizing the need for a solution
    that crossed State borders, we also believe the severity of the
    problem varies by regions, of course. Just as I do not believe
    that one solution is appropriate for regional haze, clean
    water, or even electronic deregulation, I also believe that one
    standard here is inappropriate for gasoline.
        Domestic oil industry, of course, has been hit hard lately.
    Refineries and the oil industry are a critical sector of
    Wyoming's economy. I am pleased the refining industry came
    forward with their own tailored proposal to address these
    quality programs at reasonable cost.
        Even though the industry is willing to accept EPA's level,
    with the more-flexible time schedule, I feel it is wrong to
    impose identical standards, and so we look forward to hearing
    all of your testimony, and, again, I would say I hope we can
    recognize that one-fits-all standards don't work here.
        So thank you, Mr. Chairman.
        Senator Inhofe. I think you have observed something here,
    because it is not a matter of being for or against clean air or
    these things. You can remember during the ambient air standard
    fight--and, of course, Senator Voinovich at that time was
    chairman of the Governors' Air Committee--at that time we had
    all the auto industry and the energy industry all together. So
    we all want to achieve this; it's just sometimes the lines are
    different than they are at other times.
        Senator Voinovich.

            OPENING STATEMENT OF HON. GEORGE V. VOINOVICH,
                  U.S. SENATOR FROM THE STATE OF OHIO

        Senator Voinovich. Thank you, Mr. Chairman. I'm really
    pleased that you are conducting these hearings this week on
    EPA's proposed low-sulfur gasoline standards.
        Senator Thomas, it is really nice to know that Wyoming has
    met all of the current ambient air standards. I was sent to
    Wyoming in 1971 by Bill Ruckelshaus to encourage Rocky Mountain
    legislators that they shouldn't sacrifice their clean air and
    water for economic development, because at that time Ohio had
    some of the dirtiest air and, as you know, we almost lost Lake
    Eerie.
        I'm pleased also this morning that there is a fellow Ohioan
    joining us today on the second panel, Corky Frank, who is
    president of Marathon Ashland Petroleum in Findlay, OH.
    Marathon Ashland is the fourth-largest U.S. refiner, which
    operates seven refineries and operators over 5,400 retail
    outlets in 20 States.
        As the chairman has said, for a long time I have been
    concerned that EPA is not adequately taking costs, benefits,
    and sound science into consideration during the rulemaking
    process, particularly those involving clean air standards.
    Indeed, just recently a U.S. appeals court remanded EPA's ozone
    and PM-25 standards, ruling that EPA did not justify
    its decision with sound scientific evidence. Ohio was a party
    to the lawsuit, which began when I was Governor of the State.
        The court didn't say that EPA couldn't regulate at these
    levels, but that EPA didn't give justification for doing so.
    This has been my point all along. For a long time I've argued
    that the NAAQS standards and the NOx SIP call were
    going to be costly, and we didn't even know if making those
    investments was going to solve a problem.
        Mr. Chairman, I call these hearings, ``The Chickens have
    come Home to Roost'' hearings. EPA's inflexible and costly
    approach to the NAAQS and NOx SIP call have created
    hardships that leave little flexibility for States and
    businesses to comply with upcoming new air regulations that are
    required under the Clean Air Act.
        For instance, the proposed Tier 2 and low sulfur gasoline
    standards have pitted two industries that depend on each other
    against each other. It has put the oil and auto industries at
    odds with each other, as you pointed out, and this deeply
    concerns me.
        I want to ensure that EPA is not moving forward with
    regulations that have not been studied carefully to determine
    their effects.
        And let me say that the reason why we're even talking about
    this today--low sulfur, reducing sulfur in gasoline, putting
    more pressure on the auto companies--is because of these new
    ozone and particulate standards, which so many of us fought and
    said weren't necessary because they wouldn't really make any
    impact on the environment or on public health.
        I am not sure how this is all going to be played out, Mr.
    Chairman, but that may cause them to perhaps recalculate what
    they are proposing in both the auto and in the oil industries.
        I'd like to know the answer to the question: If we had more
    time, could the various interests that are here in this room
    work together and get it done, but do it over a longer period
    of time?
        I'm hoping, Mr. Chairman, that in these hearings we're
    talking about what the consumer has to pay. The consumer gets
    lost. And I can tell you, as one who went through emission
    testing in my State, we do emission testing, and, to put it in
    the vernacular, all hell broke out, you know. But we did it
    because we wanted to get Ohio to comply with the ambient air
    standards.
        Senator Thomas, I'm proud. Just 2 weeks ago, Cincinnati was
    the last area of the State that reached the current ambient air
    standards, but it was at great sacrifice and I took a lot of
    heat.
        There may be some environmental people in this room. I
    didn't have one bit of support from the environmental people in
    Ohio when I went ahead and made that tough decision and had to
    veto that--they wanted to override it, the Legislature, and I
    had to veto the bill to override emissions testing because that
    was the way we were going to get the job done.
        But people have to understand that there are cost/benefits,
    and we need to make sure that when we're doing these things
    that they can be justified from a cost/benefit, and that it
    really is going to make a difference in dealing with the
    environment.
        So I am interested to hear the comments from the various
    witnesses to see as to how they calculate this new ruling by
    the courts in terms of where we are with these proposed
    regulations.
        Thank you, Mr. Chairman.
        Senator Inhofe. Thank you, Senator Voinovich.
        I hope that everyone here in this room heard you say
    ``sound science'' and ``cost/benefit analysis,'' because I
    think we are going to be getting to that rapidly on all these
    issues, all these proposed rule changes.
        Well, let's start with Secretary Myers. If you would like
    to make your statement, your entire statement--and this goes to
    all of the witnesses who are here today--your entire statement
    will be made part of the record, so you can make your statement
    any way that you'd like, if you'd rather abbreviate it.
        Secretary Myers.

      STATEMENT OF HON. NETTIE H. MYERS, CABINET SECRETARY, SOUTH
    DAKOTA DEPARTMENT OF ENVIRONMENT AND NATURAL RESOURCES, PIERRE,
                                   SD

        Ms. Myers. Thank you, Chairman Inhofe and members of the
    subcommittee.
        My name is Nettie Myers. I'm the secretary of the South
    Dakota Department of Environment and Natural Resources. I am
    here to testify on behalf of my State in opposition to any
    uniformly low, nationwide gasoline sulfur standard, as proposed
    by EPA on May 1.
        Letters signed by Governors and officials of at least eight
    other States are attached to this statement and are evidence
    that South Dakota does not stand alone in this regard.
        There are four reasons for our fundamental opposition.
        First, for States like South Dakota, no measurable public
    health benefit will be gained.
        Second, current gasoline sulfur levels in my State do not
    threaten public health or ambient air quality in any downwind
    States.
        Third, the proposed standard poses a serious and
    unwarranted threat to our consumer gasoline prices by harming
    refineries that supply our fuels.
        Fourth, there is a way, through vehicle maintenance, that
    is less expensive than EPA's proposal. South Dakotans and their
    neighbors do not contribute to this problem and will not
    benefit from the proposed solution. Do not make them pay with
    higher gasoline prices.
        South Dakota and the PADD-IV States have some of the lowest
    traffic densities in the country. South Dakota's stationary
    source NOx inventory is extremely low at 27,000 tons
    per year. We estimate that, at most, low sulfur gasoline will
    provide another 800 to 1,000 tons per year in reductions. With
    already low NOx and ozone levels, this additional
    reduction offers no real improvement in air quality.
        There is no harm to downwind States. Attachment five is a
    June 6, 1996, letter I received from the Ozone Transport
    Assessment Group, OTAG. That letter states:

        Based on our preliminary assessment of emissions and air quality
    data, it is our conclusion that States like Nebraska, North Dakota, and
    South Dakota will not need to install additional controls.

        This conclusion is true today and will be true in the
    future.
        Refinery closures are expensive. We are concerned that
    additional costs will result in a refinery closure and higher
    gasoline prices. The 1991 closure of AMOCO's refinery in
    Casper, WY, proves this point. Gasoline prices in PADD-IV
    cities have risen about $0.10 per gallon, compared to PADD-III,
    since 1987. This represents about $10 million per year in
    unnecessarily higher gasoline prices for South Dakota
    customers, alone. This does not include any effect on diesel
    fuel, which is so necessary to farming.
        When suppliers shut down, prices go up. We simply do not
    need another refinery closure until EPA finds a way for its
    rules to repeal the basic laws of economics.
        There appear to be cheaper alternatives. In terms of
    finding the least-expensive solution, the proposed rule appears
    to turn logic on its ear. Catalytic converter reversibility
    need not be an issue.
        It is sensible, particularly in the early years of the
    program, to require owners or industry to properly maintain
    Tier 2 vehicles by replacing catalytic converters, as
    necessary. Substituting proper vehicle maintenance for costly
    standards places the cost of regulation both on those causing
    the problem and on those who will benefit from the solution.
        In conclusion, Mr. Chairman, I present this testimony today
    to clarify for the subcommittee the negative effect of
    uniformly low gasoline sulfur standards on South Dakota and the
    neighboring region. Although they cause no air quality problems
    in other States, our citizens will pay significant costs and
    will receive no benefit under the proposed rule.
        The closure of a refinery in PADD-IV is more than possible,
    and the economic harm from such an event will be unwarranted.
        In short, South Dakotans do not have air quality problems
    prompting this rule. They do not need low-sulfur gasoline, and
    they certainly do not want to pay for it.
        Thank you for the opportunity to be here today. I'll be
    happy to answer any questions you may have.
        Senator Inhofe. Thank you, Secretary Myers.
        As I often do, I deviated from the script and neglected to
    say that we're going to try to keep our opening statements to 5
    minutes so that we can accommodate all the questions that we
    have, but you did it, anyway, so thank you so much.
        Mr. Austin is the assistant commissioner of the New York
    State Department of Environmental Conservation.
        We are delighted to have you here.

    STATEMENT OF JAMES D. AUSTIN, ASSISTANT COMMISSIONER, NEW YORK
       STATE DEPARTMENT OF ENVIRONMENTAL CONSERVATION, ALBANY, NY

        Mr. Austin. Thank you, Mr. Chairman, members of the Senate
    committee.
        My name is----
        Senator Inhofe. Before you start, we have been joined by
    Senator Bennett.
        Senator Bennett, did you have an opening statement that you
    wished to make?
        Senator Bennett. No, Mr. Chairman.
        Senator Inhofe. All right.
        Senator Bennett. I'm just glad to be here.
        Senator Inhofe. Mr. Austin.
        Mr. Austin. Good morning. My name is Jim Austin, and I'm
    assistant commissioner of the New York State Department of
    Environmental Conservation. On behalf of the Department, I
    appreciate the opportunity to be here to testify before the
    subcommittee this morning in support of the Environmental
    Protection Agency's proposed sulfur standards for gasoline.
        We haven't come to these proceedings lightly. The
    department I work for has been investigating the effects of
    fuel sulfur in emissions for well over 20 years, and Governor
    Pataki recently allocated over $1 million in funding toward a
    joint project to look at how low-sulfur diesel fuel can
    facilitate emission reductions in transit buses.
        There is no doubt at all that New York has an air quality
    problem, and that much of this results from motor vehicles. We
    estimate that approximately half the emissions that result in
    ground-level ozone and virtually all the carbon monoxide in the
    air comes from mobile sources. New York has worked hard to
    address this problem, and we have made progress over the nearly
    three decades since the Clean Air Act was first enacted,
    implementing every mobile source control strategy required by
    the act, as well as several beyond those requirements. These
    include stringent emissions inspections for cars, vapor
    recovery at gasoline stations, and the California emissions
    standards for new cars.
        Senator Voinovich, having personally worked on the
    emissions inspection program, I definitely share your pain in
    the implementation of that program. It was very difficult.
        Last year, the Governor also signed legislation requiring
    emission inspections for diesel trucks and buses.
        New York also limits the volatility of gasoline sold in the
    State, and our analysis indicates that this has been the single
    most successful program we've ever implemented in providing
    significant and immediate improvements in ambient air quality.
    This is because there was no waiting for new technology to
    penetrate the market and work its way into New York's fleet of
    vehicles.
        Additionally, all vehicles, young or old, well-maintained
    or neglected, witnessed improved emissions performance as a
    result of controls on gasoline volatility.
        Based on our review of EPA's proposed sulfur limits and the
    science supporting it, we feel it will, likewise, provide
    immediate benefits as a critical component in achieving further
    emission reductions from mobile sources.
        Being from New York, I'm painfully aware of the role sulfur
    in fuel can play in the acidification of our lakes, rivers, and
    forests. Governor Pataki has repeatedly urged EPA to meet its
    obligations under the Clean Air Act and protect sensitive
    regions, like the Adirondacks, from acid rain.
        High-sulfur gasoline is perhaps doubly damaging. It
    directly results in emissions of extremely fine particulates
    and acidic aerosols that have been shown to lead to severe
    respiratory conditions and other ailments, no matter where you
    live, and it strips catalytic converters of their ability to
    reduce emissions of other pollutants, such as hydrocarbons,
    NOx, carbon monoxide, and a host of toxics.
        EPA analysis has demonstrated that even a single tankful of
    high-sulfur fuel can seriously degrade catalyst efficiency, and
    that this degradation is probably irreversible under normal
    operating conditions. That is why adopting EPA's proposed
    sulfur limit on a nationwide basis, rather than regionally, is
    so critical.
        There are other reasons to support low-sulfur fuel, as
    well. Unlike other potential changes to gasoline we could make,
    decreasing allowable levels of sulfur has no down side.
    Reducing sulfur levels has no negative effects on emissions,
    driveability, or durability of motor vehicles. It only reduces
    the emissions of pollutants that have been known to harm the
    environment and the people of this Nation.
        Auto makers also say that it is essential to meeting the
    proposed new emission standards for automobiles. These
    vehicles, by the way, will be certified using low-sulfur fuel,
    and they should be operated on that same fuel.
        Limiting sulfur would also be relatively inexpensive,
    painless, and a transparent way to reduce air pollution in all
    States--I was going to say ``that will be'' determined out of
    compliance with the new 8-hour standard. As we know, that
    standard is in question right now.
        For these reasons, countries in Europe, Canada, Japan, and
    Australia have already taken steps to require low-sulfur fuels,
    and it is essential that it be adopted here in the United
    States on a national basis.
        As I mentioned earlier, New York State is working with the
    Metropolitan Transportation Authority and other participants in
    a program to introduce new emissions reduction technology to
    diesel-powered transit buses. This technology has already been
    installed on nearly 4,000 buses in Europe, and has been
    demonstrated to provide dramatic reductions in emissions.
        Due to the high sulfur levels in American diesel fuels,
    this technology has previously been unavailable for use in the
    United States. Thankfully, a foresighted company was willing to
    provide the project with the low-sulfur fuel needed to perform
    the demonstration, and we have every reason to believe that the
    technology will provide the same emission reductions achieved
    on similarly equipped buses in Europe, which have been shown to
    be as clean as buses powered by compressed natural gas at a
    fraction of the cost.
        Hopefully, fuel to operate these clean buses will be
    available after the demonstration project is completed.
        Low-sulfur fuel not only reduces exposure of harmful acidic
    aerosols and particulates, but it also enables the reduction of
    pollutants. Catalysts and particulate trap technologies have
    advanced to the point where emissions from cars and trucks can
    be inexpensively reduced to a fraction of their current levels,
    yet, without low-sulfur fuels, these advanced technologies will
    only sit on the shelf collecting dust.
        We, therefore, strongly support EPA's proposal to reduce
    fuel sulfur, and we thank you for this opportunity to present
    our strong support.
        The Department will be sending detailed comments before the
    hearing record closes, and I would be happy to answer any
    questions you may have.
        Senator Inhofe. Thank you, Mr. Austin.
        I'm going to take a rather short period of questions here
    so that we can get to all of our Members, and our second panel
    is a longer panel, so we're going to try to get through this
    fairly quickly.
        Mr. Austin, in 1994 there was somewhat of a consumer
    backlash when some nine counties in New York, including, I
    believe, Buffalo, Albany--I'm not sure which ones--wanted to be
    out of this thing.
        I guess the first thing that came to my mind is, if there
    is not unanimity within the State of New York, why would this
    be good for----
        Mr. Austin. Sir, I'm not sure I understand. Wanting to be
    out of what thing?
        Senator Inhofe. The RFG program.
        Mr. Austin. The what, Sir?
        Senator Inhofe. The RFG program.
        Mr. Austin. I'm sorry. Yes, Sir. Well, the problem with the
    RFG program is exactly what we're talking about, why we're
    supporting doing this on a national basis now.
        It was proposed on a regional basis, where you could
    literally drive across a bridge from Warren to Washington
    County and not have RFG, and there was a couple of cent
    differential associated with RFG, and that 2 or 3 cents,
    because it was done on a regional basis, was very noticeable.
        Since that time, New York City gas is no more expensive
    than gas anywhere in the rest of the State of New York.
        Also, interestingly enough, the oil companies seem to be
    providing essentially the same fuels statewide, which means
    RFG.
        Senator Inhofe. Yes.
        Secretary Myers, you were talking about some of the
    negative things. What are some of the benefits that you would
    feel there in South Dakota with this program?
        Ms. Myers. We feel that there would be no significant
    benefits, whatsoever.
        Senator Inhofe. When you were quantifying the costs, the
    additional costs that you have done some calculation there, I
    think you said you have not done that with diesel. The EPA has
    said the estimate would increase gasoline prices $6.4 million
    over a period of the year in South Dakota. Is this an accurate
    figure? Do you agree with this?
        Ms. Myers. I think it's probably a very accurate figure,
    and it would be devastating to our State.
        Senator Inhofe. Thank you.
        Senator Thomas.
        Senator Thomas. Let me ask you, Secretary Myers, you know,
    each time we have one of these hearings, on whatever the
    subject, we always hear eloquently how the EPA has worked in
    partnerships. Could you tell me, has the EPA worked with you in
    your State in developing this proposal?
        Ms. Myers. No, they haven't. They worked through the
    organization of STAPPA-ALAPCO, but we were not involved in that
    and did not agree with their position, and less than 50 percent
    of the members voted for that position, so we do not support
    their position.
        Senator Thomas. Thank you.
        Mr. Austin, California I think has had--this is sort of
    patterned after California?
        Mr. Austin. Yes, Sir.
        Senator Thomas. If it is that important to you, why doesn't
    New York do what California has done?
        Mr. Austin. Well, Sir, we believe we have the statutory
    authority necessary to implement low-sulfur fuel on our own.
    That's being looked at by our attorneys. However, the main
    problem is reversibility.
        One of the great things about this country is I can get in
    my car and drive to South Dakota if I'd like. In fact, there's
    an upcoming motorcycle rally this summer I'd like to attend.
    One tankful of high-sulfur fuel would degrade the catalyst
    deficiency in my new car to the point that it is essentially
    useless and would have to be replaced. The cost of that is
    about $200 to $300, but we estimate the cost over the whole
    lifetime of the vehicle of the low-sulfur fuel program is about
    $100. So we feel this is a very cost-efficient program
    nationwide.
        Senator Thomas. You think the additional cost to consumer
    is $100 for the lifetime of their car?
        Mr. Austin. Yes, Sir. That's EPA's estimate, a little over
    $100.
        Senator Thomas. In the price of gas, and so on?
        Mr. Austin. Well, they estimate about $0.02 a gallon, and
    using modern CAFE of about 25 miles per gallon and 12,000 miles
    per year, the math works out to just about $100 over the
    lifetime of a vehicle.
        Senator Thomas. You must not drive as much as we do.
        Mr. Austin. I drive quite a bit, Sir.
        Senator Thomas. Even at $0.02--well, in any event, it just
    seems to me like the problems in New York are quite different
    than they are in Wyoming.
        Mr. Austin. Yes, Sir. No doubt.
        Senator Thomas. And there is no question but that you have
    to--and I don't think one tank of gas is going to get you to
    Wyoming, but I understand it. But I would think that you could
    move forward and, you know, do something for yourselves,
    instead of sort of laying it on the rest of us.
        In any event, thank you, Mr. Chairman.
        Senator Inhofe. Yes. And I would remind you, when you talk
    about the EPA's estimate, back when we were doing the ambient
    air thing they originally said it was going to be $6 billion,
    then the President's Economic Council came out and said it was
    going to be $60 billion, and it ended up the Reason Foundation
    in California came out with a range of $120 billion a year to
    $150 billion on ozone, alone. So I look at these estimates a
    little cautiously.
        Senator Voinovich.
        Senator Voinovich. Mr. Austin, has New York State achieved
    the current ambient air standards?
        Mr. Austin. In the upstate area, yes, Sir, we've measured
    attainment for the 1-hour standard. In the downstate area, no,
    Sir, greater New York.
        Senator Voinovich. And if the new standards are in place--
    --
        Mr. Austin. The 8-hour standard would put most of New York
    State out of compliance.
        Senator Voinovich. Your feeling is that it would be better,
    from an environmental point of view and from a consumer point
    of view, to go with the low-sulfur standard?
        Mr. Austin. Sir, you pointed out the enhanced emission
    inspection program. The cost/benefit on that is a little over
    $3,000 a ton. We estimate the cost/benefit on low-sulfur fuel
    to be about $2,000 per ton. So, from our position, it looks to
    be more cost-effective and far more transparent to the
    consumers to achieve the same emission reduction, or perhaps a
    greater one.
        Senator Voinovich. In other words, if you didn't go with
    this and put it on the auto companies, the cost would be more
    to the consumer? Is that your calculation?
        Mr. Austin. Well, Sir, we've, as I said before, we've
    implemented every control strategy required under the Federal
    Clean Air Act and quite a few not required. We are, frankly,
    running out of strategies to attain our air quality goals and
    provide healthful air for our citizens to breathe.
        Now, obviously the air quality in South Dakota is far
    better than in New York, but we believe the citizens of the
    country, regardless of where they live, have--we have a
    responsibility to provide clean air for them, and I can't do
    that for South Dakota, obviously. But our analysis of this
    program is that it is one of the more cost-effective programs
    we could use.
        EPA generally cites reasonably available control
    technologies--those are technologies that include cost--at
    about $3,500 per ton. We're looking at about $2,000 per ton for
    this program, so we think it's very effective and very
    reasonable.
        Also, it is completely transparent for the public. They
    notice no difference except perhaps a penny or two.
        I'd like to point out that a liter of water costs about
    three times as much as a gallon of gas right now.
        Again, we feel it is very cost effective.
        Senator Voinovich. The numbers that I've seen are $0.06 or
    $0.07 a gallon, but your numbers are different than that.
        Mr. Austin. Again, I'm using EPA's numbers for the $0.02. I
    do have personal experience, when we implemented reformulated
    gas in New York, and over a decade ago when we implemented low-
    volatility gasoline, oil industry predictions were quite a bit
    higher than what actually came true.
        Our analysis of RFG is that there is no differential
    between New York City gas that has RFG and upstate New York gas
    that doesn't.
        So we've heard those very high cost estimates before, and,
    in retrospect, they haven't held up.
        Senator Voinovich. If this were adopted, do you think that
    New York City would be able to achieve the current ambient air
    standards?
        Mr. Austin. We currently, under the existing EPA modeling,
    demonstrate attainment in 2007. Last year I believe we only
    exceeded the ozone standard twice. In 1979 we exceeded it over
    200 times. So we are hopeful that we're moving in the right
    direction.
        One of the things about the 1-hour standard is that it is
    very temperature sensitive, and temperature is something we
    haven't figured out how to control yet.
        Senator Voinovich. But you think that if this were put in,
    that you would be--that it would make it--you'd achieve it
    sooner than----
        Mr. Austin. We're hopeful of that. Yes, Sir.
        Senator Voinovich. But you're not sure?
        Mr. Austin. Well, as I said, we're basing this on computer
    modeling at this point, so----
        Senator Voinovich. And it is your understanding that the
    reason why these regulations are coming out is in anticipation
    of the new ozone standard and the 2.5 particulate?
        Mr. Austin. I would think that was certainly a motivation
    behind it.
        As I said, for a control strategy that appears to be this
    cost effective, it is, in our opinion, certainly worthwhile to
    do it, regardless of whether or not the 8-hour standard is
    approved.
        Senator Voinovich. Thank you.
        Secretary Myers, you're here for two reasons. One is that
    you don't want to pay more for gasoline, and if this--let me
    ask you this: do you think that this will do anything to make
    your air cleaner in South Dakota if this goes into effect?
        Ms. Myers. No, it won't, because we really don't have an
    ozone problem. I don't think we'll have any trouble with the
    new 2.5 standard. Our problem--and it is only in the Rapid City
    area--is dust. When the wind blows and it is dry, it stirs up
    dust. Other than that, we really do not have air quality
    problems, so this will not help us.
        Senator Voinovich. Another reason why you're here is--have
    you calculated the economic impact that this would have on your
    State in terms of jobs?
        Ms. Myers. We think it would have a big impact, a very big
    impact.
        Senator Voinovich. Any idea of how many jobs lost?
        Ms. Myers. No, I can't answer that question, but I
    certainly could get you that information if you'd like.
        Senator Voinovich. I think one of the things that so often
    happens is that we talk about loss of jobs and these kind of
    things, and I think it is important, if you can kind of
    calculate them in terms of estimate in terms of people and the
    economic impact to the companies that you have.
        Thank you.
        Senator Inhofe. Senator Bennett.
        Senator Bennett. Thank you very much, Mr. Chairman.
        It is obvious that the two witnesses on this panel have
    rather differing views, and that is, of course, why we have
    them, and that is why we on the committee are going to have to
    make some kind of decisions.
        Looking at the testimony that we will be hearing shortly
    from one of my constituents--naturally, like every Senator, I
    pay more attention to somebody from my home State than I do any
    place else--he, in his prepared statement, quotes USA Today
    talking about California screaming, rather than California
    dreaming, and they're screaming about high gasoline prices. It
    is clearly not 1.8 cents a gallon.
        Senator Boxer has asked the Federal Trade Commission to
    examine why California always pays more than anybody else in
    the United States for gasoline.
        Premium in California recently was at $2 a gallon.
    Secretary Myers, what is premium in South Dakota?
        Ms. Myers. I believe it is about $1.25 or $1.20.
        Senator Bennett. Now, you are, in effect, backing the idea
    that the California standards become nationwide, Mr. Austin,
    but you are telling us there is no financial impact in New
    York. What is premium in New York?
        Mr. Austin. Right now it is about $1.30.
        Senator Bennett. So it is about $0.10 more than it is in
    South Dakota.
        I'm afraid you've closed down some of these refineries,
    small refineries, as this proposal would do, and in our State
    you're going to start to see those kinds of impacts. I don't
    want to see Utah screaming now.
        At the same time, I obviously don't want to poison any of
    my citizens. If, in fact, people are being poisoned by this and
    there are serious health effects, I'd say pay the extra $0.10
    or $0.15. Frankly, I think the market tells us it will be $0.10
    to $0.15. I don't know that the folks at EPA pay too much
    attention to the realities of the marketplace. I think the
    realities of the marketplace say it's going to be that kind of
    a premium, because California has proven that in real world.
        Are the health benefits worth that, Mr. Austin, based on
    your experience in New York?
        Mr. Austin. May I respond to a couple things you said, to
    begin with?
        Senator Bennett. Sure.
        Mr. Austin. First of all, there are many constituents to
    California reformulated gasoline that's different. Sulfur is
    just one component of that, and that's all we're looking at
    picking up is the sulfur component.
        Senator Bennett. Yes. I think that's a fair correction. I
    accept it.
        Mr. Austin. Second of all, the $2 premium you're referring
    to is because of an incredibly large refinery fire that took
    out about one-quarter of California's capacity.
        One of the things I'd like to point out is that if they had
    a national fuel they would have been able to get fuel from
    another source, but, because they have a regional fuel, they
    suffered very high prices when part of their capacity went
    down.
        Senator Bennett. I accept that, too, but I see--you're
    talking about the loss of supply here being part of the reason
    the price went so high. I see the EPA creating a loss of
    supply. I see it shutting down refineries in the West in
    Senator Thomas' State and in my State, and I'm not sure that
    makes a lot of good sense to say we're going to deal with the
    problem by cutting down the supply, and thereby artificially
    driving up the price.
        Mr. Austin. I can't personally respond to that. I know an
    organization called ``Math Pro'' was hired by the automobile
    industry, which obviously supports this proposal, but the Math
    Pro study found that there would be no closure, no refinery
    closure resulting in PADD-IV, which is your part of the
    country, Sir.
        Senator Bennett. Yes. I'd rather hear from the refineries
    who are facing closure----
        Mr. Austin. Yes, Sir.
        Senator Bennett [continuing]. Than from somebody who has a
    position otherwise. I think, based on the evidence and the way
    EPA would administer this, we would probably see closure of
    refineries and the drying up of supply.
        If I understood, Secretary Myers, you made that point, did
    you not, that there was a refinery closed?
        Ms. Myers. We anticipate that one in Wyoming might close if
    this rule goes forth nationally.
        Senator Bennett. That's my anticipation, as well, and that
    would affect you and the prices.
        Ms. Myers. It certainly would, because they supply the
    western one-third of South Dakota.
        Senator Bennett. I don't want to delay this further, Mr.
    Chairman. These are, obviously, issues we're going to have to
    grapple with. We have to make decisions that are good for the
    health of our citizens, and we, at the same time, have to
    recognize the realities of the marketplace, and don't end up in
    the name of a headline for health, creating serious problems
    that damage everybody.
        Thank you.
        Senator Inhofe. Thank you, Senator Bennett.
        I'll just ask one thing, Mr. Austin. There are no
    refineries in New York?
        Mr. Austin. No, Sir.
        Senator Inhofe. Well, there are 5 in Oklahoma, there are 20
    in Texas. If you had 20, would you still be supporting the
    EPA's proposal for 2004?
        Mr. Austin. Well, Sir, we do have some businesses in New
    York, and we've regulated them out of necessity far, far beyond
    what is required by the Clean Air Act in many other
    circumstances.
        Senator Inhofe. Do you think the New York environmental
    officials would be able to comply with the approval of 20
    permits in that timeframe?
        Mr. Austin. It is difficult to say, Sir. I have no personal
    experience in permitting refineries. I can tell you that we
    have over 1,000 title five permits to do, and we're well ahead
    of the national curve in succeeding that.
        Senator Inhofe. We're going to move along to the next
    panel.
        Do you have any further questions?
        Senator Voinovich. No.
        Senator Inhofe. All right. Thank you very much for being
    here.
        We now ask for our second panel to come forward to the
    witness table. Panel II includes: Mr. J. Louis Frank, president
    of Marathon Ashland Petroleum; Dr. Loren Beard, senior manager
    of Materials and Fuels in the Daimler Chrysler Corporation; Ms.
    Rebecca Stanfield, clean air advocate with the U.S. PIRG; Mr.
    Clint Ensign, vice president for government relations with
    Sinclair Oil; and Mr. William Nasser, CEO of Energy BioSystems
    Corporation.
        So why don't we start, and we'll try to abbreviate our
    opening statements, if you would. Mr. Frank.
        Senator Bennett. Before we start, could I simply welcome
    Mr. Ensign to the committee.
        Senator Inhofe. Yes, of course.
        Senator Bennett. He is a constituent. The parent company--
    although his refinery is in Wyoming, the parent company is in
    Salt Lake City, and one of our outstanding corporate citizens,
    and I want him to know I've read his testimony carefully, and I
    appreciate the thoughtful way in which he has addressed this.
        I may not be able to stay for his testimony, so I wanted to
    get that on the record in advance.
        Senator Inhofe. All right. Senator Voinovich, did you want
    to get on the record with your constituent out here?
        Senator Voinovich. Corky, it is nice to have you here
    today.
        Mr. Frank. Thank you, Sir.
        Senator Thomas. Let me get on the record, as well. The
    refinery is in Wyoming, and we appreciate that, and Marathon,
    of course, is the big holder in Wyoming.
        At any rate, we appreciate all of you coming.
        Senator Inhofe. And so do I.
        All right, Mr. Frank.

       STATEMENT OF J. LOUIS FRANK, PRESIDENT, MARATHON ASHLAND
                       PETROLEUM LLC, FINDLAY, OH

        Mr. Frank. Thank you. My name is Corky Frank. I'm president
    of Marathon Ashland Petroleum, which is the fourth-largest
    refiner in the United States. I also currently serve as
    chairman of the American Petroleum Institute's Downstream
    Committee, which establishes policy for the petroleum industry.
        I am here today on behalf of my company to talk about EPA's
    recently announced Tier 2 proposal. EPA's primary basis for
    this proposed rule lies in meeting the national ambient air
    quality standards which were recently tightened.
        While it is not the subject of my comments today, I
    understand that a court has recently overturned EPA's broad and
    aggressive interpretation of the Clean Air Act in establishing
    these new standards. The outcome of this case will impact this
    and other proposed regulations as they develop.
        This very expensive low-sulfur gasoline program EPA has
    proposed will only be workable if certain modifications are
    made.
        First, it imposes a national solution for a problem that is
    uniquely regional, a one-size-fits-all approach. As you heard
    about from the previous panel, the ``solution'' is not
    appropriate, because air quality problems vary dramatically
    across the Nation. A regional approach, reducing sulfur along
    the east coast, would avoid forcing consumers to pay for costly
    programs not needed in the central heartland.
        A rancher, for example, in Oklahoma, where air quality is
    good, should not have to pay the same higher cost as a stock
    broker in New York City, where the air quality is bad.
        Our estimate of $0.05 per gallon of additional consumer
    cost for the lower-sulfur gasoline EPA is proposing may not
    seem like a lot of money to some, but it is $5.7 billion
    annually.
        To industry, the cost would total more than $7 billion in
    new investments and substantially increased operating expense.
    Over this decade, the refining industry's return on capital has
    averaged only 3 percent, while operating at maximum capacity,
    while operating margins have been increasingly consumed by
    environmental mandates that have not been recovered in the
    marketplace.
        For some refiners, EPA's proposed regulation will be the
    straw that broke the camel's back. Facilities will close and
    jobs will be lost.
        The Agency claims that the benefits of its proposed program
    are as much as five times the cost, and they are wrong. EPA's
    cost estimate is based on the use of desulfurization technology
    that is not yet commercially proven. Their benefit estimates
    are based on data that have not been publicly released. Secret
    science, or science that is not available for peer review, must
    not be the basis for Federal regulation.
        My industry has long recommended that cost-effectiveness be
    one of the primary considerations when evaluating environmental
    regulations.
        The Clean Air Act requires EPA to use cost-effectiveness to
    develop the proposed Tier 2 standards, yet the cost of the
    proposed gasoline standards is more than triple the cost of
    making vehicle modifications.
        Further, the proposed changes are 15 times more costly than
    EPA's NOx SIP call proposal for NOx
    reductions from utilities, and 7 times more costly than the
    inspection and maintenance controls on cars.
        Furthermore, the nearness of the 2004 deadline raises
    significant concerns about whether we will be able to use the
    new, most cost-effective desulfurization technology that has
    not been commercially proven but offers savings of up to 50
    percent over current technology that is being used today.
        As chief executive, I must face a difficult choice on
    behalf of my company and my shareholders. Do I rely on more
    costly, older, but proven technology, or do I risk investing
    large sums of money in emerging technology that may not perform
    as required?
        An additional concern is that the proposal treats refiners
    differently by putting some smaller refiners on a different
    implementation schedule, and all we ask is that the EPA give us
    a fair chance to compete on a level playing field.
        The establishment of a banking and trading program
    introduces other undesirable consequences, such as providing
    foreign refiners with a competitive advantage over domestic
    refiners by allowing them to manipulate blend stocks, sell them
    to the United States, and play games with baselines, as we
    experienced during reformulated gasoline introduction.
        In conclusion, we all support the goal of reducing
    emissions; however, certain key elements of the Agency's
    proposal must be modified.
        As a company, Marathon Ashland Petroleum embraces a strong
    commitment to continued environmental progress. As its chief
    executive, it is my job to ensure the requirements of this rule
    respect the need to balance cost with benefits, a principle
    that the EPA tends to overlook.
        We will be proud to be a partner in ensuring a cleaner
    environment. We look forward to working together to address
    these and other issues, provided that good science, common
    sense, and cost effectiveness are the building blocks used to
    achieve solutions that are workable.
        Thank you very much, Mr. Chairman.
        Senator Inhofe. Thank you, Mr. Frank.
        Dr. Beard.

      STATEMENT OF LOREN K. BEARD, DAIMLER CHRYSLER CORPORATION,
        SENIOR MANAGER OF MATERIALS AND FUELS, AUBURN HILLS, MI

        Dr. Beard. Good morning. My name is Dr. Loren Beard. I'm
    the senior manager for fuels technology at Daimler Chrysler. I
    am here representing the Alliance of Automobile Manufacturers
    and its member companies regarding the Nation's need for
    cleaner-burning fuel.
        I want to thank the members of the subcommittee for
    inviting me here today to give the auto industry's perspective
    on the sulfur standard for gasoline contained in the proposed
    pier two standards for automobiles.
        The auto industry agrees in principle with the clean air
    goals of the EPA's proposed rule governing the next round of
    new vehicle and fuel standards, known as Tier 2. We agree that
    the American people in all 50 States want and deserve clean
    air; however, we are certain that we cannot meet these goals
    unless clean fuels are widely available to ensure the
    performance potential of new vehicle hardware is realized.
        If the Nation is to achieve its clean air goals, it needs
    to apply all of the available tools, including, as some as-yet
    unproven vehicle technology.
        We are committed to providing the cleanest-running vehicles
    in the world; however, if exposed to the gasoline sulfur levels
    found in the U.S. market today, or even to the 30 PPM sulfur
    levels proposed by EPA, consumers will have wasted their
    investment in new technology, which will be rapidly and
    irreversibly rendered ineffective.
        While we are committed to developing new, yet-unproven
    vehicle technologies for clean air, we need a partner in the
    oil industry to apply proven, available, cost-effective
    technology to reduce sulfur in gasoline to five parts per
    million maximum.
        We have arrived at a stage in automotive emissions control
    technology where every available resource must be applied.
        EPA's proposed 30 part per million maximum sulfur standard
    would reduce ozone precursors by 160 percent more than API's
    proposal, as you can see on the slide here. Going to a five PPM
    cap on sulfur would result in 250 percent more reductions than
    the API proposal. This is in tons of ozone precursors.
        The next slide shows that the rest of the world has
    recognized the serious problem of exhaust catalyst poisoning by
    sulfur and has taken steps to reduce sulfur levels. The United
    States lags well behind the rest of the developed world, and
    even some nations in the developing world, in controlling
    gasoline sulfur levels.
        As the next slide shows, the price of a gallon of gasoline
    is dominated by the cost of crude oil and taxes. The cost to
    the consumer for sulfur reductions proposed by the auto
    industry will be small compared to the normal variations in
    gasoline resale prices at the pump.
        In the United Kingdom, Sweden, and Finland, the governments
    offer small incentives to refiners for the early introduction
    of ultra low sulfur gasoline and diesel fuel. Refiners rushed
    to take advantage of the incentives, and, in the case of the
    United Kingdom, virtually all fuel in the country moved to low
    sulfur in a period of about 6 months. Clearly, the cost of
    removing sulfur could not have been higher than the small
    incentives offered, or refiners would not have moved so
    quickly--in fact, 5 years ahead of regulation.
        The rest of Europe is rapidly using this approach. If we do
    not move quickly to very low sulfur levels, North America will
    become the natural dumping ground for high-sulfur fuels, which
    will become economically non-viable in the rest of the
    developed world.
        With very stringent emission standards, catalysts must
    operate at 98 to 99 percent efficiency for all driving cycles.
    As this next slide shows, even reduction in catalyst efficiency
    caused by an increase in gasoline sulfur from 5 to 30 parts per
    million can lead to a doubling in exhaust emissions.
        EPA has set the course with very low NOx
    standards in Tier 2, and NOx emissions are the most
    sensitive to sulfur in fuel.
        Some may argue that many States in the United States,
    mostly in the West, already enjoy clean air and don't need low-
    sulfur gasoline to protect their environment. The auto industry
    has noted that the people in these States see clean air as a
    valuable asset. With its voluntary national low emissions
    vehicle program, or NLEV, the auto industry has voluntarily
    agreed to provide the same clean-running vehicles to all 50
    States that we currently sell in California. Commitments to
    even tighter national standards demand that sulfur-free
    gasoline be in place.
        Under the new national ambient air question standards, or
    NAAQS, for ozone and particulate matter, 43 U.S. States are
    projected to have areas which are not in compliance with
    national clean air goals, as you can see in slides five and six
    for particulate matter and ozone.
        These States will be required, under the Clean Air Act, to
    take some action to reduce emissions. In addition to the new
    clean-running vehicles provided by the auto industry, these
    States will find that low-sulfur gasoline is a cost-effective
    means of achieving these goals.
        Aside from the compliance with ozone and PM standards,
    several of the remaining seven States will be called upon to
    reduce regional haze under other Clean Air Act provisions.
    While power generation stations and natural sources are the
    prime sources of emissions that eventually result in haze,
    taking the sulfur out of fuel will be of great benefits to
    States that must introduce programs to reduce haze.
        Through their partnerships for the next generation of
    vehicles, known as PNGV, the U.S. auto industry is working
    together with the Federal Government to develop more fuel-
    efficient vehicle technologies, in part to help reduce the
    Nation's reliance on imported oil and to address global climate
    issues.
        New fuel-efficient technologies, including direct-
    injection, lean-burn gasoline engines, and gasoline fuel cells
    will require low-sulfur fuel. Advanced technology vehicles are
    extremely sensitive to sulfur contamination.
        The failure to control sulfur in gasoline will inhibit the
    introduction of more fuel-efficient technologies, delaying the
    auto industry's efforts to reduce greenhouse gas emissions. In
    essence, reducing the sulfur level in gasoline will not only
    benefit our environment now----
        Senator Inhofe. Dr. Beard, you're going very, very fast,
    but you're going to have to conclude here.
        Dr. Beard. I've got about 30 more seconds.
        Senator Inhofe. All right.
        Dr. Beard. Thank you.
        It will facilitate a transition to cleaner future
    technologies which will help address global climate issues.
        In summary, sulfur is a poison that eventually renders
    emissions control equipment ineffective. The auto industry is
    committed, through a proposal to EPA, to work to reach
    extremely low emissions. To get there, we need to use all the
    vehicle hardware tools available, some that have not yet been
    invented. This includes a commitment from the oil refiners to
    step up to the challenge of very clean, sulfur-free fuels,
    using available, proven, cost-effective refinery technologies.
    With all the right tools in place, vehicle owners will use and
    not waste the investment they have made in emissions control
    hardware, and citizens will benefit from cleaner air.
        This concludes my statement. I will be happy to take any
    questions.
        Thank you.
        Senator Inhofe. Thank you, Dr. Beard.
        Ms. Stanfield.

    STATEMENT OF REBECCA STANFIELD, CLEAN AIR ADVOCATE, U.S. PIRG,
                             WASHINGTON, DC

        Ms. Stanfield. Good morning. My name is Rebecca Stanfield,
    and I'm the clean air advocate for U.S. Public Interest
    Research Group, or U.S. PIRG. U.S. PIRG is a national lobby
    office for the State PIRGs, which are consumer and
    environmental watchdog groups active across the country.
         I greatly appreciate the opportunity to speak to the
    subcommittee on this important and timely issue.
        Air pollution impacts the health of over 117 million
    Americans who live in areas where air quality is often
    unhealthful. Each year, tens of thousands of Americans are
    rushed to hospital emergency rooms due to asthma attacks
    brought on by smog pollution. Millions more miss work, miss
    school, or are forced to stay indoors instead of playing
    outside, or experience loss of lung function. More than 40,000
    people this year will die prematurely as a result of air
    pollution.
        An anecdote may serve to more clearly illustrate the
    magnitude of this problem. In one New Jersey Episcopal
    congregation, more than half of the children carry inhalers to
    Sunday School, and the risks of an attack are so high that the
    minister keeps a nurse on call on smoggy summer days when
    children are at church for activities.
        Stories like this one are becoming more and more common as
    the number of Americans with asthma rises even above its
    current number of 15 million victims, including over 5 million
    children.
        Air pollution is not just a northeastern or a California
    problem, as it was once believed to be. During the 1998 smog
    season, over 5,200 violations of the smog standard occurred in
    41 States across the Nation, including the home States of every
    member of this subcommittee.
        The EPA has proposed regulations that will save lives by
    reducing air pollution from one of its largest sources, the
    automobile. Reducing the extremely high levels of sulfur in
    gasoline sold throughout the United States will vastly improve
    the performance of pollution control equipment in current and
    future models of automobiles, cutting smog and soot pollution,
    as well as hydrocarbons, carbon monoxide, sulfur dioxide, and
    air toxics.
        Even in existing cars, clean gasoline can cut pollution
    levels by up to 20 percent. In new, low-emission vehicles which
    will soon be available across the Nation, pollution levels are
    more than double when using high-sulfur gasoline, as compared
    to with clean gasoline.
        Studies show that EPA's sulfur proposal would have the same
    air quality benefits of removing 54 million cars from the roads
    entirely.
        EPA's proposal is a cost-effective pollution reduction
    measure which has already been implemented in Japan, Finland,
    Thailand, Canada, Hong Kong, Taiwan, and the European Union and
    California.
        EPA estimates that the program will cost just $0.01 to
    $0.02 per gallon of gasoline. For the typical driver, that adds
    up to about $12 per year. This added cost is well within what
    the American public is willing to pay for cleaner air.
        Earlier this year the American Lung Association
    commissioned a poll saying that 90 percent of Americans would
    pay $0.03 per gallon more for clean gasoline, while 70 percent
    would pay $0.05 more per gallon. These are, you know, costs
    well above what EPA estimates would be the cost of this
    program.
        We agree with EPA that it is critical to adopt a national
    uniform standard rather than regional standards advocated by
    the petroleum industry for several important reasons.
        First, as I mentioned before, air pollution is a nationwide
    problem, with violations of the soot and smog standards
    occurring in four out of five States last summer.
        Second, high-sulfur gasoline sold in one State is very
    likely to have pollution consequences in many States. The
    reason is that Americans drive from State to State and from
    region to region, fueling their vehicles along the way with
    whatever type of gasoline is sold in that State.
        A traveler filling up his gas tank with dirty fuel while
    passing through a State with less-stringent standards will
    damage the pollution control equipment in the car, about half
    of which damage is irreversible. Thus, the car will continue to
    be more polluting, even after returning to its home State.
        Such an approach to gasoline sulfur standards would
    seriously undermine the effectiveness of the entire clean car
    program.
        EPA's proposal strikes a balance between achieving
    necessary pollution reductions and allowing the industry ample
    time and flexibility to meet the new standards.
        First, EPA allows the industry to use an averaging system
    to meet the standard.
        Second, EPA allows the oil refiners to meet the standards
    through the use of credits generated as early as 2000.
        Third, EPA is allowing less-stringent caps to be met in the
    years 2004 and 2005.
        And, finally, EPA allows small refiners to meet less-
    stringent standards through the year 2007.
        We believe, in fact, that EPA's proposed gasoline sulfur
    standards allows too much time to pass before significant air
    pollution benefits can be expected.
        In 2001, auto makers will begin nationwide marketing of
    low-emission vehicles under the voluntary national low-emission
    vehicle program. The effectiveness of the emission control
    technology used in these vehicles will be compromised by the
    sulfur that will remain at high levels until 2004 to 2006 under
    EPA's proposal.
        Moreover, under EPA's proposal, gasoline containing sulfur
    at levels up to 300 parts per million will be continued to be
    sold in 2004, the year that EPA is requiring 25 percent of new
    cars to be significantly cleaner.
        Again, the technological advances made in these vehicles
    will be undermined by the use of high-sulfur fuel in 2004 and
    2005. We believe that a better approach would be to begin
    phasing in clean gasoline earlier, so that most, if not all,
    gasoline sold in 2004 is clean.
        Thank you, again, for the opportunity to address the
    subcommittee. I hope that you will agree that the timely phase-
    in of a nationwide clean gasoline program is an important
    public health protection that should be adopted immediately.
        Senator Inhofe. Thank you, Ms. Stanfield.
        Mr. Ensign.

       STATEMENT OF CLINT W. ENSIGN, VICE PRESIDENT, GOVERNMENT
       RELATIONS, SINCLAIR OIL CORPORATION, SALT LAKE CITY, UT;
       ACCOMPANIED BY KEVIN BROWN, VICE PRESIDENT, SINCLAIR OIL
                              CORPORATION

        Mr. Ensign. Mr. Chairman, my name is Clint Ensign. Thank
    you for the opportunity to be here today and comment. With me
    is Kevin Brown, also a vice president with Sinclair.
        My views are from the perspective of a small, rural refiner
    in the West.
        Last year the U.S. refining industry proposed very large
    cuts in gasoline sulfur limits--70 percent in the East, 55
    percent in the West. With these reductions we felt that the
    Tier 2 cars could be twice as clean as the Tier 1 cars. This
    was a huge offer. It gave EPA unanimous consent to regulate
    refiners on gasoline sulfur on a regional basis.
        We also offered to meet with auto makers, because there
    were several key issues that remained in dispute, especially
    with the issue of reversibility. But they refused to meet with
    us, and in the end, despite our good faith efforts, EPA
    rejected our proposal.
        But there were nine Governors in the rural States west of
    the Mississippi that did accept the regional concept. What is
    so unique is that all these nine States join each other in a
    large, contiguous block. They have good air quality, as we've
    heard today, and they rely on small refineries for supply.
        But the views of this block of Governors did not even make
    it into the preamble of the proposed regulation. So essentially
    now what we have is a national proposal where there is a gaping
    hole in the middle of America where severe gasoline sulfur
    standards don't work and where they are not supported by the
    Governors.
        Another disappointing aspect of the proposal was how
    harshly it treated small refineries. EPA used a definition so
    narrow that only a few get help. Companies like Sinclair and
    Flying J and Giant and Cenex, a farm co-op, have all been left
    out in the cold.
        Now, back in 1990, Senator Chafee, Senator Reid, Senator
    Baucus, Senator Simpson, and many other Senators supported
    incentives to help small refineries make low-sulfur diesel
    fuel. Why wasn't that small refinery definition, which is part
    of the Clean Air Act, used in this rulemaking.
        Now, as we talk about California regulation, we should talk
    about California impacts. Here is a copy of the USA Today that
    Senator Bennett referred to that has pictures of pump prices of
    $2 a gallon in California, and the caption is, ``California
    Screaming.'' And he referenced how Barbara Boxer had asked the
    FTC to investigate why prices are so high.
        I don't know what FTC will conclude, but this much we do
    know in California: that since 1990, eight refineries have
    closed, 15 percent of the refinery capacity has been lost, and
    they've lost their entire small refiner segment. It's gone. And
    so, when you have a compression of the industry like that, you
    get these kinds of effects when there's relatively small supply
    problems in the market.
        As far as our company is concerned, we have been long
    concerned that California regulation will have California
    impacts on a national scale. For one of our refineries in
    Wyoming, we're very concerned that the proposal could very well
    threaten the future of that refinery.
        Let me talk briefly about the two desulfurization
    technologies that are open to us. One is the conventional
    approach. It's very expensive. It costs $0.05 to $0.08 a
    gallon, $6 billion to $9 billion a year for the country. The
    other is a new approach that, as has been mentioned, has not
    been commercially proven as yet.
        EPA has based all of their estimates off this new
    technology. So refiners face a difficult choice. Do you go with
    the technology that is unproven, where you're not sure what the
    results will be? Our experience has been with the processes
    that we license, that the guaranteed results are less than what
    has been advertised.
        So do you go with that uncertainty, or do you go with a
    conventional process where you are guaranteed poor returns and
    high costs? It puts refineries in a bind, and that's why we
    offered for a phased approach into these new standards, so that
    we would have time to see what this new technology can do.
        Let me also just simply say we feel that for the autos and
    the refiners, the implementation schedules for gasoline sulfur
    and for the Tier 2 car ought to come in at the same time. There
    should not be a difference or unfair schedules between the two.
        Let me just simply conclude by looking at the box score. We
    have a regional proposal that we offered in good faith that has
    been rejected. You have a block of rural Governors whose wishes
    in this matter have been rejected. We have small refineries
    that have been rejected. We have a regulation where EPA is
    asking for California standards, which could have California's
    implications elsewhere. And they are basing their proposal
    entirely on an unproven technology. That raises some very
    troubling concerns to us.
        Mr. Chairman, my written statement includes more than that,
    but thank you for the chance to be here today.
        Senator Inhofe. Thank you, Mr. Ensign.
        Mr. Nasser.

            STATEMENT OF WILLIAM E. NASSER, CHIEF EXECUTIVE
       OFFICER, ENERGY BIOSYSTEMS CORPORATION, THE WOODLANDS, TX

        Mr. Nasser. I want to thank you, Mr. Chairman, and the
    members of the panel for inviting me to speak here today and
    testify.
        Energy BioSystems is a biotechnology company whose aim is
    to address major environmental and industrial issues through
    the recent advances in microbiology, genetic engineering, and
    bioengineering.
        Most people are aware of the significant advances that have
    been made in the pharmaceutical and agricultural industries
    with respect to bioengineering and biotechnology. Our position
    in our company is a little different. It is to be the leader in
    applying biotechnology in the third wave of this revolution,
    and that's in the chemical and energy industries.
        I'm not here today to validate, support, or criticize the
    proposed EPA regulations of lowering sulfur standards in
    gasoline and diesel fuel. Indeed, it is up to you in Congress
    to determine whether that standard is necessary, to what level,
    and to what time table; however, I am here to talk about
    alternatives to achieving sulfur reductions in fuel that are
    being developed by our company.
        There is, no doubt, current technology, which you've heard
    about--hydrodesulfurization, or HDS, which is now used to
    reduce sulfur content in fuels. Unfortunately, HDS has many
    disadvantages, including it's an old technology, having been in
    existence for at least 40 years, it is enormously energy
    intensive, as it requires high temperatures and pressures.
        Because of its large appetite for energy, it results in
    large greenhouse gas emissions. It is enormously costly to
    install and very costly to operate. Others have already
    testified to that.
        I can understand, frankly, the reluctance of the refining
    industry, whose margins are thin, to invest the billions of
    dollars to install such old technology with so many adverse
    consequences. In fact, for small refiners, we believe
    prohibitive costs of installing and operating this technology
    may very well force them to close.
        I also find it rather ironic that the EPA's goal of
    decreasing sulfur in fuels will result in a direct and adverse
    impact on the Administration's goal of reducing greenhouse gas
    emissions that are going to be increased at the refineries.
        We at EBC have developed a new process which also promises
    to lower sulfur in gasoline and diesel fuel, but at half the
    cost and without the huge increase in emissions inherent in the
    current technology.
        Our process is called ``biodesulfurization,'' or BDS.
    Basically, we have identified a microorganism naturally
    occurring in the soil that can be genetically engineered and
    enhanced to eat sulfur out of gasoline and diesel fuels. The
    organism can also be enhanced to eat sulfur out of coal and
    crude oil, which current HDS technology has no possibility of
    doing.
        The benefits of this BDS technology are several. The
    headline on a DOE fact sheet issued in January of this year
    states that biodesulfurization will yield lower sulfur gasoline
    at lower production costs.
        Our studies show that capital costs for our technology will
    be up to half of that of current technology, and that the
    operating costs will be about some 20 percent lower.
        In addition to cost savings, BDS will result in to up to 80
    percent less greenhouse gas emissions over current technology.
    This is because our process operates at essentially room
    temperature and pressure. HDS requires large increases in both
    temperature and pressure to reduce sulfur further.
        Another benefit is that our process yields beneficial and
    commercially viable byproducts. We can alter the enzymes to
    produce surfactants from the sulfur, which are currently
    selling for about $0.50 per pound and are used in detergents
    worldwide. Other byproduct applications may include resins,
    polymers, and other usable products. HDS produces either large
    amounts of elemental sulfur or sulfuric acid.
        A final benefit of our technology is its flexibility. It
    can be inserted at various stages of the refining process and,
    in addition, it can be used in conjunction with HDS. Large
    refiners with HDS operations presently in use can tap our
    technology to complement its current operations to reach ultra-
    low sulfur levels.
        Our pilot projects have already demonstrated the ability of
    our technology to reach sulfur levels of 75 parts per million.
    We believe we can easily achieve 30 parts per million and
    commercial viability within the next 3 years. In fact, we are
    convinced that ultimately we can reach zero.
        While our technology is extremely promising, Mr. Chairman,
    there remain hurdles, the primary hurdle being investment in
    research and development. With oil prices low and refining
    margins practically non-existent and small capitalization
    stocks battered, we face an enormous difficulty in raising
    capital to complete our technology. We've spent close to $70
    million to date. Only about $3 million of that has come from
    support from the Federal Government.
        The proposed rule will require enormous investment, and,
    because of the short amount of time in which to reach it, we're
    afraid that the refiners are going to get locked into the old
    technology and waste both money and energy.
        We believe that the Federal Government and the rulemaking
    bodies should help us develop this alternative technology.
    Refiners will be beneficiaries, as well as the public, as well
    as the environment and fuel consumers.
        Thank you, Mr. Chairman. I'll be pleased to answer any
    questions you might have.
        Senator Inhofe. All right, Mr. Nasser. Thank you very much.
        I come from a bit of a prejudiced perspective, being from
    Oklahoma, but I hear quite often that the oil industry really
    hasn't done very much to clean up the air. Let me, Mr. Frank,
    ask you: what has the oil industry done that you could share
    with us on their own volition to clean up the air?
        Mr. Frank. Mr. Chairman, throughout the time, going back to
    1970, the industry has removed lead from gasoline; it was
    phased out beginning in 1970. We produced a low-evaporation
    gasoline in 1989. We produced a winter oxygenated gasoline in
    1992, along with the Clean Air Act; diesel fuel with an 85
    percent less sulfur content in 1993; Federal reformulated
    gasoline in 1995; and then the California cleaner-burning
    gasoline in 1996.
        Senator Inhofe. Now, those are six things that you've
    outlined. Of those six, which were mandated?
        Mr. Frank. Essentially, they were either all mandated or in
    cooperation with the clean air initiative by the industry.
        Senator Inhofe. All right.
        Mr. Frank. And we spent over $30 billion in this regard.
    We're not opposed to cleaning up the air, as I said earlier; we
    just think that it needs to be done on a cost-benefit basis.
        What the industry has proposed, as compared to what the EPA
    has proposed, the oil proposal would achieve 91 percent of the
    effective reduction by 2010 that is proposed by the EPA. The
    cost of the EPA sulfur removal program is, in our calculations,
    much different than represented by the gentleman from New York
    earlier. It is estimated to be $23,000 per ton, as opposed to
    the industry proposal being $14,500, in that the EPA cutoff for
    acceptable cost-effectiveness is $10,000 per ton, as they
    stated. So both of these far exceed what the EPA has said.
        Senator Inhofe. Ms. Stanfield, you had said in your
    testimony that it appears that there is ample time--I guess
    you're referring to both the auto industry and the energy or
    the oil industry--in accordance with the time line that is
    promulgated by the EPA. Is that what you're referring to?
        Ms. Stanfield. Yes. In fact, we believe that EPA is giving
    too much time between the time that the phase-in begins and the
    time that we are fully phased in to clean gasoline.
        Senator Inhofe. Well, this chart up here shows the
    disparity between the auto industry and the oil industry in
    terms of compliance. I'd like to start with you, Ms. Stanfield,
    and get your comments and feeling why this disparity is fair,
    and then have each one of you who wants to comment on this feel
    free to do so.
        Ms. Stanfield.
        Ms. Stanfield. Sure. As I said in my comments, EPA has
    proposed a number of flexibilities in the program to allow for
    phase-in of the sulfur standards. Under EPA's proposal, 100
    percent of the gasoline would actually not be meeting the 30
    parts per million standard until, on the outside I believe it
    is 2008 for small refineries who fit the definition of small
    refineries.
        In the early years, the cap on the dirtiest fuel is
    actually 300 in the year 2004; 150, I believe, in the year
    2005; and then going down to 80 in the year 2006.
        Senator Inhofe. [Referring to chart.] I guess what I'm
    getting at is that by the year 2004 the oil industry would have
    to be complying, and yet there are 4 more years before the auto
    industry would have to. I'm just wondering what you feel about
    that particular disparity? Again, just very briefly, because I
    want to ask the rest of them the same thing.
        [The chart follows:]

                                                No Phase In For Refiners
    ----------------------------------------------------------------------------------------------------------------
                                         Required Percentage of    Required Percentage of
                                          Complying Light-Duty     Complying Heavy Light-    Required Percentage of
                Model Year              Vehicles and Trucks  [In     Duty Vehicles  [In       Gasoline Sulfur  [In
                                                percent]                  percent]                  percent]
    ----------------------------------------------------------------------------------------------------------------
    2004..............................                       25                         0                       100
    2005..............................                       50                         0                       100
    2006..............................                       75                         0                       100
    2007..............................                      100                         0                       100
    2008..............................                      100                        50                       100
    2009..............................                      100                       100                       100
    ----------------------------------------------------------------------------------------------------------------

        Ms. Stanfield. Well, I guess I disagree with your chart. In
    fact, 100 percent of the gasoline will not be meeting the
    standards until 2006, and then 2008 for the smaller refineries,
    while, on the other hand, the national low-emission vehicle
    program starts to put cleaner cars on the road in 2001.
        So the new cars that will be on the road in 2001, as well
    as the first Tier 2 cars you'll see on the road in 2004,
    there's a very significant chance that those cars will be
    powered by gasoline well above the 80 parts per million capital
    that is eventually in effect.
        Senator Inhofe. Mr. Ensign, will you comment as to your
    feeling about the accuracy of the chart?
        Mr. Ensign. From what I can tell, I believe that that is
    accurate.
        The problem that we have with the phase-in is that for
    refiners the date is 2004. If they do something before then,
    they do get a restricted 2-year extension. But they must go
    below the standard prior to 2004, to have a 2-year phase-in.
        The autos start with half of their fleet start in 2004 and
    phase in between 2004 and 2008. The other half, it is my
    understanding, is between 2008 and 2010. That is far different
    than what will be put on the oil industry.
        Senator Inhofe. Any other comments insofar as this chart is
    concerned? Dr. Beard.
        Dr. Beard. Yes. I guess I'm a little confused about what
    this far right column says as the required percentage of
    gasoline sulfur, because we shouldn't take that to mean that
    that's the percentage of gasoline that will be at 30 parts per
    million.
        I think a better representation of the phase-in schedule
    proposed by EPA is found in the NPRM at chapter 4, page 49,
    where they give a phase-in schedule which shows that, indeed,
    the 30-part-per-million average is not phased in until 2006
    with an extension for smaller refineries until 2008.
        Most of these effects in 2004 will be credits that are
    earned prior to 2004 that will be applied to the refinery pool
    in 2004.
        So I again would refer you to chapter 4, page 49, of the
    NPRM for a more accurate depiction of what really is the phase-
    in schedule.
        Senator Inhofe. We'll look at that.
        We have been joined by Senator Lieberman.
        We're delighted to have you here. We've already dismissed
    the first panel, but we have this panel, and if you'd like to
    have an opening statement or any questions, feel free to do so.

            OPENING STATEMENT OF HON. JOSEPH I. LIEBERMAN,
               U.S. SENATOR FROM THE STATE OF CONNECTICUT

        Senator Lieberman. Thanks, Mr. Chairman. Thanks for holding
    the hearing to review EPA's recently proposed national gasoline
    sulfur standard. I apologize to you and the witnesses that I
    had a conflict in my schedule so I couldn't get here until now.
        Just very briefly, I draw from my opening statement and
    then ask two questions. I appreciate your courtesy.
        My State, the State of Connecticut, strongly supports the
    proposed Tier 2 emission standards for vehicles and gasoline
    sulfur standards for refineries. On a national level, emissions
    from mobile sources continue to be major contributors to air
    quality problems.
        It seems to me that, in order to effectively address air
    pollution from the transportation sector, we need to reduce
    pollutants in the fuels and improve vehicle emission control
    technology, so I'm pleased that the Administration has offered
    these proposed standards as a package, including flexibility
    provisions and phase-in requirements to achieve substantial
    cost-effective air pollutant reductions.
        Having made that general statement, I'm simply going to ask
    that the rest of my opening statement be printed in the record
    as if read.
        Senator Inhofe. Yes.
        [The prepared statement of Senator Lieberman follows:]
         Statement of Hon. Joseph I. Lieberman, U.S. Senator from the
                              State of Connecticut
        Thank you, Mr. Chairman, for holding this hearing to review the
    EPA's recently proposed national gasoline sulfur standard. The State of
    Connecticut strongly supports the proposed Tier 2 Emission Standards
    for Vehicles and Gasoline Sulfur Standards for Refineries. On a
    national level, emissions from mobile sources continue to be major
    contributors to air quality problems.
        Currently, mobile sources account for roughly half the nitrogen
    oxide pollution (NOx), more than 40 percent of hydrocarbon
    emissions, 80 percent of carbon monoxide emissions, and a quarter of
    particulates. In order to effectively address air pollution from the
    transportation sector, we need to reduce pollutants in the fuels, and
    improve vehicle emission control technologies. I am pleased that the
    Administration has offered these proposed standards as a package,
    including flexibility provisions and phase-in requirements, to achieve
    substantial, cost-effective air pollutant reductions.
        The health and air quality benefits that would result from the
    proposed standards are not only significant, they are surprisingly
    impressive. A recent study by the State and Territorial Air Pollution
    Program Administrators and the Association of Local Air Pollution
    Control Officials (STAPPA-ALAPCO) found that factoring in transport of
    air pollution, reducing gasoline sulfur levels to 40 parts per million
    (ppm)--slightly above the current proposal--would yield an air quality
    dividend equivalent to removing nearly 54 million vehicles from
    America's roads. Nationally, that's an air quality benefit of removing
    one in four cars from our highways. Described locally, for citizens of
    the New Haven region in Connecticut, the new sulfur standard would
    translate into air quality benefits equivalent to removing
    approximately 264,000 cars from their streets.
        Reducing sulfur in gasoline decreases emissions of hydrocarbons and
    NOx which will in turn lead to a decrease of ground level
    ozone. Together, these pollutants worsen respiratory illnesses such as
    asthma, emphysema, and bronchitis. In addition, cleaning the sulfur out
    of gasoline will lead to lower emissions of particulate matter and
    carbon monoxide, improve visibility, help address the acid rain
    problem, and reduce greenhouse gas emissions.
        Although sulfur occurs naturally in petroleum, it is a detriment to
    engine performance. In fact, I don't think that anyone would argue that
    sulfur is good for gasoline. On the contrary, sulfur is a contaminant
    that poisons the catalytic converters that are the heart of modern
    automobile pollution control systems. Sulfur is particularly harmful to
    the operation of low- and ultra-low-emissions vehicles. For example,
    the NOx emissions from low- and ultra-low-emissions vehicles
    that burn high-sulfur fuel range from 61 percent to 251 percent higher
    than similar vehicles running on low-sulfur fuels. To capitalize on the
    great pollution prevention promise of low- and ultra-low-emissions
    vehicles, we must ensure they have the clean gasoline they need to
    operate effectively.
        The presence of sulfur in gasoline increases emissions of
    NOx and other pollutants by degrading catalytic converter
    performance. Unfortunately, much of the harm caused to catalytic
    converters by high-sulfur gasoline is irreversible. Once the damage is
    done, even returning to low-sulfur gasoline will not completely repair
    the pollution prevention system. Recent studies have shown using high-
    sulfur gasoline even briefly causes permanent reductions in catalyst
    performance as high as a permanent 15 percent catalyst efficiency loss
    for NOx and about 20 percent catalyst efficiency loss for
    carbon monoxide.
        The irreversibility of catalyst poisoning is one of the most
    compelling reasons why the EPA's nationwide gasoline sulfur standard
    approach is the right strategy. We can't allow bad gas to ruin good
    engines. In the 1970's, we fought to remove lead from gasoline to make
    possible the introduction of catalytic converters. We didn't remove
    lead from gasoline only in areas with extremely high incidence of lead
    poisoning; we removed lead from all gasoline because it was the right
    thing to do for the health of all Americans across the country. Until
    recently, we did not appreciate that sulfur is a catalyst poison, too.
    Aside from California where they've had clean gasoline since 1996, all
    vehicles on American roads that benefit from catalytic converters--the
    vast majority of vehicles--produce substantially more pollution than
    they would if they were burning low-sulfur gasoline.
        All Americans will benefit from the cleaner air that will result
    from cleaning our gasoline. A study by the State and Territorial Air
    Pollution Program Administrators recently found that the EPA's gasoline
    sulfur standard offers marginal attainment areas more than 14 times the
    air quality benefits of the petroleum association's regional program.
    The national sulfur standard will likely keep these marginal attainment
    areas from exceeding new ground level ozone or particulate matter
    standards.
        The EPA's proposed standard is cost-effective--estimated to cost
    only one to two cents per gallon--and it is achievable, as demonstrated
    by the experience of California. We must achieve this standard
    nationwide. Providing clean gasoline nationwide is one very important
    step that will help reduce pollution immediately and pave the road for
    the low- and ultra-low-emissions vehicles of the future. I applaud
    EPA's effort to clean our gasoline and, in turn, clean our air and
    improve our quality of life. The new gasoline sulfur standard will make
    it easier for all of America to achieve and enjoy clean air.

        Senator Inhofe. I'd just ask two questions.
        First, to you, Ms. Stanfield--and perhaps in a way I'm
    asking you to summarize your testimony, as I've looked at some
    of it--but I'd ask why would a nationwide gasoline sulfur
    standard, such as proposed by EPA, be better for human health
    and the environment than a regional rule such as the one
    proposed by the petroleum industry?
        Ms. Stanfield. I think there are two really important
    reasons that we must have a nationwide standard. The first is
    that we have a nationwide air quality problem. As I said in my
    remarks, last year during the smog season there were 5,200
    violations of the smog standard, and those occurred in 41
    States, so literally more than 4 out of 5 States had a
    violation of the smog standard andy would benefit from this
    strategy to clean up the air.
        The second important reason is because, as I said before,
    Americans get in their cars and they drive from region to
    region. I was thinking, as the gentlewoman from South Dakota
    spoke, how many times I drove through South Dakota on my way
    from home to law school in Oregon--my home was in Illinois--and
    I always wanted to go where I could see the Badlands, and if I
    had, you know, been in a State with clean gasoline, driving
    through South Dakota with dirty gasoline, the catalyst in my
    car would have been permanently damaged by up to 50 percent. So
    when I go back then to my State, the increased air pollution
    from my automobile would continue.
        So those are the two main reasons why a national standard
    is very important.
        Senator Lieberman. Mr. Ensign or Mr. Frank, do you want to
    respond?
        Mr. Frank. Yes. I'd like to say that over 5 years ago the
    auto and the oil industry embarked on a joint research program
    to test cars for emissions, catalyst reversibility, catalyst
    decay, and that program was quite extensive.
        The test data showed that there were several cars, in fact,
    that met the Tier 2 standards on emissions on the current
    gasoline that was in use and, further, that there were numerous
    vehicles that were 100 percent reversible on catalyst
    poisoning. That's saying that, with regard to Ms. Stanfield's
    example, that you could drive outside into a high-sulfur area
    and return and not have your catalyst have to be replaced, that
    it would regenerate itself.
        Numerous of those cars were from overseas manufacturers.
    Some were available here in the United States. The example
    that--the interpretation of the data, we asked the autos and
    the EPA, along with us, to submit this test data for peer
    review, to have an independent third-party evaluator voice an
    opinion as to the conclusions that could be drawn from the
    data.
        Both of the other organizations declined to submit the data
    for peer review. We went ahead and did it, as the petroleum
    industry. The results that came back were that the technology
    and capability did exist to produce a 100 percent reversible
    catalyst in the vehicles today.
        Senator Lieberman. Dr. Beard, maybe I should invite you to
    get into the discussion, from the auto industry.
        Dr. Beard. Yes. I'm familiar with that program, as well as
    another program. There is a program from the Coordinating
    Research Council--and we would be glad to make a copy of that
    available for the record--which concludes that the poisoning of
    catalysts by sulfur for NOx emissions control is not
    reversible across the fleet of cars that were studied in the
    CRC program.
        Senator Lieberman. Yes.
        Dr. Beard. We'd be happy to make a copy of that available.
        It is interesting that the API says that they showed that
    vehicles could be certified to Tier 2 standards 5 years ago
    when we didn't know what the Tier 2 standards would be 5 years
    ago, and that certification--what they actually did was run a
    few cars on a few FTP tests at low mileage levels and said that
    they met Tier 2 standards, which is not the way the vehicles
    are certified, at all.
        Senator Lieberman. Mr. Ensign, I see that you'd like to add
    to this.
        Mr. Ensign. Yes, Senator Lieberman. I was just going to
    say, as you can see, the issue of reversibility is very much in
    dispute.
        Senator Lieberman. Yes.
        Mr. Ensign. And the oil industry, the refiners, with the
    help of Carol Browner, approached the autos and said, ``Let's
    get together.''
        Senator Lieberman. Right.
        Mr. Ensign. ``And let's try to see and work out this
    dispute and check data, and so forth,'' but the autos did not
    want to meet with us. So we made that good faith effort to try
    to resolve some of those questions.
        Senator Lieberman. Is that as you experienced it, Dr.
    Beard?
        Dr. Beard. I think, as I experienced it, the Coordinating
    Research Council is a joint research consortium between the
    auto and oil industries, and we conducted a research program to
    study exactly that--the reversibility of the poisoning of
    catalysts by sulfur. And we found that in the fleet it is not
    reversible for NOx emissions.
        Senator Lieberman. Right.
        Dr. Beard. And that's the conclusion from the study. It is
    irrefutable, and we can make a copy of it available to the
    committee.
        Senator Lieberman. OK. I'd appreciate that. Thank you very
    much.
        Let me ask you, Dr. Beard, a different kind of question,
    which is how a nationwide sulfur rule would contribute to the
    ability of Daimler Chrysler to produce low- and ultra-low-
    emission cars for the global marketplace.
        Dr. Beard. Well, we think that the most promising future
    technologies for improving fuel efficiency, which is a real big
    issue these days, are direct-injection lean-burn gasoline
    engines, and in order to do that you need catalysts that can
    reduce NOx under lean conditions, and so far all the
    catalyst candidates for that kind of technology are shown to be
    extremely sensitive to sulfur, even down to the five-part-per-
    million level.
        Senator Lieberman. Right.
        Dr. Beard. So, to the extent that we are to develop and
    market those vehicles both in the United States, to help ease
    our reliance on imported oil and reduce emissions of
    CO2, but also to sell them worldwide, we need to
    have that kind of low-sulfur fuel available worldwide.
        We would point out that places like Japan and Europe are
    moving rapidly in that direction.
        Senator Lieberman. Yes. That's what I had in mind. Thanks
    very much. My time is up. Thanks, Mr. Chairman.
        Senator Inhofe. Thank you, Senator Lieberman.
        During my opening statement I commented on what I thought
    was a very confusing way of defining small refineries. When
    some of them may be owned by a corporation that has a lot of
    other interests, obviously, the same economies to scale would
    apply to a refinery that is owned, and yet they are thrown in
    with the large corporation.
        I just have always wondered--and maybe you can enlighten
    me--as to why we don't just use volume for determining factor
    in determining small refineries. This is the way the Department
    of Energy has done it. That's my understanding. I'd like to
    hear from each one of you, because I can't seem to get any
    response from the EPA as to why that is not a reasonable
    methodology of determining small refineries.
        Mr. Frank. I guess I could understand why they wouldn't
    respond to it. I can't see any reason for basing it on the size
    of a corporation that may be involved in many diverse
    businesses and have only one small refinery but still not be
    able to qualify for the small refinery exclusion. I would think
    volume would be a much better way to do it.
        Senator Inhofe. Dr. Beard, is this one area we might find
    agreement?
        Dr. Beard. I'm not sure if we find agreement or not. I
    would point out that there are small refineries that are
    producing gasoline today in the 30-part-per-million sulfur
    range in the PADD-IV. Maybe size isn't the right way to do it,
    but we would point out that----
        Senator Inhofe. But my point is yes, there are, but these
    are owned by other corporations. They may be in the hotel
    business or something else, and yet----
        Dr. Beard. Not necessarily, but----
        Senator Inhofe. Not necessarily. That's true.
        Does anyone else want to comment on that?
        Mr. Ensign. I believe that you are exactly right--that if
    you're going to have a small refinery standard, that size
    should be the sole determinant. A company will make a decision
    on whether or not to invest based on how that unit is
    performing, not on how well hotel or ranches or something else
    might be doing.
        The key in this rulemaking is to try to get every refinery
    in the country to invest in desulfurization equipment. So the
    standards for small refineries should be uniform and across the
    board.
        Senator Inhofe. I noticed yesterday--you may have seen
    this, Senator Lieberman--that Ford announced that they will be
    producing the low-emission pickup trucks next year that will
    meet the 2004 standards, and that's with using today's high-
    sulfur gasoline. In their announcement they state that it is
    because of their industry-leading emissions control technology
    and catalyst research.
        Is this something that Chrysler doesn't have, Dr. Beard?
        Dr. Beard. I would point out that Ford is fully in support
    of the alliance proposal for Tier 2, which includes the low-
    sulfur fuel. The standard that they're talking about is a LEV
    standard. It's not the Tier 2 standard that is in the NPRM.
        Senator Inhofe. Well, it is talking about the 2004
    standards, which, it would seem to me that if they're making
    advances like that, then perhaps the proposed sulfur standard
    may not be necessary. Just an observation.
        Senator Lieberman, do you have any more questions to ask
    this panel?
        Senator Lieberman. I do not, Mr. Chairman. Thanks for your
    courtesy.
        Senator Inhofe. Senator Voinovich said he has many
    questions to submit to each one of the five of you, so you will
    be receiving these. And I'm sure there are others who are on
    the committee that will have questions for you, also.
        I appreciate very much your tolerance in allowing us to
    start a little bit late, and your presence here today. Thank
    you so much.
        [Whereupon, at 12:38 p.m., the subcommittee was adjourned,
    to reconvene on Thursday, May 20, 1999.]
        [Additional statements submitted for the record follow:]
      Statement of Hon. Bob Graham, U.S. Senator from the State of Florida
        Mr. Chairman, thank you for the chance to speak briefly regarding
    our hearings this week on the EPA's proposed regulations relating to
    sulfur content in automobile fuel.
        As you know, Title IV of the Clean Air Act Amendments of 1990 set
    tailpipe emissions standards for cars and light trucks beginning with
    the 1994 model year, known as Tier I standards. The 1990 Amendments
    also required the EPA to study whether future emission reductions from
    vehicles were necessary, known as Tier II standards which would take
    effect in the 2004 model year.
        On May 1, 1999, President Clinton proposed the Tier II standards
    for automobile emissions and included a national standard for the level
    of sulfur in gasoline. I understand that the Administration is
    currently collecting comments on this rule and will begin compilation
    of a final rule in August.
        The proposal in the EPA's rule is significant. It is a national
    standard that would impact virtually every citizen in the Nation by
    modifying the fuel used in our automobiles. The modified fuel would
    reduce air emissions by improving the performance of catalytic
    converters.
        I am aware that there are differing view points on the degree to
    which sulfur levels in gasoline impede performance of the catalytic
    converter. I am aware that there are differing view points on the cost
    of adopting a national standard for fuel sulfur levels. I look forward
    to hearing from today's witnesses with your viewpoints on each of these
    issues. Thank you.
                                     ______

    Statement of Hon. Daniel Patrick Moynihan, U.S. Senator from the State
                                  of New York
        Mr. Chairman, I thank you for holding this hearing on the
    Environmental Protection Agency's (EPA) proposal to regulate the sulfur
    content of gasoline. I am pleased to note that the rule models the
    provisions of my bill, the Clean Gasoline Act of 1999, by reducing the
    sulfur content in gasoline to an average of 30 parts per million, year
    round and nationwide.
        We have come a long way since the Clean Air Act Amendments of 1990.
    Since that last reauthorization effort, we have successfully and
    economically made major reductions in emissions of air pollutants and
    tremendously expanded our understanding of the causes and effects of
    environmental problems such as acid deposition, ozone pollution,
    decreased visibility, and eutrophication of coastal waters. We can be
    proud of these accomplishments, but we still have a long way to go. And
    first on our priority list should be action on the evidence that
    nitrogen oxides (NOx), which we largely ignored 9 years ago,
    are significant contributors to air quality deficiencies.
        The 1990 Amendments did not go far enough to prevent continued
    human health and ecosystem damage from NOx. In particular,
    we now know that ozone pollution, caused in large part by
    NOx emissions, can have a terrible effect on human
    respiratory functions. A 1996 study of ozone pollution by the Harvard
    University School of Public Health established a strong link between
    ground level ozone pollution and 30,000-50,000 emergency room visits
    during the high ozone seasons of 1993 and 1994. Nearly 9,000 of those
    visits occurred in New York City alone, during the summer of 1994. And
    of course the ecosystem effects of NOx--coastal
    eutrophcation, acid deposition and nitrogen saturation--are well-
    documented. Clearly, any serious effort to address this problem must
    address NOx emissions. Fortunately, we have identified an
    unusual opportunity to make enormous NOx reductions at a
    minimal cost--through a simple reduction in gasoline sulfur content.
        The Clean Gasoline Act of 1999, and the EPA rule, address ``mobile
    sources'' (mainly cars and trucks) of NOx and other tailpipe
    emissions. Mobile sources account for 50 percent of US NOx
    emissions. By establishing a national, year-round cap on the sulfur
    content of gasoline sold in the United States, the EPA proposal would
    dramatically and immediately reduce NOx emissions from the
    very largest single source.
        And this is how:
        The presence of sulfur in gasoline increases vehicle emissions by
    ``poisoning'' the catalytic converter used to capture tailpipe
    emissions. In essence, particles of sulfur coat the surface of the
    catalytic converter and render it partially ineffective. In the 1970's,
    we removed lead from gasoline to make possible the introduction of
    catalytic converters. Now we have learned that sulfur is a catalyst
    poison in much the same way. All vehicles in the Nation with catalytic
    converters--virtually all vehicles--produce higher levels of
    NOx because of the high levels of sulfur in the gasoline
    they burn. By reducing the amount of sulfur in gasoline, we will allow
    our national fleet to immediately realize reductions in tailpipe
    emissions.
        The cost of gasoline would rise under this proposal--by less than a
    nickel a gallon at the retail level. For a car driven 15,000 miles per
    year that achieves 15 miles per gallon, the cost of the proposal would
    be less than $50 annually. Keep in mind, however, that gasoline prices,
    adjusted for inflation, are cheaper now than they have been at any time
    since 1950, the beginning point of our analysis. And the benefits to
    human health and the environment of reducing gasoline sulfur far
    outweigh this modest cost.
        A recent study by the State and Territorial Air Pollution Program
    Administrators and the Association of Local Air Pollution Control
    Officials (STAPPA-ALAPCO) found that reducing gasoline sulfur levels to
    40 parts per million, the California standard, will bring an air
    quality benefit equivalent to removing nearly 54 million vehicles from
    our national fleet. New York City alone would have a benefit equal to
    removing 3 million vehicles from its streets. We must not pass up the
    opportunity to make such large gains in emissions reductions for such a
    minor cost.
                                     ______

      Statement of Nettie H. Myers, Secretary, South Dakota Department of
                       Environment and Natural Resources
        Chairman Inhofe and members of the Subcommittee: My name is Nettie
    Myers. I am the Secretary of the South Dakota Department of Environment
    and Natural Resources. My department enforces all clean air laws and
    rules in South Dakota including those under the Federal Clean Air Act
    through delegation from the United States Environmental Protection
    Agency. I am here to testify on behalf of my State in opposition to any
    uniformly low, nationwide gasoline sulfur standard as proposed by EPA
    on May 1. South Dakota believes a rule based on regional economics and
    air quality needs is the only sensible way to resolve vehicle emissions
    and fuel quality issues. Letters signed by Governors and officials of
    at least eight other States and attached to this statement are evidence
    that South Dakota does not stand alone in this regard.
        There are four reasons for this fundamental opposition. First, for
    States like South Dakota, located in America's heartland, no measurable
    public health benefit will be gained from regulating gasoline sulfur to
    a uniformly low national standard. Second, current gasoline sulfur
    levels in my State do not threaten public health or ambient air quality
    in any downwind States. Third, application of the proposed gasoline
    sulfur standard in South Dakota and neighboring States poses a serious
    and unwarranted threat to our consumer gasoline prices by harming
    refineries supplying our fuels. Fourth, there is a way, through vehicle
    maintenance, that is less expensive than EPA's proposal and more
    closely tailored to the need for clean air than imposing on South
    Dakotans and residents of nearby States the significant costs of curing
    air pollution in other regions of the country. South Dakotans and their
    neighbors do not contribute to this problem and will not benefit from
    the proposed solution. Do not make them pay with higher gasoline
    prices.
                                   background
        South Dakota has no refineries and is dependent on other States for
    gasoline and other fuels. Western South Dakota, the location of
    Ellsworth Air Force Base and an area very dependent on tourism, is
    supplied by refineries in Petroleum Administration for Defense District
    IV (PADD IV) to the west. Eastern South Dakota is supplied by pipeline
    from refineries in PADDs II and III. South Dakota's economy is heavily
    dependent on agriculture, perhaps more so than any other State, and
    agriculture is seriously depressed as farm prices are at perhaps their
    lowest levels in decades. The last thing our farmers need is an EPA-
    induced increase in the cost of business that returns no measurable
    public health benefit to them or any one else.
        In 1996, South Dakota ranked 35th among the States in per capita
    income. Four of our western PADD IV neighbor States ranked 36th, 44th,
    46th and 47th. Colorado, at 14th, is the only PADD IV State ranked in
    the top half. Our neighbors to the north and south, North Dakota and
    Nebraska, who also receive fuel from PADD IV ranked 25th and 39th. Any
    cost increase in our region, without commensurate benefit, is
    unwarranted and will impose an economic hardship on our residents.
                            no public health benefit
        Attachment 2 is a chart displaying the relative traffic density of
    the States in 1997 as measured by vehicle miles traveled per square
    mile. South Dakota and the PADD IV States have some of the lowest
    traffic densities in the country. It stands to reason, therefore, that
    vehicle emissions in South Dakota are among the most dispersed and
    dilute in the country and that the benefits of requiring our gasoline
    supplies to meet a uniformly low national sulfur standard are dubious.
    Data provided by EPA in its Regulatory Impact Analysis do not display
    the impacts or benefits for each State. The best data otherwise
    available, however, bear out this hypothesis.
        Last year, the American Automobile Manufacturers Association (AAMA)
    had posted on its Web site a 1997 AAMA study on the impacts of gasoline
    sulfur on Tier 0, Tier 1 and LEV/ULEV vehicles.\1\ Extending the
    results of this study to South Dakota's 1997 vehicle miles traveled
    yields the following projections. First, simply changing from Tier 0
    vehicles to LEV/ULEVs will reduce South Dakota's annual vehicle
    NOx emissions by 3,064 tons. Second, taking the next step
    and reducing gasoline sulfur content from 330 ppm to 40 ppm\2\ may
    provide an additional 843 tons of annual NOx reductions.
    Standing alone, these reductions of NOx are minimal compared
    to other States.\3\ When spread out over South Dakota's 75,898 square
    miles they probably challenge the limits of detection.
    ---------------------------------------------------------------------------
        \1\ Source: American Automobile Manufacturers Association of
    International Automobile Manufacturers: Study on the Effects of Fuel
    Sulfur on Low Emission Vehicle Criteria Pollutants, Tables 1 and 3,
    1997.
        \2\ The study did not examine the 30 ppm level proposed by EPA.
        \3\ For example, changing from Tier 0 to LEV/ULEV vehicles in New
    York would reduce NOx by 50,557 tons per year. 13,903
    additional tons per yera would be saved by lowering gasoline sulfur for
    these LEV/ULEVs.
    ---------------------------------------------------------------------------
        This exercise also suggests that about 78 percent of the benefits
    of the proposed rule, i.e. -3,064 tons out of 3,064 + 843 tons, can be
    achieved through vehicle improvements alone without reducing gasoline
    sulfur. This compares favorably with EPA's analysis that in 2020 the
    American Petroleum Institute/National Petrochemical & Refiners
    Association regional standard proposal will provide 78 percent of the
    NOx reductions of the proposed rule.\4\ It appears that when
    more than half of today's vehicle fleet is of Tier 0 technology\5\ the
    lowest hanging fruit can be harvested by encouraging turnover of
    America's automobile fleet rather than increasing the price of gasoline
    through sulfur reduction. The EPA gasoline sulfur proposal has little
    to offer South Dakota and much to take from us.
    ---------------------------------------------------------------------------
        \4\ Tier 2/Sulfur Draft Regulatory Impact Analysis--April 1999, p.
    III-17.
        \5\ USA TODAY, September 10, 1998, citing data from Polk Co. See
    Attachment 3.
    ---------------------------------------------------------------------------
        Furthermore, at least one study on which EPA has relied is probably
    not applicable to South Dakota. In adopting the new ambient air quality
    standards for ozone,\6\ EPA pointed to a study of hospital admissions
    for respiratory conditions in New York City and other cities in New
    York State.\7\ It was concluded that respiratory hospital admissions
    increased with levels of haze air pollution, particularly ozone. In 1
    year of that study, 1988, the average hourly ozone concentration
    encountered in New York City was 69 ppb. The maximum hourly level was
    209 ppb. Until the recent ambient air quality standards were adopted,
    South Dakota had no reason even to monitor ozone. What few data we do
    have show hourly averages in the range of 40 ppb and a maximum hourly
    level of 80 ppb. Wyoming recently established an ozone monitoring
    location. The June, 1998 through February, 1999 data from that site
    show averages of hourly concentrations in the range of 26 to 50 ppb and
    a maximum hourly concentration of 81 ppb.\8\ Vehicle emissions in South
    Dakota are likely to improve from fleet turnover alone. With already
    good ozone levels of about half those encountered in the New York
    study, it is difficult to credibly predict any measurable public health
    benefit associated with the further step of lowering gasoline sulfur.
    ---------------------------------------------------------------------------
        \6\ The Regulatory Impact Analysis for the ambient air quality
    standard rule is cited as authority in the current Regulatory Impact
    Analysis.
        \7\ Thurston, et al: ``A Multi-year Study of Air Pollution and
    Respiratory Hospital Admissions in Three New York State Metropolitan
    Areas: Results for 1988 and 1989 Summers'', Journal of Exposure
    Analysis and Environmental Epidemiology, v. 2, no. 4, p. 429 (1992).
        \8\ See Attachment 4.
    ---------------------------------------------------------------------------
                                no downwind harm
        Attachment 5 is a June 6, 1996 letter I received from the Ozone
    Transport Assessment Group (OTAG). That group was formed to analyze and
    model the transport of ozone from other States into non-attainment
    areas. That letter states:

            Based on our preliminary assessment of emissions and air
            quality data, it is our conclusion that States like Nebraska,
            North Dakota, and South Dakota will not need to install
            additional controls.\9\
    ---------------------------------------------------------------------------
        \9\ June 6, 1996 letter from Mary A. Gade, Chair, OTAG Policy
    Group, to Nettie H. Myers.

        Presumably, this exemption from additional controls also applies to
    States further west in PADD IV who were excluded from OTAG at the
    outset. 37 States participated in OTAG, and the conclusion was that
    South Dakota was not contributing to ozone levels downwind. This
    conclusion is true today and will be true in the future.
                        refinery closures are expensive
        Attachment 6 is a graph showing monthly average wholesale gasoline
    prices in three cities supplied by PADD IV and corresponding prices in
    all of PADD III. The three PADD IV cities are Billings, Montana;
    Casper, Wyoming; and Rapid City, South Dakota. The significance of this
    chart is that it spans the August, 1991 closure of Amoco's PADD IV
    refinery in Casper. Amoco closed this refinery rather than invest
    capital necessary to comply with current diesel sulfur standards.\10\
    The gray band across the chart shows the relative gasoline price
    penalty paid in the PADD IV cities over time. This penalty increased
    about the time Amoco's refinery closed. The average penalty before
    closure was 6.4 cents per gallon. The average penalty since closure has
    been 12.0 cents per gallon. In December 1998, the difference was
    approaching 13 cents per gallon, an increase of about 10 cents since
    June 1987. For Rapid City, South Dakota alone, this unnecessary
    increase in gasoline prices represents an economic penalty to consumers
    of $10,000,000 per year!\11\ This does not include any effect the Amoco
    closure has had on diesel fuel so necessary to farming. When suppliers
    shut down, prices go up. We simply do not need another refinery closure
    until EPA finds a way for its rules to repeal the basic laws of
    economics.
    ---------------------------------------------------------------------------
        \10\ ``Refinery Closing Costly at Pumps'', The Sunday Denver Post,
    October 18, 1992, p. 1A.
        \11\ Based on estimated annual gasoline volume of 100,000,000
    gallons at the Rapid City pipeline terminal.
    ---------------------------------------------------------------------------
        I am aware, Mr. Chairman, of a recent study performed by MathPro,
    Inc. concluding that a 30 ppm gasoline sulfur standard will not force
    refinery closures in PADD IV.\12\ The study is very disturbing. The
    study concludes a national standard ``would likely increase the market
    price of gasoline in PADD 4''.\13\ That conclusion is exactly what is
    wrong with EPA's proposal and, yet, the study's casual tone infers that
    this certainty should be welcomed with open arms. Higher prices are not
    welcome in any case, and we certainly should not accept them without
    counterbalancing public health benefits.
    ---------------------------------------------------------------------------
        \12\ Likely Effects on Gasoline Supply in PADD 4 of a National
    Standard for Gasoline Sulfur Content'', MathPro, Inc., March 18, 1999.
        \13\ Id at 1.
    ---------------------------------------------------------------------------
        Refiners I have spoken with have commented that reading the study
    reveals at least three points casting doubt on MathPro's reasoning that
    PADD IV average refining margins are high enough to guard against any
    refinery closure. First, the refining margins calculated in the study
    were not based on any data from real PADD IV refineries. In fact, much
    of the data in the study was not even specific to PADD IV.\14\ Although
    the study's margin determination methodology may be the best available,
    the results are still only estimations, perhaps gross estimations, at
    best.
    ---------------------------------------------------------------------------
        \14\ ``Data are available on refinery crude oil acquisition costs
    at the national level, but not at the PADD level.'' Id at A-1.
        ``First purchases of domestic crude oil [purchases at the oil well]
    are reported at the PADD level.'' Id at A-2. Note that this relates to
    crude oil sales at the lease within a PADD and is not the same as
    prices paid by refiners in the reporting PADD. In fact, a substantial
    amount of first crude oil purchases reported within a PADD are made by
    refiners in other PADDs.
        ``Spot, or refinery gate, prices for refined products are not
    publicly available in PADD 4.'' Id at A-2.
    ---------------------------------------------------------------------------
        Second, MathPro based its conclusion regarding the survivability of
    PADD IV refiners on a roughly estimated ``average'' margin. It is not,
    however, the ``average'' refiner that is likely to close down. Refiners
    with below average margins are most likely to close, and they do exist
    in PADD IV. The MathPro study itself cites the example of one publicly
    traded PADD IV refiner whose cash operating margins were roughly two-
    thirds those estimated in the study. Another refiner I have contacted
    had cash operating margins during the study period about one-half to
    two-thirds the margins in the MathPro report. If these refineries
    close, the loss of their production will affect consumer prices just as
    dramatically as the closure of an average or wealthy refinery. In
    California, five small refiners stopped producing gasoline after 30 ppm
    gasoline sulfur standards were adopted in spite of a 2-year compliance
    extension. The extreme price increases accompanying the Bay Area Tosco
    refinery closure further demonstrate the meaning of losing gasoline
    supplies in a competitive market. MathPro's reliance on ``average''
    conditions does not accurately describe what is likely to happen.
        Third, MathPro assumes that PADD IV refineries, using new and
    commercially undemonstrated technology, will be able to remove sulfur
    at costs lower than those estimated by both the refining industry and
    EPA. There are no large refineries in PADD IV. It does not seem logical
    that small refineries with limited capital resources will bet their
    futures on untried solutions.
        I stress this portion of my statement as it is important to
    understand that according to refiners in our area the costs of sulfur
    removal, by and large, will not be passed on to the public until a
    refinery closes. At that point, it will be too late for corrective
    measures to bring prices into line. Unlike crude oil price increases
    which affect all refiners equally in terms of cost per unit of
    production, gasoline sulfur removal is capital intensive and will
    impact each refiner differently depending on the refinery's existing
    equipment, the quality of its crude oil and other factors. Gasoline
    sulfur removal will motivate all refiners to increase product prices,
    but it seems likely that a competitive market will halt price increases
    when the refiner with the lowest sulfur removal costs receives an
    adequate return on its investment and decides to increase market share
    rather than raise prices further. At that point, other refiners in the
    same market will not recover their remaining sulfur removal costs. If
    those unrecovered costs are large enough, a refinery will close and
    prices will rise further. The graph, Attachment 6, showing the effect
    of the Amoco refinery closure on prices in PADD IV cities demonstrates
    this point dramatically.
                              cheaper alternatives
        In terms of finding the least expensive means of improving air
    quality, the proposed rule appears to turn logic on its ear. The rule
    threatens significant costs for regions of the country which have no
    air quality problem. Furthermore, it forces a multi-billion dollar
    wholesale retooling of the Nation's refineries by 2004 for the benefit
    of emissions control technology that will take decades to become
    predominant in our automobile fleet. The median age of America's
    automobile fleet is about 8 years and rising.\15\ This fact means that
    today one-half of the fleet is still Tier 0 vehicles produced before
    1994. One may presume that perhaps 20 years will be required to turn
    100 percent of the fleet into Tier 2 vehicles. In fact, EPA's
    Regulatory Impact Analysis predicts the entire fleet will be Tier 2
    vehicles by 2030 or in 26 years.\16\ In addition, EPA's proposed rule
    phases in Tier 2 vehicle production over four or more years.
    ---------------------------------------------------------------------------
        \15\ See note 4, supra.
        \16\ Tier 2/Sulfur Draft Regulatory Impact Analysis--April 1999, p.
    III-11.
    ---------------------------------------------------------------------------
        These facts imply that after the first year, about 1 percent to 2
    percent of the fleet will be Tier 2 vehicles, but all the gasoline must
    be low sulfur. Regional standards are one way of deflecting this front-
    end imposition, on clean air and economically fragile regions, of
    gasoline costs designed for a small fraction of the vehicle fleet.
        The issue of reversing the effects of sulfur on Tier 2 catalytic
    converters, however, appears to be blocking the concept of regional
    standards. The concern is based on the idea that vehicles traveling
    from low-sulfur areas to high-sulfur areas under a regional program
    will return home with ineffective catalytic converters. The
    reversibility debate revolves around whether catalytic converter
    efficiency will be restored when low-sulfur gasoline is, once again,
    placed in the vehicle's tank. Vehicle manufacturers argue the high-
    sulfur effect is irreversible. Refiners argue the opposite. EPA has
    come down on the side of the vehicle manufacturers in this debate.
        This debate, however, is for naught. It is clear that
    reversibility, or the lack thereof, need not be an issue. Rather than
    make the entire Nation cater to the needs of a small fraction of the
    vehicle fleet, it is more sensible, particularly in the early years of
    the program, to require owners to properly maintain their Tier 2
    vehicles by replacing catalytic converters as necessary. Areas with
    ozone attainment problems are required to have inspection and
    maintenance programs, and Tier 2 sulfur-damaged vehicles operating in
    those areas should be easy to identify.
        If this is not possible politically, ask the vehicle manufacturers
    and the refiners to fund jointly a program that replaces sulfur-damaged
    Tier 2 catalytic converters. Both industries claim they can do no more
    to resolve this sulfur issue. Refiners claim lower gasoline sulfur is
    too expensive and that sulfur's effects are reversible. The vehicle
    manufacturers claim sulfur tolerant technology is not possible. If
    refiners are forced to pay for catalytic converters because their
    gasoline has too much sulfur, at some point lower gasoline sulfur
    levels will become economical. If refiners are correct about
    reversibility, it will cost them nothing. If vehicle manufacturers are
    forced to pay for catalytic converters because their technology is not
    sulfur tolerant, they will be prodded to develop technology that is
    sulfur tolerant. While I have no studies or specific data evaluating
    this idea, vehicle maintenance must be less expensive than nationwide
    gasoline sulfur removal for the foreseeable future.
        In any case, substituting proper vehicle maintenance for uniformly
    low and costly gasoline sulfur standards places the costs of regulation
    both on those causing the problem and on those who will benefit from
    the solution. Endangering refineries in PADD IV imposes costs on
    motorists and farmers who neither cause the problem nor benefit from
    the solution.
                                   conclusion
        Mr. Chairman, I present this testimony today to clarify for the
    Subcommittee the negative effect of uniformly low gasoline sulfur
    standards on South Dakota and the neighboring region. Although they
    cause no air quality problems in other States, our citizens will pay
    significant costs and will receive no benefit under the proposed rule.
    The closure of a refinery in PADD IV is more than possible, and the
    economic harm from such an event will be unwarranted. In short, South
    Dakotans do not have the air quality problems prompting this rule, they
    do not need low sulfur gasoline, and they certainly do not want to pay
    for it. Thank you for the opportunity to be here today. I will be happy
    to answer any questions the Subcommittee might have.

           Responses by Nettie H. Myers to Additional Questions from
                                Senator Moynihan
        Question 1. In your written testimony you proposed that Congress
    require owners to periodically replace their catalytic converters or
    require vehicle manufacturers and refiners to fund a program that
    replaces catalytic converters if gasoline sulfur damages them. Please
    comment on the effectiveness and costs of such proposals relative to
    the cost of the EPA gasoline sulfur program.
        Response. First, I am not sure Congress needs to act to enable
    vehicle manufacturers and refiners to fund such a program. The current
    NLEV vehicle program is voluntary. One would think EPA and industry
    could find a way to implement this program on a voluntary basis. Please
    understand, I believe the responsibility for maintaining clean auto
    emissions rests with the owner of the automobile rather than with
    gasoline consumers in a distant region of the Nation. I also understand
    the obvious political implications of implementing such a philosophy
    and have, therefore, suggested another way of achieving the same
    result.
        Second, I did not suggest periodic replacement of catalytic
    converters but, rather, replacement as needed. This will depend on
    identifying those converters that have, in fact, been damaged by
    exposure to high sulfur gasoline. This could be done if the detection
    points on I&M inspections were lowered or by some other means during
    regular vehicle maintenance. I am encouraged by a statement in EPA's
    Draft Regulatory Impact Analysis (RIA) that when the combination of
    temperature and variation in the air-fuel ratio is sufficient, the
    sulfur accumulated from operation on high sulfur fuel appears to be
    essentially eliminated and the emission impact of the high sulfur fuel
    is fully reversed. Draft RIA, p. B-4.
        This implies that, while full reversibility may not be achievable
    with the converter on the vehicle particularly after implementation of
    the Supplemental Federal Test Procedure which greatly reduces rich
    exhaust driving cycles, the converter could be removed from the vehicle
    and serviced in a shop. Once off the vehicle, the converter could be
    subjected to the conditions producing full reversibility. While I do
    not know if such a procedure or the appropriate equipment exists, it
    does not seem that the tasks required to create such a program are too
    difficult. A program for servicing catalytic converters should
    definitely be cheaper than replacing converters.
        Third, I have asked a small refiner in PADD IV to prepare a cost
    estimate for replacing catalytic converters on vehicles from API/NPRA's
    proposed low sulfur region traveling to API/NPRA's proposed high
    sulfur, western region. This is not an endorsement of the API/NPRA
    proposal but it seemed convenient to speak in terms of a proposal
    already on the table rather than attempt to identify wholly new
    regions. The results of that estimate are detailed in the attached
    spreadsheet report. The conclusion of the study is that catalytic
    converters on gasoline vehicles produced in 2004 and later and which
    travel to the western United States can be replaced for a cost
    representing about 1.2 cents to 1.5 cents per gallon of western
    gasoline. If converters can be serviced rather than replaced, the cost
    should be a fraction of this amount.
        I strongly recommend that this cost be borne not only by refiners
    but also by the automobile manufacturers for the following reasons.
    First, it is difficult to determine at this time if refiners have more
    responsibility to reduce gasoline sulfur than vehicle manufacturers
    have responsibility to develop more sulfur tolerant equipment. Second,
    spreading the costs will encourage both industries to solve the problem
    in the least expensive manner. Third, if the cost to the auto industry
    of replacing converters is borne wholly by the refiners, the price of
    new converters is likely to increase without limit. This will not be
    fair to the refiners.
        While this proposal and supporting study are not definitive, they
    certainly indicate that EPA and the refining and auto industries should
    further investigate other alternatives.

        Question 2. Do you have any estimate of the per-gallon cost of the
    EPA gasoline sulfur proposal to South Dakota consumers?
        Response. As I pointed out in my written testimony, the cost of
    closing a refinery in PADD IV appears to be about 10 cents per gallon
    for gasoline. The conventional wisdom among PADD IV refiners is that
    one or more of them will close as a result of this rule. We have
    attempted to perform a similar analysis for the increase in the cost of
    diesel fuel following the closing of Amoco's Casper refinery.
    Unfortunately, prices before the closure relate to high sulfur diesel
    while prices after the closure are for low sulfur diesel. At this time,
    it is not clear that a ``before and after'' analysis using two
    different products is appropriate. It is clear, however, that a
    refinery closure will affect the price of all products including
    diesel, jet fuel, and heating oil. It is not unreasonable to expect
    price increases for these products to be about the same magnitude as
    those experienced for gasoline.
                                     ______

           Responses by Nettie H. Myers to Additional Questions from
                                 Senator Graham
        Question 1. It appears that the initial question is does high
    sulfur content in automobile fuel degrade the performance of catalytic
    converters?
        Response. Yes. It appears that for Tier 0 and Tier 1 vehicles the
    degradation is marginal ``with NOx emissions decreasing
    between 11 percent to 16 percent when sulfur is reduced from 330 ppm to
    40 ppm.'' Draft RIA, p. B-2. There are greater differences for LEV's
    and ULEV's which EPA has projected onto the proposed Tier 2 vehicles.
    Keep in mind, however, that even for LEV's and ULEV's gasoline sulfur
    reduction represents only about 22 percent of the benefits of moving
    from Tier 0 vehicles on 330 ppm gasoline to Tier 2 vehicles on 40 ppm
    gasoline. In this sense, all gasoline sulfur impacts are somewhat
    marginal.

        Question 2. Does it degrade the performance of all catalytic
    converters or only the catalytic converters required by the Tier 2
    regulation?
        Response. As stated in response to the previous question, the
    damage appears to be focused on LEV's, ULEV's and Tier 2 vehicles.

        Question 3. Is this damage reversible?
        Response. Yes. See Draft RIA, p. B-4.

        Question 4. How would the damaged be reversed?
        Response. In my responses to Senator Moynihan, I pointed out that
    EPA believes the damage can be reversed by a sufficient combination of
    temperature and variation in the air-fuel ratio. This implies that
    converter damage can be reversed by servicing the converter off the
    vehicle under conditions that provide the correct environment. It
    appears that reversibility is an issue only for LEV's, ULEV's and Tier
    2 vehicles. Sulfur sensitivity for earlier vehicles is significantly
    less and reversibility, therefore, is not an issue for earlier
    vehicles. See Draft RIA, p. B-2.

        Question 5. What is the estimated cost of replacing a catalytic
    converter?
        Response. For a six cylinder vehicle, the estimated cost to the
    manufacturer is $197. See Draft RIA, p. V-10.

        Question 6. Is there another way to repair or ensure that catalytic
    converters, if damaged by high sulfur content in fuels, can be restored
    to their original performance levels?
        Response. In my responses to Senator Moynihan, I pointed out that
    EPA believes the damage can be reversed by a sufficient combination of
    temperature and variation in the air-fuel ratio.
        First, I am not sure Congress needs to act to enable vehicle
    manufacturers and refiners to fund such a program. The current NLEV
    vehicle program is voluntary. One would think EPA and industry could
    find a way to implement this program on a voluntary basis. Please
    understand, I believe the responsibility for maintaining clean auto
    emissions rests with the owner of the automobile rather than with
    gasoline consumers in a distant region of the Nation. I also understand
    the obvious political implications of implementing such a philosophy
    and have, therefore, suggested another way of achieving the same
    result.
        Second, I did not suggest periodic replacement of catalytic
    converters but, rather, replacement as needed. This will depend on
    identifying those converters that have, in fact, been damaged by
    exposure to high sulfur gasoline. This could be done if the detection
    points on I&M inspections were lowered or by some other means during
    regular vehicle maintenance. I am encouraged by a statement in EPA's
    Draft Regulatory Impact Analysis (RIA) that when the combination of
    temperature and variation in the air-fuel ratio is sufficient, the
    sulfur accumulated from operation on high sulfur fuel appears to be
    essentially eliminated and the emission impact of the high sulfur fuel
    is fully reversed. Draft RIA, p. B-4.
        This implies that, while full reversibility may not be achievable
    with the converter on the vehicle particularly after implementation of
    the Supplemental Federal Test Procedure which greatly reduces rich
    exhaust driving cycles, the converter could be removed from the vehicle
    and serviced in a shop. Once off the vehicle, the converter could be
    subjected to the conditions producing full reversibility. While I do
    not know if such a procedure or the appropriate equipment exists, it
    does not seem that the tasks required to create such a program are too
    difficult. A program for servicing catalytic converters should
    definitely be cheaper than replacing converters.
        Third, I have asked a small refiner in PADD IV to prepare a cost
    estimate for replacing catalytic converters on vehicles from API/NPRA's
    proposed low sulfur region traveling to API/NPRA's proposed high
    sulfur, western region. This is not an endorsement of the API/NPRA
    proposal but it seemed convenient to speak in terms of a proposal
    already on the table rather than attempt to identify wholly new
    regions. The results of that estimate are detailed in the attached
    spreadsheet report. The conclusion of the study is that catalytic
    converters on gasoline vehicles produced in 2004 and later and which
    travel to the western United States can be replaced for a cost
    representing about 1.2 cents to 1.5 cents per gallon of western
    gasoline. If converters can be serviced rather than replaced, the cost
    should be a fraction of this amount.
        I strongly recommend that this cost be borne not only by refiners
    but also by the automobile manufacturers for the following reasons.
    First, it is difficult to determine at this time if refiners have more
    responsibility to reduce gasoline sulfur than vehicle manufacturers
    have responsibility to develop more sulfur tolerant equipment. Second,
    spreading the costs will encourage both industries to solve the problem
    in the least expensive manner. Third, if the cost to the auto industry
    of replacing converters is borne wholly by the refiners, the price of
    new converters is likely to increase without limit. This will not be
    fair to the refiners.
        While this proposal and supporting study are not definitive, they
    certainly indicate that EPA and the refining and auto industries should
    further investigate other alternatives.

        Question 7. If the damage is reversible, could regional regulations
    work?
        Response. Absolutely. I believe reversibility is the only issue
    standing in the way of regional standards.

        Question 8. If the damage is not reversible, could regional
    regulations, tailored to the air quality needs of each region,
    effectively reduce the impact of sulfur on catalytic converters?
        Response. In response to a question from Senator Moynihan, I asked
    a PADD IV small refiner to estimate the cost of replacing damaged
    catalytic converters found in low sulfur regions. The response,
    supported by the attached spreadsheet report, is that damaged
    converters can be replaced for a cost representing 1.2 cents to 1.5
    cents per gallon of western gasoline. While the impact on catalytic
    converters cannot be reduced, the impact of damaged catalytic
    converters can be managed and controlled for less expense than that
    proposed by EPA. This speaks to adopting tailored regional standards
    rather than a uniformly low national standard.
                                     ______

           Responses by Nettie H. Myers to Additional Questions from
                                 Senator Chafee
        Question 1. Could you elaborate on some of the ripple impacts that
    this proposed rule could have on the economy of South Dakota?
        Response. First, as I presented in my testimony, any cost to the
    citizens of South Dakota is too great when we expect no measurable
    improvement in the quality of our air. Using EPA's projected increase
    of 2 cents per gallon for lower sulfur gasoline, the proposed rule will
    cost South Dakota, at a minimum, over $11 million. The cost of low
    sulfur diesel will add another $5 million. But even more frightening is
    the potential 10 cents per gallon increase if the proposal forces
    closure of small refineries in the Rocky Mountain States.
        An increase of that magnitude could cost South Dakota's citizens
    one-half of 1 percent of their annual average income. This expense is
    too great for no measurable benefit for the health of South Dakota's
    citizens!
        The ripple impacts of the proposed sulfur in gasoline rule and the
    anticipated diesel rule will be the economic hardship to the rural
    community, primarily to the agricultural industry, which in turn
    affects every other industry and business in the State. With ten people
    per square mile, fuel is a necessary commodity to live and do business
    in rural South Dakota. Agriculture is the State's No. 1 industry,
    generating $17 billion in economic activity in 1997. Agricultural
    producers' income is in a current State of decline, and any added
    economic pressure to this fragile industry will only add to the already
    overwhelming ``input'' cost. Information from South Dakota State
    University shows that over the last 7 years, Ag production has actually
    decreased by $400 million while the cost to production has increased by
    $2.5 billion (when adjusted for inflation).
        Agriculture impacts almost every other industry in the State either
    directly or through the buying power of agriculturally employed
    citizens. The number of persons employed in agriculture has decreased
    by over 30 percent in the past 20 years. This means businesses such as
    grocery stores, restaurants, car dealers, and hardware stores in our
    towns no longer have the customers necessary to keep the businesses
    going. The ripple effect of additional fuel costs to the rural
    community is the success and economic viability of the urban and
    business community.

     Statement of James D. Austin, Assistant Commissioner, New York State
                    Department of Environmental Conservation
        Good morning. My name is Jim Austin, and I'm Assistant Commissioner
    with the New York State Department of Environmental Conservation. On
    behalf of the Department, I appreciate this opportunity to testify
    before the Subcommittee in support of the Environmental Protection
    Agency's proposed sulfur standards for gasoline. We haven't come to
    these proceedings lightly. The Department has been investigating the
    effects of fuel sulfur on emissions for over 20 years, and Governor
    Pataki has allocated a million dollars in funding toward a joint
    project to look at how low sulfur diesel fuel can facilitate emission
    reductions in transit buses.
        There is no doubt that New York has an air quality problem, and
    that a large portion results from motor vehicles. We estimate that
    approximately half of the emissions that cause ground level ozone, and
    virtually all of the carbon monoxide in our air, come from mobile
    sources. New York has worked hard to address this problem, and we have
    made progress over the nearly three decades since the Federal Clean Air
    Act was enacted, implementing every mobile source control strategy
    required by the Act and its subsequent Amendments, as well as several
    well beyond the requirements. These have included stringent emissions
    inspections for cars, vapor recovery systems at gas stations, and the
    California emissions standards for new cars. Last year, the Governor
    also signed legislation requiring emission inspections for diesel
    trucks and buses.
        New York also limits the volatility of gasoline sold in the State,
    and our analysis indicates that this has been one of the most
    successful programs we have implemented in providing significant and
    immediate improvements in ambient air quality. This is because there
    was no waiting for new technology to penetrate the market and work its
    way into New York's fleet of vehicles. Additionally, all vehicles,
    young or old, well maintained or neglected, witnessed improved
    emissions performance as a result of the controls on gasoline
    volatility. Based on our review of EPA's proposed limits on sulfur in
    gasoline and the science supporting it, we feel it will likewise
    provide immediate benefits, and is a critical component of achieving
    further emission reductions from mobile sources.
        Being from New York, I am painfully aware of the role sulfur in
    coal and fuel oil plays in the acidification of our lakes, rivers and
    forests. Governor Pataki has repeatedly urged EPA to meet its
    obligations in the Clean Air Act and protect sensitive regions like the
    Adirondacks from acid rain. Yet high sulfur gasoline is perhaps doubly
    damaging to the environment. It directly results in emissions of
    extremely fine particulates and acidic aerosols that have been shown to
    lead to severe respiratory conditions and other ailments, and it strips
    catalytic converters of their ability to reduce emissions of other
    pollutants such as hydrocarbons, NOx, carbon monoxide and a
    host of tonics. EPA analysis has demonstrated that even a single tank
    full of high sulfur fuel can seriously degrade catalyst efficiency, and
    that this degradation may be irreversible under normal operating
    conditions. That's why adopting EPA's proposed sulfur limits on a
    national basis, rather than regionally, is so critical.
        There are other reasons to support low sulfur limits nationwide.
    Unlike other potential changes to gasoline we could make, decreasing
    allowable levels of sulfur has no downside. Reducing levels of sulfur
    has no negative side effects on emissions, driveability, or durability
    of motor vehicles. It only reduces emissions of pollutants known to
    harm the environment and the people of this Nation. Auto makers also
    say that it is essential to meeting the proposed new emission standards
    for automobiles. These vehicles will be federally certified using low
    sulfur fuel, and they should be operated on the same fuel.
        Limiting fuel sulfur would also be a relatively inexpensive,
    painless, and transparent way to reduce air pollution in all the States
    that will be determined to be out of compliance with the new 8 hour
    standard for ozone. For all these reasons, Europe, Canada and Japan
    have already taken steps to require low sulfur fuels, and it is
    essential that it be adopted here in the U.S. on a national basis.
        As I mentioned earlier, New York State is working with the
    Metropolitan Transit Authority and other participants in a program to
    introduce new emission reduction technology to diesel-powered transit
    buses. This technology has already been installed on nearly four
    thousand buses in Europe, and been demonstrated to provide dramatic
    reductions in emissions. Yet, due to the high levels of sulfur in
    American diesel fuels, this technology has not been previously
    available for use in the U.S. Thankfully, a foresighted company was
    willing to provide the project with the low-sulfur fuel needed to
    perform the demonstration. We have every reason to believe that the
    technology will provide the same emission reductions achieved on
    similarly equipped buses in Europe, which have been shown to be as
    clean as buses powered by compressed natural gas at a fraction of the
    cost. Hopefully, fuel to operate these clean buses will be available
    after the demonstration project is completed.
        Low sulfur fuel not only reduces exposure to harmful acidic
    aerosols and particulates, but it also enables the reduction of other
    pollutants. Catalyst and particulate trap technologies have advanced to
    the point where emissions from cars and trucks can be inexpensively
    reduced to a fraction of their current levels. Yet, without low sulfur
    fuels, these advanced technologies will only sit on the shelf
    collecting dust. We therefore strongly support EPA's proposal to reduce
    fuel sulfur. Thank you for the opportunity to present our strong
    support for EPA's proposed gasoline sulfur standards. The Department
    will be submitting more detailed comments before the hearing record
    closes. I'd be happy to answer any questions you may have at this time.

            Response by James D. Austin to Additional Question from
                                Senator Moynihan
        Question 1. Please quantify the benefits to New York State of the
    gasoline sulfur proposal. How would a regional program affect these
    benefits?
        Response. Using the computer model EPA has developed to estimate
    emission reductions associated with the Tier II proposal, NYSDEC
    estimates that 30 ppm sulfur fuel will provide a dramatic environmental
    benefit compared to both current fuels (300 ppm) and the American
    Petroleum Institute's proposed compromise fuel for the Northeast (150
    ppm)? In the year 2004, 30 ppm fuel would reduce emissions from on-road
    light-duty gasoline-powered sources of NOx and VOCs by 14
    percent and 6 percent respectively compared to 330 ppm fuel.
    Particulates and sulfur dioxide emissions would be reduced by 57
    percent ant 90 percent respectively. In 2010, these reductions increase
    to 23 percent and 9 percent for NOx and VOCs, and 60 percent
    for particulates. These reductions don't include reductions associated
    with the Tier II new vehicle standards, which would provide additional
    benefits. The attached spreadsheet and graphs provide additional
    details on these reductions.
                                     ______

           Responses by James D. Austin to Additional Questions from
                                 Senator Graham
        Question 1. It appears that the initial question is does high
    sulfur content in automobile fuel degrade the performance of catalytic
    converters? Does it degrade the performance of all catalytic converters
    or only the catalytic converters required by the Tier 2 regulation?
        Response. There is clear evidence that sulfur in fuels results in a
    decrease in the effectiveness of catalytic converters. The impact of
    fuel sulfur on catalyst efficiency appears to be common to catalysts on
    all vehicles. It is possible that the decrease in efficiency resulting
    from high sulfur fuels will be even more pronounced on future vehicles
    meeting the Tier-2 or California LEV II standards. Below is an excerpt
    from EPA's Draft Regulatory Impact Analysis for Tier-2/Sulfur:

            The sulfur in gasoline increases exhaust emissions of HC, CO,
            and NOx by decreasing the efficiency of the three-
            way catalyst used in current and advanced emission control
            systems. For the purpose of this document, we will refer to
            this phenomenon as ``sulfur sensitivity.'' Sulfur sensitivity
            has been demonstrated through numerous laboratory and vehicle
            fleet studies. These studies have demonstrated that significant
            reductions in HC, CO, and in particular, NOx
            emissions can be realized by reducing fuel sulfur levels.
            Sulfur sensitivity for Tier 0 and Tier 1 vehicles is marginal,
            with NOx emissions decreasing between 11 percent to
            16 percent when sulfur is reduced from 330 ppm to 40 ppm.
            Sulfur sensitivity for LEV and ULEV vehicles, however, is much
            more significant. When sulfur is increased from 40 ppm to 330
            ppm, we project that emissions increase by the following
            percentages:
             Vehicle Type, NMHC, NOx; LEV and ULEV LDV,
            40 percent, 134 percent; LEV and ULEV LDT, 24 percent, 42
            percent.
            These percentages apply to ``normal emitting'' vehicles, which
            generally are those in-use vehicles with emissions at or below
            twice their applicable emission standards. Higher emitting
            vehicles are projected to be less sensitive to sulfur, because
            the catalyst is not operating at peak efficiency in-use and
            should therefore be less affected on a percentage basis by
            higher sulfur levels. [pages B-1, B-2]

        Question 2. Is this damage reversible? How would the damage be
    reversed?
        Response. While EPA auto makers and the oil industry all agree that
    high fuel sulfur levels results in some decrease in catalyst
    efficiency, there is still controversy regarding to what extent this
    effect is reversible. Studies recently conducted by the petroleum
    industry would seem to indicate that there is some potential to reverse
    the harmful effects of sulfur on catalysts, especially on older
    technology vehicles that did not rely so heavily on the catalyst to
    meet emission standards. Yet the conditions necessary to achieve this
    reversibility, (numerous very hard accelerations in a row) do not
    realistically occur outsite of laboratory settings and, even if they
    did, results in extremely high emissions from the vehicle in question.
    In other words, in order to reverse the loss of catalytic control that
    accumulates due to high sulfur, the car must be forced to operate in
    modes that are themselves inherently dirty. In any event, changes to
    EPA's Federal Test Procedure will make such a ``hot-rich'' scenario
    much more difficult, if not impossible, to achieve and thus eliminate
    the one potential mechanism to reverse the effects of sulfur on
    catalysts. For these reasons, DEC does not feel that the effects of
    fuel sulfur on catalysts is fully reversible in real world conditions,
    especially for the advanced technology vehicles needed to meet Tier-2
    and California LEV II emission standards.

        Question 3. What is the estimated cost of replacing a catalytic
    converter?
        Response. According to the parts department of an Albany, New York,
    Ford dealer, the retail cost of a new catalytic converter runs between
    $180 and $800, depending on the age and model of the vehicle and
    excluding labor/installation costs. The converter for a 1996 Ford
    Ranger with a 3.0 liter engine lists for $449.38. By way of comparison,
    EPA estimates that the cost of gasoline will increase less than 2 cents
    per gallon as a result of the low sulfur requirement. Assuming a car
    drives 100,000 miles over its lifetime and achieves 20 miles per gallon
    (CAFE is 27 mpg), the cost of low sulfur fuel will only be $100 over
    the entire lifetime of the vehicle.

        Question 4. Is there another way to repair or ensure that catalytic
    converters, if damaged by high sulfur content in fuels, can be restored
    to their original performance levels?
        As discussed previously, it does not appear that the effect of high
    sulfur fuel on catalysts is fully reversible in real world conditions.
    It should be pointed out that manufacturers certify new vehicles to
    Federal emission standards using extremely low sulfur fuels. Vehicles
    should be operated in the real world using similar fuels.

        Question 5. If the damage is reversible, could regional regulations
    work?
        Response. Because we do not believe that the effect of high sulfur
    fuel on catalysts is fully reversible, New York is concerned that the
    lack of low sulfur gasolines outside of the region will result in
    increased emissions in New York and throughout the Northeast.

        Question 6. If the damage is not reversible, could regional
    regulations, tailored to the air quality needs of each region,
    effectively reduce the impact of sulfur on catalytic converters?
        Response. Due to the low cost and high environmental and health
    benefits associated with low sulfur fuels, we strongly support adoption
    of the measure on a nationwide basis. While many regions of the country
    may not currently exceed air quality standards, NYSDEC believes it is
    logical to implement strategies which inexpensively and efficiently
    reduce the environmental and health impacts of the transportation
    sector. The vast majority of automobiles on the road will realize an
    immediate emissions benefit starting with their first tankful of low
    sulfur fuel. No other control program could have such a broad impact as
    quickly. Regional control programs necessarily involve boundaries,
    which gives rise to the untenable situation of different fuel
    requirements on opposite sides of a street. Additionally, adopting low
    sulfur fuels nationwide will minimize gasoline production and
    distribution impacts by providing one fuel nationwide.
                                     ______

       Responses by James D. Austin to Additional Questions from Senator
                                     Chafee
        Question 1. How will the proposed rule benefit the Adirondack
    mountains and other areas suffering from acid rain?
        Response. As evidenced by the attached spread sheet, we predict use
    of 30 ppm fuels will immediately reduce emissions of sulfur dioxide
    from light duty gasoline-powered on-road vehicles by 90 percent
    compared to 300 ppm fuel. Such a reduction will have immediate benefits
    in reducing the harmful effects of acidic aerosols on human health and
    the environment. Reductions in NOx emissions will also have
    a beneficial effect. Although emissions from power plants and factories
    play a larger role in emissions which lead to acidic deposition in the
    Adirondacks (due to long range transport), such a dramatic reduction
    will nevertheless result in positive impacts on sensitive woodlands and
    water bodies.

        Question 2. What measures has New York taken to reduce ozone and
    other air pollutants?
        Response. New York State has implemented all air pollution control
    strategies as required by the Federal Clean Air Act and its subsequent
    amendments. Additionally, the State has implemented numerous control
    strategies beyond the requirements of the Act. These include the
    enactment of acid deposition control legislation 6 years before
    Congress, CFC control programs 1-year before Congress, Phase II and III
    NOx controls on stationary sources, emissions inspections
    for heavy-duty vehicles, early controls on fuel volatility, the
    California Low Emission Vehicle standards, controls on personal
    consumer solvents and architectural coatings. New York has also
    initiated several lawsuits attempting to force EPA to meet its Clean
    Air Act requirements to protect downwind states from the ``transport''
    of pollutants across State boundaries. Additionally, according to the
    New York State Energy Research and Development Authority New York is
    the most energy efficient State in the Nation.
                                     ______

       Statement of J. Louis Frank, President, Marathon Ashland Petroleum
        Good morning. My name is Corky Frank. I am President of Marathon
    Ashland Petroleum LLC. We are the fourth largest U.S. refiner operating
    seven refineries with a combined capacity of 935,000 barrels per day.
    We operate 85 marketing terminals in the Midwest and Southeast United
    States which distribute gasoline, diesel and asphalt and, we operate
    over 5,400 retail outlets in 20 States.
        I also currently serve as Chairman of the American Petroleum
    Institute (API)'s Downstream committee, which establishes policy for
    the refining, marketing, and transportation segments of the petroleum
    industry.
        I am here today on behalf of my company to talk about EPA's
    recently announced Tier 2 proposal, which includes requirements for
    dramatic, nationwide reductions in gasoline sulfur within a very tight
    timeframe. EPA's primary basis for this proposed rule lies in meeting
    the National Ambient Air Quality Standards, which were recently
    tightened. While it is not the subject of my comments today, I
    understand that a court has recently overturned EPA's broad and
    aggressive interpretation of the Clean Air Act Amendments of 1990 in
    establishing these new standards. The outcome of this case will impact
    this and other proposed regulations.
        Marathon Ashland Petroleum supports reducing sulfur levels in
    gasoline. Indeed, for well over a year, my company, the American
    Petroleum Institute (API), the National Petrochemical and Refiners
    Association (NPRA), and others representing 95 percent of our Nation's
    refining capacity have been proposing a long term regulatory approach
    that would involve substantial reductions in sulfur in our Nation's
    gasoline supply. (Exhibit 1) We have been meeting with EPA and others
    in the Administration to discuss sulfur levels, costs and cost
    effectiveness, supply and distribution challenges, and technology.
        Our goal has been to encourage the development of a practical and
    workable program. While our discussions with EPA have been open, we
    regret that the Agency has discounted our input, analysis, conclusions
    and proposals.
        The proposal that EPA has recently announced would rapidly reduce
    sulfur in gasoline about 90 percent nationwide to levels now required
    only in California, the State with far and away the Nation's most
    serious air quality problems. We would be required to begin marketing
    this reduced sulfur gasoline beginning in 2004.
        This is not consistent with air quality needs, technology, or
    economics. This very expensive program EPA has proposed will only be
    workable if certain specific changes are made prior to the issuance of
    the final rule.
        First, it imposes a national solution for a problem that is
    uniquely regional. (Exhibit 2) A ``one size fits all'' approach is not
    appropriate because air quality problems vary dramatically across the
    Nation. They tend to be more severe in urban areas on the West Coast
    and throughout much of the highly populated Northeast. In these areas,
    emissions need to be substantially reduced to meet Federal air
    standards.
        By contrast, much of the Nation's heartland west of the Mississippi
    River enjoys air quality that is very good. Except in relatively
    isolated locations, air quality meets Federal standards. Moreover, in
    areas where air quality problems remain, they are generally less
    serious and can be managed by more cost effective strategies.
        A regional approach--reducing sulfur along each coast and more in
    the East than in the West--would avoid forcing consumers to pay for a
    costly program that is not needed. A rancher, for example, in Oklahoma,
    where air quality is better than Federal standards for all six of the
    key ``criteria'' pollutants, should not have to pay the same higher
    costs as a stockbroker in New York City, where significant air quality
    problems must be addressed.
        A regional approach would also not impair air quality as vehicles
    from the two geographic regions, operating on different gasolines,
    travel back and forth. We believe the catalysts in the automobile
    converters can reverse the effects of high sulfur fuels and therefore
    that catalyst irreversibility is not a real world problem. API and NPRA
    have shared with EPA peer-reviewed emissions research which supports
    this thesis.
        Let me now say a word or two about cost:
        Our estimate of five cents per gallon of additional consumer cost
    for the lower sulfur gasoline EPA is proposing may not seem like a lot
    of money to some. I would urge you to think about this in the context
    of the average multi-vehicle family, or in the case of a single parent
    or elderly couple struggling to cover the costs of health care,
    housing, food and other necessities on a limited income. Another way to
    look at this is that the annualized cost of this program to consumers
    nationally is $5.7 billion.
        The impact on refiners would also be considerable. On a nationwide
    basis, the added costs of EPA's proposal would total more than $7
    billion in new investments and substantially increased operating
    expense. This would be a daunting challenge for my industry, which is
    already struggling to provide a satisfactory return on investment for
    its shareholders. Specifically, over this decade, the refining
    industry's return on capital has averaged 3 percent while operating at
    maximum capacity, and operating margins have been consumed by
    increasing environmental mandates.
        For some refiners, EPA's proposed regulation will be the straw that
    breaks the camel's back. Facilities will close and jobs will be lost.
    Since the phase-in of identical sulfur lowering requirements in
    California's gasoline in 1996, 11 percent of that State's refineries
    have shut down. (Exhibit 3)
        Along these lines I would be remiss if I did not now note that EPA
    is also working on proposed diesel regulations. These regulations are
    likely to require significant further investment by Marathon Ashland
    Petroleum and additional multi-billion dollar investments by my
    industry. It is my strong hope that in designing these regulations the
    Agency gives more serious consideration to cost effectiveness issues
    and air quality needs than it has in designing the gasoline sulfur
    rules.
        This is a very important public policy issue. Closing refineries
    destroys jobs and harms local economies. It also has cost implications
    for consumers. When little excess capacity is left as is basically the
    case in California problems in just a few refineries can adversely
    affect supplies and prices. California has experienced this problem as
    prices have spiked on several occasions and once just in the past 3
    months, when prices exceeded $1.70 per gallon.
        Given the potential costs for solving what for large parts of the
    Nation is not a serious problem, it is surprising that EPA is
    recommending pushing vehicle and fuel technology to such extreme
    limits. The Agency claims that the benefits of its proposed program are
    as much as five times the costs. A closer look reveals that these
    numbers are, in fact, too good to be true.
        EPA's cost estimate is based on the use of desulfurization
    technology that is not yet commercially proven and which refiners may
    not be able to employ within the timeframe allowed by EPA.
        The Agency's so-called benefit estimates are based on
    epidemiological data that have not been released for any external
    review and on faulty, highly irregular valuation assumptions. Secret
    science or science that is not available for public and Congressional
    review must not be the basis for Federal regulation.
        My industry has long recommended that cost effectiveness be one of
    the primary considerations when evaluating environmental regulations.
    Indeed, in the Tier 2 portion of the Clean Air Act Amendments of 1990
    Congress directs EPA to use cost effectiveness to develop the proposed
    Tier 2 standards. However, the cost of the Agency's proposed gasoline
    standards is more than triple the cost of the vehicle changes.
    Furthermore, the proposed gasoline changes are 15 times more costly
    than EPA's NOx SIP Call proposal for NOx
    reductions from utilities and 7 times more costly than Inspection and
    Maintenance controls on cars. (Exhibit 4)
        The timing of EPA's proposal presents another problem. As proposed,
    the rule would require petroleum companies to market this new low
    sulfur gasoline beginning in 2004. While Marathon Ashland Petroleum and
    other companies have experience in retooling facilities to make fuels
    cleaner and cleaner and in providing them in the amounts needed at
    affordable prices this is a tough deadline, especially in light of the
    drastic reductions in sulfur contemplated.
        My company is typical of most refiners. We will need to install
    major new equipment at most of our facilities to be able to make this
    new gasoline. This will entail a lengthy process of obtaining permits,
    scheduling contractors, fabricating large, customized vessels and
    starting and completing construction, during the same time that
    European and Canadian refiners will be competing for these same
    resources. This raises the specter of potential disruptions in the
    marketplace.
        Equally important, the nearness of the 2004 deadline raises
    significant concerns about whether we will be able to use the new, most
    cost-effective desulfurization technology. Although this technology
    holds the promise of being able to reduce the costs of lowering sulfur
    levels by about half, as a practical matter, it is not yet commercially
    proven.
        As chief executive, I face a difficult choice on behalf of my
    company and my shareholders: Do I rely on more costly, older but proven
    technology, or do I risk investing large sums of money in emerging
    technology that may not perform as required. For the industry overall,
    the difference in capital investment is dramatic: $7 billion versus
    $3.5 billion.
        Each year that the deadline is pushed back improves the odds that
    all refiners could meet EPA's requirements, increases the likelihood
    that the most effective and cost efficient technology will be employed,
    and helps ensure that all refiners continue to adequately supply their
    customers. EPA's proposed initial phase-in sulfur level, which forces
    immediate major investments, is simply too low.
        Also, adjusting the timing will not hurt air quality. EPA projects
    that air quality will improve for the next 10 years, even without the
    Tier 2 vehicle or low sulfur gasoline. Reducing sulfur by over 50
    percent, as the oil industry has proposed, will provide significant
    benefits beyond this.
        In many areas the ozone benefits reductions achieved by EPA's
    stringent proposal are only 1-2 parts per billion. Phasing these
    requirements in over 2 more years would likely have such a small impact
    that it could not be accurately measured in most areas. While pre-Tier
    2 vehicles would benefit somewhat from the lower sulfur levels, by the
    end of 2005, Tier 2 vehicles will make up less than 11 percent of the
    fleet.
        An additional concern with EPA's proposal is that it treats
    refiners differently by putting some smaller refineries on a different
    implementation schedule than the rest of us. From a competitive
    perspective this is neither acceptable nor necessary. We ask that the
    EPA give us a fair chance to compete a level playing field. A regional
    approach to reducing sulfur would solve the problem EPA is attempting
    to address without creating this dilemma.
        One final concern deals with EPA's sulfur credit banking and
    trading program. EPA's proposed program is intended to provide
    flexibility to the industry during the phase-in of the gasoline sulfur
    requirements. As currently structured, however, the banking and trading
    provisions will not likely provide this flexibility.
        Under EPA's proposed scheme, early credits are generated only to
    the extent a refiner meets the new sulfur levels in advance of 2004.
    Due to the logistical limitations inherent in constructing new refinery
    process units, the timing is such that many companies will likely be
    able to generate only a limited number of these credits.
        In addition to not achieving its intended purpose, the
    establishment of a banking and trading program introduces other
    undesirable consequences, such as providing foreign refiners with a
    competitive advantage over domestic refiners by allowing them to
    manipulate blendstocks sold into the U.S. and play games with their
    baselines. The program would also create the potential for cheating by
    downstream blenders and suppliers.
        In conclusion, let me say that through its sulfur reduction
    proposal, EPA has set the next round of gasoline and vehicle
    improvements in motion for both the automobile and oil industries. We
    all support the goal of reducing emissions. However, certain key
    elements of the Agency's proposal must be modified in order to create a
    low sulfur gasoline program which will succeed and prosper. As a
    company, Marathon Ashland Petroleum embraces a strong commitment to
    continued environmental progress; as its chief executive, it is my job
    to ensure that the requirements of this rule respect the need to
    balance costs with benefits.
        We are proud to participate as a partner in ensuring a clean
    environment. We look forward to working together to address these and
    other issues provided that good science, common sense and cost
    effectiveness are the foundations used to build solutions that are
    workable.
        I would be happy now to answer your questions.

    Responses by J. Louis Frank to Additional Questions from Senator Chafee
        Question 1. How would your regional approach help small refiners
    reduce sulfur in gasoline?
        Response. Most of the nation's small refineries are in the western
    portion of the country. By dividing the east and west along
    distribution system lines, as done by API and NPRA, two regions can be
    created inside which refineries have to compete on the same basis.
    EPA's approach will provide advantages to some small refineries which
    compete head to head with other small refineries, which are excluded
    from the small business delay EPA is proposing. Under the oil industry
    plan, refineries in the West can implement more stringent sulfur
    controls, whenever the air quality dictates.

        Question 2. What technology has your company considered to reduce
    sulfur levels in gasoline?
        Response. My company continuously talks with the vendors of CD
    Tech, Octgain and conventional desulfurization processes. We have
    evaluated all of these technologies and feel that CD Tech has the
    capability to offer the lowest long term cost to reach 30 ppm average
    sulfur levels in gasoline. However they are the furthest from
    commercialization at the present time. Their process has worked in a
    large experimental environment but still must go through all the
    problems typically encountered when trying to scale up a process from
    10-100 barrels per day of production to 100,000 barrels per day of
    production. Typically, in this process the equipment must go through
    several operation/modification cycles before it performs as designed. I
    would note that in recent conversations with CD Tech they have refused
    to provide a warranty on all aspects of their technology package, that
    would assure my company of the ability to achieve a 30 ppm average
    sulfur level in our gasoline at the costs estimated by EPA.
        If forced to make the decision by the end of 1999, it would be
    difficult for me to elect to expose my company to the possibility of
    failure to make saleable gasoline. On the other hand, I am very
    reluctant to be locked for the next 20-30 years into technology that
    places my company at a 2-2.5 cent per gallon disadvantage. EPA should
    not be forcing this decision. By waiting two additional years until
    2006 to begin the Tier 2 program, EPA can have all the advantages of
    low cost sulfur reductions, without forcing the industry to ``roll the
    dice'' for their future competitiveness.
                                     ______

    Responses by J. Louis Frank to Additional Questions from Senator Graham
        Question 1.  It appears that the initial question is: does high
    sulfur content in automobile fuel degrade the performance of catalytic
    converters?
        Response. As currently designed and built automobile emissions
    control system catalytic converters are degraded by any sulfur in
    gasoline. API has demonstrated to EPA that there are many options
    available to Emission Control System designers to reduce sulfur
    sensitivity and to improve reversibility of sulfur effects on the
    catalyst. Since removing sulfur cost money and improving the emissions
    control system costs money, it is best to take a vehicle/fuel systems
    approach to determining the optimum emission control system/gasoline
    sulfur level in order to minimize the societal costs of the proposed
    rule.

        Question 2. Does it degrade the performance of all catalytic
    converters or only the catalytic converters required by the Tier 2
    regulation?
        Response. The catalytic converters required by the Tier 2 rule do
    not exist today and won't be available until the 2004 timeframe.
    However, we can extrapolate from the catalysts used in current LEV's
    and ULEV's in California. While any sulfur will degrade these
    catalysts, CRC testing has shown that there are vehicles in California
    at the present time that meet EPA's proposed Tier 2 standards. As a
    matter of fact, Ford has recently announced that it will produce all of
    its SUV's to meet California LEV standards. Since these vehicles will
    run on gasoline with today's sulfur levels, it appears that Ford has
    developed technology to solve the sulfur problem with no additional
    cost to the consumer.

        Question 3. Is this damage reversible?
        Response. EPA's argument seems to be that all current LEV's must
    demonstrate 100 percent reversibility. Our industry's position is that
    none of today's California LEV's have been designed to be sulfur
    tolerant or reversible to the effects of high sulfur levels. In spite
    of this, CRC testing on six 1997 LEV's with as received catalysts aged
    to simulate 100,000 miles of driving showed that, as a fleet, these
    vehicles achieved 108 percent reversibility for non-methane
    hydrocarbons, 104 percent reversibility for carbon monoxide, and 95
    percent reversibility for nitrogen oxides when returning to 30 ppm
    sulfur operations on the US06 operating cycle after being driven on 630
    ppm sulfur gasoline. Reversibility occurred in less than 20 miles of
    driving. Note that achieving 100 percent reversibility is a difficult
    task, since on a theoretical basis, 100 percent reversibility should be
    the maximum possible, unless high sulfur levels improve the catalyst
    performance when it is returned to the lower sulfur levels.
        EPA has correctly pointed out that the Ford Taurus showed poor
    reversibility (and brought the fleet averages down) but they neglect to
    recognize that the Toyota Camry achieved reversibility that was from a
    statistical point of view 100 percent or higher for all three
    pollutants on the US06 test cycle. This study and several others that
    API has provided to EPA demonstrate that the emissions control design
    engineer has many tools available (catalyst structure, precious metals
    loadings on the catalyst, ratio of precious metals, location of the
    catalyst and engine performance adjustments) which can make LEV's and
    future vehicles more sulfur tolerant and 100 percent reversible. This
    optimization does not occur in today's vehicles because it costs money
    and is not required in California. It is hard to understand how EPA can
    take the poorest (and probably the cheapest) designed LEV emission
    control system in 1997 and make it the standard for 2004.

        Question 4. How would damage be reversed?
        Response. CRC and API testing have shown that at the proper
    temperature, sulfur is eliminated from the catalyst. This temperature
    varies with the nobel metal concentrations and the catalyst cellular
    design.

        Question 5. What is the estimated cost of replacing a catalytic
    converter?
        Response. Current catalytic converters cost about $50 to produce.
    With the typical manufacturer's markup and installation, the cost is
    under $100. With the proper catalyst and vehicle design parameters,
    catalysts do not have to be replaced. Periodic regeneration
    capabilities could be added into the vehicle engine controls program
    routines to occasionally raise catalyst temperatures to drive off
    sulfur.

        Question 6. Is there another way to repair or ensure that catalytic
    converters, if damaged by high sulfur content in fuels, can be restored
    to their original performance levels?
        Response. Rather than repairing the catalytic converter, the
    catalyst system can be regenerated while on the vehicle, by
    periodically raising the catalyst temperature.

        Question 7. If the damage is reversible, could regional regulations
    work?
        Response. Yes, this is why the oil industry proposed its regional
    solution. Research has shown that sulfur does not damage the catalyst,
    it merely occupies the same active sites on the catalysts that reduce
    the hydrocarbon and NOx emissions. Once the sulfur is driven
    off by raising temperatures, these active sites are once more available
    for handling hydrocarbon and NOx in the exhaust stream.

        Question 8. If the damage is not reversible, could regional
    regulations, tailored to the air quality needs of each region,
    effectively reduce the impact of sulfur on catalytic converters?
        Response. While some of the CRC 1997 LEV research vehicles did not
    achieve 100 percent reversibility, all of the test vehicles achieved
    reversibility of 83 percent or higher for all three pollutants using
    the US06 test cycle, and most of the vehicles achieved greater than 90
    percent reversibility. Even if catalytic converters can't achieve 100
    percent reversibility, 90-95 percent reversibility will achieve nearly
    all of the benefits of the Tier 2 vehicle, even in those areas which
    have clean air. Under EPA's proposed Tier 2 vehicle and fuel standards,
    ozone is only reduced on average by 0.4 parts per billion. This
    quantity of ozone is practically immeasurable by itself. The effect of
    only getting 95 percent of this benefit could never be measured in the
    real world.
                                     ______

           Responses by J. Louis Frank to Additional Questions from
                                Senator Moynihan
        Question 1. During the hearing, several Members and witnesses
    stated that the regulations may increase gas prices by as much as 10-15
    cents per gallon. Has the oil industry revised its cost estimates
    following the API/MathPro study which placed the costs at 2-5 cents per
    gallon? If you have found that the cost to consumers will be higher
    than the cost cited by the API study, please provide a citation or
    methodology for the higher estimate.
        Response. Mr. Frank did not State that the proposed Tier 2
    regulations may increase gas prices by as much as 10-15 cents per
    gallon. The oil industry average cost estimates for 40 ppm average
    sulfur levels in gasoline remain at 5-7 cents per gallon based on the
    API/MathPro study, using current conventional desulfurization
    technology. Perhaps the 10-15 cents per gallon prices which you refer
    to were brought up in relationship to the increased probability of
    temporary gasoline outages and shortages which are expected to occur
    due to the poor timing and implementation method EPA is proposing.
    While gasoline prices can rise and fall due to many factors,
    manufacturing costs are still expected to be in the 5-7 cents per
    gallon range for the average refiner.

        Question 2. How do you explain the difference between API's
    estimate of cost per ton and the estimate done by EPA? According to
    your testimony, the gasoline sulfur proposal will cost $23,000 per ton.
    According to EPA, the program will cost $2,000 per ton.
        Response. In this case, EPA has vastly underestimated the costs of
    reaching 30 ppm average sulfur levels. They have assumed a 2004 cost of
    1.68 cents per gallon based on using technology that is not
    commercially proven at this time. EPA has produced this cost without a
    refinery model but based on the expert opinion of one of their staff
    members, who has never worked in a refinery. API has modeled the cost
    of this future technology using MathPro's model and estimates the
    average cost to be about 2.5 cents per gallon. Since this technology
    will not be successfully commercialized by 2004, API's cost
    effectiveness calculations are based on 5.4 cents per gallon from
    MathPro modeling of current desulfurization technology.
        EPA's second mistake, shows their lack of understanding of how
    business project financing works. They have discounted the 1.68 cents
    per gallon cost to 1.23 cents per gallon in the future. As you are no
    doubt aware, when recovering the cost of investment over the multiple
    year life at a required cost of capital return rate, the cost of
    inflation is already built into the rate and you need to receive the
    calculated annual return to breakeven. You lose money if the annual
    income stream decreases further each year from that required to
    breakeven. In addition, since EPA's proposal will require nearly every
    refinery to make their major investments prior to 2004, all the units
    will already be built and no one will be able to take advantage of the
    future technology improvements which can lower the investment costs.
        On the benefit side of the cost effectiveness equation, EPA takes
    credit for every ton of NOx reduced, even those reduced
    during the winter which have no effect on ozone which is a summer
    problem. The ozone control season has already been established as part
    of the RFG regulations. It lasts for 120 days and therefore only \1/3\
    of the annual NOx tons reduced can be counted as reducing
    ozone.
        In addition EPA has assumed benefits from the entire fleet being
    replaced by Tier 2 vehicles immediately. In reality new vehicles are
    phased in over 14 years. The existing fleet only gets \1/2\ to \1/3\ of
    the emissions reductions that Tier 2 vehicles get on 30 ppm average
    sulfur levels. It will take 14 years before the benefits EPA claims can
    be achieved. Thus, EPA has underestimated the costs for sulfur
    reduction by about a factor of 4 and overestimated the benefits by at
    least a factor of three. This roughly explains the factor of 12
    difference between EPA's cost effectiveness estimate of $2,000 per ton
    and API's estimate of $23,000 per ton.

        Question 3. In your testimony, you stated that reversibility need
    not be an issue; in essence, that a regional sulfur reduction program
    would be appropriate. Has API identified through its research any
    catalytic technology which is completely reversible?
        Response. EPA has thrown out the much more cost effective regional
    approach on the basis of catalyst irreversibility and dismissed our
    industry's research into the reversibility of sulfur effects on Low
    Emission Vehicle (LEV) catalysts. EPA's argument seems to be that all
    current LEV's must demonstrate 100 percent reversibility. Our
    industry's position is that none of today's California LEV's have been
    designed to be sulfur tolerant or reversible to the effects of high
    sulfur levels. In spite of this, CRC testing on six 1997 LEV's with as
    received catalysts aged to simulate 100,000 miles of driving showed
    that, as a fleet, these vehicles achieved 108 percent reversibility for
    non-methane hydrocarbons, 104 percent reversibility for carbon
    monoxide, and 95 percent reversibility for nitrogen oxides when
    returning to 30 ppm sulfur operations on the US06 operating cycle after
    being driven on 630 ppm sulfur gasoline. Reversibility occurred in less
    than 20 miles of driving. EPA has correctly pointed out that the Ford
    Taurus showed poor reversibility (and brought the fleet averages down)
    but they neglect to recognize that the Toyota Camry achieved
    reversibility that was from a statistical point of view 100 percent or
    higher for all three pollutants on the US06 test cycle. This study and
    several others that API has provided to EPA demonstrate that the
    emissions control design engineer has many tools available (catalyst
    structure, precious metals loadings on the catalyst, ratio of precious
    metals, location of the catalyst and engine performance adjustments)
    which can make LEV's and future vehicles more sulfur tolerant and 100
    percent reversible. This optimization does not occur in today's
    vehicles because it costs additional money for the automotive
    manufacturers and is not required in California. It is hard to
    understand how EPA can take the poorest (and probably the cheapest)
    designed LEV emission control system in 1997 and make it the standard
    for 2004.
                                     ______

           Responses by J. Louis Frank to Additional Questions from
                               Senator Voinovich
        Question 1. You express concern about the proposed standards, what
    are the obstacles that you see in meeting these standards? How much
    time do you think is needed to meet them?
        Response. As stated in the answer to question 2 from Senator
    Chafee, my primary concern is the readiness of the new desulfurization
    technologies for commercialization. I am also concerned with the
    construction capability of building these new units in nearly every
    refinery at the same time that European and Canadian refineries are
    doing the same thing. All of the engineering has to be done at the same
    time. All of the permitting has to be done at the same time. All of the
    large pressure vessels have to be built at the same time.
        By extending the final date for 30 ppm sulfur for 2 years, from
    2006 to 2008, there should be sufficient time to allow the technology
    to be proven and to spread out the construction of all of the new
    units.

        Question 2. Can you estimate the number of refineries that would
    close down as a result of these rules? Can you estimate the potential
    job losses?
        Response. My company has not conducted any definitive studies that
    quantify the number of refineries which will be shutdown as a result of
    these rules. We have heard reports of estimates in the 5 to 19 range.
    We do anticipate that this rule will cause some refinery closures. The
    refining industry is not currently in the favor of the stock market
    investors, as it only is achieving a 3 percent return on investment.
    The $7 billion investment, that this rule will require, will reduce
    profitability for the foreseeable future. The multi-billion dollar
    diesel sulfur reductions which EPA is contemplating will be a further
    millstone around the industry's neck.

        Question 3. What is the refining industry's concerns over the use
    of newer technologies and how could these concerns be addressed?
        Response. Again as stated in the answer to question 2 from Senator
    Chafee, my primary concern is the readiness of the new desulfurization
    technologies for commercialization. The problem presented by EPA's
    proposed rule is one of being forced to make a multi-million dollar
    decision at an inappropriate time. Timing is the key to solving this
    problem. An additional 2 years will allow the technology issue to be
    resolved and to spread out the construction of new units by virtually
    every refinery in the U.S., Canada and Europe.

        Question 4. You claim that new technologies are on the horizon to
    reduce sulfur. Can you estimate the costs if this rule were postponed
    or phased in to allow for marketing of newer technologies? Is there
    likely to be a savings over using conventional technology?
        Response. Using MathPro modeling, API has developed estimates of
    the cost to reach 40 ppm sulfur levels in gasoline. With the best
    desulfurization technology proven today, the cost is about 5.4 cents
    per gallon. With the future CD Tech technology, the cost to reach 40
    ppm average sulfur levels is about 2.5 cents per gallon. Postponing the
    proposed rule for two years should allow this savings to be realized.

        Question 5. If the proposed rules are implemented, will we continue
    to have a reliable flow of fuel or will there be disruptions?
        Response. Under all conditions my company tries to provide a
    reliable flow of gasoline and diesel to our customers. However, without
    sufficient timing, the entire industry may not be able to complete all
    the construction projects required by 2004. Also, there is a chance
    that if newer technology is chosen, it may not be capable of achieving
    30 ppm sulfur averages. Additionally, even if the newer technology
    proves to be capable of delivering 30 ppm sulfur levels, it may be
    unreliable with frequent and unpredictable shutdowns. Any of these
    problems could cause serious supply disruptions.
                                     ______

         Statement of Dr. Loren Beard, Senior Manager of Materials and
                             Fuels, DaimlerChrysler
        My name is Dr. Loren Beard and I am the Senior Manager of Materials
    and Fuels at DaimlerChrysler. I am here representing the Alliance of
    Automobile Manufacturers and its member companies regarding the
    nation's need for clean burning fuel. I want to thank the Members of
    the Subcommittee for inviting me here today to give the Auto Industry's
    perspective on the sulfur standard for gasoline contained in the
    proposed Tier 2 standard for automobiles.
        The auto industry agrees in principle with the clean air goals of
    the EPA's proposed rule governing the next round of new vehicle and
    fuel standards (Tier 2).
        We agree that the American people, in all 50 states, want and
    deserve clean air. However, we are certain that we cannot meet these
    goals unless clean fuels are widely available to ensure the performance
    potential of new vehicle hardware is realized. If the Nation is to
    achieve its clean air goals, it needs to apply all of the available
    tools, including some as yet unproven vehicle technology. We are
    committed to providing the cleanest running vehicles in the world.
    However, if exposed to the gasoline sulfur levels found in the U.S.
    market today, or even to the 30 ppm sulfur levels proposed by EPA,
    consumers will have wasted their investment in new technology, which
    will be rapidly, and irreversibly rendered ineffective. While we are
    committed to developing new, yet unproven vehicle technologies for
    clean air, we need a partner in the oil industry to apply proven,
    available, cost-effective technology to reduce sulfur in gasoline to 5
    ppm max. We have arrived at a stage of automotive emissions control
    technology where every available resource must be applied.
        EPA's proposed 30 ppm max. sulfur standard would reduce ozone
    precursors by 160 percent more than API's proposal. Going to a 5 ppm
    cap on sulfur would result in 250 percent more reductions than the API
    proposal. (Slide 1)
        The rest of the world has recognized the serious problem of exhaust
    catalyst poisoning by sulfur, and has taken steps to reduce sulfur
    levels. The United States lags well behind the rest of the developed
    world, and even some nations in the developing world in controlling
    gasoline sulfur levels. (Slide 2)
        As this slide shows (Slide 3) the price of a gallon of gasoline is
    dominated by the cost of crude oil and taxes. The cost to the consumer
    for the sulfur reductions proposed by the auto industry will be small
    compared to the normal variations in gasoline retail prices in gasoline
    at the pump.
        In the United Kingdom, Sweden and Finland, the governments offered
    small incentives to refiners for the early introduction of ultra-low
    sulfur gasoline and diesel fuel. Refiners rushed to take advantage of
    the incentives, and in the case of the U.K., virtually all fuel in the
    country moved to low sulfur in a period of about 6 months. Clearly, the
    cost of removing sulfur cannot have been higher than the small
    incentives offered, or refiners would not have moved so quickly, in
    fact, 5 years ahead of regulation. The rest of Europe is rapidly using
    this approach. If we do not move quickly to very low sulfur fuels,
    North America will become the natural dumping ground for high sulfur
    fuels, which will become economically non-viable in the rest of the
    developed world.
        Sulfur is a known permanent poison to the platinum and palladium-
    based exhaust catalysts used in automotive emissions systems. Simply
    put, sulfur is the lead of the nineties.
        With very stringent emissions standards, catalysts must operate at
    98-99 percent efficiency for all driving cycles. As this slide (slide
    4) shows, even the reduction in catalyst efficiency caused by an
    increase in gasoline sulfur from 5 ppm to 30 ppm can lead to a doubling
    in exhaust emissions. EPA has set the course with very low
    NOx standards in Tier 2, and NOx emissions are
    the most sensitive to fuel sulfur.
        Some may argue that many U.S. states (mostly in the west) already
    enjoy clean air, and don't need low sulfur gasoline to protect their
    environment.
        The auto industry has noted that the people in these states see
    clean air as a valuable asset. With its voluntary National Low
    Emissions Vehicle (NLEV) program, the auto industry has voluntarily
    agreed to provide the same clean-running vehicles to all fifty states
    that we currently sell in California. Commitments to even tighter
    national standards demand that sulfur-free gasoline be in place.
        Under the new National Ambient Air Quality Standards (NAAQS)
    standards for ozone and particulate matter (PM), 43 U.S. states are
    projected to have areas which are not in compliance with national clean
    air goals. (slide 5) These states will be required under the Clean Air
    Act to take some action to reduce emissions. In addition to the new
    clean-running vehicles provided by the auto industry, these states will
    find that low sulfur gasoline is a cost-effective means of achieving
    these goals.
        Aside from compliance with the ozone and PM standards, several of
    the remaining 7 states will be called upon to reduce regional haze
    under other Clean Air Act provisions. While power generation stations
    and natural sources are the prime sources of emissions that eventually
    result in haze. Taking the sulfur out of fuel will be a great benefit
    to states that must institute programs to reduce haze.
        Through their Partnership for the Next Generation of Vehicles
    (PNGV), the U.S. auto industry is working together with the Federal
    Government to develop more fuel efficient vehicle technologies in part
    to help reduce the nation's reliance on imported oil and to address
    global climate issues.
        New fuel-efficient technologies include direct-injection gasoline
    engines and gasoline-fueled fuel cells. Advanced technology vehicles
    are extremely sensitive to sulfur contamination. The failure to control
    sulfur in gasoline will inhibit the introduction of more fuel-efficient
    technologies, delaying the auto industry's efforts to reduce greenhouse
    gas emissions. In essence, reducing the level of sulfur in gasoline
    will not only benefit our environment now, but it will facilitate a
    transition to cleaner future technologies that will help address global
    climate issues.
        In summary, sulfur is a poison that eventually renders emissions
    control equipment ineffective. The auto industry has committed through
    a proposal to EPA to work to reach extremely low emissions levels. To
    get there, we need to use all of the vehicle hardware tools available,
    some of which have not yet been invented. This includes a commitment
    from the oil refiners to step up to the challenge with very clean
    sulfur-free fuels, using available, proven, cost-effective refining
    technologies. With all the right tools in place, vehicle owners will
    use, and not waste, the investment they have made in emissions control
    hardware and all citizens will benefit from cleaner air.
        This concludes my prepared statement. I would be happy to answer
    any questions that you may have.

      Statement of Rebecca D. Stanfield, Clean Air Advocate, U.S. Public
                            Interest Research Group
        Good morning. My name is Rebecca Stansfield, and I am the Clean Air
    Advocate for U.S. Public Interest Research Group (U.S. PIRG). U.S. PIRG
    is the national lobby office for the State PIRGs, which are consumer
    and environmental watchdog organizations active across the Nation. I
    greatly appreciate the opportunity to speak to the Subcommittee today
    on this important and timely issue.
                air pollution is causing a public health crisis
        Air pollution impacts the health of over 117 million Americans who
    live in areas where the air quality is often unhealthful. Each year
    tens of thousands of Americans are rushed to hospital emergency rooms
    due to asthma attacks brought on by smog pollution. Millions more miss
    work, miss school, are forced to stay indoors instead of playing
    outside or experience loss of lung function due to air pollution. More
    than 40,000 people this year will die prematurely as a result of air
    pollution.
        An anecdote may serve to more clearly illustrate the magnitude of
    this problem. In one New Jersey Episcopal congregation more than half
    of the children carry inhalers to Sunday School, and the risks of an
    attack are so high that the minister keeps a nurse on call during on
    smoggy summer days when children are at the church for activities.
    Stories like this one are becoming more and more common, as the number
    of Americans with asthma rises even above its current number of 15
    million victims, including over 5 million children.
        Moreover, air pollution is not just a Northeastern or a California
    problem, as it was once believed to be. Today, air pollution is known
    to be a national problem. During the 1998 smog season, over 5200
    violations of EPA's smog standard occurred in 41 States across the
    Nation, including the home States of every member of this Subcommittee.
            the proposed gasoline sulfur standards would save lives
        The U.S. EPA has proposed regulations that will save lives by
    reducing air pollution from one of its largest sources, the automobile.
    Despite improvements in automobile pollution control technology, motor
    vehicles are still responsible for one-third of the smog-forming, air
    pollution emitted in the United States. This is because people are
    driving more than ever: two and a half trillion miles a year in the
    1990's, compared to just one trillion miles per year in 1970.
        Reducing the extremely high levels of sulfur in gasoline sold
    throughout the U.S. will vastly improve the performance of the
    pollution control equipment in current and future models of
    automobiles, cutting smog and soot pollution, as well as hydrocarbons,
    carbon monoxide sulfur dioxide, and air tonics. Even in existing cars
    clean gasoline can cut pollution levels by up to 20 percent. In new,
    low-emission vehicles which will soon be available across the Nation,
    pollution levels are more than double when using high sulfur gasoline,
    as compared to clean gasoline. Studies by the State and Territorial Air
    Pollution Program Administrators, and the Association of Local Air
    Pollution Control Officials show that EPA's sulfur proposal would have
    the same air quality benefits as removing 4 million cars from the roads
    entirely.
           the proposed gasoline sulfur standards are cost-effective
        EPA's proposal is a cost-effective pollution reduction measure
    which has already been implemented in Japan, Finland, Thailand, Canada,
    Hong Kong, Taiwan, the European Union and California. EPA estimates
    that the program will cost just one to two cents per gallon of
    gasoline. For the typical driver, that adds up to about $12 per year.
    This added cost is well within the cost that the American public is
    willing to pay for cleaner air. Earlier this year the American Lung
    Association commissioned a poll showing that 90 percent of Americans
    would pay three cents per gallon more for clean gasoline, while 70
    percent would pay five cents more per gallon.
                  a uniform, national program must be adopted
        We agree with EPA that it is critical to adopt a uniform national
    standard, rather than the regional standards advocated by the petroleum
    industry for several important reasons. First, as I said before, air
    pollution is a national problem, with violations of the smog standards
    occurring in four out of five States last summer. Reducing smog and
    soot forming pollution from automobiles can benefit people everywhere,
    not just in the worst ozone non-attainment areas of Southern California
    and the Northeast.
        Second, high sulfur gasoline sold in one State is very likely to
    have pollution impacts in many States. The reason is that Americans
    drive from State to State, and from region to region, fueling their
    vehicles along the way with whatever type of gasoline is sold in that
    State. A traveler filling up his gas tank with dirty Mel while passing
    through a slate with less stringent standards will damage the pollution
    control equipment in the car, part of which damage is irreversible.
    Thus the car will continue to be more polluting even after returning to
    its home State. Such an approach to gasoline sulfur standards would
    seriously undermine the effectiveness of the entire clean car program.
         the proposed standards provide ample flexibility for industry
        EPA's proposal strikes a balance between achieving necessary
    pollution reductions, and allowing the industry ample time and
    flexibility to meet the new standards. First, EPA allows the industry
    to use an averaging system to meet an average standard of 30 parts per
    million sulfur content. Second, EPA allows the oil refineries to meet
    these standards through the use of credits, generated as early as the
    year 2000 by refiners who make early sulfur reductions from current
    levels. Third, EPA is allowing less stringent caps to be met in the
    years 2004 and 2005, with the final cap of 80 parts per million sulfur
    to be met in 2006, more than 6 years after adoption of the rules.
    Finally, EPA allows small refiners, defined as a small business under
    the Small Business Regulatory Enforcement Fairness Act of 1996, to meet
    less stringent standards through the year 2007.
               the proposed standards should be phased in earlier
        We believe that EPA's proposed gasoline sulfur standards allows too
    much time to pass before the significant air pollution benefits can be
    expected. In 2001 automakers will begin nationwide marketing of low
    emission vehicles under the voluntary National Low Emission Vehicle
    program. The effectiveness of the emission control technology used in
    these vehicles will be compromised by the sulfur that will remain at
    high levels until 2004-2006, when clean gasoline would be phased in
    under the proposed standards. Moreover, under EPA's proposal, gasoline
    containing sulfur at levels up to 300 parts per million will continue
    to be sold in 2004, the year that EPA is requiring 25 percent of new
    cars to be significantly cleaner. Again, the technological advances
    made in these vehicles will be undermined by the use of high-sulfur
    fuel in 2004 and 2005. A better approach would be to begin phasing-in
    clean gasoline earlier, so that most, if not all gasoline sold in 2004
    is clean gasoline.
        Thank you again for the opportunity to address the Subcommittee. I
    hope that you will agree that the timely phase-in of a nationwide clean
    gasoline program is an important public health protection that should
    be adopted immediately.
                                     ______

          Responses by Rebecca Stanfield to Additional Questions from
                                 Senator Graham
        Question 1. Does high sulfur content in automobile fuel degrade the
    performance of catalytic converters?
        Response. Yes it does. Sulfur in gasoline has a negative impact on
    vehicle emission controls. Vehicles depend upon the catalytic converter
    to reduce emissions of smog forming pollution. Sulfur attaches to the
    metal catalysts, and blocks sites on the catalyst designed to prevent
    emissions.

        Question 2. Does it degrade the performance of all catalytic
    converters or only the catalytic converters required by the Tier 2
    regulation?
        Response. Sulfur degrades all catalytic converters. The degree of
    degradation depends upon many factors, including but not limited to the
    speeds the car is driven at, the load the vehicle carries and the
    metals used in the catalyst. For cars meeting low-emission vehicle
    standards, high sulfur fuel can increase smog-forming pollution by more
    than 134 percent. However, even for today's cars, high-sulfur gasoline
    will significantly increase smog-forming pollution.

        Question 3. Is this damage reversible?
        Response. No, the effect of sulfur on vehicle catalysts is not
    reversible. In the preamble to EPA's proposed Tier 2 and gasoline
    sulfur standards, EPA summarizes the results of testing on cars meeting
    today's standards, and cars meeting the proposed Tier 2 standards. For
    today's vehicles, studies show that catalyst damage would result in the
    permanent emission of up to 50 percent more smog-forming pollution. As
    EPA points out, more advanced pollution control devices are even more
    sensitive to sulfur damage, and an even greater proportion of that
    damage is irreversible.

        Question 4. How would damage be reversed?
        Response. Unfortunately, there is no demonstrated way of designing
    a catalyst that would not be sensitive to sulfur, and there is reliable
    way to reverse the damage caused by high sulfur gasoline. For example,
    some studies showed that a portion of the catalyst damage can be
    reversed if, immediately following the use of high sulfur fuel, the car
    is ``aggressively'' run on low-sulfur fuel. However, even under these
    circumstances, different cars react differently, some showing
    irreversibility for one pollutant but not for another. Cars will react
    to different fuels differently, depending upon the catalyst
    temperature, mixture of air and fuel in the engine. and design of the
    catalyst.

        Question 5. What is the estimated cost of replacing a catalytic
    converter?
        Response. For the American consumer, the expense of replacing a
    catalytic converter is enormous in comparison to the minimal cost of
    using a more environmentally friendly low sulfur gasoline in their
    vehicle. An informal poll of five auto body shops in the District of
    Columbia resulted in price quotes ranging from $200 to $3000 depending
    upon the type of car.
        By contrast, the EPA estimates that it will cost one or two cents
    per gallon more for low sulfur gasoline, which computes to a $5.50 to
    $11.00 per year cost for the average person driving 15,000 miles per
    year. Surveys have proven that the American public is willing to incur
    these minimal costs for the sake of the environment. American Lung
    Association survey report seven in ten people would pay a nickel per
    gallon increase for cleaner gasoline. Nine in ten would pay three cents
    a gallon. Even under the inflated oil industry prediction of the cost
    of low sulfur fuel of 5 cents per gallon, for a car driven 15,000 miles
    a year, the total cost would be 27 dollars, far lower than the cost of
    replacing catalytic converters.

        Question 6. Is there another way to repair or ensure that catalytic
    converters, if damaged by high sulfur content in fuels, can be restored
    to their original performance levels?
        Response. No, there is no reliable way to restore catalysts to
    their original performance levels once damaged by sulfur in gasoline.

        Question 7. If the damage is reversible, could regional regulations
    work?
        Response. Regional regulations will not work for three main
    reasons. First, contrary to popular myth, air pollution is not a
    regional problem, but is a grave national concern. In 1998, the EPA
    reported 5200 smog standard violations in 41 States.
        Second, due to a very mobile American public, it would be
    impossible, and highly unpopular, to keep citizens from crossing any
    regional boundaries.
        Finally, air pollution knows no boundaries. Just as it is
    impossible for humans to control the weather, it is equally impossible
    to control the range of affects of air pollution. An infinite number of
    variables effect the when, where, and how of air pollution. The jet
    stream, wind patterns, cloud cover, temperature humidity, and elevation
    are a few of the factors that make confining air pollution within a
    regional boundaries impossible.
        The solution to air pollution is to not contain it or to focus only
    in specific regions; the solution is to prevent its production from
    automobiles. The automobile industry has already taken a positive step
    in eliminating air pollution from cars by agreeing to produce vehicles
    with new catalytic converters that result in low emissions. However,
    these new catalytic converters will be rendered useless if the gasoline
    put into these automobiles still has a high sulfur content.

        Question 8. If the damage is not reversible, could regional
    regulations, tailored to the air quality needs of each region,
    effectively reduce the impact of sulfur on catalytic converters?
        Response. No. Please see answer for question number 7, above.
                                     ______

          Responses by Rebecca Stanfield to Additional Questions from
                                 Senator Chafee
        Question 1. Why is this rule necessary to reduce air pollution
    across the U.S.?
        Response. Automobiles are the No. 1 source of ground level ozone
    pollution, more commonly known as ``smog.'' An estimated 117 million
    Americans live in areas where smog pollution regularly exceeds the
    Federal health standard during the summer ozone season. Last year
    alone, there were over 5000 violations of this standard in 41 States.
    This summer we have already been able to document 1200 violations in 25
    States. Thus, contrary to popular myth, smog is not an eastern problem,
    it is a national problem.
        When inhaled, ozone oxidizes or ``burns through'' lung tissue.
    Breathing ozone causes airways in the lungs to become swollen and
    inflamed. Eventually, this causes scarring, and decreases the amount of
    oxygen that is delivered to the body through each breath. Outdoor
    exercise on days when ozone concentrations are high increases the
    impact on the respiratory system. In addition, the corrosive effect of
    exposure to ozone in the respiratory system increases susceptibility to
    bacterial infections.
        For vulnerable populations, including children, people with asthma
    or respiratory disease, and the elderly, ozone poses a more serious
    health threat, sending those with asthma and cardio-pulmonary disease
    to emergency rooms, and in worst cases, causing premature death. A
    number of studies have linked ozone pollution with emergency room
    visits, including one study showing a 26 percent increase in the number
    of asthma patients admitted to emergency rooms in New Jersey on summer
    days when ozone concentrations were high. A 1996 American Lung
    Association study of 13 cities found that between 30,000 and 50,000
    emergency room visits were caused by ozone pollution.
        In the same way that ozone attacks or ``oxidizes'' human lung
    tissue, it also oxidizes plant tissues, damaging forests and crops. By
    eroding plants stores of carbon, it leaves trees and crops unable to
    respond to normal demands of growth and development and abnormal
    demands caused by bad weather, pests, or nutrient deficiencies. Among
    the findings on ozone's impact on vegetation are that at least ninety
    plant species in the Great Smoky Mountain National Park exhibit ozone
    injury, twenty-three plant, wildflower and tree species in Virginia are
    sensitive to ozone, and in the Shenandoah National Park 97 percent of
    milkweed plants and 85 percent of white pine trees exhibit evidence of
    ozone damage. A number of studies have shown national-level economic
    losses due to ozone-caused crop damage in excess of $1 billion.

        Question 2. What lessons from California's experience reducing
    sulfur in gasoline are applicable to the rest of the Nation?
        Response. Most importantly, the experience in California has taught
    us that low-sulfur gasoline is an effective way to reduce automobile
    emissions. In fact, cleaner gasoline has been cited by the California
    Air Resources Board (CARB) as the single most effective pollution
    cleanup measure since the introduction of the catalytic converter in
    the 1970's. They estimate that the air quality impact from having
    mandated low-sulfur fuel is the equivalent of having removed 2 million
    cars from the road. The State and Territorial Air Pollution Program
    Administrators and the Association of Local Air Pollution Control
    Officials estimate that applying the California low-sulfur gasoline
    requirement nationwide would have the pollution benefits of removing 54
    million cars from the road entirely.
        Second, the California experience has taught us that low-sulfur
    gasoline is technologically feasible. In California, sulfur in gasoline
    has been limited since 1996 to an average of 30 parts per million, and
    capped at 80 parts per million. Similar limits have been implemented or
    proposed in Canada, Japan, Europe and Australia.
        Finally, the California experience has also taught us that low-
    sulfur gasoline is a cost-effective clean air strategy. The EPA
    estimates that it will cost one or two cents per gallon more for low
    sulfur gasoline, which computes to a $5.50 to $11.00 per year cost for
    the average person driving 15,000 miles per year. Surveys have proven
    that the American public is willing to incur these minimal costs for
    the sake of the environment. American Lung Association survey report 7
    in 10 people would pay a nickel per gallon increase for cleaner
    gasoline. Nine in ten would pay three cents a gallon. Even under the
    inflated oil industry prediction of the cost of low sulfur fuel of 5
    cents per gallon, for a car driven 15,000 miles a year, the total cost
    would be $27 a year or 50 cents per week.
        In a media briefing last fall, Michael Kenny, CARB's executive
    officer, noted that the cleaner gasoline overall was costing California
    consumers about 5 cents a gallon more than gasoline outside of
    California. Of that nickel, the sulfur (smog-related) portion was one-
    third, Kenny said. In other words, low-sulfur gas was costing less than
    2 cents a gallon.
                                     ______

      Statement of Clint W. Ensign, Vice President, Government Relations
                            Sinclair Oil Corporation
        Mr. Chairman and distinguished committee members, my name is Clint
    Ensign. I am Vice President of Government Relations for Sinclair Oil
    Corporation. I am honored to share some initial views and perspectives
    on the U.S. Environmental Protection Agency's Proposed Tier 2 Motor
    Vehicle Emission Standards and Gasoline Sulfur Control Requirements.
        Sinclair is a family-owned company that operates three refineries,
    two in Wyoming and one in Oklahoma. Two of these refineries were closed
    by other companies before being purchased and reopened by Sinclair. As
    a manufacturer of fuels, I am proud to say that Sinclair routinely
    produces cleaner products than required by State and Federal
    regulation.
        All of our refineries are considered ``small'' by provisions
    established by Congress in the Clean Air Amendments of 1990 (CAAA).
    Regrettably, none of our refineries are considered small by standards
    EPA is using in this rulemaking. Therefore, we are not eligible for
    small refinery help in the proposal.
        Environmentally, the air improvements that automakers and refiners
    can achieve through Tier 2 vehicle and fuel changes are impressive,
    especially in major urban cities. My company and the refining industry
    support large reductions in gasoline sulfur. We have made specific
    recommendations to EPA on how best to accomplish this task quickly
    across America.
        But in reviewing EPA's gasoline sulfur proposal, we are surprised
    by how harsh it treats U.S. refiners. We are concerned the agency has
    overreached in many areas, particularly in the transition phase to low
    sulfur gasoline. The proposal's small refinery provisions are narrowly
    construed and were disappointing. Overall, the proposed gasoline sulfur
    regulation represents the largest and most costly government
    requirement in the history of our company. If made final as proposed,
    it directly threatens the future of our Casper, Wyoming refinery.
        We respect EPA's authority to set standards at any desired level.
    But they cannot compel private investment. Recent history demonstrates
    that many refineries withdrew rather than invest in fuel
    desulfurization. With little or no surplus refining capacity available
    in industry today, the success of gasoline sulfur regulation depends on
    the ability of EPA to convince every refiner to invest in virtually
    every refinery nationwide. We do not believe the gasoline sulfur
    proposal accomplishes this important objective.
        While Sinclair disagrees with many fundamental aspects of the
    gasoline sulfur proposal, I wish to make plain that I have been
    extended the opportunity to present our views to EPA on several
    occasions. I have appreciated meeting with senior agency officials on
    this issue.
        Let me discuss several specific concerns we have with the proposal.
        As a major stakeholder in developing gasoline sulfur standards, the
    basic views of the U.S. Refining industry were not incorporated in the
    proposed regulation.--In February 1998, the entire U.S. petroleum
    refining industry voluntarily proposed that EPA set new gasoline sulfur
    standards. We recommended large cuts in sulfur limits; a 70 percent
    reduction in the East and 55 percent in the West. Average sulfur levels
    in the national gasoline pool would fall by half in 2004. The largest
    sulfur cuts were targeted in the East. Our proposal recognized regional
    uniqueness and was designed to be consistent with congressionally
    established Tier 2 principles of need, feasibility, and cost-
    effectiveness.
        In studying vehicle emissions data, we believed that Phase II
    pending emission standards for light duty vehicles and trucks as stated
    in the Clean Air Act could be achieved with these recommended sulfur
    reductions.
        As a second step, many refiners offered to make gasoline meeting
    California's severe sulfur standard--a 30 ppm average with an 80 ppm
    cap--by 2010. Other refiners promised further cuts based on the outcome
    of technical studies as well as air quality need.
        Our proposal gave a huge jump-start to the regulatory process. It
    essentially provided EPA with unanimous consent from our industry to
    impose regulation at this level. In the absence of gasoline sulfur
    workshops, feasibility studies, and the like, this represented a
    remarkable offer to EPA.\1\ And since large and small refiners
    supported the plan, the agency did not need to worry about possible
    plant closings, fuel supply concerns, small business compliance, and
    other large challenges that accompany major regulation of this kind.
    ---------------------------------------------------------------------------
        \1\ EPA has held one public workshop on gasoline sulfur control
    (May 1998). No other forum has been provided for refiners to meet
    directly with automakers to address gasoline sulfur issues.
    ---------------------------------------------------------------------------
        Our initial gasoline sulfur proposal raised many questions. We
    listened closely to the concerns and made many modifications.
        Automakers strongly opposed our plan. In response, the refining
    industry made a good faith attempt--with the help of Administrator
    Carol Browner--to meet directly with the autos. Issues important to the
    rulemaking needed a direct exchange of ideas and data, especially on
    the critical question of ``reversibility.'' EPA has noted that
    ``vehicles tested exhibited a wide range of reversibility,for reasons
    that are not fully understood.'' \2\ We hoped the meetings would help
    resolve questions on this an other key issues. While automakers have
    pressed EPA hard to mandate severe gasoline sulfur standards, they
    refused the offer to meet with us.
    ---------------------------------------------------------------------------
        \2\ EPA, Proposed Tier 2 Motor Vehicle Emissions Standards and
    Gasoline Sulfur Control Requirements, pg. 98, emphasis supplied.
    ---------------------------------------------------------------------------
        In sum, the U.S. refining industry made an unprecedented effort to
    help EPA develop a major gasoline sulfur regulation. I don't know how
    our industry could have been more helpful, open, or responsible on this
    matter.
        Despite this background, EPA rejected our recommendations. The
    agency instead proposed a nationwide 30/80 ppm gasoline sulfur standard
    beginning in 2004. This is essentially the standard requested by the
    autos. From a fuel perspective, the proposal is a classic one-size-
    fits-all regulation. It falls evenly hard on urban and rural areas
    alike despite large differences in air quality. After making such a
    huge outreach to help EPA craft a meaningful and workable gasoline
    sulfur regulation, we are disappointed that our recommendations were
    set aside.
        Even though regional air strategies are common in America today, a
    regional gasoline sulfur approach--supported by many Governors--was
    rejected by EPA.--Regional strategies have been widely used throughout
    the country to improve air quality. The Ozone Transport Assessment
    Group (OTAG) made regional designations and recommendations for ``fine-
    grid'' and ``course-grid'' states. The Ozone Transport Commission, the
    Grand Canyon Visibility Commission, and the Western Regional Air
    Partnership are examples of coalitions of states that address regional
    air problems. Governors are often directly involved in these groups.
    When EPA and automakers established National Low Emission Vehicle
    (NLEV) regulations, the East and West were treated differently as to
    when each would receive NLEVs. In the CAA, areas receive reformulated
    and conventional gasoline based on air quality need. Precedent exists
    to support a regional gasoline sulfur approach.
        Nine Governors representing Rocky Mountain and Central Plains
    states have written to EPA urging regional gasoline sulfur controls.
    These Governors are from both political parties and represent states
    that join each other in a large, geographically contiguous block. We
    were disappointed their collective recommendations were not reflected
    in some way in the gasoline sulfur proposal. In fact, their views were
    not even noted in the preamble of the proposal.
        Collectively, these Governors represent states with excellent
    compliance with National Ambient Air Quality Standards. With few
    exceptions, EPA projects these states will meet the new, more
    protective NAAQS in future years.\3\ In many states in the West, EPA
    projects nearly total compliance with future ozone NAAQS:

        \3\ EPA, Proposed Tier 2 Motor vehicle Emissions Standards and
    Gasoline Sulfur Control Requirements, April 1999, Appendix C: One-Hour
    and Eight-Hour County Design Values.

            ``Outside California and the OTAG region, the NAAQS RIA
            modeling indicated that all areas would attain the 1-hour
            standard by 2010. One area (Phoenix, AZ) was projected not at
            attain the 8-hour standard.'' \4\
    ---------------------------------------------------------------------------
        \4\ EPA, Proposed Tier 2 Motor Vehicle Emissions Standards and
    Gasoline Sulfur Control Requirements, April 1999, pg. 27, emphasis
    supplied.

        Other reasons support a regional standard:
         Rural states have a small vehicle inventory and emissions
    are dispersed over large geographic areas. Gasoline sulfur control has
    little impact on air quality in these states.
         Rural populations will pay more for sulfur control due to
    higher per capita gasoline usage rates than the Nation at large.\5\
    ---------------------------------------------------------------------------
        \5\ Highway statistics from the Federal Highway Administration show
    that populations in Rocky Mountain and Central Plains states have
    gasoline consumption rates higher than urban states.
    ---------------------------------------------------------------------------
         EPA projects the cost of gasoline sulfur control in PADD
    IV (WY, ID, MT, CO, and UT) will be nearly twice as high as the Nation
    at large.\6\
    ---------------------------------------------------------------------------
        \6\ Tier 2/Sulfur Draft Regulatory Impact Analysis--April 1999,
    Table V-35.
    ---------------------------------------------------------------------------
        It is also important to note the refining dynamics in the Rocky
    Mountain region. Unlike all other regions in the United States, PADD IV
    is almost entirely supplied by small refineries. Every refinery in the
    region is small. (Few of these refineries are eligible for regulatory
    help in the proposal.) Historically, small refineries face the largest
    challenge meeting fuel sulfur standards. In view of this, Sinclair
    expressed concern to EPA that severe regulation could impact refineries
    and cause supply problems for consumers. As noted earlier, the gasoline
    sulfur proposal, if adopted, directly threatens the future of our
    Casper, Wyoming refinery.
        But these concerns are dismissed in the proposal. In doing so, EPA
    references a study conducted by Math Pro, Inc.--prepared for the
    autos--that suggests that the potential for small refinery closures in
    the Rockies is small. This conclusion is not consistent with our
    situation or with our understanding of the region. We are meeting with
    Math Pro on May 20 to take a detailed look at their study.
        But most of all, the various Math Pro studies have led to
    confusion. Just a few months ago they completed a PADD IV gasoline
    sulfur study for the U.S. refining industry and reached different
    findings. One company, two conclusions, in 3 months. This situation
    raises questions about the value of these studies to the gasoline
    sulfur standard debate.
        EPA used a narrow small refinery definition for regulatory relief
    purposes in the gasoline sulfur proposal that is more restrictive than
    the definition established by Congress in the Clean Air Act.--In the
    gasoline sulfur proposal, EPA did not use the small refinery definition
    that exists in the Clean Air Act. As a brief background, Senator Chafee
    offered a small refinery amendment during consideration of the CAAA of
    1990 on behalf of a bipartisan group of 11 senators, including Senator
    Reid and Senator Baucus. Congress established small refinery provision
    to enable small refineries to earn marketable SO2 allowances
    to encourage investment in low sulfur diesel equipment. I am pleased to
    report that the small refining amendment has been a success.
        Since the desulfurization of diesel and gasoline share similar
    small refinery issues, we do not know why EPA's gasoline sulfur
    proposal contains a more restrictive small refinery eligibility
    requirement than that set by Congress in 1990. In reality, only a few
    small refineries in the country are extended regulatory relief in EPA's
    gasoline sulfur proposal.
        In all meetings we have had with EPA officials on gasoline sulfur,
    Sinclair has expressed small refinery concerns. More than 6 months ago,
    we informed EPA there were 53 small refineries in the United States
    that made gasoline. This number was much larger than the 17 refineries
    being considered by EPA under the Small Business Regulatory Enforcement
    Fairness Act of 1996 (SBREFA) review. We noted that rural populations
    depend on these small facilities for fuel supply. Because of size
    limitations, the viability of these refineries, as a class, has
    historically been threatened by severe fuel sulfur regulation.
    Consequently, we urged EPA to expand the review of small refineries
    beyond the SBREFA process.
        Instead, EPA has proposed using the small refinery eligibility
    requirements of the Small Business Administration. The SBA approach,
    which includes employee limits, disqualifies most small refineries.
    Companies such as Sinclair, Flying J. Giant Industries, and Cenex--
    recognized by Congress as small refineries--are excluded from small
    refinery treatment in the gasoline sulfur proposal. We reject the
    position that many small refineries should be excluded from needed
    regulatory relief in this rulemaking because they employ too many
    people.
        Other small refinery concerns need to be addressed. For example,
    will refiners who expend great effort and cost to manufacture a 30/80
    ppm gasoline sulfur in 2004 allow their fuel to be commingled with high
    sulfur gasoline of small refineries in pipelines and terminals? Does
    this situation argue for a broader regional approach in areas where
    there is a preponderance of small refineries? Does the proposal
    encourage investment in instances when one small refinery receives
    regulatory help and other small refinery does not? Should small
    refineries owned by major oil companies be offered help since they
    share similar size challenges and are important to the rural markets
    they serve?
        These questions need further review. But it is clear that the SBA
    small refinery definition is too restrictive and does not accurately
    reflect small refinery impacts with major gasoline sulfur regulation.
        Adopting California gasoline sulfur standards nationwide may mean
    adopting California fuel challenges: ``California Screamin.''--Last
    month, the front page of USA Today noted that ``Drivers in San
    Francisco reported paying as much as $1.86 a gallon for unleaded
    gasoline and $2 for premium.'' \7\ The next day, the cover story in the
    Money section of USA contained a photograph of gasoline pump prices for
    up to $1.99 per gallon with the caption, California Screamin.'' \8\ The
    Wall Street Journal reported that unexpected problems at two California
    refineries ``cut California production by about 5 percent.  . . . This
    decline has sent West Coast wholesale prices soaring by more than 55
    cents a gallon.  . . . '' \9\
    ---------------------------------------------------------------------------
        \7\ USA Today, In just 6 weeks, gas prices up 25%, April 13, 1999,
    front page.
        \8\ USA Today, As gas prices zoom up, consumers wonder why, April
    14, 1999, Section B, front page.
        \9\ The Wall Street Journal, Output Snags In California Lift Fuel
    Prices, April 2, 1999, pg. A2.
    ---------------------------------------------------------------------------
        Some may argue this situation is unique and temporary. But the cost
    of gasoline in California has been such a concern that Senator Barbara
    Boxer has asked the Federal Trade Commission to investigate high fuel
    prices in the state. Her request was supported by the California State
    legislature. Senator Boxer stated in her letter to the FTC that
    ``California drivers regularly pay 10-20 cents more per gallon of
    gasoline than the rest of the country.'' \10\
    ---------------------------------------------------------------------------
        \10\ New Fuels & Vehicles Report, FTC Said Investigating Oil
    Companies For Alleged RFG Price Fixing in California, May 8, 1998.
    ---------------------------------------------------------------------------
        California gasoline regulations--which include the 30/80 sulfur
    standard--are the most severe in the nation. These standards are needed
    to address widespread air quality problems in that state. But many
    refiners have fared poorly with such heavy regulation. The State has
    lost refineries, refining capacity, and fuel suppliers. The U.S.
    Department of Energy reports that since 1990, eight refineries with
    capacity of nearly 300,000 barrels per day have been lost in
    California. The state's small refinery sector no longer makes gasoline.
    While some may contend that the rash of small refinery closures
    resulted from numerous factors, the executive director of the Western
    Independent Refiners Association in California has stated that when
    ultra low-sulfur gasoline regulation passed, ``at least a half a dozen
    California small refiners made gasoline.'' \11\ Years after the
    introduction of 30/80 sulfur standards and reformulated gasoline--tight
    supply and price volatility remain a problem in California.
    ---------------------------------------------------------------------------
        \11\ Letter from Craig A. Moyer, Executive Director and General
    Counsel for the Western Independent Refiners Association to Clint W.
    Ensign, Sinclair Oil Corporation, June 18, 1998.
    ---------------------------------------------------------------------------
        In Canada, an extensive refinery competitiveness and viability
    study was performed to determine impacts of sulfur regulation on
    Canadian refineries. The independent study was done by a respected firm
    with refining expertise, Purvin & Gertz, Inc. The study concluded that
    requiring California sulfur standards in Canada would seriously
    threaten 3 to 4 of the country's 17 refineries.\12\ The assessment was
    done by refinery and by region. Here in America, no independent study
    has been contracted by EPA on refinery impacts of sulfur regulation.
    And even though the United States has nearly 10 times more refineries
    than Canada, EPA has concluded ``we do not expect refineries to close
    as a result of the implementation of the proposed sulfur standards.''
    \13\ In view of the stringent timeframes and overall harshness of the
    gasoline sulfur proposal, this area needs closer review.
    ---------------------------------------------------------------------------
        \12\ Competitiveness and Viability Impact on Canadian Refining
    Industry of Reducing Sulfur in Canadian Gasoline and Diesel, May 1997,
    Purvin & Gertz, Inc.
        \13\ EPA, Tier 2 Sulfur Draft Regulatory Impact Analysis--April
    1999, pg. V-62.
    ---------------------------------------------------------------------------
        Sinclair has long expressed its concern to EPA that adopting
    California gasoline sulfur standards nationally could cause other
    states to experience the same kinds of refinery closure, supply, and
    price impacts that have occurred in California.
        The gasoline sulfur proposal does not address past impacts of fuel
    sulfur regulation and is instead based on technologies that are not yet
    commercially proven.--The preamble of the gasoline sulfur proposal does
    not discuss negative impacts many refineries experienced with recent
    fuel sulfur regulation. No reference is made to California. The
    widespread shortages of on-road low sulfur diesel in the West during
    the fourth quarter of 1993 are not cited. No mention is made that high
    costs caused some refineries not to invest in low sulfur diesel
    equipment. In some instances, refineries that compete with each other
    share desulfurization equipment.
        EPA correctly noted in the gasoline sulfur draft RIA that the U.S.
    refining industry's return on investment has been a dismal 3 percent
    since 1992. The inability to recover capital costs during this long
    period makes it tough for refiners to face major new regulation.
        Using conventional technology, EPA estimated the 30/80 gasoline
    sulfur standard would increase manufacturing costs 5.1 to 8 cents per
    gallon, or $5.6 to 8.8 billion dollars each year nationally.\14\ A
    regulation this costly would close some refineries, affect supply,
    raise consumer concerns, and present cost-effectiveness problems in
    regulatory assessments.
    ---------------------------------------------------------------------------
        \14\ EPA Staff Paper on Gasoline Sulfur Issues, May 1, 1998, pg. v.
    The cost estimate excludes California. The Federal Highway
    Administration reports that approximately 110 billion gallons of
    gasoline are consumed in the United States each year (x-CA).
    ---------------------------------------------------------------------------
        In this rulemaking, EPA believes these problems will be avoided due
    to new desulfurization technologies. Agency confidence in the new
    processes is so high that the proposal's entire gasoline cost estimate
    is premised on the belief that all refineries will use these
    technologies. While new processes could reduce sulfur extraction costs,
    they have not yet been commercially tested or proven. EPA reported
    there was not a single refinery with the new desulfurization technology
    currently in operation today. Despite this fact, EPA is gambling this
    new technology will work and that more than 100 facilities will license
    this technology--relatively trouble free--in a few short years.
        We hope the agency is correct. But the presumption is troubling for
    several reasons:
         It is our experience with packages that we license that
    the guaranteed yields of the process are significantly less than the
    advertised performance. In other words, when we get to the point of
    signing a contract with a vendor, the guaranteed results of the
    technology are less than advertised. In this instance, where no track
    record has been established, what levels of sulfur reduction can
    refiners confidently count on with new gasoline desulfurization
    technology? Is it enough for refineries to meet severe 30/80 ppm
    gasoline sulfur standards? Will additional conventional technology be
    needed to ensure that a refinery meets the new requirements?
         We believe problems will inevitably occur as new
    technology is implemented. Pilot studies under controlled conditions
    are often not indicative of field operating parameters. For example, we
    do not know the actual operational cycle of the new technology, how it
    will perform under severe operating conditions, whether it is reliable
    or subject to unexpected downtimes, and whether it is adaptable to a
    wide variety of processing configurations. These large uncertainties
    argue for a reasonable phase in of the technology instead of the rigid
    timetables proposed by EPA.
         Within the past year refiners have become aware of two new
    desulfurization technologies, CDTECH and OCTGAIN 220. While a few other
    options are beginning to emerge, they are not well known. Before
    applying for permits, refiners must choose the desulfurization
    technology they will use to meet the new standards. This decision will
    occur during a period when little will be known about these new
    processes. And if refiners all choose the new technologies as EPA has
    presumed, we question whether two vendors (perhaps a few others) can
    meet the needs of more than 100 refineries in the next few years.
         In order for refiners to review new desulfurization
    technologies, companies must sign strict confidentiality agreements
    with vendors. We understand the need for companies to protect the
    technologies they have developed. But will confidentiality agreements
    restrict open assessments among refiners about these new technologies?
         From an energy policy prospective, should a major
    regulation that requires severe, new standards for the nation's
    gasoline supply be based on commercially unproven technologies? Does
    the entire Nation need the regulation at the same time or should
    priority be given to certain areas--as was provided in the NLEV
    program?
         EPA's comment period on the gasoline sulfur proposal will
    end before any factual operating results are known about the new
    technology on which the proposal rests. This makes comment on the new
    technology largely a theoretical, subjective exercise.
        The short phase-in period proposed to refiners raises questions
    about simple fairness.--Statements often have been made that the
    emission controls of the vehicle and the fuel should be viewed as a
    single system. But for regulatory purposes, the proposed compliance
    timelines for each are quite different. EPA proposes that automakers be
    given more than twice the amount of time to phase into Tier 2
    regulation than refiners. This raises questions about simple fairness.
        Under EPA's proposal more than 97 percent of the refining capacity
    in the United States must meet the 30 ppm average sulfur standard by
    January 1, 2004. This represents an astonishing 90 percent reduction
    from existing sulfur levels in a very short period. The proposal
    provides the option for a restricted, but additional 2-year phase-in
    period if a refiner makes gasoline sulfur reductions prior to 2004.
        Compare this rigid timetable to the Tier 2 schedule proposed for
    the automobile industry. For new passenger cars and light duty trucks--
    which comprise roughly 50 percent of all new vehicle production--Tier 2
    standards would phase-in for 4 years beginning in 2004. For heavier
    vehicles (e.g., minivans, sport utility vehicles, etc.) that comprise
    the remaining half of new vehicle production, the proposed Tier 2
    standards would be phased in beginning in 2008, with full compliance in
    2009.
        The agency states that ``the proposal is carefully designed to
    address the need for refiners to make low sulfur gasoline available at
    very nearly the same time as auto makers begin selling large numbers of
    Tier 2 vehicles.'' \15\ We disagree. The phase-in periods proposed by
    EPA for refiners and autos are significantly different. In fairness, we
    believe the Tier 2/gasoline sulfur regulation should be phased in
    together and equally between the two industries.
    ---------------------------------------------------------------------------
        \15\ EPA, Proposed Tier 2 Motor Vehicle Emissions Standards and
    Gasoline Sulfur Control Requirements, pg. 63-64.
    ---------------------------------------------------------------------------
                                recommendations
         There must a reasonable transition to low sulfur gasoline.
    If refiners select conventional desulfurization technology to meet new
    standards, a phase-in period is needed minimize harsh impacts and
    costs. If new, lower-cost desulfurization technology is used, time is
    needed to assess its actual processing performance and for a few
    vendors to meet the needs of the industry. In either case, more time is
    needed than proposed by EPA.
         The phase in period of Tier 2/Sulfur regulation for autos
    and refiners should be very similar.
         Legitimate regional differences (and the views of rural
    State Governors) need to be reflected in a gasoline sulfur regulation.
    This can be done with regional sulfur standards as refiners proposed or
    by implementing a national standard at different times in different
    regions. Nonattainment and attainment areas do not need the same level
    of regulation at the same time.
         The proposed eligibility for small refineries to receive
    help in meeting severe gasoline sulfur regulation needs to be broadened
    to more facilities. We hope Congress will consider extending the small
    diesel refinery SO2 allowance program with gasoline sulfur
    other fuel sulfur regulations. The program has proven to be a success.
        On behalf of Sinclair, I sincerely extend our appreciation for the
    opportunity to comment on the important issue of gasoline sulfur
    control. I would be pleased to provide additional information or
    respond to questions of members or professional staff of the
    Subcommittee.

     Response by Clint W. Ensign to Additional Question from Senator Chafee
        Question 1. Could you describe the oil industry's research into
    reversibility.
        Response. Research on the effect of gasoline sulfur on vehicle
    emissions has been done by the Coordinating Research Council which is
    funded by automobile and oil companies. It is our understanding the CRC
    research has been supplemented by separate studies conducted by
    automakers and refiners (which includes research on reversibility).
        At EPA's Gasoline Sulfur Workshop on May 12, 1999, the American
    Petroleum Institute and the National Petroleum Refiners Association
    presented initial findings on reversibility. In sum, research indicated
    that the effects of sulfur are reversible on several of the vehicles
    tested. Attachment A contains summary information on reversibility
    presented at the workshop.
        Automakers were asked at the workshop why the effect of sulfur on
    certain vehicles was reversible. Representatives for automakers could
    not provide an explanation. This uncertainty is further underscored by
    EPA's comments in the preamble of the Tier 2/Gasoline Sulfur proposal
    where the agency states that ``vehicles tested exhibited a wide range
    of reversibility, for reasons that are not fully understood.'' \1\
    ---------------------------------------------------------------------------
        \1\ EPA, Proposed Tier 2 Motor Vehicle Emissions Standards and
    Gasoline Sulfur Control Requirements pg. 98.
    ---------------------------------------------------------------------------
        The refining industry has proposed major, cost-effective cuts in
    gasoline sulfur levels. Refiners also believe it is in the public
    interest to study the reversibility question before committing
    consumers and refiners to billions of dollars to meet the California
    sulfur standards. Regrettably, the offer to meet and peer review
    reversibility data has been declined by the automakers.
        Inasmuch as reversibility research was conducted by the American
    Petroleum Institute, I refer further questions on this matter to that
    organization.
                                     ______

       Responses by Clint W. Ensign to Additional Questions from Senator
                                     Graham
        Question 1. It appears that the initial question is does high
    sulfur content in automobile fuel degrade the performance of catalytic
    converters?
        Response. The refining industry recognizes that gasoline sulfur has
    a partial and temporary effect on the performance of catalytic
    converters. This is why refiners proposed a 70 percent reduction in
    gasoline sulfur limits in the East and a 55 percent reduction in the
    West. Nationwide, this would reduce average sulfur levels by more than
    50 percent.

        Question 2. Does it degrade the performance of all catalytic
    converters or only the catalytic converters required by the Tier 2
    regulation?
        Response. In January 1997, the Auto/Oil Air Quality Improvement
    Research Program reported that lowering gasoline sulfur from 450 to 50
    ppm reduced emissions by 18, 8, and 19 percent for HC, NOx,
    and CO, respectively, for ``Current'' vehicles. Similar emission
    reductions were experienced with ``Federal Tier 1'' cars. (Current cars
    are considered 1989 models and Federal Tier 1 cars are 1994 models). A
    significant portion of these emission reductions would be realized
    under the gasoline sulfur proposal of U.S. refiners.
        Research was done on the effects of gasoline sulfur on Low Emission
    Vehicles by the American Automobile Manufacturers Association, Inc. and
    the Association of International Automobile Manufacturers, Inc. in
    1997. Listed below are some of the published findings of that research.
    Note that LEVs have lower HC, CO and NOx emissions when
    using high gasoline sulfur (600 ppm) than Tier 1 vehicles using low
    gasoline sulfur (40 ppm). Taking into account HC, CO, and
    NOx emissions collectively, the hardware on the LEV had a
    larger impact on reducing emissions than fuel sulfur.

    ----------------------------------------------------------------------------------------------------------------
                       Sulfur level                       NMHC        CO        NOx                Status
    ----------------------------------------------------------------------------------------------------------------
    Tier I Vehicle:..................................
      330 ppm........................................       .122       1.75        .33      Ave sulfur level in U.S.
                                                                                                               today
      40.............................................       .102       1.47        .30  ............................
    LEV/ULEV:........................................
      600 ppm........................................       .076       1.22        .28  ............................
      330............................................       .071       1.06        .23  ............................
      150............................................       .064        .88        .18  ............................
      40.............................................       .054        .65        .12  ............................
    ----------------------------------------------------------------------------------------------------------------
    Source: AAMA/AIAM Study on the Effects of Fuel Sulfur on Low Emission Vehicle Criteria Pollutants, 1997, Table I
      and Table 3. Emission data in grams per mile (log-log regression).

        Question 3. Is this damage reversible?
        Response. As noted above, some vehicles have demonstrated a high
    degree of reversibility. (Please refer to the response on reversibility
    provided to Senator Chafee.)

        Question 4. How would damage be reversed?
        Response. We understand certain driving conditions are required to
    heat and regenerate the catalyst. For example, high speed driving--
    similar to what vehicles would do in traveling between regions of the
    country--may be needed. This is a matter we hoped would be studied
    further and discussed in workshops with automakers. (Please refer to
    the response on reversibility provided to Senator Chafee.)

        Question 5. What is the estimated cost of replacing a catalyst
    converter?
        Response. It is our understanding from EPA's Tier 2/Gasoline Sulfur
    Proposal that the cost of a catalytic converter is approximately $150
    to $200.

        Question 6. Is there another way to repair or ensure that catalytic
    converters, if damaged by high sulfur content in fuels, can be restored
    to their original performance levels?
        Response. As noted earlier, the subject of possible damage to
    catalytic converters and the degree of reversibility with high sulfur
    gasoline are in dispute. This is a matter that warrants further
    research and Deer review.

        Question 7. If the damage is reversible, could regional regulations
    work?
        Response. Yes. The refining industry felt that the large reductions
    in gasoline sulfur limits that we proposed would substantially help
    automakers make catalytic converters reversible.

        Question 8. If the damage is not reversible, could regional
    regulations, tailored to the air quality needs of each region,
    effectively reduce the impact of sulfur on catalytic converters?
        Response. Yes. The agency could adopt a national gasoline sulfur
    program with regional considerations. For example:
         The effective date of gasoline sulfur standards could be
    different in the East than the West. Low sulfur standards could begin,
    say, in 2004 in the East and 2008 in the West. The automakers NLEV
    Program in national in scope but is regional in its implementation.
         Since most of the Nation's nonattainment populations use
    reformulated gasoline, low sulfur standards could first phase-in with
    RFG and then with conventional gasoline. This gives priority in
    directing sulfur control to the areas with the greatest air quality
    need.
         EPA has proposed a national gasoline standard with a
    sulfur average of 30 ppm and a cap of 80 ppm. In regions with good air
    quality, the agency could set a less stringent sulfur average (say 50
    ppm) while keeping the national sulfur cap at 80 ppm.
         Since most small refineries are located in rural States in
    the western half of the country, substantially expanding small refinery
    eligibility for regulatory relief would effectively result in a
    regional consideration. This is especially true in PADD IV (WY, UT, CO,
    MT, ID) where every refinery is small (less than 75,000 b/d in size).
        In the event research demonstrates that catalytic converters are
    not reversible, these kinds of options warrant evaluation.
        Nearly a dozen rural States have urged EPA to adopt a regional
    component to gasoline sulfur control. Regrettably, the Tier 2/Gasoline
    Sulfur proposal has not been responsive to the views of these important
    stakeholders.
                                     ______

           Responses by Clint W. Ensign to Additional Questions from
                               Senator Voinovich
        Question 1. You express concern about the proposed standards, what
    are the obstacles that you see in meeting these standards? How much
    time do you think is needed to meet them?
        Response. Refiners face many challenges in meeting severe
    California gasoline sulfur standards nationwide, including:
        Conventional Desulfurization Technology.--Refiners know how to
    remove sulfur from gasoline but the current process is costly; between
    5 and 8 cents per gallon (according to DOE/EPA 1998 estimates).
    Nationally, this would increase gasoline costs to consumers by $6 to 9
    billion each year. This would likely cause gasoline sulfur regulation
    to fail cost-benefit analysis. This method is so expensive it is not
    mentioned in any of the cost estimates of EPA's gasoline sulfur
    proposal. Conventional desulfurization costs also contributed to the
    closure of many small refineries in California. It is likely the very
    short compliance timeframe proposed by EPA to meet severe sulfur
    regulation will cause many refiners to choose this high cost
    technology.
        New Desulfurization Technology.--New processes currently being
    developed and tested could reduce gasoline desulfurization costs by
    half. But regrettably, the technology is so new there are no refineries
    in the United States where it is used on a commercial scale. From a
    practical standpoint, it will take several years of actual operating
    conditions before enough is known about the new technology and what it
    can do with different refining configurations. Also, only a few vendors
    offer the technology which is clearly not enough to meet the needs on
    an entire industry all at one time. To meet the tight timeframe of
    EPA's gasoline sulfur proposal, the uncertainties of the new technology
    will likely cause many refineries to forgo potential cost savings of
    these new processes.
        Small Refineries.--During this decade, the gasoline sulfur
    standards in California and the Federal low sulfur on-road diesel fuel
    standards caused many small refineries to withdraw from investing in
    desulfurization equipment. Limited process economies cause small
    refineries to incur higher per barrel costs. This is a critical factor
    in a high cost regulation of this kind.
        Sulfur Reduction Costs.--Regardless of the technology used, fuel
    desulfurization represents an extraordinary cost to refiners. During
    the 1990's, the U.S. refining industry earned only a 3 percent return
    on investment (many projects were environmentally related). Poor
    returns makes requires more time to pay for expensive projects.
        From a timing perspective, the U.S. refining industry proposed
    significant, cost-effective reductions in gasoline sulfur averages and
    caps in 2004. We believe new desulfurization technology could make
    additional sulfur reductions widely practical and cost-effective by
    2010. There is no question (even with EPA) that there must be a
    transition period to Tier 2/gasoline sulfur regulation.

        Question 2. Can you estimate the number of refiners that would
    close down as a result of these rules? Can you estimate the potential
    job losses?
        Response. Neither the EPA or the DOE have conducted a feasibility
    study to determine the impacts of severe gasoline sulfur regulation on
    U.S. refiners. With the refining industry operating a near capacity,
    and with the potential loss of MTBE for gasoline supply, the question
    possible refinery closures by Senator Voinovich is very appropriate.
    The agency has estimated no refinery will close as a result of gasoline
    sulfur regulation but has no feasibility study to support the claim. In
    fact, at the subcommittee hearing, Sinclair stated that the proposed
    gasoline sulfur regulation, if implemented, threatens the future of one
    of our refineries.
        In the Final Report of the SBREFA Small Business Advocacy Review
    Panel, the group reported that ``most . . . small refiners, did State
    that if the Agency were to adopt a rule that would require them to
    achieve 30 ppm sulfur levels on average with an 80 ppm per-gallon cap,
    they would be forced out of business.'' Since most of the 50 small
    refineries in the U.S. are not covered by SBREFA and are not extended
    regulatory relief in the proposal, it is reasonable to assume many of
    these facilities would also be at risk with 30/80 ppm gasoline sulfur
    standards.
        A 50,000 b/d refinery, on average, will employ approximately 300
    workers. This does not include contract workers or outside jobs
    generated due to the refinery.

        Question 3. What is the refining industry's concerns over the use
    of newer technologies and how could these concerns be addressed?
        Response. New desulfurization technologies presents many
    uncertainties to refiners. It will take several years before we know
    what this new technology can actually do. For example, is the
    technology applicable to a wide range of refinery configurations? How
    will it perform under severe processing conditions? What is the
    operating cycle of the technology? Is the technology enough to enable a
    refinery to meet a 30/80 ppm gasoline sulfur standard? What yields or
    results with the vendor actually guarantee when licensing the
    technology?
        Also, refineries must choose which technology (conventional or new)
    they plan to use prior to applying for permits. This means that
    sometime next year--when a great deal will still be unknown about the
    new technology--refineries will be making this decision. In view of
    this uncertainty, we believe EPA has made an unrealistic assumption
    that every U.S. refinery (more than 100 refineries) will choose the new
    technology.

        Question 4. You claim that new technologies are on the horizon to
    reduce sulfur. Can you estimate the costs if this rule were postponed
    or phased in to allow for marketing of newer technologies? Is there
    likely to be a savings over using conventional technology?
        Response. There would be huge regulatory savings to consumers and
    industry if time were given for more to be known about the newer
    technologies. An additional 3 to 4 years would lead to fuel cost
    savings of billions of dollars each year.

        Question 5. If the proposed rules are implemented, will be continue
    to have a reliable flow of fuel or will there be disruptions?
        Response. There are several supply factors that should be taken
    into account in connection with this rulemaking. U.S. refineries are
    operating a near capacity. This means there is little surplus capacity
    available to replace lost supply if refineries closed as a result of
    severe regulation. It also appears as if MTBE will be phased out, or
    used less, in gasoline supply. This will result in a loss of gasoline
    supply. These supply factors must be balanced with demand for gasoline
    which increases each year.
        In California, where the 30/80 ppm sulfur standard is in effect,
    gasoline supply and cost for consumers are the most volatile in the
    Nation. Since small refineries will be most impacted by severe sulfur
    regulation, we are most concerned about fuel supply and cost in rural
    areas that rely on small facilities for supply.
        We also do not know of how low sulfur standards in this and other
    countries will affect the amount of gasoline imported to the United
    States. For example, will less gasoline be exported to the U.S. from
    Canada if refineries close in that country.
        Take, together, these supply factors should be explored in
    connection with severe gasoline sulfur regulation.
                                     ______

        Statement of William Nasser, CEO, Energy BioSystems Corporation
        Mr. Chairman and Members of the Panel, thank you for inviting me to
    testify today. I have a brief oral statement and ask that my written
    statement be included in the record.
        Energy BioSystems is a biotechnology company whose aim is to
    address major environmental and industrial issues through recent
    advances in microbiology, genetic engineering and bioengineering. Most
    are aware of the significant advances in genetics and bioengineering in
    the pharmaceutical industry and in agriculture. Our company has
    positioned itself to be a leader in the third wave of the biotechnology
    revolution into the chemical and energy industries.
        I am not here today to validate, support or criticize the proposed
    EPA regulations of lowering sulfur standards in gasoline and diesel
    fuel. It is up to you in Congress to determine whether that standard is
    necessary, to what level and on what timetable. I am here to talk about
    new alternatives to achieving sulfur reductions in fuel being developed
    by our company.
        There is current technology, hydrodesulfurization or HDS, which is
    now used to reduce the sulfur content in fuels. Unfortunately, HDS has
    many disadvantages including:

        (1) It is old technology, having been in existence for over 40
    years.
        (2) It is enormously energy intensive as it requires high
    temperatures and pressure.
        (3) Because of its large appetite for energy, it results in large
    greenhouse gas emissions.
        (4) It is enormously costly to install and very costly to operate.

        I can understand the reluctance of the refining industry, where
    margins are thin, to invest the billions of dollars to install such old
    technology with so many adverse consequences. In fact, for smaller
    refiners, prohibitive costs of installing and operating this technology
    may well force them to close. I also find it ironic that the EPA's goal
    of decreasing sulfur in fuels will result in a direct and adverse
    impact on the Administration's goal of reducing greenhouse gas
    emissions.
        We at EBC have developed a new process, which also promises to
    lower sulfur in gasoline and diesel, but at half the cost and without
    the huge increase in emissions inherent in current technology. Our
    process is called biodesulfurization or BDS. Basically, we have
    identified a microorganism that is naturally occurring in the soil that
    can be genetically enhanced to ``eat'' sulfur out of gasoline and
    diesel fuels. The organism can also be enhanced to ``eat'' sulfur out
    of coal and crude oil, which current HDS technology cannot do.
        The benefits of this BDS technology are several. The headline on a
    DOE fact sheet issued in January of this year states that
    ``Biodesulfurization will yield lower sulfur gasoline at lower
    production costs.'' Our studies show that capital costs for our
    technology will be half that of current technology and that the
    operating costs for our technology will be some 20 percent lower.
        In addition to cost savings, BDS will result in up to 80 percent
    less greenhouse gas emissions over current technology. This is because
    our process operates at essentially room temperature and pressure. HDS
    requires large increases in both to reduce sulfur.
        Another benefit is that our process yields beneficial and
    commercially viable byproducts. We can alter the enzymes to produce
    surfactants from the sulfur, which currently sell for about 50 cents
    per pound and are used in detergents. Other byproduct applications may
    include resins, polymers and other usable products. HDS produces either
    large amounts of elemental sulfur or sulfuric acid, neither of which is
    highly valued commercially, thereby presenting an added problem for
    refiners.
        A final benefit of our technology is its flexibility. It can be
    inserted at various stages of the refining process. In addition, it can
    be used in conjunction with HDS technology. Large refiners with HDS
    operations presently in use can tap our technology to complement its
    current operations to reach ultralow sulfur levels.
        Our pilot projects already have demonstrated the ability of our
    technology to reach sulfur levels of 75 parts per million. We believe
    that we can easily achieve a 30 ppm and commercial viability within the
    next 3 years, contingent upon the level of investment we receive. In
    fact, we are confident that we can reach a sulfur level of zero using
    BDS.
        While our technology is extremely promising, Mr. Chairman, there
    remain hurdles. The primary hurdle being investment in research and
    development. With oil prices low, refining margins practically
    nonexistent, and small capitalization stocks battered, we face an
    enormous difficulty in raising capital to complete our technology. To
    date, we have spent some $68 million on our technology; about $65
    million of that coming from private investors. We have been the
    recipients of a small amount of funding from the DOE.
        In conclusion Mr. Chairman, this proposed rule will require
    enormous investment. Because of the short amount of time in which to
    reach the rule's targets, I am concerned that the rule will ``lock''
    industry into an old technology that will be expensive, waste energy
    and result in vast increases in greenhouse gas emissions. We believe
    that the rule and the Federal Government should help to fully develop
    alternative technologies such as biodesulfurization. Not only will
    refiners be the beneficiaries, but so will the environment and fuel
    consumers.
        Again, thank you Mr. Chairman for inviting me to testify and I will
    be happy to answer any questions from the Panel.
                                     ______

                               Energy Biosystems
                            overview of the company
        Energy BioSystems Corporation (``ENBC'' or ``the Company'') is a
    development-stage publicly traded biotechnology company located in The
    Woodlands north of Houston, Texas. Since its incorporation in 1989,
    ENBC has been engaged in the research, development, and testing of a
    variety of genetically engineered microbes for use in the petroleum
    refining industry, a technology collectively known as ``biorefining''.
    To date, the majority of the Company's efforts have focused on the
    development of a biologically based method of selectively removing
    sulfur from petroleum distillates such as diesel fuel and gasoline as
    well as from raw crude oil. ENBC has termed this process
    ``biodesulfurization'', or ``BDS''. The Company's most advanced
    biocatalyst technology also adds further value by converting the sulfur
    removed from the distillates to potentially valuable commodity
    chemicals. Having proven the viability of the BDS process using small-
    scale pilot plants, the Company is now working to complete the
    development and commercialization of its proprietary technology. In
    addition, the Company intends to explore the use of microorganisms in a
    variety of other fields, including heavy metals removal, nitrogen
    removal, crude oil upgrading, and coal desulfurization.
        At present, Energy BioSystems employs 37 individuals and leases
    approximately 25,000 square feet of office and laboratory space. The
    Company conducted its initial public offering in March 1993.
                              the market problems
        The presence of sulfur in raw crude oil is one of the most
    pervasive problems facing the refining industry today. The sulfur is
    troublesome for a number of different reasons. First of all, sulfur is
    a constituent element of sulfur oxides (SOx). Sulfur oxides
    are end products of the burning of fossil fuels and have been
    specifically identified as one of the principal causes of ``acid
    rain''. Sulfur oxides are also believed to reduce the efficiency of the
    catalytic converters in automobiles, leading to increased tailpipe
    emissions of both oxides of nitrogen (NOx) and carbon
    dioxide (CO2). NOx and CO2 are thought
    by many to be the primary causes of urban ``smog'' as well as
    ``greenhouse gas'' accumulation. To the U.S. refiner these problems are
    a stiff challenge due to the fact that the average sulfur content of
    crude oil fed to U.S. refineries is steadily increasing at the same
    time that proposed sulfur limits are dramatically decreasing. This
    higher sulfur content extends to all of the distillates of raw crude
    oil, including gasoline, diesel fuel, and heating oil.
        The Company has elected to focus on the diesel fuel and gasoline
    markets for its initial applications of its BDS technology. Due to the
    widespread belief that the most likely route to more fuel-efficient
    vehicles is through the use of new diesel engine technology, a large
    proportion of ENBC's development efforts have been targeted on diesel
    fuel. In order to take full advantage of the benefits of this advanced
    engine technology, sulfur must first be removed from the diesel fuel.
        The reported actual average sulfur content currently in both
    gasoline and diesel fuel in the U.S. is about 340-350 parts per million
    (ppm). In order to meet this standard, the petroleum refining industry
    currently uses large operating plants for desulfurization. Using
    conventional technology, these plants are very costly, due to their
    need to operate at very high temperatures and pressures. The single
    most expensive production component is hydrogen gas, which is injected
    at high pressure into the reactor, thus, giving the process its name:
    ``hydrodesulfurization'', or ``HDS''. Despite these limitations, the
    industry is, nevertheless, able to meet the current regulatory
    standards at an acceptable cost using existing HDS technology,
    successfully producing approximately 31 billion gallons of highway
    diesel fuel and 124 billion gallons of gasoline per year in the United
    States alone. It is notable that the new proposed, more stringent
    environmental quality standards for the U.S. (already adopted by the
    governments of several other industrialized nations) will force the
    maximum allowable sulfur level of these fuels to be significantly
    reduced in the coming years. Specifically, the European Union has set a
    sulfur content standard of no more than 350 ppm that will be in effect
    by the year 2000 and a standard of 50 ppm for the year 2005. The United
    States and the industrialized nations of the Far East are following the
    European Union's example.
        Overall these increasingly restrictive sulfur-content regulations
    for gasoline and, especially, for diesel fuel cannot be met with
    existing HDS capacity. Consequently, in order to achieve the 30 ppm
    standard using existing technology, the worldwide refining industry
    will have no choice but to invest an estimated $50 billion in new
    capital equipment over the next 5 years. It is important to note that
    this capital investment will have to be made regardless of the
    prevailing level of crude oil prices on the open market or the short-
    term profitability to the refiner. Therefore, the questions essentially
    become: What is the cheapest and most efficient way to meet these new
    benchmarks? Is there a real probability that a new technology will
    provide refiners with a decent opportunity for long term profitability
    while offering substantial environmental benefits?
        In addition to its refining limitations, current
    hydrodesulfurization technology is very energy-intensive, thus creating
    high emissions, and produces elemental sulfur as its principal by-
    product. This represents a tremendous waste of raw material that could
    potentially be put to profitable use. For these reasons, the Company
    feels that any new technology which could allow the refining industry
    to meet the new regulatory standards at a significantly reduced cost
    while simultaneously producing a commercially marketable co-product
    should generate a great deal of enthusiasm among oil company
    executives.
                         the energy biosystems solution
        The Company believes that it has developed an effective solution to
    these problems using a naturally occurring, benign species of bacteria
    that was originally isolated from soil. In Energy BioSystems'
    biodesulfurization (``BDS'') process, a genetically engineered variant
    of the Rhodococcus erythropolis strain of bacteria is used with water
    and the fuel to be treated. The bacterium first internalize the sulfur
    containing hydrocarbon molecule and then employs an enzymatic reaction
    to cleanly cleave a sulfur-carbon bond in the molecule. The oxidized
    sulfur-bearing molecule is then released by the bacterium into the
    water medium. The Company believes that when employed en masse, this
    bacterium can be used to effectively remove sulfur from fuels on a
    commercially viable scale. In 1992, the relevant genes from the
    bacterium were identified, sequenced, and successfully cloned. As a
    result, the Company has received numerous patents on the specific
    genetic sequence of the modified bacterium as well as other separate
    ``method-of-use'' patents covering the bio-
    desulfurization process itself. In total, the Company possesses 47
    issued patents and has 81 additional patents pending. The oldest of
    these patents is not scheduled to expire until the year 2010, providing
    excellent proprietary protection to the Company for the foreseeable
    future.
        The Rhodococcus bacterium is a benign species and poses no threat
    to humans, animals, or plant life in the event of an industrial
    accident. It is easily sustainable by means of an inexpensive nutrient
    solution and reproduces itself under process conditions. Moreover, the
    bacterium is able to process large quantities of fuel before its
    effectiveness begins to wane. Finally, it is easily killed by a simple
    application of heat and/or chemicals.
        The actual BDS process consists of simply adding refined fuel to a
    slurry composed of water, nutrients, and bacteria, intimately
    contacting the mixture for a time, and then using standard process
    manufacturing methods to separate the bacteria, water and dissolved
    organo-sulfur products from the newly desulfurized diesel fuel. It is
    important to note that unlike current hydrodesulfurization plants, the
    BDS process operates at basically both ambient temperature and standard
    atmospheric pressure, offering significant cost and safety advantages.
        The BDS process also yields a sulfur-based chemical product that is
    potentially suited to a wide variety of industrial applications. For
    one, this product has can be used as the base molecule for the
    synthesis of surfactants that are suitable for use in detergents. These
    model surfactants appear to have properties comparable to LAS, a
    commercial surfactant with a $2 billion worldwide market. Other
    potential applications of the BDS product are in the areas of
    adhesives, resins, and polymers. The Company believes that these
    products will have significant commercial value and will further reduce
    the net costs of using the BDS system relative to conventional
    hydrodesulfurization technology.
        In summary, Energy BioSystems' BDS technology offers the following
    four benefits:
        (1) Cost effectiveness.--The BDS system is designed to operate at
    essentially ambient temperature and pressure, thereby removing the need
    for the expensive thick-walled reactors and other plant systems now
    required for hydrodesulfurization. Additionally, BDS does not require
    the addition of hydrogen, the single most expensive component of the
    overall operating cost of hydrodesulfurization.
        (2) Reduced greenhouse gas emissions and energy consumption.--As
    compared to HDS, the Company believes that its BDS system will operate
    with up to 80 percent less energy consumption and carbon dioxide
    emissions in achieving the dramatic new low sulfur levels proposed.
        (3) Ease of integration and synergy with existing refinery
    operations.--The Company believes that the BDS system can be integrated
    with the existing physical plants of refining companies without
    significant difficulty. In larger more complex refineries BDS systems
    will most likely be used in combination with existing HDS facilities,
    although in small refineries BDS is likely to be the only viable
    option. Furthermore, in certain highly energy intensive refinery
    applications such as coking, BDS offers a refiner a very real
    opportunity for improved profitability and environmental improvement.
    It should be noted that the sulfur compounds that are the most
    difficult to remove using HDS are the same compounds that are most
    readily removed using BDS. Therefore, when used in conjunction with an
    HDS system, BDS can provide the refiner with a synergy that results in
    a minimized total cost of desulfurization.
        (4) Generation of a sulfur-based byproduct readily converted to
    profitable uses.--The Company believes that its biologically based
    method of sulfur extraction can be easily modified to produce a
    marketable product that can be readily adapted to a variety of
    commercial uses, thereby adding significant value and lowering overall
    costs.
                            commercialization status
        Energy BioSystems has validated its BDS technology by constructing
    and operating a five-barrel-per-day pilot plant. Using the knowledge
    gained from the operation of that pilot unit, other smaller pilot
    plants were built and are operated. The Company is now working with
    Petro Star, Inc. to proceed with the design of a 5,000 barrel-per-day
    BDS facility to be constructed at their Valdez, Alaska refinery. Petro
    Star is a subsidiary of the Arctic Slope Regional Corporation and is
    ENBC's first commercial licensee. Based upon ENBC's recent technical
    progress, the company expects detailed engineering to start in late
    1999, and that the facility will commence full operations in the second
    half of the year 2001. The construction of this facility is a key step
    toward the Company's ultimate goal of being able to desulfurize diesel
    fuel at a rate of 40,000 barrels per day (a level which would meet the
    needs of the industry's largest players) as well as the eventual
    expansion of BDS technology into the processing of raw crude oil,
    gasoline, and other distillates.
        While the production technology is being scaled up, the Company
    intends to complete work on the development of the BDS process itself.
    Further improvements in the performance of the biocatalyst in the
    reaction system are necessary to successfully commercialize ENBC's
    technology. Currently, the BDS process is capable of meeting the 30 ppm
    target for diesel fuel when the feedstock has a sulfur content of 200
    ppm or below. In order to gain widespread commercial acceptance, the
    process must be improved to accept feedstocks with sulfur levels of up
    to 500 ppm. Improvements in the rate of desulfurization will also be
    required to bring the overall costs of the process down to competitive
    levels. Finally, ENBC is now producing samples of the organo-sulfur end
    products of BDS for evaluation by potential alliance partners for
    manufacturing and marketing them on a commercial scale.
        The petroleum industry is the single largest industry in the world
    and is responsible for the refining of over 23 billion barrels of crude
    oil annually. The Company believes that its technology will be most
    attractive to refiners that currently lack sufficient HDS capacity to
    meet both existing and anticipated demand (such as Petro Star).
    Successful demonstration of the technology with these customers is
    expected to lead to the sale of BDS systems to larger, more
    sophisticated refiners who can take advantage of the synergies between
    BDS and HDS.
                              corporate alliances
        In order to accelerate the commercial development of its core BDS
    technology, the Company has entered into a number of technology
    development alliances with established companies. Specifically, ENBC
    has agreements in place with TOTAL Raffinage Distribution S.A. of
    France (development of the BDS process for diesel fuel streams), with
    Koch Refining Company (development of the BDS process for certain
    gasoline streams), and with the Exploration & Production Division of
    Texaco, Inc. (the development of the BDS process for crude oil). In
    addition, the Company has an agreement with Kellogg, Brown & Root for
    the basic engineering services required for the installation of BDS
    systems at commercial sites.
       Responses by William Nasser, to Additional Questions from Senator
                                     Inhofe
        Question 1. Mr. Nasser, I am intrigued by vour companies product,
    what will be required to bring the biodesulfurization to the
    marketplace?
        Response. We have already begun the process of introducing BDS to
    the marketplace by licensing our first biodesulfurization process for
    diesel fuel to Petro Star, Inc., a small Alaskan refiner that processes
    about 40,000 barrels of crude oil per day. Nevertheless, accounting for
    the time required to complete detailed engineering, procurement of
    equipment, and onsite construction, this unit is not expected to be
    operational until late 2001.
        Between now and then, EBC will continue to advance its technology
    to further improve the economic viability through advancements in the
    company's proprietary biocatalyst, and the process design to compliment
    the biocatalyst. One of the largest hurdles is to find continued
    financial support to complete our technology, and allow us to
    demonstrate the technology at commercial scale at Petro Star.
        Petro Star is a small refiner market segment opportunity for EBC.
    Further development work must be completed to meet the demands of the
    more typical large, full-conversion refineries. Active participation of
    these major refiners would be extremely helpful. As I pointed out in my
    testimony, however, given the current State of the refining industry,
    we continue to face enormous difficulty in raising capital to complete
    this technology. Active participation by the EPA and DOE would also be
    very helpful. We have already spent upwards of $70 million to get to
    where we are today, so there is a great opportunity for the government
    sector to leverage the future investment required to commercialize the
    technology.

        Question 2. I know that critics will say we can not afford to wait
    for a product that might not work. How can we be assured that your
    technology will work?
        Response. Of course, with any product or technology under
    development, there can be no absolute assurance of success or failure.
    In our case, however, there are many examples in the company's history
    that provide a strong basis for anticipated success. As recent as 1
    year ago, the estimated cost to desulfurize a barrel of diesel fuel
    using our technology was on the order of $5. Through advances in our
    technology over the past year, the cost has been reduced to an
    estimated $0.14 per barrel.
        Another example is the efficiency of our biocatalyst has been
    improved over 200-fold since our technology development began.
        Additionally, we have demonstrated the key elements of our process
    at the pilot scale to validate that all of the process steps work as we
    have predicted.
        This past demonstration of success in the development history of
    our technology gives us, and our partners, a high degree of confidence
    that we can achieve the incremental improvements that will be required
    in the near future.

        Question 3. I understand that the Department of Energy has assisted
    you in your research. What has been the role of the EPA on your R&D or
    your funding. I am concerned that the EPA is acting without paying
    close attention to what the Department of Energy has been doing. Have
    you been in contact with them?
        Response. We've spent close to $70 million for the development of
    our technology. Only about $3 million of that has come from the Federal
    Government, including our current Department of Energy project for
    gasoline biodesulfurization.
        In the past, the EPA has not directly assisted our research,
    financially or otherwise, but has been aware of the scope of our
    efforts. It is difficult to say whether the EPA was specifically aware
    of what the DOE had in the past been doing with regard to this
    technology.
        Nonetheless, within the past 6 to 8 months, we have increased our
    own efforts to bring the EPA up to date on our activities to ensure
    that our technology is considered in the course of their rulemaking for
    gasoline and diesel fuel standards. They now have a more detailed
    understanding of both the technology itself, and the status of the
    development. We will continue our contact with both the EPA and the DOE
    to keep them informed about our technology, although their direct
    involvement with project funding would be the best approach.
       Responses by William Nasser, to Additional Questions from Senator
                                     Chafee
        Questions 1. Is your technology a substitute or compliment to
    existing technology?
        Response. There is very good synergy between our technology and
    existing hydrodesulfurization (HDS) technology. As you know, industry
    has already spent billions of dollars to install HDS processing
    capacity to desulfurize to meet the current sulfur specifications. We
    don't expect that our customers would replace this capacity, but rather
    compliment it with our technology to meet future specifications.
        We have shown that the types of sulfur that HDS has a very
    difficult time treating are precisely the types of sulfur that our
    technology can best treat. In fact, we have demonstrated that our
    technology can actually enhance the performance of the HDS process by
    up to 300 percent when the two are combined.
        There is also a subset of refiners who don't realistically have the
    option to install HDS processing capacity due to the nature of their
    business. Most of these refiners have fairly simple refineries that do
    not have the infrastructure to install HDS in a profitable manner.
    Given the cost advantages of our technology relative to HDS, we provide
    a viable option that will allow this group of refiners to produce low
    sulfur fuels, and thus stay in business. Petro Star, Inc. is a prime
    example of this.

        Question 2. Do you expect your product to be effective for removing
    sulfur from both diesel fuel and gasoline?
        Response. Yes. Our technology for diesel fuel biodesulfurization is
    most advanced, as evidenced by the fact that we were able to license
    our first commercial unit to Petro Star, Inc. We are also near the end
    of the second year of a 3-year program sponsored by the Department of
    Energy for gasoline desulfurization. We expect to capitalize on our
    experience with diesel fuel to accelerate the development of the
    gasoline program, but this will not be feasible unless, at a minimum,
    the third year of funding from the DOE is provided. Currently, the
    third year of funding for this project has not been approved.
       Responses by William Nasser, to Additional Questions from Senator
                                     Graham
        Before answering the specific questions from Senator Graham, a few
    general comments are necessary. EBC agrees that the line of questions
    that Senator Graham has submitted are critical to this issue of
    developing appropriate regulations for sulfur in fuels. We, however,
    are not experts in this area. It is likely that some of the other
    participants who testified at the hearing can provide more expert
    opinions in these matters.

        Question 1. It appears that the initial question is does high
    sulfur content in automobile fuel degrade the performance of catalytic
    converters?
        Response. Yes, higher sulfur in fuels does degrade the performance
    of the catalytic converters. It is our understanding that this is
    undisputed.

        Question 2. Does it degrade the performance of all catalytic
    converters or only the catalytic converters required by the Tier 2
    regulation?
        Response. Sulfur in fuels degrades the performance of all catalytic
    converters.

        Question 3. Is this damage reversible?
        Response. The answer to this question has been the subject of
    numerous scientific studies, and is certainly up for debate. There is
    considerable disagreement on the answer. Our understanding is that the
    effect of sulfur on catalytic converters is, in fact, reversible
    provided that the engines are operated under certain conditions after
    exposure to high-sulfur fuels. One issue is whether or not these
    operating conditions would be realized under normal driving conditions.

        Question 4. How would the damage be reversed?
        Response. Due to lack of specific expertise in this area, we don't
    feel qualified to answer this question, and defer to the other panel
    members.

        Question 5. What is the estimated cost of replacing a catalytic
    converter?
        Response. Due to lack of specific expertise in this area, we don't
    feel qualified to answer this question, and defer to the other panel
    members.

        Question 6. Is there another way to repair or ensure that catalytic
    converters, if damaged by high sulfur content in fuels, can be restored
    to their original performance levels?
        Response. Due to lack of specific expertise in this area, we don't
    feel qualified to answer this question, and defer to the other panel
    members.

        Question 7. If the damage is reversible, could regional regulations
    work?
        Response. Due to lack of specific expertise in this area, we don't
    feel qualified to answer this question, and defer to the other panel
    members.

        Question 8. If the damage is not reversible. could regional
    regulations tailored to the air quality needs of each region.
    effectively reduce the impact of sulfur on catalytic converters?
        Response. Due to lack of specific expertise in this area, we don't
    feel qualified to answer this question, and defer to the other panel
    members.
                                     ______

                Statement of Catalytic Distillation Technologies
                           who is cdtech'?
        CDTECH' is a Texas general partnership between ABB
    Lummus Global Inc. (LGI) and Chemical Research & Licensing (CR&L). The
    partnership was formed in 1988 when CR&L was owned by NOVA Corp., of
    Canada. In 1997, CR&L was purchased from NOVA by CRI International, a
    wholly-owned subsidiary of Royal Dutch Shell Petroleum. ABB Lummus
    Global is an international engineering and construction company
    providing a wide range of technologies and services to the chemical,
    petrochemical, petroleum refining, oil and gas, and power industries.
    ABB Lummus Global is part of ABB's worldwide oil, gas and petrochemical
    business activities, which employs approximately 10,000 people. ABB is
    a U.S. $31 billion Group based in Zurich, Switzerland, employing
    approximately 200,000 people. The CDTECH partnership develops and
    licenses a wide range of process technologies for the petrochemical and
    refining; industry. CDTECH has 74, licensed operating units worldwide
    including 50 Mtbe and Etbe units, 10 Tame units, 3 ethylbenzene units,
    3 iso-butene units, and 11 hydrogenation units.
                        why fcc gasoline sulfur removal?
        Most modern United States refineries contain fluid catalytic
    cracking (FCC) units, which produce 30 to 50 percent of the gasoline in
    a refinery. The gasoline produced by these FCC units can contribute up
    to 90 percent of the sulfur in a refinery's gasoline pool. Our
    experience with refiners in the United States is that FCC gasoline
    contains sulfur levels between 700 and 5000 ppm. To achieve sulfur
    levels in the gasoline pool of 30 ppm, the sulfur in FCC gasoline must
    be substantially reduced. In addition, there are other components of
    the gasoline pool, such as Light Straight Run gasoline, and coker
    gasoline, which typically have to be treated to reduce pool gasoline to
    30 ppm or below.
        FCC gasoline is also a major contributor to the octane value of the
    gasoline pool. On a molecular basis, this is due to the high olefin
    content in the low boiling portion of the FCC gasoline; a high ratio of
    branched to linear alkanes, and the high aromatic content of the high
    boiling portion. Most processes for sulfur reduction rely on the
    reaction of sulfur with hydrogen. The reaction conditions suitable for
    sulfur removal also cause the olefins present to react with hydrogen.
    This saturation reaction produces alkanes, reducing the octane of the
    individual olefin components by as many as 30 road octane points
    (defined as the average of research and motor octane numbers). If this
    saturation is excessive, the refiner will be severely limited in its
    ability to blend fuels with the octane required by automotive engines.
    The octane loss for the FCC gasoline that is desulfurized depends on
    the percentage of olefins originally in the FCC gasoline, and the
    percentage that react with hydrogen. The aromatics content of the FCC
    gasoline is not usually changed by sulfur reduction processes. However,
    some processing routes which include catalytic reforming, would
    increase the aromatics content of FCC gasoline in order to offset the
    octane losses caused by olefin saturation.
        During desulfurization, there is also the possibility of converting
    a portion of the FCC gasoline to components too volatile to be blended
    into the gasoline pool. This yield loss of gasoline production can also
    add to the costs of desulfurization since the products produced are of
    lower value than gasoline.
        The preferred process then must reduce the sulfur level
    selectively, without eliminating a major part of the octane value
    contained in this major component of gasoline and with minimal yield
    loss to undesired products. As a benchmark, 90 percent reduction in
    sulfur with less than one octane loss and no yield loss represents a
    selective process.
                    types of sulfur species in fcc gasoline
        The sulfur components present in FCC gasoline can be generally
    grouped into the following chemical classes: mercaptans, sulfides,
    thiophenes, and benzothiophenes. Mercaptan sulfur is principally
    concentrated in the low boiling range of the FCC gasoline while
    benzothiophene and its alkylated derivatives are concentrated in the
    highest boiling portion. The thiophenic and sulfide compounds are
    distributed relatively uniformly in the mid-boiling range of the FCC
    gasoline. Benzothiophene and its alkylated derivatives typically
    represent greater than 60 percent of the sulfur in FCC gasoline while
    mercaptan sulfur is less than 5 percent.
                 gasoline sulfur removal technology description
        CDTECH offers processes that are applicable for FCC gasoline sulfur
    reduction for any refinery with the desire to remove sulfur while
    limiting the extent of octane and yield loss associated with the sulfur
    removal step. The typical process scheme uses two stages of catalytic
    distillation and is currently available for up to 99 percent
    desulfurization of FCC gasoline. Catalytic distillation is a unique
    processing scheme in which both distillation and catalytic reactions
    take place simultaneously in the same vessel. The first stage of the
    process is a CDHydro' dehexanizer. This stage processes a
    FCC gasoline feed to produce an olefin rich overhead stream containing
    about 50 percent of the olefins in about one third of the volume of FCC
    gasoline. This stream is composed principally of five and six carbon
    hydrocarbon components and is designed to meet the targeted sulfur
    specification. Inside this catalytic distillation unit, volatile
    mercaptan sulfur species react with some of the hydrocarbons present to
    form substantially less volatile sulfide species that exit with the
    bottoms product stream. The overhead stream is thus very low in
    mercaptan sulfur species and does not require further processing before
    blending to the gasoline pool. The volume of this stream is limited by
    the levels of non-reactive sulfur compounds which are taken overhead in
    this unit. These include low boiling sulfur components such as methyl
    sulfide and thiophene. The first stage CDHydro unit can also be
    designed to increase the octane value of this olefin rich stream. This
    is accomplished by converting lower octane olefins to higher value
    olefins. This permits the recovery of some of the octane loss
    associated with the second stage of the process described below.
        The second stage of the process uses the CDHDS' process
    to remove the concentrated sulfur species from the heavier FCC gasoline
    produced as bottoms product from the first stage unit. In the second
    stage, sulfur compounds are catalytically converted to hydrogen sulfide
    (H2S) using conventional hydrodesulfurization catalyst and
    hydrogen. The product H2S is easily removed from the
    gasoline stream in a downstream unit known as a product stabilizer and
    then is recovered using a conventional amine absorption unit. The
    essential feature of the CDHDS technology is that it permits a more
    selective sulfur removal step than conventional fixed bed processing,
    minimizing olefin saturation, hydrogen consumption, and yield and
    octane losses.
        At 95 percent, removal of the sulfur from the feed, the two stage
    CDTECH process has virtually no yield loss and a road octane loss of
    about 1.0 for FCC gasoline streams containing about 30 percent olefins.
    Increasing the level of sulfur removal to 98 percent increases the
    octane loss to about 1.5 octane points with no change in the yield
    loss. Finally, higher olefin content gasolines will result in higher
    octane losses for a given level of sulfur removal.
                              development overview
        Development work for all of CDTECH's technologies is conducted at
    our state-of-the-art pilot plant facility in Pasadena, Texas. The pilot
    plant operates 24 hours a day, 7 days a week, replicating commercial
    operations. The development work is carried out on a number of scales,
    culminating with a test program at a scale sufficient to reduce the
    risks associated with scale-up to commercial operations to levels
    similar with previously successful processes. Feedstocks for the sulfur
    removal technology are acquired from the refining industry in tank
    truck quantities and are representative of the wide range of FCC
    gasoline streams currently being blended into the gasoline pool.
    Development work has been facilitated by onsite technical input of
    individual refining corporations who are interested in evaluating the
    technology for their FCC gasoline.
    (a) CDHydro Technology Development
        Development of the CDHydro technology dates back to 1992. The first
    commercial application of Catalytic Distillation for CDHydro was
    successfully started up in 1994. Currently 11 commercial units operate
    using catalytic hydrogenation within distillation towers. In 3 of these
    applications, the conversion of the mercaptan sulfur present in the
    C5 fraction of FCC gasoline occurs in the same manner as in
    the first stage of the FCC gasoline sulfur reduction process. The
    development work for the first stage therefore consisted of extending
    the commercialized process to include the mercaptans present in the
    light C6 fraction of the FCC gasoline. The octane enhancing
    option of the CDHydro technology has been in commercial operation since
    1997.
    (b) CDHDS Technology Development
        The development program for the second stage, CDHDS technology,
    began in 1994 and has included comprehensive pilot plant testing with
    10 FCC gasolines obtained from the North American refining industry.
    During its development, CDTECH has maintained close collaboration with
    the refinery industry to ensure the technology would address their
    needs. Over 15,000 hours of pilot plant operations have been conducted
    at the 5 to 10 barrel per day (bbl/d) feed rates, with an additional
    10,000 hours operation at the 0.5 to 1.0 bbl/d rate. The feedstocks
    tested ranged in sulfur content from 800 ppm to near 7000 ppm with
    olefin contents between 10 to 35 percent. In addition to a wide scope
    of pilot plant testing, CDTECH has collected and generated analytical
    data on dozens of FCC gasoline streams. This data allows CDTECH to
    evaluate the applicability of the results from the piloting of specific
    FCC gasolines to a wider clientele. Each feedstock can be evaluated
    against the CDTECH data base to ensure the engineering design will meet
    its intended performance criteria.
                        costs estimates to remove sulfur
        To meet the 30 ppm sulfur specification proposed by the EPA, most
    refineries are evaluating options to reduce the sulfur in their FCC
    gasoline to a 50 ppm specification. An example of the costs associated
    with treating a FCC gasoline stream with the CDTECH process is shown
    below (Total Installed Cost +/-25 percent U.S. Gulf Coast Location):

    ------------------------------------------------------------------------
                                                          Cost Estimates
    ------------------------------------------------------------------------
    Feed Rate: 40,000 BPSD of FCC gasoline.........  .......................
    Feed Sulfur Content: 2300 ppm..................  .......................
    Product Sulfur Content: 50 ppm.................  .......................
    Percent Sulfur Removal: 97.8 percent...........  .......................
                                                    ------------------------
      Total Capital Related Expenditures with a 4                  $0.64/bbl
       year payout: (Includes ISBL+Royalty, OSBL @
       40 percent of ISBL, Maintenance @ 4 percent
       of ISBL+OSBL)...............................
      Total Operating Costs: (Includes catalyst,                    0.55/bbl
       hydrogen, and utility costs)................
      Octane Loss Costs @ 1.5 (R+M)/2 loss:........                 0.35/bbl
      Total Cost of Process:.......................   1.54/bbl Or= 0.037/gal
    ------------------------------------------------------------------------

        Of course for each refinery, the costs will vary depending upon
    site specific economics, the desired rate of return on capital
    investments and the properties of the FCC gasoline fed to the process.
    OSBL capital as a percentage of ISBL costs will vary from site to site.
    Octane and utility values will also be different. FCC gasoline is a
    different percentage of the total gasoline pool at each refinery. Using
    the range of 30 to 50 percent, this example could generate an
    additional cost of 1 to 1.9 cpg of pool gasoline. If other gasoline
    pool streams require processing, costs will increase.
           commercialization steps, capability and status of projects
        The typical facility project has five separate phases, four of
    which require primary support from the Technology Supplier (CDTECH and
    others), and one of which can be contracted to any of the multiple
    major Engineering, Procurement and Construction (EPC) companies. These
    phases are:
        1. Technology Selection
        2. Budget and Project Approval
        3. Basic Engineering
        4. Detailed Engineering and Construction
        5. Commissioning and Start-up
        During technology selection, multiple technology suppliers
    typically submit preliminary process designs, and capital and operating
    cost estimates to a refiner. CDTECH has provided a large number of
    these proposals to refiners throughout the world. The refiner evaluates
    these proposals, and after discussions with the potential licensors, a
    single technology is selected. Capital for the project is then either
    included in the budget with a proposed timing, or approval of the
    project may be sought directly.
        The proposals that CDTECH provides to refiners during this phase
    are based on technology that CDTECH has developed in our pilot plant
    facilities and the performance of relevant commercial operating units.
    The technology is translated into process designs, and plant operating
    and capital cost estimates by ABB Lummus Global, under contract to
    CDTECH. CDTECH can expand this resource as required to meet the needs
    of the refining industry.
        Project approval may require more detailed capital estimates than
    have been provided with a proposal. The refiner can make these
    estimates within their own organization, or request a better definition
    from CDTECH. At times. this will require additional engineering design
    to meet the accuracy level requested by the refiner.
        During Basic Engineering, the process design is finalized by CDTECH
    to meet the refiner's detailed requirements, and equipment is sized,
    with the critical equipment specified in detail. The Basic engineering
    package supplied can be used by any of the many competent EPC companies
    to develop a project proposal for the refiner.
        The EPC firm selected by the refiner performs detailed engineering
    and construction. Thus, the entire EPC industry is available to support
    refiners during this phase. Detailed engineering drawings may be
    reviewed by CDTECH, if requested by the refiner.
        The final phase of the project is commissioning and startup.
    Engineers from CDTECH's technology development team with Lummus
    engineers and CDTECH Technical Service personnel ensure the unit starts
    correctly and is brought to full and guaranteed operation, meeting low
    sulfur requirements. Continuing technical support for operations is
    provided by this same team, in support of the refiner.
        The combination of CDTECH working with the EPC industry
    demonstrated our ability to meet the needs of the refining industry for
    Mtbe manufacturing facilities after the 1990 Clean Air Act was passed.
    The same cooperation and proven abilities are available for sulfur
    reduction facilities.
        CDTECH's sulfur removal technology has already been selected by
    three North American refineries. Two of the units will initially treat
    the heavy portion of the FCC gasoline only using CDHDS with provisions
    in the future to incorporate the first stage unit. The third unit will
    treat the full FCC gasoline using CDHydro and CDHDS. Basic engineering
    has been completed on two of the three projects. Basic engineering is
    being completed simultaneously with detailed engineering to expedite
    the third project. The first commercial CDHDS unit is expected to begin
    operation in Q1, 2000. The project involving both CDHydro and CDHDS
    unit is expected to begin operations in Q3, 2000. In both these cases,
    the time from beginning of basic engineering to unit startup is
    projected to be 18 to 24 months.
        Many other refiners are waiting for final issue of the EPA
    regulations for sulfur in gasoline before committing funds for a
    project for FCC gasoline sulfur reduction. The incentives for early
    sulfur reduction being offered may cause some refiners to commit to
    sulfur reduction projects as soon as the regulations are finalized. By
    2001, both portions of the CDTECH process for selective FCC gasoline
    sulfur reduction will have been fully commercialized, with adequate
    operating experience to demonstrate their reliability.

         CLEAN AIR ACT: SULFUR IN THE TIER 2 STANDARDS FOR AUTOMOBILES

                                  ----------

                             THURSDAY, MAY 20, 1999

                                   U.S. Senate,
             Committee on Environment and Public Works,
    Subcommittee on Clean Air, Wetlands, Private Property, and
                                                Nuclear Safety,
                                                        Washington, DC.
        The subcommittee met, pursuant to recess, at 9:30 a.m., in
    room 406, Senate Dirksen Building, Hon. James M. Inhofe
    (chairman of the subcommittee) presiding.
        Present: Senators Inhofe, Bennett, Boxer, and Chafee [ex
    officio].
        Also present: Senator Thomas.

              OPENING STATEMENT OF HON. JAMES M. INHOFE,
                U.S. SENATOR FROM THE STATE OF OKLAHOMA

        Senator Inhofe. The meeting will come to order right on
    time as usual.
        As I told the Administrator, this will go fairly rapidly.
    They called a special meeting on Kosovo that's taking place now
    and most of the members who are going to be here also want to
    get to the last part of that, so we will get right into it.
        Today's the second day of hearings on the EPA's proposed
    sulfur standards which is a part of the Tier 2 automobile
    standards. On Tuesday, we heard from the States, the auto
    industry, the public interest groups and a witness representing
    an alternative biotechnology. Today, we hear from both
    Administrator Browner and Mr. Perciasepe. We appreciate both of
    you being here. This allows the EPA to respond after the fact
    to the things that were said in last Tuesday's hearing.
        I have many concerns regarding the EPA's proposed sulfur
    standards. After Tuesday's hearings, my concerns really have
    increased. I have been raising a number of issues to the
    Administration regarding sulfur over the past year and these
    issues were not answered or addressed in the proposed
    rulemaking.
        I was extremely disappointed that my concerns were largely
    ignored by the EPA in the proposal. EPA's proposed sulfur
    standard is an unworkable program which, if enacted, would
    jeopardize and create disruptions in our national fuel supply,
    would lead to closing of refineries, and threaten our national
    security by making us more reliant upon foreign-refined
    products and will provide limited benefit to the environment.
        On Tuesday, I explained some of my major concerns. After
    listening to the testimony Tuesday, I'm adding to my concerns
    and I will just briefly list those things in addition to what I
    mentioned on Tuesday. (1) The small refineries that the EPA has
    failed to justify why they are using the 1,500 employee
    definition; (2) the problem that some of these refineries are
    owned by large corporations and yet the same cost
    considerations would be held by the subsidiary as if they were
    free-standing refineries; (3) the phase-in time, the EPA has
    provided the autos with generous time while ignoring the
    equipment installation problems for refineries; (4) cost data,
    the EPA's cost data assumes everyone will use the new equipment
    which has only been installed in one refinery to this date; (5)
    the regional approach, the Western governors are unanimous in
    their overwhelming objection to the national standard and their
    concerns have not been addressed; (6) new technologies, the EPA
    has ignored important new alternative technologies such as
    biotech which will not be ready for the 2004 deadline--we had a
    witness on Tuesday, Mr. Nasser, that made this very clear; (7)
    closures, the EPA believes no refineries will be closed without
    conducting a detailed refinery review like the one conducted by
    Canada, which found that 3 to 6 of their 18 refineries would be
    closed; (8) the national security, ignoring the refinery
    closure issue, the EPA has failed to consider the impacts on
    our national security creating a greater reliance on foreign-
    refined products; (9) the banking and trading program is too
    little and too late--in other words, they earn credits through
    2005 that the equipment is not available; (10) cost
    effectiveness, the EPA did not cost out other approaches to
    reduce the pollutants such as other sulfur levels or phase-in
    dates--you costed out using the 30 ppm by 2004 but not some
    comparison, perhaps 40 ppm for 2006 or some other alternatives;
    (11) MTBE usage, like they didn't consider the negative health
    impacts in ozone reduction which came rather clearly in the
    court case that we've been looking at in the last few days,
    they didn't consider the impact of increased MTBE usage; (12)
    cost of gasoline due to the EPA's incorrect equipment cost
    projection and supply disruptions, they have grossly
    underestimated the cost impact on gasoline. It assumes that the
    new technology will be used which is not yet there.
        This is not an exhaustive list but there are some other
    areas we will be able to get into. I also want to point out
    that the proposed Tier 2 rule the EPA uses, the term ``8-hour
    standard, 48 times; ``new ozone'' appear twice, ``new PM''
    appears 5 times and ``PM2.5'' appears 35 times. For
    anyone to say that the EPA has not relied on the new
    NOx standards for this rulemaking, they simply
    aren't reading the record.
        Senator Thomas.

     OPENING STATEMENT OF HON. CRAIG THOMAS, U.S. SENATOR FROM THE
                            STATE OF WYOMING

        Senator Thomas. Thank you, Mr. Chairman.
        Thank you for having this hearing. Administrator Browner,
    we're happy to have you here.
        I won't make an opening statement but let me just say there
    are some areas we're very concerned about from our previous
    hearing and want you to address with respect to how these
    regulations apply to each of the areas across the country--
    obviously Wyoming is quite different than California or New
    York--the time requirements that are there, whether or not
    there is fairness between the automobile industry and the
    refineries, particularly small refiners, whether you can expect
    this to be done in that length of time; the cost-benefit ratios
    I think are unclear in terms of what might be done. There seems
    to be decisions based on conflicting studies. I think that
    needs to be explained as well.
        We've heard there has been cooperation with the refiners in
    terms of it and yet I'm not sure there's been any meetings, so
    we seem to be faced with a problem.
        Let me say again as I've said before, you can't just cover
    this by saying we all want clean air, we obviously do. That's
    not the issue. The issue is the process. So I hope we can talk
    a little bit about how we arrive at a joint purpose and goal
    and that's clean air, but do it in a way that is not
    destructive. So we're very happy to have you here.
        I won't take anymore time, Mr. Chairman.
        Senator Inhofe. Administrator Browner.

         STATEMENT OF HON. CAROL BROWNER, ADMINISTRATOR, EPA;
    ACCOMPANIED BY HON. ROBERT PERCIASEPE, ASSISTANT ADMINISTRATOR,
                    OFFICE OF AIR AND RADIATION, EPA

        Ms. Browner. Thank you, Mr. Chairman. I appreciate the
    opportunity to once again appear before this committee to
    testify today on the President's proposal for the next
    generation of cleaner cars and cleaner gasoline.
        Joining me is the Assistant Administrator for our Office of
    Air and Radiation, Bob Perciasepe.
        Simply put, over the next decade, this proposal will phase
    in both cleaner burning engines and cleaner burning fuels. That
    will mean cleaner air and healthier families. We are doing
    this, we proposed to do this with a market-based approach that
    is both flexible and fair to industry. The costs to consumers
    are modest while preserving their choice in vehicles.
        We propose these new standards in recognition of some
    simple facts. No. 1, Americans are driving more than ever--we
    are in our cars almost 60 percent more than we were in 1980.
    That is simply a fact we all need to deal with. We live further
    and further from work, mass transit is not always an option,
    and higher polluting, large sport utility vehicles, minivans,
    light trucks now make up 50 percent of the automotive market
    and sales are expected to steadily increase.
        Since the Clean Air Act was passed almost 30 years ago, we
    have made tremendous progress in this country. Working
    together, industry, government, environmental and health
    experts, we are now preventing almost 70 million tons of
    harmful emissions from entering the air we breathe. We estimate
    that these gains, the hard work and the gains we've achieved
    will begin to erode in the next 10 to 12 years if we don't do
    something about increased vehicle emissions. Together we have
    come too far to let all of our hard work drift away on clouds
    of auto-induced soot and smog.
        The President has proposed the following. First, we are
    proposing to hold sport utility vehicles, light duty trucks to
    the same national pollution, tailpipe emission standards as
    automobiles. Second, for the first time ever, we are treating
    tailpipe emissions and gasoline as a single system, as a unit.
    Not only will the automotive manufacturers build cleaner
    catalytic converters and thus cleaner cars, but refiners will
    be producing cleaner fuels that contain less sulfur.
        We have worked with both automotive and refining sectors in
    developing these proposals. Mr. Perciasepe, his staff, have
    spent countless hours with these industries. I personally have
    also met on numerous occasions with representatives from both
    of these industries. I have had individual telephone
    conversations, meeting with individual companies.
        We consulted with States, we consulted with engine
    manufacturers, we consulted with public health groups. We
    engaged in a process to hear from each and everyone who would
    be affected by these proposals to best understand how to strike
    the balance, how to give the American people the clean air that
    I know we are all committed to providing.
        After months of collaboration with all of the interested
    parties, we have proposed a tailpipe standard of .07 grams per
    mile of nitrogen oxide. We propose this because we believe it
    is technically feasible, cost effective and it gives us the
    pollution reductions the American people need.
        This proposal represents a 77 to 86 percent reduction for
    automobiles and a 92 to 95 percent reduction for SUVs and
    trucks, reductions in their tailpipe emissions. To make the
    fuel that our vehicles burn cleaner, we will also phase in a 90
    percent reduction of sulfur and gasoline. We propose to begin
    that in 2004.
        Sulfur not only pollutes our air but it can also poison the
    performance of the catalytic converters that are supposed to
    help clean the air, that are supposed to scrub the tailpipe
    emissions. A great deal of flexibility has been built into the
    proposal, including giving the automotive and refining sectors
    needed time to phase in the technologies that will bring about
    these reductions. The proposal also includes market mechanisms
    that reward manufacturers and refiners who would meet the
    targets ahead of schedule.
        For cars and other vehicles under 6,000 pounds, the new
    standard will be phased in over 4 years, beginning in 2004 in
    25 percent increments with 100 percent compliance by model year
    2007. We recognize that trucks and SUVs have a longer way to
    go. The phase-in period for these vehicles would be between
    2004 and 2009.
        Most of the Nation's refiners will have to phase in and
    meet a sulfur standard of 30 ppm by 2006. We did recognize the
    needs of small refiners. They would have until 2008 to meet the
    requirements. If they could prove an extreme economic hardship,
    they could have until the year 2010.
        To ensure both the automobile and refining industries can
    meet these goals in the most cost effective way, the proposal
    contains several innovative and flexible incentives. In
    addition to the phase-in period, there is the opportunity for
    fleet averaging. This allows the car manufacturers to build a
    range of vehicles so long as the average of that fleet remains
    at .07.
        We also encourage early compliance by including a credit
    system that rewards manufacturers and refiners who meet their
    goals faster than required. For instance, beginning in the year
    2001, auto manufacturers can generate and obtain credits for
    later use for vehicles produces at or below the .07 standard.
    Refiners and oil importer would also be able to bank and trade
    sulfur credit so that they could use them in a later year or
    sell to another refiner.
        We estimate that when fully implemented, these proposals
    will keep about 3 million tons of pollutants out of our air,
    and in every year help prevent thousands of premature deaths
    and the onset of respiratory illnesses associated with air
    pollution. The results of these standards would be to cut
    emissions from cars and trucks by about 80 percent of what they
    are today. The effect is the same as if 166 million cars were
    pulled off the road.
        These proposals do not limit the consumer's choice in
    vehicles. In almost all cases, the manufacturing and refinery
    sectors will be able to meet the standards by building upon and
    perfecting technologies that already exist today. The cost to
    consumers will be minimal. We estimate that the price of gas
    will rise 1 to 2 cents per gallon. That means for the average
    motorist, an extra $12 to $24 a year for cleaner air.
        We expect the price of the cleaner catalytic converter to
    be approximately $100 to $200, although as you may have seen
    recently, one manufacturer who is reducing their tailpipe
    emissions is already promising not to pass that cost on to the
    consumer.
        With these new standards, we will maintain this Nation's
    progress in meeting our clean air goals and we will allow
    Americans to breathe easier into the next century.
        We are now in a period of public comment. We are hearing
    from numbers of people across the country. We will continue the
    dialog with both industry sectors, with public health
    officials, with State and local government leaders so that by
    the end of this year, we can complete these proposals, we can
    complete this rulemaking and begin the process of implementing
    programs that will bring cleaner air for millions of Americans.
        Mr. Chairman, before I conclude I just want to take a
    moment to talk about a recent Federal Appeals Court decision
    that would seem to call into question on constitutional grounds
    EPA's ability to tighten public health standards for soot, for
    smog under the Clean Air Act.
        The decision surprised us. We regarded it as extreme,
    illogical and bizarre. It is extreme in that it seems to fly in
    the face of more than a half century of U.S. Supreme Court
    rulings. It ignores the fact that for the past 64 years, this
    body, Congress, has passed laws and then relied on the
    executive branch, executive agencies to set the particular
    rules to carry out the legislative goals, rules that ultimately
    have provided a tremendous amount of public health and safety
    protections for the people of this country.
        The decision is illogical. It would have you believe that
    during the 1990 debate on the Clean Air Act amendment, this
    body, the Congress, the Bush administration, all but broke
    their sacred trust with the American people and perpetrated a
    cruel hoax on the one hand, telling EPA, retaining the
    provisions that tell the EPA to set a public health standard,
    to review it every 5 years and to strengthen it, if necessary
    to protect the public health and on the other hand, buried in
    another section, denying EPA the ability to ever enforce that
    standard, denying EPA the ability to ever require industry to
    reduce its pollution to meet a tougher public health standard.
        I have read the congressional debates on the Clean Air Act
    of 1990. No where have I ever, ever seen a member of this body
    say it is our intention to deny EPA the ability to ever
    strengthen the ozone standard and if they do it, to enforce it.
    I don't believe that is what this body was doing. I don't
    believe that is what was intended and yet that is what the
    court now tells us.
        Senator Inhofe. Should we conclude that you don't agree
    with the court decision?
        [Laughter.]
        Ms. Browner. Let me continue. In one of the more bizarre
    sections of the decision----
        Senator Inhofe. If you could go rapidly through the rest of
    your opening statement, you've gone beyond the time. We have
    some Senators who have to leave.
        Ms. Browner. This is an important decision, as I think the
    members of this committee with jurisdiction over this Act have
    rightfully noted. I want to call your attention to a few other
    sections of the opinion and I will be brief.
        It is a very strange opinion, Mr. Chairman. It is a very
    strange opinion and I think all of the scholars who have looked
    at it agree with that.
        Senator Inhofe. Let me suggest something. I'll have a
    hearing on this opinion later. Rather than use up the time for
    this opinion right now, I'd rather address that at a later
    date. There are a lot of opinions and court decisions that come
    out that I don't agree with either but our system is such that
    one right now is standing.
        Mr. Chairman, with all due respect, you raised the issue of
    the court opinion and how it may relate to Tier 2. I assumed
    you'd like me to speak to that.
        Senator Inhofe. Because the court opinion has been made,
    yes.
        Ms. Browner. I presume you would like me to speak to the
    issue of whether or not this court opinion would affect----
        Senator Inhofe. If you could do it very rapidly, yes.
        Ms. Browner. The court opinion goes far beyond what any
    court has recently found in terms of giving agencies the
    ability to set public health standards. I think it's important
    to understand--and some have suggested that somehow or another,
    this opinion says that EPA had bad science, that EPA didn't
    follow the process, that EPA didn't do what it was supposed to
    do in setting these standards. In fact, that is not what the
    court says. It explicitly recognizes that we did have the
    science, that we did have a public health rationale for tougher
    air quality standards.
        The Tier 2 proposal that brings us here today is premised
    on a series of authorities in the Clean Air Act--is it
    technologically feasible; does the technology exist to provide
    cleaner air; does the technology exist to build a better
    catalytic converter; does the technology exist for cleaner
    fuel?
        Second, it looks at the public health benefits that would
    flow from reducing the pollutants associated with tailpipe
    emissions. Perhaps most importantly to the Tier 2 proposal is
    the fact that as we continue to drive more and more, the gains
    we have made in air quality benefits will be lost and the Tier
    2 proposal is designed to maintain the benefits that we have
    achieved and to ensure that has we love to do, we will be able
    to continue to drive our cars where we want and when we want.
        You suggested, Mr. Chairman, that in some way the Tier 2
    proposal is premised solely on the new ozone standard, the 8-
    hour standard commonly referred to, that it is in some way
    premised on the fine particle standards. It is premised on the
    technology, the cost-effective nature of the technology, and
    finally the public health benefit. Those are largely driven by
    the fact that when we look at the number of miles we will drive
    our cars, it is going up and with it, so will the pollution.
    This is an effort to ensure that we do not lose the progress
    that we have made.
        Senator Inhofe. Thank you very much.
        There is one thing I want to pursue before turning it over
    to my colleagues. For over a year, we've been requesting the
    benefits data of the proposed sulfur standard. You were not
    required to submit this information to the rule as proposed. We
    found it strange that since we usually do get this data, but
    after we received it, I can see why you weren't all that
    excited to share that with us.
        I have four charts I'd like to look at. The first one is
    the chart of the benefits chapter of the EPA's regulatory
    impact on page 59. Look at the far right side which is the high
    end. Your range goes from 2.2 to 14.2, so we'll use the high
    side for comparison purposes because the ratios are the same if
    we use the low side, almost the same.
        You can see that the bottom line of the chart, the benefits
    range from $3.0 to $19.5 billion. At the top, it says the
    benefits that come from the mortality portion of the benefits
    is $14 billion, roughly 75 percent of the total benefits is
    found in that particular column. That is based on this one Pope
    study. I remember so well going over the Pope study previously.
    It was one of two principal studies whose data was never made
    public. The Pope study is currently undergoing a reanalysis by
    the Health Effects Institute.
        There are a lot of criticisms of the Pope study and you can
    recall when different scientists appeared before this
    committee. The Pope study relied on old data from 1980, the
    scientists agreed and are reviewing one, the fact that there
    are conflicting epidemiological studies, that the Pope study
    showed weak association levels, whether there are other
    confounders such as humidity, other pollutants, day of the
    week, temperature, et cetera, no biological mechanisms defined,
    no chamber studies for PM2.5. Three-fourths of the
    benefits are relying on this study.
        This is a letter from the President, a memorandum for the
    Administrator of the Environmental Protection Agency, subject,
    implementation of the revised clean air quality standards for
    ozone and particulate matter. The part that's highlighted
    reads:

        Implementation shall ensure that the Environmental
    Protection Agency completes its next periodic review on
    particulate matter, including review by the Clean Air
    Scientific Advisory Committee within 5 years of the issuance of
    the new standards as contemplated by the Clean Air Act. Thus,
    by July 2002, the agency will have determined based on data
    available from its review whether to revise or maintain the
    standards. This determination will have been made before any
    areas have been designated as nonattainment under the
    PM2.5 standards and before imposition of any new
    controls related to the PM2.5 standards.

        And it goes on.
        I guess the question here is that the President stated in
    his memorandum that the PM2.5 studies should not be
    used for the PM2.5 controls until the EPA has
    completed the next 5-year review. Yet you are using these same
    studies here and the Pope study for 75 percent of the benefits
    data for the sulfur rule. I guess the question is obvious. Can
    you explain why these studies are not appropriate for the PM
    regulatory decisions according to the President, yet you're
    relying on them for a regulatory decision here?
        Ms. Browner. First, let me speak to the issue of the
    studies, the scientific, peer-reviewed, published studies, the
    Pope study is one of the ones you referred to that formed the
    basis for EPA's decision to set a PM2.5 standard.
    You questioned whether or not that is a good study and you
    raise the fact that the Health Effects Institute is looking at
    these studies.
        The Health Effects Institute reported in a meeting last
    week in San Diego that they have in fact confirmed the results
    of the Pope study and what is commonly referred to as the six-
    city study. This is another panel of scientists, I think there
    has been a recognition in Congress that it was important, we
    agreed with that, to have another panel look at it. They have
    now indicated that they can confirm the results of the Pope
    study.
        Senator Inhofe. Madam Administrator, I know we can spend a
    lot of time discussing that and I have a lot of information.
        Ms. Browner. You suggested it's not a good study.
        Senator Inhofe. No, that isn't my question. My question is
    the President said you don't do this until you have this data
    and yet you're relying upon them for this regulatory decision.
        Ms. Browner. No, we're not.
        Senator Inhofe. You're not?
        Ms. Browner. The Tier 2----
        Senator Inhofe. Here it is----
        Ms. Browner. If I can explain.
        Senator Inhofe. Yes, you can explain.
        Ms. Browner. The rationale for the Tier 2 study--this is a
    cost-benefit analysis. The question I think that you want me to
    answer is what is your rationale for requiring tougher tailpipe
    standards and I think you're suggesting that somehow or
    another, our sole rationale is the tougher, fine particle
    standard which is now the subject of litigation.
        If you look at the justification which we have made public
    for the tougher tailpipe standards and at the cleaner fuels,
    what you will see is, as I said previously, it is
    technologically feasible and there is a public health need. We
    have justified the public health need based on the old
    standards.
        The easier way for me to talk about this in the case of
    ozone is there is the 8-hour standard, which is what is
    referred to as the new standard, the old standard is referred
    to as the 1-hour standard. The litigation is about the 8-hour
    standard.
        This proposal, the Tier 2 proposal, is premised on the need
    for pollution reductions under the old standards. The
    documentation is all there and it is publicly available.
        Senator Inhofe. Madam Administrator, with all due respect,
    I'm only asking on the highlighted part where he says, ``Do not
    use the new PM standards until you have the review process
    behind you,'' and yet you are doing it and the President said
    not to do it.
        Ms. Browner. We didn't do what the President told us not to
    do. We didn't. The standards are premised on----
        Senator Inhofe. Senator Thomas and I hope you get a better
    answer?
        Senator Thomas. Let me just make an observation. You talked
    a good deal about the court decision. We went through this a
    week ago on clean water as well. There is, as I understand it,
    a relationship between what the Congress does statutorily and
    what the agencies do to live within that. I think that is a
    reasonable thing. As you know, it's not unusual to suggest that
    EPA has gone beyond its authority, so I'm not as surprised by
    this as you seem to be. We talked about it last week, you
    recall.
        Let me ask you, California has done some of these things
    for 20 years. You say the costs will probably be 2 cents a
    gallon. How do you understand the cost in California which is
    80 cents higher than Wyoming?
        Ms. Browner. The issues of fuels in California go beyond
    the issue of sulfur. California has----
        Senator Thomas. So you don't think there is any
    relationship there?
        Ms. Browner. California has other requirements on their
    fuels beyond the sulfur reduction. When we look at the cost in
    terms of the cost to refineries to install the technology, and
    it is existing, available technology. You are right, California
    has already reduced sulfur. So have other parts of the world.
    California goes beyond sulfur and does other things than what
    we've proposed, but in terms of sulfur, when you look at the
    cost to the refineries of installing the equipment to produce
    the lower sulfur fuels which brings the public health benefits,
    that is something that is easily ascertained, and that is what
    our cost figures are based on.
        To simply say because California's gas is this much higher
    than Wyoming's gas today, as you well know today probably far
    better than I do, a lot of factors go into the pricing of
    gasoline. California does have other issues involved in the
    price of their gasoline.
        Senator Thomas. For you to simply say you've decided that
    when the refiners who were here earlier this week have quite a
    different view also brings it into question.
        Ms. Browner. Obviously we're taking public comment on it.
    We are more than happy to share with you how the study was done
    to look at--again, this is existing information. What is the
    technology, how much does it cost the refiner to buy the
    technology, to install the technology? The good news is it has
    been done and the more it is done, if history is any guide, it
    does tend to become less expensive. This is something that is
    known, people have done it, are doing it.
        Senator Thomas. How long did it take California to made the
    adjustment?
        Ms. Browner. Just the sulfur adjustments? California
    started their sulfur reduction program in 1992 and they
    completed it in 1996 is my understanding. We will check those
    dates.
        Senator Thomas. You check that because I don't believe that
    is accurate. They've taken much longer than that to do that and
    that's part of the problem here, that you're requiring--we
    don't need to debate it with all your associates--but come up
    with that, will you, please because that's one of the real
    issues here as you know, is there time, is this a time that you
    can make this transition? That's part of the question.
         The small refiners in the West are something selfishly
    that I'm quite concerned about. For example, why should Wyoming
    motorists be subject to these increased costs and disruptions
    from this when we're really doing it for other areas of the
    country substantially.
        Ms. Browner. Everyone gets cleaner air when you get cleaner
    fuels, cleaner tailpipes, cleaner catalytic converters.
    Everybody gets cleaner air. One of the great things about this
    country is our freedom and our strong desire to see our country
    and to travel from State to State.
        There is a technological issue which I'm happy to discuss
    if you'd like me to.
        Senator Thomas. I started this by saying we all want that.
    Nobody wants clean air anymore than we do in Wyoming. We have
    an attainment. It's quite different in Wyoming than it is in
    New York City.
        Ms. Browner. I'm going to explain why you would want to
    have one standard. It is associated with the fact that we drive
    our cars from State to State.
        Senator Thomas. I understand that.
        Ms. Browner. The catalytic converters, when you put the
    dirtier fuels into the catalytic converters, you limit, you
    decrease the catalytic converter's ability to scrub the fuel
    and to achieve lower emissions. You may do that permanently. So
    we could go through the effort of putting cleaner, better
    available new technology catalytic converters on cars and then
    as we enjoy a family vacation and drive to a State where they
    do not have cleaner fuels, the benefits of that catalytic
    converter are lost.
        Senator Thomas. You're saying that doesn't ensure that's
    entirely accurate. Not everyone agrees with that. Do you
    understand?
        Ms. Browner. The people who build the catalytic converters
    do agree with us. I've spent time with them.
        Senator Thomas. Let me ask you this. You talked about
    getting the refiners and the automobile people together so they
    could do something about that. Did you ever help set up that
    meeting between them?
        Ms. Browner. Sir, I didn't say we got them together. I
    said----
        Senator Thomas. I said did you help set up a meeting
    between the two of them?
        Ms. Browner. I think you can ask both of the industries, I
    tried and unfortunately, they didn't want to do it that way.
    Instead, they preferred to work with us individually.
        Senator Thomas. Who is they?
        Ms. Browner. The car manufacturers did not want a joint
    meeting. The petroleum industry was more than happy. When I
    called API back and I explained to them that our invitation to
    the automobile association was not to their liking, the
    petroleum industry said, they would like to work with us alone
    and that is what we did. I met with API, I met with company
    representatives on several occasions and my colleagues, on
    numerous occasions. In addition to that, I placed phone calls
    and had extensive conversations with several CEOs,
    environmental vice presidents of individual companies.
        It would have been my preference to have everyone in one
    room. That was not their preference and so we found another way
    to move forward listening to both industries.
        Senator Thomas. I understand. We do find different points
    of view. You kind of make the statement as if this is the way
    it is. That may be your views, but that isn't everyone's view.
    You do understand that?
        Ms. Browner. It's not API's view that I met with them?
        Senator Thomas. No, the idea that it's going to impact the
    automobile industry so much and the cars by having this thing.
    The things that you say, Ms. Administrator, are your views but
    they are not everyone's view. That's kind of what we're talking
    about here in terms of the studies.
        Ms. Browner. They're not my views.
        Senator Thomas. Why are you putting them out there? Why are
    you so aggressive today? Can't we just talk about this? You
    don't need to be so defensive about everything.
        Ms. Browner. I'm not defensive. I do have a job to do and
    I'm trying to do it.
        Senator Thomas. So do I.
        Ms. Browner. We've made a proposal, we think it is a sound
    proposal and we are taking public comment on the proposal. I am
    simply trying to answer your questions, how did we arrive at
    this proposal, what was the process we engaged in, and why did
    we make it? That's all I'm trying to do.
        Senator Thomas. What we would like to do is to help explain
    to you some of the questions and problems that our people have
    and I think we deserve just a civil response. We don't need
    great defensiveness and rejecting everything we way.
        Ms. Browner. I haven't rejected anything you've said. I
    simply explained to you that in my conversations with the
    catalytic converter manufacturers----
        Senator Thomas. My conversations with the oil people is
    that is not necessarily accurate.
        Senator Inhofe. Senator Thomas, your time has expired.
        I want to apologize to Senator Boxer. I did not see you
    here, Senator Boxer.
        Senator Boxer. It's easy to miss me, I know.
        [Laughter.]
        Senator Inhofe. No, it's not easy to miss you.
        Senator Boxer.

               OPENING STATEMENT OF HON. BARBARA BOXER,
               U.S. SENATOR FROM THE STATE OF CALIFORNIA

        Senator Boxer. Thank you very much, Mr. Chairman.
        Mr. Chairman, sometimes I think I'm in the wrong room when
    I come to an Environment Committee and everybody's entitled to
    get on the committees of their choice, but I hope you will
    continue to give us your views and your best analysis even if
    everyone doesn't agree with you because it would not be
    appropriate for you to sit there and not tell us what you see
    as the truth, as it would not be for Senator Thomas not to tell
    us what he sees as the truth. I think everyone should just be
    truthful and respectful.
        I just have to say this. Again, maybe it's because we do
    come from different States. It's true, California has gone a
    long way to clean its air and there was a very good reason for
    it. Even today, a child born in Los Angeles has a 12 percent
    lower lung capacity than a child born in another part of my
    State, San Francisco, because of the air. So in California, it
    is our view to just do everything we can do to clean up the
    air.
        In terms of the cost of gasoline, we know that it does cost
    us about 10 cents more a gallon to meet all of the various
    requirements to get clean gas. Our people support that. What we
    don't quite understand is why we're paying so much more. That's
    the subject of an FTC investigation. That's another issue.
        There is no question that our people do pay more for
    cleaner fuels and also my understanding is the oil companies
    say it will cost about 5 cents to get a cleaner fuel in terms
    of sulfur. So it does cost.
        The question is, is the cost worth it? I guess what I
    always come back to and the reason I'm so happy to be on this
    committee with all of you, even though we don't agree on a lot
    of things, is because between 1982 and 1994, asthma prevalence
    has increased 61 percent in our population and 72 percent
    increase among children. This just doesn't come out of--it does
    come out of the air. It's because of the dirty air and we know
    that asthma is the No. 1 cause of school absences attributed to
    chronic conditions.
        We know that our children are very vulnerable to the
    effects of air pollution because unlike adults, children
    breathe 50 percent more air by body weight than the average
    adult. That's why I wrote the Children's Environmental
    Protection Act. I think it is time that rather than fight
    cleaner air, we should fight for even cleaner air than we
    thought we needed because if we clean up the air enough to
    protect an adult, which is currently what the law provides, we
    miss out on the children, the pregnant women, the vulnerable
    population. So what do we do here I hope would be about
    ensuring that we improve the health of our people, our children
    and the most vulnerable populations.
        It has a cost. I'm very straightforward about that, but it
    saves money at the other end. Every child that goes into a
    hospital emergency room because of asthma costs us money. Every
    person that has their life shortened because of emphysema and
    other problems costs us money. We know that automobiles is an
    area we need to address.
        What our Administrator is doing here, and I think she
    deserves praise, she's fighting from her heart and from her
    mind to make this case. She knows her facts.
        As I look at all this and I want to ask the Administrator
    this question, I understand there are at least two available
    cost-effective technologies for reducing the sulfur content of
    gasoline and one is called CD hydro and the other is called
    OCTA made by Mobil. I don't know whether we invited those folks
    to participate in this hearing but I would ask you, do you
    think 5 cents a gallon is about what it would cost in terms of
    the sulfur, cleaning the sulfur?
        Ms. Browner. When we looked at the available technology,
    and you're correct, those are two technologies and I think we'd
    also find there are other technologies. Our study, which we've
    made publicly available, suggests 1 to 2 cents per gallon.
        Senator Boxer. So the oil companies say 5 cents, you say 2
    cents. Let's say something in between.
        Ms. Browner. Correct.
        Senator Boxer. Let's even go to the 5 cents. If you ask
    people what they think, the polls, I don't have any charts but
    if I had one, I'd show you the asthma chart and I'd show you
    the public support for cleaner fuel, 89 percent of the people,
    and a vast majority are willing to pay for it.
        All I want to say is I've been in this battle for clean air
    since I was a county supervisor and we've always heard these
    same arguments. In California in particular, the argument made
    was strong economy versus clean environment. I think what we
    have proven in our State is they go hand in hand and when we
    embrace these new technologies that we know work, they create
    jobs in and of themselves.
        I would hope in this committee we could join hands across
    the aisle. Today, it looks like that is difficult, but I'm ever
    optimistic that we can because I think in the end, we will find
    cleaner air means better health for our people, longer lives,
    better quality of life, more productivity for our people, and
    we save money at the other end when people live healthier
    lives, and particularly the children.
        Children are not little adults. I am a little adult, I
    agree, but kids are changing. It is dangerous for them to
    breathe dirty air.
        Mr. Chairman, I know your concerns, I understand them but I
    hope in the end we will continue to make progress. I understand
    this court decision but this decision certainly didn't tell you
    not to move ahead with this standard?
        Ms. Browner. Not with the Tier 2 proposal, no, it did not.
        Senator Boxer. Because it's related to another underlying
    law. I hope we will move forward with this. I look forward to
    more debate with my colleagues.
        Thank you very much, Mr. Chairman.
        Senator Inhofe. Senator Chafee, I appreciate your being
    here today.
        Senator Chafee. Thank you. I think Senator Bennett was
    first.
        Senator Inhofe. You're going to defer to Senator Bennett.
    That's fine.
        Senator Bennett.

             OPENING STATEMENT OF HON. ROBERT F. BENNETT,
                  U.S. SENATOR FROM THE STATE OF UTAH

        Senator Bennett. Thank you, Mr. Chairman.
        It's been an interesting morning. I'm not sure that I can
    add too much to it in terms of incisive questions because the
    battle lines have been drawn but let me take advantage of the
    time to make a few observations.
        I used to live in California, Senator Boxer. I was there
    for 12 years. I know that there are things in California that
    the rest of the country does not have to endure. In a way I was
    delighted to be out from under some of those restrictions, but
    that I recognize given the nature of California, particularly
    the Los Angeles Basin, the geographic situation there with the
    mountains situated as they are.
        The San Fernando Valley I'm told--that's where I lived--was
    called the Valley of Smokes by the Indians before anybody else
    showed up. There was dirty air there from natural causes before
    the automobile got there. When the automobile came and
    exacerbated the problem, the San Fernando Valley, beautiful as
    it is and wonderful as it was to live there, became an area
    very different than the high, wind-swept plains of Wyoming.
        So I understand that paying extra for gasoline and other
    things that are done in California is just part of the price of
    living there.
        Senator Boxer. And more and more people are coming.
        Senator Bennett. More and more people are coming. I
    remember reading about the comments of one of the early
    developers of Los Angeles who said, it's the climate we're
    selling, the land is free. The climate has gotten very
    expensive if the land is free in southern California.
        I think some of these debates about whether it's 1 or 2
    cents or 5 cents or so on are a bit short-sighted. The Wall
    Street Journal has a story about California and indicates that
    the law of supply and demand is still in effect. That is that
    problems with refineries, who could not manufacture under these
    rules, caused shortages in California's output to the point
    that the supply fell and the price--admittedly you could say it
    was temporary--went up as high as 55 cents a gallon because of
    lack of supply of this particular kind of fuel that could not
    be replaced from fuel in other parts of the country.
        Senator Boxer. If I might say, we had a couple of fires at
    a couple of refineries but it's not the supply and demand
    issue. I'm steeped in this and that's why the FTC is
    investigating because there's a lot more to it than this,
    regardless of what the Wall Street Journal might say.
        Senator Bennett. Nonetheless, we do have the question of
    whether or not--we'll debate that at some other point.
        I'll tell you my experience in Utah where the EPA has
    determined that Utah Valley--those unfamiliar with the
    geography in Utah, we have Salt Lake Valley where Salt Lake
    City is, we have Utah Valley where Provo is--has the same kinds
    of problems. That is, there are inversions there that occur
    naturally. Again, a different kind of situation than you have
    in Kansas or Nebraska.
        Utah Valley does not meet some standards some parts of the
    year and EPA has ruled that certain things have to be done to
    the gasoline in Utah Valley which raises the price, and which
    has produced the natural law of supply and demand, the
    phenomenon that many people in Utah Valley drive to Salt Lake
    Valley to fill their tanks, not only because of price but
    because of degradation of performance.
        You can argue that Americans shouldn't be so in love with
    their cars and the performance of their cars that that
    shouldn't be an issue but we have had that experience, where
    people in Utah Valley routinely drive to Salt Lake County to
    fill their tanks. They get gasoline that is not compliant with
    the requirements in Utah Valley but they drive back there and
    there you have the problems.
        So basically what we come down to is a very serious problem
    that does not lend itself to the shouting of slogans back and
    forth. Administrator Browner, I can understand your frustration
    with some of the attitudes on this committee and the very human
    reaction to be firm in your position. I don't criticize you for
    that. I understand that.
        At the same time, I think the EPA institutionally has a
    history of having something of a tin ear in the marketplace and
    on some issues of science, I think some dialog should take
    place that, for whatever reason, doesn't now.
        I can confirm that people in the refineries agree that you
    have had an open door, you have sat down with them, you have
    had those conversations. I would hope that you, us, someone can
    be an honest broker to get the refinery industry and the
    automobile industry together. I do not think that the science
    is ever as clear-cut as some people like to claim that it would
    be.
        Some of the scientific studies that are being cited here
    are to the benefit of the automobile industry. I remember back
    before you were the Administrator a controversy about catalytic
    converters. One of the big three manufacturers had a particular
    kind of engine they thought had great promise for clean air;
    another manufacturer had a very heavy investment in catalytic
    converters and a patent on catalytic converters. The battle was
    lost for the first manufacturer and in favor of the second
    manufacturer and we're now stuck with that technology having
    thrown out the opportunity for the first technology. It's too
    late, long since, to go back to that. That was 15-20 years ago.
        Let's not automatically assume that what one manufacturer
    or one industry tells us is the only way to clean air.
        I'll close, Mr. Chairman, and I appreciate your indulgence
    with the time. No one has a monopoly on his or her dedication
    to clean air. No one should be stigmatized as being against
    clean air just because he or she might question the scientific
    validity of some of the studies that we have.
        Thank you.
        Ms. Browner. Just very briefly. First of all, I wanted to
    thank the Senator for your recognition of the work that we did,
    the outreach and the dialog we engaged in with the industry. I
    think it was both appropriate and quite extensive. It
    continues. It is not something that is simply set aside as we
    move into this public comment phase. It does in fact continue.
    Anyone who can help us encourage all of the parties who
    ultimately have a stake in this, everything from the State
    agencies who could set their own fuel standards, to the
    petroleum industry to the automotive industry, to come together
    and to look at how best to answer this question of cleaner
    fuels and cleaner tailpipe emissions we would be very, very
    pleased to have that kind of assistance. We would appreciate
    it.
        If I might make one other point, with the indulgence of the
    chairman. You raised the issues of studies and who does which
    studies, and that's a very valuable question to ask, a very
    legitimate question to ask. I would call the committee's
    attention to the work that EPA itself has done in this area. It
    is detailed in the proposed rule that is now available for
    public comment.
        Very briefly, we did purchase a car, a large SUV is what I
    think it would be referred to--I'm going to try to do this
    without referring to manufacturers' names--off the lot, like
    any one of us could purchase an SUV off the lot. We then
    installed a newer catalytic converter, the new generation
    catalytic converter, then fueled it with the cleaner fuels to
    see what sort of issues might arise and what kind of pollution
    reductions we could achieve.
        Obviously we're not free to make some of the adjustments
    that the manufacturer can make inside the engine body; we're
    simply sort of playing on the outside if you will, things we
    can add on. I think the very, very good news is simply those
    things that we could do we were able to get very significant
    pollution reductions and we were able to bring a very large
    vehicle down to something on the order of .04 emission level.
    What we are proposing is an average, a fleet average of .07.
        So I take your counsel on who does which study and I would
    simply call to your attention to some of the work we have done.
        Senator Inhofe. Madam Administrator, you're talking about
    the other subject. We're here talking about sulfur and gas.
    Tuesday they refrained from talking about the auto emissions, a
    separate subject, and you're spending a lot of time on this.
        Ms. Browner. But they go together. What comes out of your
    car is a factor of two things.
        Senator Inhofe. They may go together but the seven
    witnesses last Tuesday were able to segregate the two. We will
    be having hearings on that.
        I think since Senator Bennett brought up the science that
    this would be a good time. This was called to my attention and
    I suggest to everyone in the room regardless of what your
    thinking is, read the current Reader's Digest article. It hits
    the shelves today or yesterday, and it's called, ``Weird
    Science at the EPA.'' At this time, I would enter this as a
    part of the record.
        [The referenced article follows:]
                          [Reader's Digest, June 1999]

                            Weird Science at the EPA

                             [By Trevor Armbrister]
                political smog is costing us billions of dollars
        Two year ago Environmental protection Agency (EPA) Administrator
    Carol M. Browner told a Senate committee that ``our air-pollution
    standards are not adequate to protect our health.''
        Under the Clean Air Act, the EPA must seek the advice of its Clean
    Air Scientific Advisory Committee (CASAC) before it issues new
    regulations. Browner testified that the committee reviewed a vast body
    of research. ``In a most compelling way,'' she said, ``the science
    leads us to the new, stronger standards that EPA proposes.''
        In fact, on a key soot regulation only two of the committee's 21
    members supported the EPA's stringent standard, and of ten members who
    expressed their views on the smog rule, only four agreed with the one
    chosen by Browner. ``The committee was used,'' one CASAC member told
    Reader's Digest.
        The cost of these new regulations--as much as $47 billion a year by
    EPA estimates, more than $100 billion by critics calculations--will be
    borne by every American. Yet the public-health benefits are either
    marginal or uncertain, according to the CASAC reports.
        This episode--in which the head of a Federal agency overstated the
    scientific basis for a proposal she wanted to implement--is part of a
    disturbing pattern, according to Browner's many critics. ``This is by
    far the most politicized EPA I've seen in my three decades of working
    in State government'' says Russell J. Harding, director of Michigan's
    department of environmental quality. ``It is an agency driven more by
    sound bites than by sound science, an agency that is out of control.''
        EPA scientists and other employees have also criticized the
    agency's management practices under Browner; several reportedly then
    faced vicious harassment. U.S. Rep. F. James Sensenbrenner, Jr. (R.,
    Wis.), chairman of the House Committee on Science, fears that
    retaliation against whistleblowers may be having a ``chilling effect on
    scientific research at the agency.''
        New EPA regulations will cost as much as $47 billion, yet the
    health benefits are marginal or uncertain.
                               cooking the books
        When Carol Browner's name first surfaced as President Clinton's
    choice to head the EPA, few in Washington had heard of her. A 37-year-
    old attorney and mother of a young boy, she had been a legislative aide
    to then-Senator Al Gore (D., Tenn) and the head of Florida's department
    of environmental regulation. Browner had no scientific credentials but,
    as she told Senators, she had ``management skills.''
        Those skills would presumably come in handy, because the agency had
    long been a lightning rod for criticism--and not only by industry. A
    year earlier a special review body at the EPA had characterized the
    agency's ``interpretation and use of science'' as ``uneven and
    haphazard.''
        Early in 1993 (before Browner took over) the EPA declared in a
    report that secondhand smoke was a deadly carcinogen responsible for
    approximately 3000 lung-cancer deaths each year. The fallout was
    enormous. States, cities, counties and towns rushed to pass new laws,
    and the White House declared itself a smoke-free zone. Browner was all
    over the media, touting the report.
        Several tobacco companies claimed the EPA's risk assessment was
    wrong and filed a lawsuit to force the agency to withdraw the report.
    But few paid any attention, since the industry lacks any credibility.
        A year later, however, the nonpartisan Congressional Research
    Service (CRS) questioned the EPA finding's scientific basis. ``The
    statistical evidence,'' CRS researchers told a Senate subcommittee,
    ``does not appear to support a conclusion that there are substantial
    health effects of passive smoking.''
        Then, last July, U.S. District Court Judge William Osteen (who had
    in another major case ruled against the tobacco industry) concluded in
    effect that the EPA had cooked the books. Based on a comprehensive
    review of the evidence, Osteen wrote that the ``EPA publicly committed
    to a conclusion before research had begun'' and ``adjusted established
    procedure and scientific norms to validate the agency's public
    conclusion.'' The judge noted, ``Using standard methodology, the EPA
    could not produce statistically significant results.'' (Osteen did not
    challenge the link between secondary smoke and respiratory problems in
    children, or other studies that point in the direction of a link to
    lung cancer.)
        The Federal judge's ruling--issued in a blistering 92-page
    document--was in effect a challenge to the EPA's integrity. In
    response, Browner stood behind the report, and her agency has filed an
    appeal.
                                   no apology
        Members of Congress have frequently voiced complaints about
    Browner's agenda. Republicans charged that she was more interested in
    expanding her agency's reach than protecting the environment. She
    ignored them. Veteran House Democrats John Dingell (Mich.) and Ron
    Klink (Pa.) complained publicly about her unresponsiveness and
    inaccessibility during the debate over clean-air standards. Browner
    cold-shouldered them too.
        Browner's officials have also tried to stiff-arm the States. In
    1996 EPA officials approved an application from the Oneida Nation of
    Wisconsin granting the tribe authority to set water-quality standards
    on its reservation near Green Bay. Wisconsin protested, arguing that
    the State had the right to regulate its own waterways and that only 15
    percent of the land affected by the EPA's ruling was owned by the
    tribe.
        According to Wisconsin's attorneys, the EPA, when forced to justify
    its action, discovered that the ``factual analysis'' required to
    buttress its decisions had never been made. ``Don't worry,'' EPA
    attorney Marc Radell told his colleagues, according to a co-worker's
    deposition filed in Federal court. ``We can pull together whatever is
    necessary and backdate'' it to before the decision was announced.
        In sworn affidavits, Radell and a colleague, Claudia Johnson-
    Schultz, claimed that the factual analysis had been prepared prior to
    the EPA's approval of the Oneida application. Then in April 1997 the
    U.S. Justice Department filed a ``status report'' that ``affidavits
    submitted by [EPA] may contain false statements.'' Radell and Johnson-
    Schultz stuck to their story. Higher-ups supported them.
        Later, investigators found e-mails that, Wisconsin attorneys claim,
    proved Radell and Johnson-Schultz had created the documents in late
    May, backdated them to January and lied about it ever since. Without
    admitting any wrongdoing, the EPA agreed to pay Wisconsin more than
    $30,000 for legal fees and other costs. Gov. Tommy G. Thompson (R.)
    requested a ``formal apology'' for the EPA's ``abhorrent conduct and
    the great harm it has caused.'' The EPA would not respond, since the
    mater was in litigation.
                                 reprisal time
        Under Carol Browner, critics charge, the EPA's Office of Inspector
    General has been so aggressive in investigating EPA employees that
    agency morale has suffered. Wrongdoing should always be prosecuted, but
    many of the cases were dropped for lack of evidence, and in other cases
    the accused have reported being harassed and intimidated by
    investigators.
        One episode of employee harassment involved the EPA's Office of
    General Counsel and EPA microbiologist David L. Lewis. In two long
    letters to Browner, Lewis expressed his concern that poor management
    was undermining science at the EPA to such an extent that it was
    jeopardizing public health and the environment.
        Lewis had an international reputation. He had conducted pioneering
    research on dental infections; the EPA would nominate him for a
    prestigious national award. But when Browner failed to respond to his
    letters, Lewis published an article entitled ``EPA Science--Casualty of
    Election Politics'' in Britain's renowned science journal, Nature:
    Science at the EPA had reached ``a state of crisis,'' he charged.
        EPA officials were quick to retaliate. Lewis had violated
    government ethics rules, agency attorneys suggested, because his
    disclaimer--the required acknowledgment that he was speaking just for
    himself and not for the EPA--was insufficiently prominent in the
    article.
        At the time, Congress was considering legislation to reform EPA
    science procedures. The agency also claimed that another Lewis article
    in a newspaper constituted political activity prohibited by the Hatch
    Act.
        Lewis was forced to hire Washington attorneys to preserve his
    career as well as his right of free speech. Late in 1996 they filed a
    whistleblower's complaint with the U.S. Department of Labor (DOL),
    which referees such disputes within the executive branch.
        The DOL ruled that the EPA had violated no fewer than six federal
    statutes in its quest to silence Lewis. In a settlement, the EPA agreed
    to pay Lewis $115,000 in damages and legal fees. Later October, Lewis
    announced that he was taking early retirement. ``I have no faith in the
    agency or the character of its top leaders.''
                             ``veering off course''
        Carol Browner appears often in print and on television, speaking
    about how her agency protects the health and environment of all
    Americans, especially ``the children.'' What is her policy about
    whistle-blower complaints? How does she respond to allegations that
    politics takes precedence over science at the EPA, that questionable
    conduct passes without rebuke?
        Through a spokesman, Browner declined repeated requests for an
    interview. But she may have to talk to Congress, as it plans to hold
    hearings this year to look into some of her policies.
        Americans want a clean environment, and they're willing to pay for
    it. But they also have a right to be assured that the agency charged
    with administering the environmental laws makes its decisions on the
    basis of the best science available. Unfortunately, the evidence
    suggests that this is not necessarily the case.
        Rep. Joe Knollenberg (R., Mich.) sits on the committee that
    controls EPA funding. ``The agency has been veering off course,'' he
    said in an interview. ``We have to push it back on track.''
                                  plane truth
        I was on a flight from Washington, D.C., to San Francisco. In a
    seat ahead of me was an off-duty senior airline captain. After an
    unusually rough landing, I overheard another passenger asking the off-
    duty captain to critique our pilot's skills.
        ``A good landing is one that you can walk away from,'' he said.
    Then he added, ``And a great landing is one where you can reuse the
    plane.''
                                --Contributed by Robert G. Hahn

        Ms. Browner. Do you know what the issue is that they're
    raising?
        Senator Inhofe. Science, yes.
        Ms. Browner. Which body--water, air.
        Senator Inhofe. Air and other science.
        Is there objection to entering this into the record at this
    point?
        Senator Bennett. No.
        Senator Inhofe. Thank you very much.
        Senator Bennett. Just quickly. I have the information that
    California did have six small refineries close as a result of
    sulfur California standard rules. This was in the testimony
    that we had a couple of days ago. So the reduction in supply
    was not due entirely to the fires, there were six small
    refineries that were closed because they could not produce this
    and that had an impact on California's supply. I just want that
    in the record at this point.
        Senator Inhofe. I would observe, Senator Bennett, that
    during my comments I talked about what has happened in Canada
    in terms of those that are in the process of being closed
    today.
        Senator Chafee.
        Senator Chafee. Thank you very much, Mr. Chairman.
        We've got a real problem here as I see it. If you look at
    the testimony of Ms. Browner, you'll see that the increased
    mileage driven by Americans over a rather short period of
    time--if I read her statistics correctly, we've gone from a
    trillion miles per year of what you call light vehicles or is
    that total vehicles?
        Ms. Browner. I think that's total vehicles, from passenger
    up to the trucks.
        Senator Chafee. Up to and including trucks?
        Ms. Browner. It includes everything from your small
    passenger car up to your large SUV.
        Senator Chafee. So we've gone from a trillion miles per
    year vehicle miles traveled in 1970 to just over 2 trillion
    miles per year today. In a 28-year period, it has doubled.
    There's no reason to believe that isn't going to continue.
        I think what you indicate in the testimony the staff has
    prepared for us, what the committee did, if we follow the
    procedures you've outlined here, it would be the equivalent to
    moving 69 million cars from the road in 2020. That's a pretty
    big step forward. What they're saying here is if we followed
    the proposal you have, it would be the equivalent of removing
    69 million cars from the road.
        Ms. Browner. Actually, it's a different number, the 166
    million.
        Senator Chafee. That would be only for the sulfur part of
    the proposal.
        Ms. Browner. Yes.
        Senator Chafee. I think it's something that deserves our
    attention in following through with this. I'm a cosponsor with
    Senator Moynihan of legislation, S. 171, which would require
    the same level of reduction.
        We've got big problems here and I take if I'm correct here,
    since 1996, California gasoline has met this standard, is that
    correct?
        Ms. Browner. That is correct. Their program was different
    than the one we have proposed. It did not include extra time
    for the small businesses, the small flexibility and it did not
    include a banking and trading program like we propose.
        Senator Chafee. This is something California did by itself?
        Ms. Browner. California did it on their own, right.
        Senator Chafee. I'd like to change gears on a completely
    separate subject if I might since you're here. My question is
    addressed to you.
        Yesterday I met with Senator Baucus in connection with
    Superfund. One thing that we agreed on is we need much more
    detailed information from EPA on Superfund cost data. We need
    that information as we move toward the appropriations and as
    you know, the Senate allocation for the VA/HUD Subcommittee is
    down by 12 percent, over $10 billion less than last year.
        Mr. Fields sent me some information on Superfund last
    evening and the staff is in the process of reviewing it but it
    really misses the mark. The EPA plans seem to focus on how it
    will spend $1.5 billion but that wasn't the question I asked
    Mr. Fields.
        What we want is a bottom-up estimate of how much EPA will
    need to run the Superfund cleanup program over the next 5
    years.
        Ms. Browner. We can provide that.
        Senator Chafee. We've had a tough time getting it.
        Ms. Browner. They may not have understood the question. As
    I understand the question, maybe the simplest way to do this is
    you look at the number of sites that we project activity at,
    the cost on average per site per year.
        Senator Chafee. Whatever your best judgment of the cleanup
    costs over the next 5 years. Our focus is on the cleanup
    program, not on the discretionary extras such as brownfields or
    research or worker training or other non-cleanup things under
    Superfund. Our focus is on the Superfund cleanup.
        What I'd like from you is a commitment that you'll give us
    that information as quickly as possible.
        Ms. Browner. Certainly.
        Senator Chafee. Because we're very anxious to move on with
    our Superfund proposal. Our staff here is available to meet
    with you and your staff to make sure that everybody understands
    the nature of this request.
        Ms. Browner. Yes, we're more than happy to do that. I think
    I understand. With your suggestion, we will meet with your
    staff and make sure we're doing it in an accounting that works
    for you.
        Senator Chafee. That's right, so that we're in sync
    together.
        Ms. Browner. Absolutely.
        Senator Chafee. Thank you very much, Mr. Chairman.
        [The prepared statement of Senator Chafee follows:]
       Statement of Hon. John H. Chafee, U.S. Senator from the State of
                                  Rhode Island
        Mr. Chairman, with your indulgence I would like to take this
    opportunity to make a few comments on a court decision announced last
    week that declared the ozone and particulate matter standards
    unconstitutional. As everyone knows by now, the Court of Appeals found
    that the analysis supporting these standards was too vague; it did not
    articulate a principle that pointed to the specific standards selected
    by EPA as opposed to others that might have been selected. I want to
    make three points about this decision.
        First, this is not a general defeat in all of our environmental
    laws. I have seen some press reports suggesting that the whole
    structure of environmental law has been undermined. Not so.
        For instance, the Safe Drinking Water Act has long dealt with
    contaminants that cause cancer and for which there is no threshold for
    the adverse health effect. When Congress enacted the Safe Drinking
    Water Act in 1974, it established a clear principle for setting
    standards in these cases. Set the goal at zero and set the enforceable
    standard as close to zero as can be achieved using best available
    treatment technology.
        Most of our laws use comparable technology-based principles for
    standard setting. Even within the Clean Air Act itself, the first phase
    of standards for toxic air pollutants are determined based on best
    technology and the second phase, which is health-based, has a one-in-
    one-million trigger.
        Far from being a general defect in environmental law, I believe the
    vagueness the Court found for these national ambient air quality
    standards is almost unique. If there were a threshold for the health
    effects of ozone and particulate matter as there are for other ambient
    air pollutants, EPA would have easily translated ``requisite to protect
    public health with an adequate margin of safety'' into a clear
    standard. It is the newly appreciated absence of a threshold for the
    health effects that make these ozone and particulate standards
    difficult to justify using the statutory language of the Clean Air Act.
        Second, I agree with the Court as it expresses its discomfort with
    the vagueness in these two regulations. As some may recall, I did not
    endorse EPA's regulations when they were proposed, in part, because EPA
    was not able to say why .08 for ozone was better than .09, but .07 was
    not better than .08. Whenever that subject came up, Administrator
    Browner would always appeal to report of the Clean Air Scientific
    Advisory Committee that was nearly unanimous for .08. But, as the Court
    said, CASAC didn't articulate a decision principle either.
        I think that Congress must do a better job of saying when ``enough
    is enough''. And that applies even where we are using technology-based
    standards and the principle is clear. Our ability to detect these
    substances and control them gets better and better. It is a blessing of
    modern technology. But at some point removing that last little
    increment of pollution has a cost way beyond reasonableness. We need to
    do a better job in our environmental laws telling EPA when to stop.
        My third point is on cost-benefit analysis. I suspect that many
    will think that cost-benefit analysis is the obvious answer to the
    Court's challenge. EPA can't use it now, because a previous decision of
    the same Court bars it. But Congress could amend the law to make it the
    principle for decision on these two pollutants. The Court seemed to
    invite such an approach. And indeed, the Governmental Affairs Committee
    is this morning marking up a bill to require a cost-benefit analysis of
    every regulation. Just set the standard where the cost of pollution
    control is equal to the cost of the doctor's visits avoided and you
    have a clear principle.
        But I would caution those who would jump on the cost-benefit
    bandwagon to do their homework. In some cases, cost-benefit is a useful
    tool in setting national standards. We authorized its use in the 1996
    Safe Drinking Water Act Amendments. The costs and benefits of drinking
    water treatment are roughly the same in Minneapolis and Philadelphia.
    Using a cost-benefit test on a national standard applying to both
    cities makes sense. But care is needed in using this tool, because the
    drinking water standard that is affordable in Minneapolis and
    Philadelphia will not always be affordable for the smallest towns in
    America.
        In the case of the Clean Air Act, the complications are much
    greater. It is much cheaper to achieve any particular level of ozone
    control in Minneapolis than it is in Philadelphia because of
    differences in meteorology and the regional transport of pollutants.
    Whose costs and benefits do we consider when we set the national
    ambient air quality standard for ozone? Are the people of Minneapolis
    to be denied the protection that they can afford because the same
    standard would be too expensive in Philadelphia? Do all of us want to
    live under the air pollution regulations that would be readily
    affordable in Los Angeles? I don't think so.
        Perhaps it is not as elegant as a Court of Appeals would desire,
    but our current system of muddling through may be the best that we can
    do. We have national health-based standards that are tough goals to
    strive toward and an implementation system based on State plans that
    leave many cities in perpetual non-attainment because immediate
    compliance would be too expensive. Although the system is a source of
    constant complaints and adjustments, we must also recognize that it has
    produced marvelous results in public health and air quality over the
    past 30 years. Clear principles would make us more comfortable. But it
    is exceedingly difficult to capture the physical complexity of a vast
    Nation in simple legal principles. Clear air should be our real
    concern. And we should be loathe to throw out a law that has produced
    so many wonderful results.

        Senator Inhofe. Thank you, Mr. Chairman.
        I have a number of questions I was going to ask concerning
    the time for permits should this rule become effective and
    there are some 20 refineries in the States of Louisiana and
    Texas. I'm not going to ask those now because I still haven't
    gotten an answer to my first question, so I'm going to go back
    to that.
        This is a hearing on a rule affecting sulfur and gasoline.
    In the event that this becomes a reality, it will become
    effective, as I understand it, in December of this year,
    December 31?
        Ms. Browner. Yes. It is our hope to complete--we've
    committed to completing both of these rulemakings by the end of
    the year.
        Senator Inhofe. We went to a lot of expense. I've always
    wondered how much these charts cost because I know we use them
    all the time quite freely and we're supposed to be so austere.
    They're very nice charts.
        The one up here we went over before you came in, Senator
    Bennett and Senator Chafee, the President specifically said--
    and I read the highlighted part--that you can't use 2.5
    standards for rules until the 5-year review, which would be
    2002, and that's what it says.
        Ms. Browner. But we didn't.
        Senator Inhofe. Yet, you're using the 2.5 Pope study for
    three-fourths of the benefits in this rule, right?
        Ms. Browner. That is not the legal justification for why we
    have----
        Senator Inhofe. You're using it. This is in your report,
    page 59.
        Ms. Browner. It is part of a cost-benefit analysis, it is
    not the legal justification for the proposal. I'm happy to cite
    the sections of the Clean Air Act that we rely on in making the
    proposal to reduce sulfur.
        Senator Inhofe. So even though it's in your report, you're
    saying you're not using it?
        Ms. Browner. Sir, there are two different issues. One is--
    --
        Senator Inhofe. No, we're talking about the justification
    for this rule and the cost benefit is part of that
    justification. There's your benefit up there. Three-fourths of
    the benefit is predicated on the Pope study which is 2.5.
        Ms. Browner. In making the proposal to reduce sulfur in
    gasoline, we used a variety of authorities in the Clean Air
    Act. Is it feasible, is it technologically feasible, what are
    the health benefits. We also undertake a----
        Senator Inhofe. Madam Administrator, we're not asking about
    the authority you're using, it's in your report and it speaks
    for itself.
        I'm through with my questions. I'll yield now to anyone
    else who has a question.
        Ms. Browner. Can I answer?
        Senator Inhofe. You've already tried to answer it. It's
    there in front of you and you're denying that it's there.
        Ms. Browner. Sir, I've never denied that it's in the
    report. I'm explaining----
        Senator Inhofe. Based on 2.5, the Pope study is based on
    the 2.5 pm, isn't it?
        Ms. Browner. I'm more than happy to explain why it's in
    there, I'm more than happy to explain what standard we rely on
    in making this.
        Senator Inhofe. Just for the record, why don't you just
    deny that you're using 2.5?
        Ms. Browner. I haven't----
        Senator Inhofe. Because the President said not to, and so
    you're----
        Ms. Browner. I think if you look in the proposal, look at
    the justifications, if you look at the public health needs, the
    issue we are seeking to address and the pollution reductions we
    are seeking to achieve, are premised on the need, we are
    driving our cars more; they are premised on the 1-hour ozone
    standard; they are premised on the coarse particle standard.
        Senator Inhofe. Thank you very much.
        Senator Thomas.
        Senator Thomas. Just one, I think, question of interest,
    the definition of small refiner. We've heard apparently in
    California--I'd heard nine, they said six--at any rate, it's
    more difficult apparently for small refiners to accomplish
    these things than larger ones. It's my understanding the
    definition of SBA is based on corporate employees and so on but
    in the Clean Air Act, there is a definition that has to do with
    refining capacity. You've chosen to use the one for small
    business?
        Ms. Browner. The provision that you refer to I think refers
    to diesel fuels on refining capacity, but let me back up for
    second. We did use the SBA definition, we worked very closely
    with SBA on this on the panels. In fact, SBA has been very
    complementary of what we did on the small business side of
    this. The definition is 1,500.
        Senator Thomas, we are taking comment on that. Several
    individuals have spoken to me personally about the fact that
    there may be a few refineries that sit right above that and
    there may be a bigger jump up, so we have, in fact, opened
    ourselves for comment on the definition of small business. We
    did develop that in conjunction with SBA. I think the provision
    in the Clean Air Act that you're actually referring to is
    focused on diesel fuel which is a separate provision.
        If I might go back to the point I tried to make earlier
    with Senator Bennett in terms of California, while California
    does have a requirement on sulfur that is similar to the
    requirement that we have proposed or the standard we have
    proposed, I think equally important is how did they get there.
        Our proposal in terms of how the industry would be able to
    meet this standard is different in two very important ways than
    California's proposal. One is the small business flexibility.
    There is a provision in our proposal for the small business,
    the small refineries as we refer to them. If there is economic
    hardship, they can get an additional year.
        There is also what we refer to as a banking and trading
    program. This is the same kind of program that has been used in
    the acid rain where it helps industry to find the more cost-
    effective source of reductions. Finally, there is an early
    credit program.
        So it is not the same path that California traveled that we
    are proposing and I'll be honest with you, I think we have--we
    may have a difference of opinion as to what happened in
    California and what caused it to happen. I think we have
    learned from California and that a lot of the flexibilities
    that we propose are in part a response to some of the rigidity
    that may have existed in California's program.
        Senator Thomas. From a distance, it seems like if the Clean
    Air Act had a definition that would be appropriate for you to
    use.
        Ms. Browner. I don't think it does have a definition.
        Senator Thomas. Yes, it does. We just went through that.
        Ms. Browner. We are using that on the diesel side.
        Senator Thomas. What's the difference in terms of size of
    the refinery?
        Ms. Browner. We are taking comment on that. SBA, who I
    think we would all agree, is the keeper of this. We used them.
        Senator Thomas. I just made an observation, you'd think the
    Clean Air Act would be kind of appropriate when you're talking
    about clean air.
        What about the math pro study, were there two of those
    done, one with refiners and one with automobiles? You came to
    the cost conclusions on this.
        Ms. Browner. I think there were two studies done. I think
    that is correct.
        Senator Thomas. One on refineries and one for the
    automobile?
        Ms. Browner. Yes.
        Senator Thomas. And you chose the one for automobiles to
    base this on?
        Ms. Browner. No, they were jointly done. I don't think
    that's--we're happy to provide you with the study. I think it
    was a joint effort to look at these issues.
        Senator Thomas. Would you provide it because it's my
    understanding they came to different conclusions and you have
    based it on the one that was for the automobile. We don't need
    to go through it in great detail.
        Ms. Browner. The staff that is much better informed on
    these two studies is telling me that there were two studies,
    they did reach the same conclusions. Why don't we give them to
    you?
        Senator Thomas. Yes, please.
        Thank you, Mr. Chairman.
        Senator Inhofe. Senator Bennett.
        Senator Bennett. Thank you, Mr. Chairman.
        I want to come back to the issue of supply. I probably
    shouldn't have to do this but apparently we do need to do this.
    I am not in any way carrying the brief for dirty air. I want
    everybody to understand I believe in clean air.
        Ms. Browner. Nor am I.
        Senator Bennett. We do not import very much gasoline in
    this country. We import a great deal of crude oil, indeed we
    import the majority of our crude oil, but in spite of
    tremendous burdens that have been placed, for environmental
    reasons and one can argue legitimately upon the refinery
    capability of this country, refineries have survived to the
    point where most of the gasoline in this country is refined in
    this country.
        Such percentage of imported gasoline that we do have acts
    as a regulator on the market. In other words, there is an
    alternative, albeit small. The numbers I've seen are from 10-15
    percent of gasoline in this country is refined outside our
    borders and is imported as gasoline, but that acts as a
    regulator on price so that there is a source of supply outside
    the country available.
        As we tighten pressure on supply in the United States, we
    increase the impact of imported gasoline in terms of its impact
    on the market.
        Ms. Browner. Just so I can follow the point, I think you
    and I both agree that the vast majority of what is imported is
    crude.
        Senator Bennett. Yes, and I'm not talking about crude at
    all. I'm talking about refined gasoline.
        Ms. Browner. Right, and sulfur would be the----
        Senator Bennett. Let's stay with the major product. As I
    understand it the percentage of gasoline is about 10----
        Ms. Browner. Percentage of crude?
        Senator Bennett. No, 55 percent of the crude is imported.
    Refined gasoline is somewhere between 10 and 15 percent and it
    acts as a regulator on price. So there is an alternative if the
    price gets too high for domestic, then the amount of imports go
    up, the price gets--this is the way it work. The law of supply
    and demand still operates.
        What will happen? Is anybody doing this kind of thinking in
    the EPA, what will happen if gasoline in the United States has
    specifications that are significantly different from gasoline
    outside of the United States, that the cost of refining
    gasoline for the United States in a foreign source becomes
    sufficiently prohibitive that the foreign source decides they
    are not going to refine anything for the United States and the
    availability of imported gasoline disappears? Has anybody done
    any studies on that?
        Ms. Browner. First of all, this is not the first time that
    there have been U.S. requirements that foreign refiners had to
    meet.
        Senator Bennett. I'm aware of that.
        Ms. Browner. And they have met them and they have remained
    a part of the mix, if you will.
        Second, lots of other countries have either done this or
    are preparing to take this specific reduction on sulfur. For
    example, Europe, the EU, the European Union, Japan, Canada.
    Canada has told me they're essentially going to follow exactly
    what we do. So it is something that is happening not simply
    here but it is a worldwide phenomenon.
        Finally, and I don't know if this is the issue you're
    trying to raise.
        Senator Bennett. I'm just trying to get a dialog on all
    these issues because I will tell you as a philosophical
    statement, I have the feeling that most of these debates take
    place in a very narrow arena and ignore the impact outside that
    arena. I would like the debates to take place in an arena where
    they consider all of the implications.
        Ms. Browner. I think this is an example of where we have
    looked at the worldwide situation. I have had several meetings
    to discuss what other countries are doing in terms of refining
    and the reduction of sulfur and we are continuing to work with
    the Department of Energy to ensure that the appropriate balance
    remains in terms of what is imported and what is domestic. We
    do have prior experience of requirements.
        Senator Bennett. I understand that. My summary is we
    disagree on this number too but I have evidence, Senator Thomas
    has evidence that the sulfur thing has caused some refineries
    to close. By definition that usually means a decrease in
    supply, a decrease in supply in terms of the United States'
    capacity usually means an increase in imports because as
    Senator Chafee says, we're going to keep driving. An increase
    in imports raises the question of the ability of refineries
    that are outside of our borders to meet this increased demand
    in the United States. I just want somebody to pay attention to
    those and talk about them. I am not being ideological about it,
    I am raising an issue in terms of the economics of the
    situation.
        Ultimately we come down to the question, as policymakers,
    if we can get all that information in front of us, is the cost
    worth it. We make the decision on a public health basis, yes,
    the cost is really going to be this. Frankly, in my gut, I have
    to tell you I think 1 to 2 cents per gallon is clearly not what
    this is going to cost. I think the 5 cents per gallon that
    Senator Boxer talks about is getting closer to reality, maybe
    it's 10 cents. The next question is, is the 10 cents worth it.
        If the answer from a societal point of view is the 10 cents
    is worth it, we go arm in arm toward paying the 10 cents and
    say it's very much worth it and let's all do it, but let's
    understand what the real number is and make the real decision
    instead of saying, this is all there is and there is no other
    problem. Let's look at the whole picture, that's the plea I'm
    making.
        Ms. Browner. I believe we've made that effort. If I might
    suggest that we could take the question you posed and work with
    DOE to look back in time where there have been fewer
    requirements, refinery requirements, how has that affected the
    import. It's not going to be a perfect answer but I think
    history can always help inform our judgment.
        The issue of refineries closing was an issue that was part
    of the small business panel discussion. We did have two Wyoming
    refineries that participated.
        Senator Inhofe. If you could bring this to a close, we have
    a vote in progress right now and I do want to give the chairman
    a chance to ask one or two more questions.
        Ms. Browner. I simply want to make the point that there
    were two small refineries from the gentleman's State and that
    when we looked at the small business impacts, with the
    flexibilities that came about because of our work with the
    small business refineries and the SBA panel, we do not project
    closings. We believe we have added in the flexibility, the
    additional time, the trading that should allow everyone to
    remain.
        If we need to go further, we are in a public comment period
    and we can make those adjustments.
        Senator Bennett. I will have some comments for you.
        Senator Inhofe. I would ask since you mentioned the DOE
    that you include them in this discussion.
        Ms. Browner. Yes, they have been but we'll go back on this
    specific question.
        Senator Inhofe. Senator Chafee.
        Senator Chafee. One quick question if I could get a quick
    answer because as the Chairman mentioned, we have this vote.
        What's your timing for implementation of this proposal?
        Ms. Browner. Essentially, 2004 is the first round of
    requirements for both the automotive and the fuels and then it
    plays out over the next 4 to 6 years and different factors come
    into play on that timeframe.
        Senator Chafee. Fine. Thank you.
        Ms. Browner. There is the opportunity, the proposal does
    allow for recognition and credit for companies who may desire
    to go sooner. We have already heard from some of the petroleum
    industry go are going to go to 30 much sooner than we would
    require.
        Senator Chafee. Thank you.
        Senator Inhofe. Thank you, Mr. Chairman.
        I do have other questions that I'm going to submit in
    writing. You can answer them as long as you want, having to do
    with the definition of the small refineries, the permit time,
    the disparity between your estimate of cost per gallon as
    opposed to our panel last Tuesday.
        Thank you very much for being here, both of you. You are
    here, aren't you?
        Mr. Perciasepe. Yes, I am.
        Senator Inhofe. Thank you very much.
        [Whereupon, at 11 a.m., the subcommittee was adjourned, to
    reconvene at the call of the chair.]
        [Additional statements submitted for the record follow:]

          Statement of Carol M. Browner, Administrator, Environmental
                               Protection Agency
        Thank you, Mr. Chairman and Members of the Subcommittee, for the
    opportunity to appear here today to discuss the U.S. Environmental
    Protection Agency's (EPA) proposed Tier 2 standards for cars and light-
    duty trucks and the accompanying proposed low sulfur requirements for
    gasoline.
        Our proposal follows from sweeping changes over the past couple of
    decades in how Americans move around. We've gone from under 100 million
    light vehicles in 1970 to 200 million last year. And we're driving
    farther--from just over one trillion miles per year in 1970 to just
    over two trillion miles per year today. And as you probably know, there
    has been a dramatic shift in recent years toward sales of the larger
    light vehicles meeting emission standards 2 to 5 times less stringent
    than passenger cars. All indications are that these trends will
    continue indefinitely into the future, and they will have significant
    impacts on increasing emissions from motor vehicles.
        Our proposal, over the next decade, will improve and maintain the
    nation's air quality by phasing in both cleaner vehicle technologies
    and cleaner burning gasoline using flexible, market-driven mechanisms
    that are fair to industry with minimal consumer cost while preserving
    vehicle choice.
                           tier 2 report to congress
        These issues were highlighted in the context of the Clean Air Act's
    requirement that we reassess light-duty standards. We were to report to
    Congress on three issues: whether there would be an air quality need
    for new tailpipe standards in the post-2004 timeframe, whether such
    standards could be technologically feasible and whether they are cost-
    effective. Last year, we reported to Congress in the affirmative on all
    three issues. Let me say a few words about the specific evidence in
    this report.
        Our projections identified large parts of the country, involving
    about one hundred thirty million residents, that would be at or near
    unhealthy levels of pollution in the middle of the next decade, even
    with all expected control programs in place. A large part of that
    problem will be ozone, which reduces the lung function of otherwise
    healthy people and increases hospital admissions for people with
    respiratory ailments like asthma and which, under longer exposures,
    permanent lung damage can occur. Particles are the other major part of
    the problem because they can penetrate deep into the lungs and are
    linked with premature death, increased hospital admissions, and changes
    in lung tissue. Other environmental problems related to pollution from
    motor vehicles, such as agricultural damage, impaired visibility, and
    nitrogen deposition in our nation's waterways, will also remain a
    concern to citizens across the nation.
        The vehicles we are discussing today--cars, minivans and full-size
    vans, pickups, and sport utility vehicles (SUVs)--are big contributors
    to air quality problems. For example, they will be responsible for
    about 20 percent of ozone causing NOx emissions nationwide
    and approach 40 percent in some metropolitan areas like Atlanta in
    2004. And since more vehicles are being purchased and more miles are
    being driven, total emissions from these vehicles will increase after
    2010 eroding the progress made by local and State government in
    cleaning the air. This was a large part of the evidence we reported
    that led to our decision to propose new standards for this vehicle
    class.
        In our Tier 2 Report to Congress, we also demonstrated that much
    lower vehicle emission standards were within reach of current emission
    control technologies; improvements in today's technology, not new
    breakthroughs, are what will be needed. In fact, many vehicles being
    sold today in California and the Northeastern U.S. are already
    employing technologies that can achieve lower emission levels when
    operated on low sulfur gasoline. In addition, as a technology
    demonstration at EPA's laboratory, we have made progress in
    significantly lowering emissions from a large pickup and a popular SUV
    by making calibration and catalyst changes to the emission control
    systems. In fact, we have been able to achieve the proposed standards
    on both of these vehicles. Since these large emission reductions would
    come at a fairly modest estimated cost, we reported that new standards
    beyond the National Low Emission Vehicle Program would be cost-
    effective. These findings on air quality need, feasibility, and cost-
    effectiveness formed the basis for our recent proposed rule.
        We also determined that lower sulfur gasoline will be needed to
    allow these advanced emission control technologies to be effective in
    reducing emissions. There is widespread agreement that sulfur degrades
    emission control performance for all vehicles, reducing the
    effectiveness of the catalyst in converting pollutants such as
    hydrocarbons, carbon monoxide, nitrogen oxides, and particulate matter.
    Further, a combined industry research project by the Coordinating
    Research Council, a consortium of oil and auto companies, as well as
    other research, has found high levels of sulfur permanently damages
    vehicle emission controls. Unfortunately, this problem will get worse
    in the future because as emission levels are lowered, the more
    effective control systems are even more sensitive to sulfur. So
    gasoline sulfur levels must be reduced--significantly--to enable
    cleaner emission control technologies to work to their full potential.
                                    process
        Our proposal is the culmination of an extensive deliberative
    process during which we worked intensively with a wide range of
    stakeholders. Before completing the proposal, we met repeatedly at high
    levels with the vehicle manufacturing industry, the oil refining
    industry (including a special outreach process with small refiners),
    states, environmental organizations, and other parts of the Federal
    Government. We logged many hours at all management levels in meetings
    with individual companies and trade associations, State organizations,
    and others to understand the issues and the capabilities of each group
    to respond to these concerns. The perspectives of these many
    stakeholders are reflected in the design of our proposed program and
    the principles on which we based it.
                                   principles
        Through this broad deliberative process, we developed a list of
    overarching principles for the design of a strong, national program,
    including:
         Do not constrain consumer choice of vehicles or driving
    styles, either due to cost or technical factors;
         Treat vehicles and fuels as one system;
         Hold cars and light trucks to the same emission standards,
    since in the vast majority of cases they are used for the same
    purposes, and the fleet mix is shifting toward larger vehicles;
         Set emission standards that build on the success of the
    National Low Emission Vehicle Program (NLEV) and that are fuel neutral,
    so that it doesn't matter whether the vehicle is fueled by gasoline,
    diesel, or an alternative fuel;
         Make sure that the standards and accompanying program not
    preclude the introduction of low emission and fuel efficient
    technologies;
         Employ performance standards and provide both automakers
    and gasoline refiners a menu of flexible provisions for demonstrating
    compliance with the program; and
         Provide sufficient lead time to allow automakers to design
    even their heaviest light-duty trucks to meet our standards and to
    allow refiners to install the necessary equipment.
                                vehicle program
        The auto and oil industries and other stakeholders provided
    meaningful suggestions during the development of the proposal. Based on
    our work with the stakeholders, we drafted a proposal, which we then
    shared and revised based on our discussions with other parts of the
    Federal Government, including the Department of Energy and the Office
    of Management and Budget, to ensure that the proposal balanced concerns
    regarding cost, benefits, and timing. We believe that the Tier 2/
    Gasoline Sulfur standards that we proposed on May 1, 1999, represent a
    common sense, cost-effective plan resulting from the many levels of
    cooperation we experienced in this process.
        Our proposal consists of two parts: Tier 2 emission standards and
    gasoline sulfur requirements. The vehicle standards require
    manufacturers to meet a corporate average NOx standard of
    0.07 grams/mile--a 77 percent reduction from NLEV levels and a more
    than 90 percent reduction from Tier 1 levels. These standards are
    phased in over time beginning in 2004, and the heavier vehicles
    (between 6,000 lbs. and 8,500 lbs. GVWR) are given the greatest amount
    of time, until 2009. During the phase-in period, the remaining cars and
    smaller trucks will continue to meet NLEV levels, and the heavier
    trucks, which are currently certified to Tier 1 standards, will have to
    meet average levels of 0.2 g/mi NOx.
        In meeting the corporate averages, manufacturers will have a number
    of certification ``bins'' to choose from. The bin with the highest
    emission levels will accommodate vehicles certified to 0.2 g/mi
    NOx, with corresponding standards for hydrocarbon, carbon
    monoxide and particulate emissions. We believe this bin will provide
    substantial flexibility for manufacturers to comply with the Tier 2
    standards while still meeting their customers' desires for larger
    trucks and SUVs, including possible diesel-fueled vehicles.
        Our proposal also reduces evaporative emissions from all vehicles
    by 50 percent, and extends the useful life requirements for these
    vehicles to 120,000 miles to more properly represent the actual
    operating life of today's cars and trucks. Thus, although much of our
    effort was focused on ensuring reductions in NOx emissions,
    our program will also result in fewer hydrocarbon emissions. These
    reductions will help states to improve and maintain their air quality
    for many years.
        We have designed this program to achieve the environmental goals as
    early as possible while minimizing the burden on the affected
    industries. In addition to allowing vehicle manufacturers to choose
    from emission standard bins above and below the average standards, we
    have provided other compliance flexibilities for manufacturers. In
    addition to the certification bins, manufacturers will be able to use
    an averaging, banking, and trading program when meeting the corporate
    average standards. Under this program, manufacturers who surpass their
    corporate average standard in a given year can bank or trade
    NOx credits for future use or for use by manufacturers that
    are having trouble meeting the corporate average standards. Other
    flexibilities include the phase-in and interim standards.
        Overall, we have estimated that these requirements will only result
    in modest increases to the cost of producing these vehicles. We
    estimate that the technologies required for cars and the smaller light
    trucks will average about $100/vehicle. The heavier trucks will require
    more changes, particularly since they are starting from less stringent
    standards; this technology will average about $200/vehicle.
                            gasoline sulfur program
        To enable the emission control technologies necessary to meet these
    proposed standards, we have proposed a national gasoline sulfur
    standard of 30 ppm on an annual average basis, with a maximum cap of 80
    ppm in 2004, and a credit program to allow for compliance as late as
    2006. Based on the information I mentioned earlier, we believe a
    national program is the best option, due to the permanent damage that
    sulfur causes on vehicle emission control performance and the magnitude
    of environmental benefits to be achieved from this program. Tier 2
    technologies anticipated to be used to meet emission levels required to
    address our air quality concerns are expected to be even more sensitive
    to sulfur than today's technologies, and these new technologies simply
    cannot be exposed to high sulfur levels and continue to perform as
    designed.
        Current information indicates that these catalysts will have a
    partial but permanent loss in performance if they are exposed to high
    sulfur levels, even for a short period of time. This permanent damage
    can on average mean a loss of as much as 50 percent of the emission-
    reducing capacity of a catalyst, which for some vehicles means the
    emissions reductions of the new standards are lost. For example, a 1999
    Ford Taurus designed to meet NLEV standards that was a part of the
    industry testing program only recovered 40 percent of its capacity
    after a short exposure to gasoline with a sulfur content typical of
    current gasoline. As vehicles are required to maintain tighter controls
    on operations in order to meet low emission standards over a range of
    operating conditions, the ability of the catalyst to reverse the
    negative sulfur impact is further lost. The role irreversibility will
    play on vehicles which travel across the country also supports the need
    for a national program. A regional sulfur control program would
    compromise the ability of a vehicle/fuel program to achieve the air
    quality reductions needed to protect public health by limiting the
    effectiveness of the emission control systems in ``high-sulfur''
    regions versus ``low-sulfur'' regions. In addition, clean vehicles
    which for any number of reasons might travel to a ``high-sulfur''
    region would be irreversibly damaged. Hence, tighter emission standards
    would require not only substantial reductions in sulfur levels, but
    timely and uniform reductions across the country to protect the new
    technology.
        There are additional reasons for a nationwide sulfur control
    program. Gasoline sulfur reduction is essential to improve the emission
    control performance of current technology vehicles. NLEV vehicles being
    sold today in the Northeast and by 2001 in the rest of the country
    using high sulfur fuels will have NOx emissions about 140
    percent greater than NLEV vehicles operated on 30 ppm gasoline. Sulfur
    reductions will result in emission benefits from existing vehicles as
    well as enabling future Tier 2 vehicles, including vehicles using fuel
    efficient technologies. A national program will provide broad
    environmental and health benefits including: reduced air toxics,
    reduced acid rain, improved visibility, reduced nitrogen deposition in
    our nation's waterways, and reduced agricultural damage. Finally, a
    national program will not preclude the introduction of fuel efficient
    technologies, such as gasoline direct injection, and will ensure
    compliance with the vehicle standards across the nation.
        We believe there are a number of promising technologies available
    to refineries to remove sulfur. Several technologies have been
    developed that reduce the capital investment, the loss of octane value,
    and the energy consumption involved in desulfurizing gasoline compared
    to conventional methods. Two specific technologies, CDTech and OCTGAIN,
    were closely examined during the development of this proposal and we
    believe they are cost-effective viable technologies for removing sulfur
    from gasoline. In addition, a number of refineries and other companies
    are exploring other technologies. We believe the industry will make
    extensive use of these technologies in meeting the proposed
    requirements.
        To enhance the flexibility of compliance for the oil industry, we
    have proposed to provide refiners with two additional years, until
    2006, to comply with the proposed requirements through a voluntary
    banking and trading credit program. This credit program will allow
    sulfur credits to be generated as early as 2000 by refineries making
    early reductions in sulfur levels. To provide some protection to the
    Tier 2 vehicles that will be phasing into the fleet in this same
    timeframe as the credit program for refiners, refiners will meet a
    maximum cap standard of 120 ppm in 2004 and of 90 ppm in 2005 as well
    as actual in-use average sulfur level standards that are substantially
    lower than current sulfur levels. The rule is expected to be finalized
    at the end of this year. Under this proposal, refiners will have 4
    years for planning and construction, and then an additional 2 years
    during which refiners could use credits to meet the phase-in of the 30
    ppm average standard.
        In addition to these provisions, the particular problems of small
    refiners have been carefully considered. We convened a panel under the
    Small Business Regulatory Enforcement Fairness Act (SBREFA) to evaluate
    the potential impact on small refiners of our proposed gasoline sulfur
    standards. The panel used the Small Business Administration definition
    of small refiner based on the total number of employees in the
    corporation, including any non-refining functions. Based on the panel's
    recommendations, we have proposed to allow refiners employing no more
    than 1,500 people an additional 4 to 6 years (beyond 2004) before they
    will be held to the 30 ppm average/80 ppm cap standards. In the
    interim, about half of these small refiners would have to reduce their
    sulfur levels below 300 ppm, but they will not have to meet the same
    levels that the majority of refiners will be held to in 2004. This
    delay will allow small refiners to make the required investments over a
    longer time, and we expect all of them will be able to comply by the
    end of the delay period.
        Throughout the SBREFA process a number of specific issues were
    identified as concerns. We have identified these issues in the proposal
    and are asking for comment on how to address these concerns. As an
    example, in the proposal, we have asked for specific comment on other
    potential definitions for small refiners--ranging from the crude oil
    processing capacity of the refinery to counting employees only involved
    in gasoline production. While the purpose of these provisions is to
    provide some relief to the smallest refiners, we are looking forward to
    working with the entire industry to find the most appropriate
    definition.
        A number of other issues are outlined in the proposal where we are
    keenly aware of the concerns likely to be expressed and are seeking
    input and ideas from the public and the industry. A specific example is
    the concerns expressed by refiners regarding the time constraints on
    being able to construct the necessary desulfurization equipment in time
    to meet our standards or, hopefully, to generate credits through early
    reductions. We have proposed to work with industry and the states to
    streamline the construction permitting process to minimize the
    potential that permitting could be a roadblock to early compliance. In
    addition, we are requesting comments on a general hardship provision.
        Although I believe our proposal expresses a clear willingness to
    design the most workable program possible, I do not want to minimize
    the cost and effort that the oil industry will expend in meeting the
    proposed standards. We estimate that it will cost 1-2 cents/gallon to
    reduce gasoline sulfur levels to the proposed standards. However with
    the flexibilities we have outlined in the proposal and the advances in
    desulfurization technologies that have occurred in recent years, we
    believe we have outlined a sound and effective proposal for reducing
    sulfur from gasoline.
        Since diesel cars and light trucks will also be impacted by the
    proposed vehicle standards, we've also released an Advance Notice of
    Proposed Rulemaking which raises questions about the need to control
    diesel sulfur levels to enable these technologies to meet the Tier 2
    standards. After consideration of comments received on the need to
    control diesel fuel sulfur levels, we plan to issue a Notice of
    Proposed Rulemaking late this year, so that refiners have this
    information at the same time that they receive our final regulations
    for gasoline sulfur control. Since this decision has significant
    implications for the refining industry, we would work with
    representatives of this industry to identify workable options and would
    work with small refiners to address their unique concerns.
                                   conclusion
        We believe our combined vehicle standards and gasoline sulfur
    requirements to be very cost-effective, at about $2,000 per ton of
    NOx plus VOC reduced. In 2020, the emission reductions from
    these new national standards would be equivalent to reducing the number
    of vehicles on the road by more than \2/3\, or 166 million vehicles.
    While the total cost of the program for cleaner vehicles and gasoline,
    adjusted for inflation, is estimated to be around $4 billion annually,
    the benefits--avoided deaths, avoided illness and hospital days,
    avoided lost work days, etc.--are estimated to be worth over $16
    billion annually in our best-case estimate.
        In conclusion, let me emphasize that we believe that the progress
    that has been made to date to bring cleaner vehicles to our nation's
    highways has been one of the reasons our air quality continues to
    improve. However, as we move into the next century, there is no doubt
    that even cleaner vehicles and gasoline need to continue to be part of
    the solution as we strive to ensure clean air across our nation. The
    amount of miles that people drive continues to increase. Sales of
    larger (more polluting) vehicles, such as minivans, SUVs, and pickup
    trucks, continue to increase. Current emission standards cannot offset
    the growth in miles traveled. Technology is available and affordable to
    better control these vehicle emissions, provided that we address the
    negative impact of sulfur in gasoline on these technologies. Cleaner
    vehicles and cleaner gasolines are part of the cost-effective solution
    to cleaner air.
        Thank you again for this opportunity to discuss our program with
    you. I would be happy to answer any questions that you may have.

                                               The White House,
                                             Washington, July 16, 1997.
             Memorandum for the Administrator of the Environmental
                               Protection Agency
    subject: implementation of revised air quality standards for ozone and
                               particulate matter
        I have approved the issuance of new air quality standards to
    provide important new health protection for all Americans by further
    controlling pollution from ozone and particulate matter. These new
    standards promise to improve the lives of millions of Americans in
    coming years.
        Consistent with my Administration's approach to regulatory
    decisionmaking, I also want to ensure that these new standards are
    implemented in a common sense, cost-effective manner. It is critically
    important that these standards be implemented in the most flexible,
    reasonable, and least burdensome manner, and that the Federal
    Government work with State and local governments and other interested
    parties to this end.
        I have determined that there are certain essential elements of an
    approach to implementation that will accomplish these goals. I direct
    you to use the following elements when implementing the new air quality
    standards:
        1. Implementation of the air quality standards is to be carried out
    to maximize common sense, flexibility, and cost effectiveness;
        2. Implementation shall ensure that the Nation continues its
    progress toward cleaner air by respecting the agreements already made
    by States, communities, and businesses to clean up the air, and by
    avoiding additional burdens with respect to the beneficial measures
    already underway in many areas. Implementation also shall be structured
    to reward State and local governments that take early action to provide
    clean air to their residents; and to respond to the fact that pollution
    travels hundreds of miles and crosses many State lines;
        3. Implementation shall ensure that the Environmental Protection
    Agency (``Agency'') completes its next periodic review of particulate
    matter, including review by the Clean Air Scientific Advisory
    Committee, within 5 years of issuance of the new standards, as
    contemplated by the Clean Air Act. Thus, by July 2002, the Agency will
    have determined, based on data available from its review, whether to
    revise or maintain the standards. This determination will have been
    made before any areas have been designated as ``nonattainment'' under
    the PM2.5 standards and before imposition of any new
    controls related to the PM2.5 standards; and
        4. Implementation is to be accomplished with the minimum amount of
    paperwork and shall seek to reduce current Paperwork requirements
    wherever possible.
        Excellent preliminary work on the strategy for carrying out these
    implementation principles has been accomplished by an interagency
    Administration group and I commend that group for these important
    efforts. The group's work is set out in the attached plan, which is
    hereby incorporated by reference.
        In order for the implementation of these standards to proceed in
    accordance with the goals I have established, I hereby direct you, in
    consultation with all affected agencies and parties, to undertake the
    steps appropriate under law to carry out the attached plan and to
    complete all necessary guidance and rulemaking no later than December
    31, 1998.
        This memorandum is for the purposes of internal Administration
    management only, and is not judicially reviewable.
        You are authorized and directed to publish this determination and
    plan in the Federal Register.
                                            William J. Clinton.
                                     ______

                            (3) Refinery Eligibility
        As used in this subsection, the term ``small refinery'' shall mean
    a refinery or portion of a refinery----
        (A) which, as of November 15, 1990, has bona fide crude oil
    throughput of less than 18,250,000 barrels per year, as reported to the
    Department of Energy, and
        (B) which, as of November 15, 1990, is owned or controlled by a
    refiner with a total combined bona fide crude oil throughput of less
    than 50,187,500 barrels per year, as reported to the Department of
    Energy.
        ----Clean Air Act, Section 410(h) Small diesel refineries
                                     ______

          Responses by Carol M. Browner to Additional Questions from
                                 Senator Inhofe
        Question 1. What is the scientific basis for determining that the
    standard should be 30/80 versus some higher or lower standard? What
    studies did EPA use and were these subject to peer review? Are these
    studies and the data used for them being made publicly available so
    that all materials can be reviewed?
        Response. As we discuss in greater detail in our response to
    Question #2, our determination that the standard should be 30/80 was
    based on a range of technical factors. The proposed standard reflects a
    balancing of several factors, including the potential air quality
    benefits, economic impacts, compliance flexibility, and the
    irreversibility of the effects of gasoline sulfur on vehicle emissions
    controls.
        The vast majority of work to develop automotive catalysts and to
    design vehicles which comply with our proposed emission standards is
    done on fuel which meets these criteria. The testing to assess the
    sulfur impact on these designs was done on a range of sulfur levels
    (from 30 ppm to over 700 ppm). Specifically, we received data from
    three test programs which evaluated the reversibility of sulfur's
    impact on vehicle emissions. These programs, which are described in
    detail in Appendix B of the Draft Regulatory Impact Analysis for the
    proposal, were conducted by the Coordinating Research Council (CRC),
    the American Petroleum Institute (API) and Johnson Matthey, a catalyst
    manufacturer.
        In addition to our reversibility analysis, we examined the costs
    for refiners to produce low sulfur gasoline. In chapter V of the Draft
    RIA, we estimated costs for average sulfur standards ranging from 150
    ppm down to 30 ppm. Furthermore, in chapter VI, we evaluated the cost
    effectiveness of the entire program which includes the proposed 30/80
    standard. Based on this information, we believe that requiring the 30/
    80 levels would be necessary to ensure that vehicles regularly use
    gasoline containing very low levels of sulfur, and that vehicle
    manufacturers could not achieve the proposed Tier 2 emission levels in-
    use without reducing gasoline sulfur to the 30/80 levels.
        Essentially every component of our analysis has undergone some form
    of review, including the emissions modeling, air quality modeling,
    epidemiological studies of effects, and economic studies of valuation.
    The technical and scientific bases for the environmental benefits of
    the standard and the cost and cost-effectiveness methodology are
    adapted from and closely follow methods previously used for other
    rulemakings.
        Specifically, to derive our estimate of benefits, we first used a
    preliminary version of the MOBILE 6 model to determine the level of
    emission reductions that would result from the rule. As described
    below, key elements of this version are undergoing various forms of
    public review. We then used these emission reductions as inputs to
    peer-reviewed air quality models that determine the change in
    concentrations of particulate matter (PM) and ozone throughout the U.S.
        We were then able to use published journal articles and other
    studies of the health effects of changes in pollutant concentrations
    and of the economic value of these effects to quantify many of the
    benefits associated with this proposal.
        The journal articles and other studies undergo critical review
    before they can be published. In addition, the methods used and the
    underlying studies employed in our analysis have been extensively
    reviewed by the Science Advisory Board (SAB), other Federal agencies,
    and the public during the development of the PM and Ozone NAAQS and the
    NOx SIP call. (Incidentally, the recent Court of Appeals
    rulings on the PM and ozone NAAQS and the NOx SIP Call did
    not call into question the fact that ozone and PM pose health risks.)
        Although there were no major scientific or technical products
    supporting this action requiring peer review as defined by the Agency's
    Peer Review Handbook, the underlying studies used in our air quality
    and benefits analyses have been extensively peer-reviewed. The SAB has
    taken a considerable amount of time to review studies selected to
    quantify mortality and morbidity effects associated with PM and ozone.
    Specifically, issues reviewed by the SAB include:
         mortality associated with particulate matter (Pope et al./
    American Cancer Society study),
         quantification of chronic bronchitis effects (Schwartz and
    Abbey study),
         valuation of chronic bronchitis effects (Viscusi et al.,
    Krupnick and Cropper studies),
         valuation of mortality (26 studies of wage-risk and
    consumer safety).
        Finally, the inter-agency review process and public comments on
    previous rules are also used to continually refine our analytical
    methods.
        On the emission modeling front, key elements of the preliminary
    version of the MOBILE 6 emission model used to estimate emissions in
    the Tier 2 proposal have undergone public review in several ways. For
    example, our revision to the estimate of in-use emissions
    deterioration, a fundamental building block for the emission modeling,
    has been discussed in public Mobile Source FACA Work Group and
    Subcommittee meetings. This issue is also the subject of a document
    that has been available via the internet. Also, in developing the
    preliminary MOBILE 6 model for the Tier 2 NPRM, we took into account
    public comments we received last year on the modeling we did for the
    Tier 2 Report to Congress, including the issues of how real world
    driving and high gasoline sulfur affect vehicle emissions.
        Regarding availability of information, in addition to making
    supporting information available through the public docket and national
    publication centers such as NTIS, we've provided Internet access to all
    key regulatory documents. The proposed rule and Draft Regulatory Impact
    Analysis (RIA) contain most of the information necessary to understand
    the technical and scientific basis of our analysis. Supporting
    documents for the proposed rule and RIA (including the underlying
    studies) can be found in the public record. We also place any available
    documentation of the underlying data in the docket.

        Question 2. What is the cost effectiveness basis for determining
    that the standard should be 30/80 versus some higher or lower standard,
    or a different pollution control device such as new catalytic convertor
    technology. What cost studies did the EPA rely upon. Please provide
    copies of all cost estimation documents and alternative costing
    estimation documents.
        Response. As we explain in our proposal, we believe that the
    stringent standards we have proposed for Tier 2 vehicles are needed to
    meet the nation's air quality goals. At the same time, we believe that
    for these standards to be met by gasoline cars and light-trucks, low
    sulfur gasoline must be made available. The data indicate that
    catalytic converters in vehicles being sold today under the NLEV
    program are being damaged by high sulfur levels. Sulfur inhibits the
    performance of catalysts. Everything we and the catalyst manufacturers
    understand about emission control technology suggests that the new
    catalysts used to meet the Tier 2 standards will be as, or more,
    sensitive to high sulfur levels than the NLEV catalysts. We were unable
    to identify any emission control technology for gasoline vehicles that
    didn't increase NOx and HC emissions at levels above 30 ppm.
        The vast majority of data available to us is based on sulfur levels
    in the 30-80 ppm range. Catalyst manufacturers generally use low sulfur
    gasoline in their development work, and automakers typically certify
    the vehicles equipped with these catalysts on low sulfur fuels.
    Furthermore, there is no evidence that catalyst technology can be
    developed that will enable vehicles to meet the proposed Tier 2
    standards while running on high sulfur gasoline. At the same time, we
    believe the proposed Tier 2 standards are cost-effective and will help
    us meet our air quality goals. We do not believe that sulfur levels
    lower than those proposed are needed to comply with the Tier 2 emission
    standards. Some parties have asked for even more sulfur reductions
    (down to 5 ppm) and the proposal does ask for comment on issues
    associated with further reductions.
        Our cost and cost-effectiveness evaluations were done by EPA staff
    and were presented in the Draft Regulatory Impact Analysis which
    accompanied our proposal. In section IV.D of the proposal and in
    chapter V of the RIA we also described other cost analyses obtained
    from the automotive and oil industries, and explained why our estimates
    differ from those. All of that information is available in the public
    record and has been provided to the Committee staff. We look forward to
    receiving comments or additional information through the public comment
    process.
        In addition, we recently received a report from API which provides
    further support for our gasoline desulfurization cost estimates. In a
    February 26, 1999 report by Mathpro for API, Mathpro estimated the cost
    of meeting a 40 ppm average sulfur standard for eastern refineries
    (PADDs 1-3). Rocky Mountain and Pacific Coast refineries (PADDs 4-5)
    were not included. Mathpro estimated that achieving 40 ppm sulfur on
    average would cost 2.3 and 2.5 cents per gallon with the CDTech and
    Octgain processes, respectively. (See the table below.) Using our data
    and analysis applied to the same sulfur concentration and PADDs, our
    estimated costs for 40 ppm sulfur based on the CDTech and Octgain
    processes are 1.2 and 1.6 cents per gallon, respectively. The
    difference in estimates can be attributed in part to Mathpro's use of a
    10 percent return on investment (ROI) for new refinery equipment, while
    we used a 7 percent rate of return. Also Mathpro added a 0.5 cent per
    gallon ``ancillary'' cost to its estimates. This ancillary cost is
    intended to represent costs not included in the refinery model, such as
    additional fuel storage tankage and distribution costs. Mathpro has
    included ancillary costs in its previous studies, however, we are
    unaware of a clear justification for this adjustment. If we remove
    Mathpro's ancillary cost from their cost estimate and adjust Mathpro's
    costs to represent a 7 percent rate of return on investment, we get
    costs of roughly 1.6 and 1.8 cent per gallon with the CDTech and
    Octgain processes, respectively. These costs are very close to those
    which we presented in the NPRM. The following table summarizes the
    comparison.

       Mathpro and EPA Costs for 40 ppm Sulfur Gasoline in PADD 1, 2 and 3
                                   Refineries
                               [cents per gallon]
    ------------------------------------------------------------------------
                                           Octgain 220           CDTech
    ------------------------------------------------------------------------
    Mathpro

      10 percent ROI, WITH Ancillary                  2.5                2.3
       Cost...........................
      7 percent ROI, WITHOUT Ancillary    1.8    1.6
       Cost...........................
    EPA (7 percent ROI)...............                1.6                1.2
    ------------------------------------------------------------------------

        Question 3. The Administration and DOE have been looking for ways
    to provide relief to the oil and gas industry during this current
    crisis. How does the Administration balance the costs of this
    regulation against the announced plans of industry relief?
        Response. The Administration's 11 point proposal for relief is
    aimed at the crude oil production side of the industry. This proposal
    focuses on upgrading technology for exploration and drilling to
    maintain current production capacity. These provisions would have no
    impact on the refining or marketing segments of the oil industry, and
    our Tier 2/Gasoline Sulfur Control proposal would not impact the crude
    oil production relief provisions. Given that these two parts of the oil
    industry are generally separate (even though the same company may
    operate both oil production and refining/marketing functions), we see
    no inconsistency between helping to provide relief on the production
    side and proposing new regulations that may require investments at the
    refinery.

        Question 4. In August 1991 the Amoco refinery in Casper closed.
    Following the closing, the average price difference between PADD III
    and PADD IV increased from 6.4  cents/gal to 12  cents/gal. Has this
    type of information been factored into the Regional considerations
    regarding the proposed rule?
        Response. Yes, our estimates of the national costs of our proposal
    do consider the unique economic position of the refineries located in
    PADD IV. Although we discuss (in chapter V of the RIA) the general
    effects of changing supply and demand on the refining industry, we did
    not factor specific supply, demand, or distribution assumptions for any
    specific region of the country into our production cost analysis. (See
    the table below for the specific cent-per-gallon costs we estimated for
    each PADD.) Currently, PADD IV refineries produce gasoline that is 14
    percent lower in sulfur content, on average, than that produced in PADD
    III. However, these refineries tend to have higher capital costs for
    desulfurization (on a per-gallon basis) than refineries in PADD III.
    Thus, our cost projections for refineries in PADD IV are higher than
    those for PADD III. To alleviate concerns about potential market
    disruption and/or refinery closures in PADD IV and elsewhere, we have
    proposed a sulfur averaging, banking, and trading program to provide
    all refiners with flexibility in meeting the standards. Furthermore, we
    have proposed special provisions for small refiners, several of which
    are located in PADD IV, that would give them an additional 4 to 6 years
    to meet the proposed standards. We believe that the combination of
    these actions will minimize any regional cost variations due to
    compliance with this proposal. We have also solicited comment on a
    range of measures, such as a hardship provision that any refiner could
    be eligible for, as well as whether such measures are needed to ensure
    smooth implementation of our program. We look forward to receiving
    comments on these ideas and will carefully consider all comments
    received as we make our final decisions about the design of our sulfur
    control program.

                               Per-Gallon Cost of Desulfurizing Gasoline to 30 ppm Average
                                                   [cents per gallon]
    ----------------------------------------------------------------------------------------------------------------
      PADD I  (East         PADD II        PADD III  (Gulf    PADD IV  (Rocky     PADD V  (West
          Coast)           (Midwest)            Coast)             Mtns.)        Coast, excl. CA)      U.S. Avg.
    ----------------------------------------------------------------------------------------------------------------
               2.3                1.4                1.4                3.2                2.8                1.7
    ----------------------------------------------------------------------------------------------------------------

        Question 5. DOE has been studying Biotech technologies. Mr. William
    E. Nasser of Energy BioSystems Corporation, a DOE grantee company,
    testified on Tuesday May 18th that they will be commercially viable
    around 2005, has this been factored in? For the banking and trade
    program?
        Response. We have been closely following the progress of
    biotechnologies being developed for desulfurization of petroleum
    products. Based on the information available to as at the time of
    proposal, we had serious questions about whether these technologies
    will be market-ready by 2004 (if not earlier to enable credit
    generation). Hence, we did not include the impact of these technologies
    in our evaluation of the costs of complying with our proposal. Mr.
    Nasser's testimony supports our concerns. However, if the technology is
    commercially viable in 2005, refiners may choose to use this approach
    if it provides them with the lowest cost way to meet our requirements.
    Our averaging, banking and trading program should allow several
    refiners to delay construction of sulfur reducing equipment until 2005
    or 2006; this delay should accommodate this new biotechnology if the
    company's plans proceed as expected. Similarly, a refiner could use
    this type of technology to participate in our sulfur banking and
    trading program, if it was available prior to 2004. Our proposed
    standards would set limits on gasoline sulfur content, and would not
    prescribe how that sulfur level is achieved.

        Question 6. When you reduce sulfur you reduce octane thus driving
    up the demand for MTBE. Has the environmental impact for this been
    analyzed?
        Response. Traditional gasoline desulfurization technologies have
    resulted in octane loss. The advanced technologies (from Mobil and
    CDTech) discussed in the proposal substantially reduce the octane loss
    associated with desulfurization compared to these traditional
    approaches. Furthermore, we have recently learned of additional
    technologies being developed by Black and Veatch, Inc. which completely
    eliminate any negative octane loss; in some cases, octane may even be
    improved. In any case, if refiners do experience a slight octane loss,
    they have a range of options to address this situation. Blending MTBE
    is only one of the options. The use of alkylates, ethanol, or other
    oxygenates are additional options.
        The environmental impact of using MTBE in low sulfur gasoline would
    not be different than the impact of using MTBE in any other gasoline.
    We have a Blue Ribbon Panel which is assessing the environmental
    impacts of oxygenates such as MTBE, and we will evaluate the panel's
    recommendations.

        Question 7. What impact will sulfur levels have on the CAFE
    standards? Will it impact the energy content or the performance of the
    vehicle? One aspect that has been lost in the debate is the fact that
    these fuel standards are just for Tier 2, not the next generation,
    including fuel cells. Has the Administration analyzed the need for
    lower sulfur fuel solely for Tier 2 vehicles, and the necessary
    effective date for low sulfur fuel for those vehicles? How does fleet
    turnover impact this?
        Response. The sulfur levels (and, for that matter, the Tier 2
    standards) have no direct impact on CAFE standards. The fuel economy of
    individual vehicles could be impacted slightly if the energy content of
    the gasoline is reduced during the refining and blending processes, but
    we don't expect that vehicle operators will notice a difference. Any
    energy impact and/or vehicle performance issues would be no different
    than those experienced when vehicles are operated on today's gasolines,
    which vary in energy content, since the low sulfur gasoline would not
    be substantially different.
        Advanced technologies such as gasoline direct injection (GDI)
    engines or fuel cells are not necessary for vehicles to meet the
    proposed Tier 2 emission standards. That is, our primary analysis is
    based on gasoline vehicles only. For completeness, we considered (in
    section IV of the proposal) the needs of advanced technologies in our
    analysis of the need for and feasibility of low sulfur fuel. It is
    possible that near-zero sulfur fuels may be needed for these future
    technologies. We have raised this issue for comment in our proposal,
    and are exploring what the implications would be for the refining
    industry if near-zero sulfur levels were to be required in the future.
        While we have supported the need for low sulfur gasoline primarily
    to enable the emission control technology needed to meet the proposed
    Tier 2 standards, we have identified real emission reductions and
    environmental benefits to be achieved from other vehicles in the fleet.
    Much of the emissions benefits in the early years of the program result
    from the use of low sulfur gasoline in vehicles currently on the road
    and those that will enter the fleet in the next 5 years. Thus fleet
    turnover to Tier 2 vehicles is not the only consideration when
    evaluating timing, nor should the implementation date for low sulfur
    gasoline be tied solely to phase-in of Tier 2 vehicles. The emissions
    performance of all Tier 2 vehicles will be sensitive to sulfur, arguing
    for low sulfur levels as soon as Tier 2 vehicles are introduced rather
    than some later date when they make up a substantial fraction of the
    fleet. Furthermore, the emissions control systems of vehicles on the
    road today are less effective than they would be on lower sulfur fuel,
    and each year that passes without implementation of low sulfur
    standards increases the number of more sensitive vehicles (i.e., NLEV
    which will be sold nationwide beginning in 2001) whose catalysts are
    irreparably damaged. We have tried to balance the costs and technology
    needs of the refining industry with these vehicle emission control
    system realities.

        Question 8. I am concerned about the timing of the permits process.
    Currently the permitting process for major equipment changes averages
    around 18 months, assuming no delays because of public hearings. Given
    that states have the primary permitting responsibility and Texas and
    Louisiana each have 20 or more refineries, will these two states be
    able to process all of their permits in time for the industry to meet
    the 2004 deadline?
        Response. It is EPA's experience that, on average, the major New
    Source Review permitting process takes less than 1 year to complete
    from the date a complete application is submitted to the permit
    reviewing agency. Although the 1 year timeframe should be sufficient
    for refiners to comply with the 2004 deadline, as outlined in the
    preamble to the proposed rulemaking, EPA solicited comment on, and is
    currently evaluating, numerous options to ensure the timely issuance of
    any necessary Clean Air Act permits. As part of our efforts to ensure
    timely permit issuance, we also have an initiative underway to work
    directly with refiners and State permitting agencies on a number of
    individual refinery desulfurization projects, with the goal of
    developing from these examples permit streamlining strategies and tools
    that can be applied nationwide. We are working to ensure that at least
    one of the case studies will be in a Gulf Coast state, either Texas or
    Louisiana and possibly both.
        One example of a strategy we are considering for streamlining the
    permitting process is the issuance of guidance establishing an
    emissions level (and associated permit conditions) that, in our view,
    likely satisfies the control technology review requirements under the
    major source permitting programs for the class or category of emission
    units associated with refinery desulfurization. We expect that
    providing such guidance would help to expedite major source permitting
    by adding a significant level of certainty regarding the technology
    requirements of the permit process. In addition to pursuing the permit
    streamlining opportunities outlined in the rulemaking proposal, we will
    be encouraging states to process a refinery's request to implement
    changes at a facility to meet gasoline desulfurization requirements as
    a priority and on an expedited basis. Priority treatment, in
    combination with potential streamlining opportunities, would ensure
    that permit applications associated with gasoline desulfurization
    changes are processed as expeditiously as possible. Given the enormous
    environmental benefits that will be achieved as a result of the
    gasoline sulfur control requirements, we believe such expedited and
    special processing will be supported by the State and local air
    pollution control agencies.

        Question 9. I understand that you have promised a 6-month permit
    process, yet you have not requested any additional resources or FTEs to
    accomplish this. How will you do it without causing any additional
    delays for other permits or other industries?
        Response. We recognize that compliance with Clean Air Act
    permitting requirements--under both the New Source Review and Title V
    Operating Permit programs--will be an integral component in any
    refiner's plan to implement a gasoline sulfur control program under our
    proposal. In order to achieve the significant environmental benefits
    from the proposed program as soon as possible, we are exploring a
    number of possible options to streamline the air permitting process.
    Our goal is to both simplify and accelerate the air permitting process,
    so that refiners can begin producing low sulfur gasoline well within
    the lead time provided by our proposal. In the proposal, we are seeking
    public comment on a number of ideas to help streamline the processing
    of permits for refinery gasoline sulfur control programs. We already
    have begun a constructive dialog with the refining industry to identify
    what specific permit streamlining options they would benefit from most,
    and we plan to continue this dialog with refiners, states, the
    environmental community, and other stakeholders as we work toward the
    final rule.
        The kinds of permit streamlining approaches we're evaluating
    include:
        (1) developing ``model'' permits and permit applications that would
    serve as templates for the refining industry;
        (2) developing clear Federal guidance on technology to control any
    pollutant emission increases at the refinery associated with a gasoline
    desulfurization project; and
        (3) in nonattainment areas, promoting the availability of emission
    ``offsets'' (that is, emission reductions from other sources), which
    refineries may need prior to obtaining a construction permit.
        In addition to these and several other streamlining options we're
    exploring, if refiners and State permitting agencies are interested, we
    plan to hold a workshop to focus on refinery permitting arising from
    the gasoline sulfur control program.
        To address this issue, we have realigned our priorities and
    reassessed our resources in order to move forward with this permit
    streamlining effort. If we see that additional funds are necessary
    following our planning process and depending on how decisions are made
    in the final rule, the Agency may request funding for implementation of
    the Tier 2/Gasoline Sulfur requirements as they affect permit
    streamlining. At that time, we would consider whether the funds would
    be requested in future appropriations.

        Question 10. Lately environmental justice claims have caused long
    delays in permit applications and modifications, particularly in States
    such as Louisiana. What are you doing to make sure that such delays
    will not occur?
        Response. The Agency is encouraging State and local permitting
    authorities to involve residents from affected communities in the
    decisionmaking process as early in the review process as possible. We
    want to ensure that the concerns of the community are considered,
    addressed, and resolved as plans are being developed. At the same time
    we also want to have permits issued in a timely and expeditious fashion
    where all other permitting requirements have been met.
        The delays that have been encountered arose from concerns that
    decisions of permitting authorities resulted in disparate
    discriminatory impacts on predominately minority communities due to the
    race, color, or national origin of the citizens residing there. Such
    alleged discriminatory actions is prohibited by the Civil Rights Act of
    1964.

        Question 11. The EPA Enforcement Office has been targeting Oil
    Refineries regarding New Source Review and modification permits. On
    February 12 of this year Sylvia Lowrance, the Deputy Administrator of
    the Enforcement Office issued a memorandum to the Regions directing
    this targeting. How is the Enforcement Office's policy on targeting
    consistent with the stated goal on the Air Office to work with the
    States and industry to expedite the process. Right now the States and
    industry are very cautious on the permitting process, afraid that they
    might make some mistake and have the EPA come down on them. Could you
    explain how this is consistent.
        Response. EPA's Office of Enforcement and Compliance Assurance
    (OECA) targeting efforts address past violations that have occurred at
    petroleum refineries. Most of these violations involve sources that
    failed to go through the major NSR permitting process altogether for
    certain triggering activities, not sources that obtained a major NSR
    permit with which EPA later had problems. Importantly, these violations
    often result in excess emissions of harmful air pollutants. By
    requiring compliance with these important Clean Air Act programs, tens
    of thousands of tons per year of pollutants will not be emitted into
    the air. Nothing in this enforcement effort, however, should hinder
    EPA's working with industry to develop an NSR permitting program that
    expedites permit issuance and allows timely compliance with the new
    sulfur rules. Because OECA is an active member of the EPA/industry
    permitting workgroup, EPA does not foresee enforcement problems arising
    from compliance with an expedited permitting system developed by the
    workgroup.

        Question 12. Will you propose some sort of amnesty program for
    these permits? What will happen if a facility can not get their permit
    approved in time?
        Response. We do not plan to propose, nor at this time do we see a
    need for, an amnesty program for permitting. Given the amount of lead
    time already proposed, combined with our efforts to streamline the
    permitting process (described above), we believe refineries will have
    sufficient time to obtain air permits and meet the proposed compliance
    dates for gasoline sulfur control.

        Question 13. The refining industry will be hit with a regulatory
    blizzard over the next 5-10 years proposed reductions in the sulfur
    content of diesel fuel, possible MTBE phaseout, urban air toxics, etc.
    What analysis has EPA performed to look at the cumulative impact of
    these fuels activities on the refining industry, motorists, petroleum
    supplies, and air quality? Please provide a copy of all such analysis.
        Response. To date, we have only analyzed the program which we have
    proposed--gasoline sulfur control. As we proceed to evaluate and
    possibly propose diesel fuel sulfur controls or fuel-related air toxics
    controls, we will analyze the implications of the combined programs on
    the refining industry. Similarly, if the MTBE Blue Ribbon Panel
    recommends phase-out of MTBE, we will work with the industry to assess
    the implications of such an action not only on the proposed gasoline
    sulfur standards but also on other, existing fuel programs (like the
    reformulated gasoline program). DOE has asked the National Petroleum
    Council to evaluate the implications of multiple environmental controls
    for the refining industry. EPA staff are involved in this process and
    we hope that the results of that study will be available as we make
    future decisions about gasoline and diesel fuel sulfur control.

        Question 14. Ms. Browner, you picked the cutoff for the small
    business definition 1500 employees for the entire corporation. This
    means that if a company owns two or three refineries with a few hundred
    employees and they own hotels or convenience stores that those non-
    refinery employees kick them over the cutoff. What is the rationale for
    this? Why didn't you rely on other sections of the Clean Air Act for a
    working definition. In 1990 Senator's Symms, Chafee, and Baucus worked
    out a small refinery definition for diesel regulations based on
    production volume and the Department of Energy routinely uses a
    production volume for its programs. Please explain whether or not the
    Agency considered a production volume limitation and if so why it was
    discarded.
        Response. Like the programs you cite, our Tier 2/gasoline sulfur
    proposal uses a definition of small refiner that targets a segment of
    the industry that may need additional time to comply, for example
    because of difficulties faced in raising capital and in arranging for
    installation of desulfurization equipment. The proposed definition is
    based on the Small Business Administration's definition of small
    refiner, which looks at the total number of a company's employees,
    rather than on volume of throughput. EPA started with this approach
    because the 1996 SBREFA amendments to the Regulatory Flexibility Act
    start with the SBA definition as a default. Like the definition of
    small refinery used in past EPA programs (described below), our
    proposed definition is aimed at identifying those refiners that may
    face particular economic difficulties in complying, for example,
    because they don't have the ability of a larger corporation to raise
    capital for investment in desulfurization. When we conducted the Small
    Business Advocacy Review Panel convened under SBREFA requirements, we
    did not exclude any parties on the basis of their number of employees
    even though we focused on reaching those refiners we believe most
    clearly meet the SBA definition.
        In the lead phase-down program for gasoline EPA used a definition
    of ``small refinery'' that Congress adopted in 1977 specifically for
    the lead phase-down program. The definition was based on crude oil or
    feedstock capacity at a particular refinery, combined with total crude
    oil or feed stock capacity of the refiner that owned the refinery. In
    1990, the lead phase-down program was complete, and Congress removed
    this provision from the Act.
        Shortly before the Act was amended in 1990, EPA set standards for
    sulfur content in diesel fuel, including a 2-year delay for small
    refineries. EPA used the same definition of small refinery as it used
    in the lead phase-down program. This 2-year delay, like many of the
    small business flexibilities in the gasoline sulfur NPRM, was aimed at
    problems that small refineries faced in raising capital and in
    arranging for refinery construction.
        In the 1990 amendments to the Clean Air Act, Congress rejected this
    small refinery provision, and instead allocated allowances to small
    diesel refineries under the Title IV Acid Rain program. Section 410(h).
    This approach was also aimed at helping small refineries solve the
    problem of raising the capital needed to make investments to reduce
    diesel sulfur. Congress provided allowances to small refineries that
    met criteria similar to that used in the lead phase-down provision--
    based on the volume of crude oil throughput at a particular refinery,
    combined with the total volume of crude oil throughput of the refiner
    that owned the refinery.
        While we have proposed a different definition for gasoline sulfur
    control in light of the SBREFA Panel's recommendations, in our proposal
    we are seeking comment on alternative definitions of small refiner,
    including definitions based on volume of crude oil processed (at a
    given refinery and/or corporate-wide) or volume of gasoline produced.
    However, we do believe that any relief offered to refiners must not
    result in a substantial loss of the environmental benefits of the
    program. Our proposal would affect less than 4 percent of gasoline
    produced in the U.S. The crude oil capacity-based definition from
    Section 410(h) would encompass about 38 percent of refiners in the U.S.
    (approximately 60 out of 158 refiners), although many of these may not
    produce gasoline. The combined crude capacity of these 60 refiners is
    approximately 7 percent of the total U.S. capacity.

        Question 15. Does the number of employees correlate with the size
    of the facility? How about correlation with environmental impacts? In
    making a large capital investment how is it anticipated that small
    refineries spread the cost with less volume?
        Response. Yes, to some degree the size of the refinery (in terms of
    capacity) correlates with the number of employees, with larger and more
    complex refineries needing more employees to operate the facility.
    However, consistent with the Small Business Administration's
    definition, the employee number we have proposed to use for defining a
    small refiner is a corporate-wide figure, including all operations
    (including those unrelated to the petroleum industry, if any), not just
    refining. It is meant to indicate the overall financial standing of the
    company and the company's ability to respond quickly to these
    environmental regulations.
        The environmental impacts of a refinery vary greatly from refinery
    to refinery. To some degree, the smaller refineries emit fewer tons of
    pollutants than larger refineries. However, this depends on refinery
    location and doesn't necessarily equate to fewer tons per barrel of
    product produced. Furthermore, the environmental impacts of the
    products produced, in this case, the sulfur level of gasoline, will
    have the same gram-per-mile impact on Tier 2 and other vehicles
    regardless of whether the fuel comes from a large refinery or a small
    refinery. The only difference is in the total volume of fuel produced
    (and thus the total number of tons of emissions which result).
        In estimating the costs of our program, we have attempted to take
    into consideration the dis-economies of scale of installing
    desulfurization equipment in a smaller refinery. Our analysis shows,
    for example, that the per-gallon costs of sulfur control will be higher
    in PADD IV (the Rocky Mountain region). This higher cost is due to many
    factors, including the fact that refineries in that region are
    generally smaller than refineries in other parts of the country. We
    expect all refiners, large or small, to spread these compliance costs
    across the volume of gasoline produced. We have proposed to give small
    refiners more time to comply with our standards, in part to maximize
    their ability to select the lowest cost technologies to desulfurize
    their gasoline.

        Question 16. If a large corporation has several large refineries
    and one small refinery they are more likely to close the small refinery
    than spend the hundreds of millions on all of them. Please identify all
    small refineries in the U.S. (those who produce 75 thousand barrels of
    oil or less per day), regardless of corporate size, and the cities
    where they are located. In addition, please identify whether or not the
    refinery is a major employer in each city.
        Response. The table below lists U.S. petroleum refineries with
    crude capacities less than or equal to 75,000 barrels per calendar day
    (75K bpcd). Here are some additional facts which may be useful:
        There are approximately 158 refineries in the U.S., the total
    refining crude capacity in the U.S. is nearly 16 million bpcd.
        Approximately 85 of the 158 refineries (or 54 percent) have
    individual crude capacities less than or equal to 75K bpcd; the
    combined capacity of these 85 refineries accounts for approximately 17
    percent of the total U.S. capacity.
        Approximately 23 of the 85 refineries (or 27 percent) with less
    than 75K bpcd capacity do not produce gasoline.
        Approximately 11 of the 85 refineries (or 13 percent) with less
    than 75K bpcd capacity are located in the State of California and
    therefore already produce gasoline that complies with California's
    cleaner burning gasoline regulations.
        There are approximately 51 refineries (or 51/158* 100 = 32 percent
    of all U.S. refineries) outside of California which produce gasoline
    and have individual capacities less than 75K bpcd.

         U.S. Petroleum Refineries (as of 1/1/99)* with Crude Processing
     Capacities Less Than or Equal to 75,000 barrels per calendar day (BPCD)
                             [In Order By Capacity]
    ------------------------------------------------------------------------
                                                                  BPCD Crude
               Company                  City           State       Capacity
    ------------------------------------------------------------------------
    Specified Fuels & Chemicals   Channelview....           TX         1,600
     (formerly Howell Corp.).
    Silver Eagle Oil Inc........  Evanston.......           WY         3,200
    Foreland....................  Tonopah........           NV         3,500
    Ten By, Inc.................  Oxnard.........             CA       4,500
    AGE Refining................  San Antonio....           TX         5,000
    Huntway.....................  Wilmington.....             CA       5,500
    Somerset....................  Somerset.......           KY         5,500
    Chevron.....................  Seattle........           WA         5,700
    Southland Oil...............  Lumberton......           MS         5,800
    Cross Oil & Refining........  Smackover......           AR         6,000
    Young Petroleum.............  Douglasville...           GA         6,000
    Martin Gas Sales (Berry       Stephens.......           AR         6,700
     Petroleum).
    Holly Corp. (Montana).......  Great Falls....           MT         7,000
    World Oil...................  South Gate.....             CA       7,000
    Calumet.....................  Cotton Valley..           LA         8,000
    Calumet.....................  Princeton......           LA         8,000
    American Refining Group.....  Bradford.......           PA        10,000
    Anchor Refining.............  McKittrick.....             CA      10,000
    Canal Refining..............  Church Point...           LA        10,000
    Huntway.....................  Benicia........             CA      10,000
    Santa Maria Refining (Saba    Santa Maria....             CA      11,000
     Petroleum?).
    Southland Oil...............  Sandersville...           MS        11,000
    Ergon.......................  Newell.........           WV        11,500
    Sound Refining..............  Tacoma.........           WA        11,900
    Arco........................  Kuparuk........           AK        12,000
    Golden Bear Oil Specialties   Bakersfield....             CA      12,500
     (formerly Witco).
    Inland (formerly Crysen)....  Woods Cross....           UT        12,500
    Wyoming.....................  Newcastle......           WY        12,500
    Arco........................  Prudhoe Bay....           AK        15,000
    Chevron.....................  Portland.......           OR        15,000
    Petro Star..................  North Pole.....           AK        15,000
    Transworld (Calcasieu)......  Lake Charles...           LA        15,300
    Pennzoil....................  Rouseville.....           PA        15,700
    Giant.......................  Bloomfield.....           NM        16,800
    Coastal.....................  Chickasaw......           AL        18,700
    Giant.......................  Gallup.........           NM        20,800
    Kern Oil & Refining.........  Bakersfield....             CA      21,400
    Countrymark Co-op...........  Mount Vernon...           IN        22,000
    Sinclair....................  Casper.........           WY        22,000
    Ergon.......................  Vicksburg......           MS        23,000
    San Joaquin Refining........  Bakersfield....             CA      24,300
    Inland (Big West Oil (Flying  North Salt Lake           UT        25,000
     J)).
    Phillips....................  Woods Cross....           UT        25,000
    American International......  Lake Charles...           LA        27,600
    Citgo.......................  Savana.........           GA        28,000
    Ultramar Diamond Shamrock...  Commerce City..             CO      28,000
    Neste Trifinery.............  Corpus Christi.           TX        30,000
    Murphy......................  Superior.......           WI        33,250
    Cit-Con Oil Corp............  Lake Charles...           LA        38,000
    Frontier....................  Cheyenne.......           WY        38,950
    U.S. Oil & Refining.........  Tacoma.........           WA        40,800
    Petro Star..................  Valdez.........           AK        42,000
    Paramount...................  Paramount......             CA      43,000
    Hunt........................  Tuscaloosa.....           AL        43,225
    Chevron.....................  Salt Lake City.           UT        45,000
    Gary-Williams...............  Wynnewood......           OK        45,000
    Cenex Harvest States........  Laurel.........           MT        46,000
    Pennzoil....................  Shreveport.....           LA        46,200
    Placid......................  Port Allen.....           LA        48,000
    Sinclair....................  Tulsa..........           OK        50,000
    Ergon (Lion Oil Company)....  El Dorado......           AR        50,350
    Ultrarnar Diamond Shamrock..  Alma...........           MI        51,000
    Conoco......................  Billings.......           MT        52,000
    Crown Central...............  Tyler..........           TX        52,000
    Exxon.......................  Billings.......           MT        52,000
    Amoco.......................  Salt Lake City.           UT        53,000
    Chevron.....................  Honolulu.......           HI        54,000
    Sinclair....................  Sinclair.......           WY        54,000
    Shell.......................  Saint Rose.....           LA        55,000
    Conoco......................  Commerce City..             CO      57,500
    Amoco.......................  Mandan.........           ND        58,000
    Amoco.......................  Yorktown.......           VA        58,600
    Holly Corp. (Navajo)........  Artesia........           NM        60,000
    Fina........................  Big Springs....           TX        60,500
    Equilon Enterprises LLC.....  Bakersfield....             CA      61,750
    Amerada Hess................  Port Reading...           NJ        62,000
    United Refining.............  Warren.........           PA        66,700
    Clark.......................  Hartford.......           IL        68,000
    Ultramar Diamond Shamrock...  Ardmore........           OK        68,000
    Marathon/Ashland............  St. Paul.......           MN        70,000
    Marathon/Ashland............  Texas City.....           TX        72,000
    Tesoro......................  Kenai..........           AK        72,000
    Marathon/Ashland............  Canton.........           OH        73,000
    Marathon/Ashland............  Detroit........           MI        74,000
    Valero......................  Krotz Springs..           LA        74,000
    ------------------------------------------------------------------------
    *Based on the Oil & Gas Journal's 1998 Worldwide Refining Survey.

        We do not have the data necessary to determine whether or not each
    refinery is a major employer in its respective city.

        Question 17. When the Canadian government decided to reduce their
    sulfur levels they commissioned a detailed analysis on the impact on
    their refinery industry. They are going to 30 ppm by 2005. They found
    that of their 18 refineries, between 3 and 6 will close. Has the EPA
    conducted a similar analysis? If so please provide a copy.
        Response. In May 1997, a study of the implications of various
    gasoline and diesel fuel sulfur standards on Canadian oil industry
    competitiveness was completed. This study projected that if a 30 ppm
    sulfur standard was implemented in 2001, three to four refineries in
    Canada may be at risk for closure due a combination of factors,
    including the costs of desulfurization technology, the very poor
    refining margins currently experienced in the industry, and competition
    from U.S. refiners who were portrayed as larger and more sophisticated
    than most Canadian refineries.
        Since the time of the study, several factors have changed that
    would lead one to different conclusions about the potential for
    refinery closures:
          The new, lower cost desulfurization technologies which we
    have based our proposal on--and which Canada had not considered--are
    being tested. We expect these technologies would substantially reduce
    (by at least 50 percent) the capital costs assumed for desulfurization
    to 30 ppm.
          Market prices, and thus refining margins (profits) in
    both Canada and the. U.S. have increased, strengthening the economic
    position of the refining industry.
        The combination of these two factors will likely have a positive
    impact on refiners' abilities to meet Canada's gasoline sulfur
    standards, and would substantially reduce the likelihood of refinery
    closures due to their proposed regulations. Canada's decision to
    proceed with gasoline sulfur control indicates the country's belief
    that the Canadian refining industry will be able to respond to these
    requirements.
        EPA has not yet conducted a refinery-specific analysis similar to
    the Canadian study. We intend to analyze the likely response of the
    refining industry to our gasoline sulfur proposal as we develop our
    final regulations. We are also participating in the National Petroleum
    Council's study, commissioned by DOE, which will address this type of
    information.

        Question 18. Last week Ford announced that they have developed new
    improved catalyst technology which will allow their trucks to meet 2004
    standard next year, using current fuels. The EPA has claimed for months
    that changes in catalysts were not possible to meet the new standards.
    It appears that you were wrong. They also said that they can produce
    the new catalyst technology without raising the price of the trucks.
    How can Ford lower their emissions without low sulfur fuel? Is this
    technology available to the other automobile makers?
        Response. Ford's announcement of plans to sell trucks nationwide
    which meet LEV-type emission levels next year is based on its ability
    to certify these vehicles using low sulfur gasoline. The emission
    levels these trucks will be certified to are substantially higher than
    the proposed Tier 2 standards. These trucks were designed to operate on
    California's low gasoline sulfur levels, and the catalysts they use are
    as sensitive to sulfur as those which we evaluated as we developed our
    proposed Tier 2 standards. Because of the much higher sulfur levels
    found around the country, these trucks will suffer reduced emission
    performance when operated outside of California. Thus, while the
    vehicles' engines will operate satisfactorily in terms of power and
    fuel economy, these vehicles will not achieve the same emission levels
    as they would if consistently operated on low sulfur gasoline. Other
    manufacturers could implement the same emission control technologies if
    they wanted to pull-ahead our proposed interim standards for the
    heavier light-trucks, but without low sulfur gasoline nationwide, would
    not be able to achieve Tier 2-like (or even LEV-like) emissions
    performance in-use.

        Question 19. EPA has concluded that in-use emissions would increase
    by 50 percent if ``operated on 300 ppm gasoline at any point in their
    life.'' The effect would be permanent; ``continued operation with low
    sulfur gasoline would be unlikely to improve the emissions
    performance.'' Now what if a Tier 2 vehicle was driven to Mexico and
    filled up there one or more times? Would the on-board emissions system
    warning light go on? If this light goes on and the vehicle operator
    takes it to a dealer for repair, is the emissions control system
    covered under warranty or not? If the vehicle subsequently fails an
    emissions inspection, the emissions control system covered under
    warranty or not? Would operation on Mexican gasoline for some period of
    time cause vehicle operating problems? Would Tier 2 vehicle operating
    manuals contain warnings only to fill up in the U.S. or Canada?
        Response. According to the data we cite in our proposal, we believe
    that a Tier 2 vehicle refueled on high sulfur gasoline (in Mexico or
    anywhere else) would suffer a permanent loss in emissions performance.
    We do not anticipate any vehicle operating problems from the use of
    Mexican gasoline. The on-board emission control warning system would be
    triggered only if the resulting loss in emissions performance was equal
    to 1.5 times the standard to which the vehicle was certified. This
    requirement currently only applies to NMHC emissions, not
    NOx emissions. The increases in NMHC emissions attributed to
    sulfur are generally less than 50 percent, though some vehicles can
    experience larger increases. Also, OBD systems do not monitor NMHC
    emissions. They monitor oxygen storage. Sulfur can definitely reduce
    oxygen storage and this is detected in many instances. However, sulfur
    can also affect the operation of the oxygen sensor, which is a key
    component in the assessment of oxygen storage. There are instances
    where high sulfur levels affected the ability of the oxygen sensor to
    sense a loss of oxygen storage. Thus, high levels of sulfur can cause
    NOx emissions to increase by more than 50 percent and the
    catalyst portion of the OBD system may or may not catch it because it
    only assesses NMHC performance. Also, sulfur can prevent the OBD system
    from being able to determine that a poorly performing catalyst is in
    fact poorly performing. Whether the replacement of the fouled catalyst
    would be covered under warranty depends on the facts of each case. The
    manufacturer may request that EPA allow a special sulfur-removal test
    cycle to be used to ascertain whether the loss in emissions performance
    was due to sulfur exposure or to some other factor (catalyst age,
    catastrophic catalyst failure, etc.). (Under the NLEV program, one
    manufacturer has already requested the use of such a test cycle if
    certain vehicles are selected for in-use emissions compliance testing
    due to concerns about the effect of high sulfur levels on these
    vehicles.) It would be up to the manufacturer to specify whether
    refueling in Mexico (or anywhere else with higher sulfur levels) should
    be avoided and/or would void commercial warranty coverage. EPA does not
    plan to mandate such warnings.

        Question 20. EPA estimates that this proposal will result in an
    increase in CO2 emissions across the domestic refining
    industry of 6.9 million tons per year. This looks to be very large.
    Will this Tier 2/Sulfur proposal initiate greenhouse gas emissions
    reductions elsewhere to offset this increase? Are you concerned about
    the size of this increase?
        Response. We have not proposed any measures to offset the increase
    in CO2 emissions estimated as a result of gasoline
    desulfurization. We do not believe that the size of this increase is
    unreasonable. It represents 0.03 percent of projected worldwide
    CO2 emissions in 2004, and a 1.2 percent increase in 2004
    emissions over 2003 emissions (based on current projections and
    assuming that all of the technology was installed and operational in
    2004 for the purposes of this analysis). Since installation and startup
    of desulfurization technology would take place over several years, the
    increase in CO2 emissions in any 1 year relative to the
    previous year would be much smaller than this. If gasoline demand
    continued to grow at current rates beyond 2004, the incremental
    increase in CO2 emissions from the desulfurization of that
    gasoline would represent only 0.02 percent of projected annual growth
    in worldwide CO2 emissions in 2005 and beyond.

        Question 21a. EPA mentions that there are 17 qualifying small
    domestic refineries, 9 of which already have gasoline sulfur levels
    less than 90 ppm.
        You are proposing that if a sulfur baseline was 30 ppm or less,
    that refinery would have a standard of a 30 ppm average and a 80 ppm
    cap for 2004-2007 with the cap effective October 1, 2003. In 2008, that
    refinery would lose its small refiner status and have the same
    identical standard of a 30 ppm average and a 80 ppm cap. I don't see
    any relief here, could you explain the relief?
        Response. Small refiners who are already meeting the proposed 30/80
    gasoline sulfur standards would not incur any new costs as a result of
    our proposal. Small refiners who are producing gasoline consistently
    below 80 ppm (but averaging greater than 30 ppm) would be given until
    2008 (rather than 2004) to bring their average down to 30 ppm.
        EPA did receive comments from one such small refinery at its Tier
    2/sulfur hearing in Denver on June 15, 1999. This refiner testified
    that the small refiner provisions as proposed could put it at a
    significant disadvantage if it had to change operations from its
    current state. One such change could be a switch from low sulfur crude
    oil to a higher sulfur crude oil. In this case, this refiner would have
    to build its sulfur removal equipment in order to meet the proposed 30
    ppm standard by 2004, instead of by 2008, as required for other small
    refiners. EPA will be considering this situation as it develops the
    final small refiner provisions.

        Question 21b. By comparison, other refiners would have a sulfur cap
    of 300 ppm beginning October 1, 2003 and 180 ppm in 2005. In this case,
    this small refiner producing very low sulfur gasoline would have
    tighter standards than other refiners (80 ppm cap for small refiners
    and 300 ppm cap in 2004 for all others). Do you expect a small refiner
    to request special small refiner status so that it has a tighter cap
    than other refiners?
        Response. No refiner would be required to apply for small refiner
    status. Our proposed small refiner standards indicate our desire to
    maintain at least the status quo as we start small refiners down the
    path toward low sulfur production. Thus, a small refiner who already
    meets the proposed 30/80 standard would be expected to continue
    producing at this level. As you point out, such a refinery probably
    would not see much benefit from achieving small refiner status. Unless
    the refiner operates more than one refinery, it could comply under the
    general industry requirements. The average standard would be 30 ppm in
    2004, but the refiner would be permitted to meet a higher maximum
    standard (300 ppm in 2004 and 180 ppm in 2005) if it opts not to
    participate as a small refiner. If this small refiner currently
    produces gasoline which consistently averages less than 30 ppm (and is
    under the proposed 80 ppm cap), it may want to generate early sulfur
    credits for its own future use or for sale to other refiners in 2004
    and beyond and thus might opt not to apply for small refiner status.

        Question 21c. Furthermore, you propose that this small refiner
    could not use early credits between 2004 and 2007 to meet the 30 ppm
    average, but that refiner could after 2007. You also propose that all
    early credits must be used or transferred by 2007. So a small refiner
    can generate them but not use them? A small refiner would have to sell
    them by 2007 and buy others or buy these same credits back? Why do you
    propose to permit most refiners to use early credits between 2004 and
    2007, but specifically prohibit small refiners?
        Response. With the exception of small refiners who already meet the
    proposed 30/80 standard, no eligible small refiner would have to meet
    the 30 ppm average standard until 2008 (2010 if a hardship extension
    were granted). Hence, these refiners have no need for the use of sulfur
    credits We have proposed interim standards for these refiners that only
    minimally protect Tier 2 vehicles in an attempt to strike a balance
    between the needs of the vehicle technology and the needs of small
    refiners If a small refiner is able to generate sulfur reduction
    credits prior to 2004, it could sell them to another refiner for use by
    2007 If a small refiner expected to be able to generate credits in 2004
    or after, indicating it would have the ability to produce gasoline that
    consistently averages less than 30 ppm, it could choose not to
    participate in the small refiner program but rather to comply with the
    proposed 30/80 standard and bank or sell the credits it generates each
    year (Credits generated in 2004 and beyond are proposed to have a life
    of 5 years--a refiner could bank credits to use in the event of an
    unforseen problem leading to an inability to continue producing 30 ppm
    average gasoline in the future.) No refiner is required to generate or
    sell credits, but we have proposed to allow small refiners to do so if
    they are capable to help them offset the costs of ultimately complying
    with the 30/80 standard.

        Question 21d. If this is an accurate summary, I fail to see how
    this small refiner benefits between 2004 and 2007. It would seem to be
    a dis-benefit. How many affected refineries are in this category.
        Response. Of the 17 refineries we have identified to date which
    appear to meet our small refiner criteria, four already produce
    gasoline which is consistently below 30 ppm. Under our proposed
    program, these refiners need to do nothing to meet our standards except
    to report the sulfur levels of each batch of gasoline produced. Hence,
    while the proposed small refiner provisions may not benefit these
    refiners, they will not incur any new costs due to the proposal,
    either.

        Question 21e. In the second category, if a small refiner has a
    sulfur baseline between 31 and 80, then there would be a cap of 80 ppm
    beginning October 1, 2003. This seems restrictive. How is this a
    benefit when other refiners would have a sulfur cap of 300 ppm
    beginning October 1, 2003 and 180 ppm in 2005?
        Response. We do not want refiners to make dirtier gasoline in the
    future than they do currently. Absent a change in crude slate, there is
    no technical reason why a refiner who could currently meet an 80 ppm
    sulfur cap cannot continue to do so. A small refiner who currently
    meets the proposed 80 ppm cap but not the 30 ppm average would be
    better off to apply for small refiner status and obtain four additional
    years to bring the average sulfur levels down, rather than having to
    meet the proposed 30 ppm standard no later than 2006 (and as early as
    2004 it he does not obtain sufficient credits to meet the 30 ppm
    refinery standard in 2004), even with the higher caps permitted in 2004
    and 2005 to non-small refiners.

        Question 22. As of December 7, 1998, there were 30 nonattainment
    areas outside of California for the current 1-hour ozone standard. Of
    these thirty areas, only three are located west of the Mississippi.
    (See attached chart). How can EPA justify a national 30 ppm gasoline
    sulfur program on the basis of the 1-hour ozone standard when the air
    quality problems are in the east? Doesn't the industry's regional
    approach to gasoline sulfur make more sense? Could the Agency provide
    the Subcommittee with an analysis of the environmental and public
    health benefits of the refining industry's regional approach to
    gasoline sulfur using the current 1-hour ozone standard?
        Response. There are several reasons why we have proposed that a
    nationwide 30 ppm sulfur standard is needed under the combination of
    the 1-hour ozone NAAQS and the original PM10 NAAQS. First,
    gasoline sold in the West not only affects the emissions from vehicles
    operating in the West, but also some vehicles operating in the East.
    EPA's analysis of the available emission test data (developed by both
    the auto and oil industries, as well as by others) shows that future
    vehicles' emissions are likely to be irreversibly affected by high
    sulfur levels. Specifically, VOC and NOx emissions from
    future California low emission vehicles and vehicles meeting the Tier 2
    standards could be, on average, 20 percent and 67 percent higher,
    respectively, if these vehicles were typically operated on 30 ppm
    gasoline but were temporarily operated on gasoline with 330 ppm sulfur.
    We estimate that as many as 25 percent of the vehicles in the East have
    been operated in the West sometime during their life. Therefore,
    gasoline sold in the West directly impacts VOC and NOx
    emissions in the eastern portion of the U.S. These emissions not only
    adversely affect attainment of the 1-hour ozone standard in the East,
    which is a major problem, but they also contribute to ambient levels of
    PM10. NOx emissions form ammonium nitrate in the
    atmosphere, which is one of the major components of ambient
    PM10. While the nonattainment problem for PM10 in
    the East is not as widespread as for ozone, PM10 attainment
    is projected to be a problem in the future for a number of urban
    counties with a combined population of about five million people.
        Second, as the Senator points out, there are currently several 1-
    hour ozone nonattainment areas in the West outside of California. While
    future local and national emission controls are projected to bring
    these areas into attainment with the 1-hour ozone standard, population
    and economic growth are relatively high in these areas. The proposed
    Tier 2 and sulfur standards will help keep these current ozone problem
    areas in attainment with the standard. Furthermore, in the West, unlike
    the East, compliance with the ambient PM10 NAAQS is more of
    a challenge than for ozone. A number of western counties are projected
    to have difficulty meeting the original PM10 NAAQS in the
    future, both inside and outside of California. Sulfur control in the
    West will not only reduce ambient levels of nitrate particulate, but
    will also reduce emissions of sulfate particulate and sulfur dioxide.
    Sulfur dioxide, like NOx, forms particulate in the
    atmosphere. Thus, gasoline sulfur control will reduce ambient
    PM10 levels in the West both by reducing direct emissions of
    particulate matter and by reducing gaseous emissions which form PM in
    the atmosphere.
        Finally, recent ambient ozone monitoring data show that nine
    current ozone nonattainment areas in California are still exceeding the
    1-hour ozone NAAQS. These areas have a combined population of
    approximately 30 million. It appears that some California areas with an
    attainment deadline of 1999 will not meet that date, and therefore will
    require additional emission reductions to attain. Attainment of the 1-
    hour standard in the remaining California areas will be 20 challenging.
    Though this proposal would not directly regulate California vehicles,
    ozone levels in California are reduced through reductions in emissions
    from vehicles sold outside California that subsequently enter
    California temporarily or permanently. According to California, about 7
    to 10 percent of all car and light truck travel in California takes
    place in vehicles originally sold outside of California. In fact, the
    State of California has recently filed an update to its State
    Implementation Plan for the South Coast Air Basin that expressly claims
    that the Tier 2 program will lead to four tons of reduced
    NOx emissions per day in the South Coast area in 2010. As
    mentioned above, these NOx emission reductions will reduce
    ambient levels of both ozone and PM10. Furthermore, low
    gasoline sulfur levels would reduce the impact of sulfur on the
    catalysts of California vehicles that travel outside California and
    later return to the state. Of the vehicles entering California, the
    majority are likely to come from neighboring states. In addition, some
    California vehicles are refueled at least part of the time with
    gasoline sold in western states.

        Question 23. In a recent review of the 1997 summer gasoline
    production, the Energy Information Administration (EIA) concluded that
    its analysis provided clear indications that in summer 1997, gasoline
    production from U.S. refineries was approaching the upper limit.'' EIA
    also projects significant growth in petroleum consumption, principally
    gasoline and jet fuel. What assurance does the Agency have that rapid,
    stringent.
        Response. [This question is incomplete. A call has been made to the
    Committee staff to obtain the complete question but we have not yet
    received an answer.]

        Question 24. Imports are a significant source of East Coast
    supplies, about 15-20 percent of total gasoline demand on the East
    Coast? Has EPA determined whether these sources of imports will
    continue when the new gasoline sulfur program is in effect? Has the EPA
    determined whether regulations on very low sulfur content in gasoline
    will not create tight markets and increase U.S. vulnerability to market
    disruptions?
        Response. Given our experience with the reformulated gasoline
    program and other fuel programs, we have no reason to believe that
    foreign refiners will not continue to send imports to the U.S.,
    including the East Coast, under a low sulfur gasoline program.
    Economics dictate whether imports come to the U.S.; many times a shift
    in gasoline prices of a few pennies has turned a ship toward the U.S.
    from its original destination. Many parts of the world are moving
    toward low sulfur gasoline standards, so many of the world's refiners
    will be installing desulfurization capacity. Furthermore, just as in
    the U.S., some refiners worldwide already produce low sulfur products
    due to the low sulfur crude oil they process or other aspects of their
    existing refinery configurations. Finally, foreign refiners who send
    only a small fraction of their production to the U.S. may be able to
    send low sulfur gasoline by segregating their production. To summarize,
    EPA expects no supply problems due to reduced imports as a result of
    our proposed regulations.

        Question 25. How many Tier II vehicles will be on the road on
    January 1, 2004 when the 30 ppm gasoline sulfur standard is effective?
    What percent of the U.S. fleet will Tier II Vehicles represent in 2004?
        Response. While it is impossible to precisely predict the number of
    vehicles of a particular model year on the road in any one particular
    calendar year. some assumptions can be made to produce an estimate.
    Model year 2004 vehicles will go on sale in the Fall of 2003. By
    January 1, 2004, we can assume that about 25 percent of the entire 2004
    model year would be on the road. Given that only 25 percent of 2004
    model year vehicles are required to meet Tier 2 standards, it is
    reasonable to expect that about 6 percent of the entire 2004 model year
    will be Tier 2 vehicles on the road by January 1, 2004.
        In our Regulatory Impact Analysis we project passenger car and
    light truck sales of 13.6 million in 2004 for the 49 states affected by
    Tier 2. Using the 6 percent figure above, approximately 850,000
    vehicles affected by Tier 2 requirements would be sold by January 1,
    2004 and about 3.4 million would be sold by the end of the 2004 model
    year. This would represent less than 1 percent of the passenger car and
    light truck fleet by January 1, 2004. By the end of 2004, Tier 2
    vehicles could be expected to represent just under 3 percent of the car
    and light truck fleet.

        Question 26. By how much would public health and environmental
    benefits increase if all categories of vehicles, including sport
    utility vehicles, were required to meet Tier II emission standards in
    2004?
        We do not have specific modeling results to assess the impact on
    air quality and benefits of requiring the heavier light-duty trucks to
    meet Tier 2 levels at the same time as cars and lighter light-duty
    trucks. However, it is important to note that the delay in implementing
    the final Tier 2 requirements for large light-duty trucks is
    accompanied by the proposed requirement to meet interim standards
    beginning in 2004. These interim requirements will yield substantial
    NOx and NMOG reductions. For example, the Tier 1
    NOx standard for LDT4s is 1.53 g/mi. This would be reduced
    to a corporate average of 0.2 g/mi phased in from 2004 to 2007.

        Question 27. A major flaw in the banking and trading program is
    that credits must be generated early, by 2003, and there simply is not
    enough time to accomplish the permitting and construction of
    desulfurization equipment. What can the Agency do to make banking and
    trading program useful?
        Response. We have provided in our proposal one example of how the
    refining industry may respond to the sulfur banking and trading program
    that demonstrates that sufficient credits can in fact be generated
    prior to 2004 to allow many refiners to delay construction of
    desulfurization equipment a year or two. We permit winter reformulated
    gasoline to generate credits if summertime sulfur levels are maintained
    (which is not required in the current RFG program). We know of several
    refiners who plan to install some desulfurization equipment in the near
    future--these refiners will be positioned to generate credits prior to
    2004. We also know that once the industry sees our final program
    requirements later this year, refiners will begin to make investment
    plans and this will likely lead to some installing desulfurization
    capacity prior to 2004, thereby being able to generate sulfur credits.
    Finally, as we have explained in responses to previous questions, we
    will work to streamline the construction permitting process to ensure
    that the desulfurization equipment could be installed in sufficient
    time to generate credits. We look forward to working with the refining
    industry to improve on this proposal, but we believe our proposal has
    the potential to provide credits if we finalized it as currently
    designed.
        We have taken comment on alternative approaches and issues
    associated with this proposed program.
                                     ______

          Responses by Carol M. Browner to Additional Questions from
                                 Senator Baucus
        Question 1. Please provide information indicating the costs and the
    benefits associated with the proposed Tier II/sulfur rule, including
    those particular to PADD IV and the intermountain West. Please provide
    estimates for both the 1-hour and the 8-hour ozone standards.
        Response. As explained in the proposed rule, we have estimated that
    the average Tier 2 car would approximately cost an additional $100, the
    average Tier 2 light truck would cost about an additional $200, and low
    sulfur gasoline would cost 1-2 cents/gallon more than today's gasoline.
    In PADD IV, we estimate low sulfur gasoline would cost slightly over
    three cents/gallon more than today's gasoline (due to the generally
    higher costs in this region). None of these costs is impacted by
    whether the standards are being implemented in response to the 1-hour
    or 8-hour ozone NAAQS. We have estimated the cost effectiveness of the
    proposed rule (vehicle and fuel controls combined) is $1,200 to $1,600
    per ton of NMHC plus NOx controlled, including credits for
    reductions in emissions of sulfur dioxide and particulate matter and
    $1,750 to $2,150 without such credits. We did not assess the
    incremental cost effectiveness of VOC and NOx emission
    controls in the western U.S.
        We have prepared an initial assessment of the overall costs and
    benefits of our proposal in the form of a Benefit-Cost analysis. The
    results of that assessment indicate that the benefits of the rule may
    substantially exceed the cost. Once fully implemented, we estimate that
    the monetized annual benefits of the rule will be between $3.2 and
    $19.6 billion per year, with our best estimate being $16.6 billion per
    year. The comparable annual cost of the Tier 2/gasoline sulfur rule
    would be about $3.5 to $4.3 billion per year. We have no regional
    analysis of the benefits which would allow us to determine benefits in
    a particular region, such as PADD IV or the intermountain West.
        The value of the benefits of our proposal are not dependent on the
    1-hour or 8-hour ozone standards. The estimates of benefits are based
    on (a) our estimates of the emission reductions that the rule would
    produce, (b) our projections of the air quality changes that would
    result from these emission reductions, (c) the changes in various
    health and welfare endpoints caused by the air quality changes, and (d)
    the value of reductions in those health and welfare endpoints. None of
    these pieces of the benefits analysis is dependent upon the specific
    value of the NAAQS. Emission reductions and related air quality changes
    are determined by the requirements of the rule itself. The changes in
    health and welfare effects are determined solely from the underlying
    scientific studies relating effects and endpoint changes. Similarly,
    the valuation of changes in these end points is derived directly from
    the scientific literature. None of these factors depends on the
    specific NAAQS level.
        EPA has requested public comments on many issues associated with
    the costs and benefits of the proposed rule and expects to revisit
    these issues in preparing the final rule.

        Question 2. What impact will the U.S. Court of Appeals decision
    (American Trucking Association, May 14, 1999) have on the Agency's
    assumptions in and the ability to implement the proposed Tier II/sulfur
    rule? What steps is the Agency taking to analyze the decision's impacts
    on other rules and regulations?
        Response. On May 14, 1999, a panel of the U.S. Court of Appeals for
    the District of Columbia Circuit found, by a 2-1 vote, that sections
    108 and 109 of the Clean Air Act, as interpreted by EPA, represent
    unconstitutional delegations of Congressional power. American Trucking
    Ass'ns, Inc. et al., v. Environrnental Protection Agency, Nos. 97-1440,
    1441 (D.C. Cir. May 14, 1999). The Court remanded the record to EPA.
    One judge dissented, finding that the majority's opinion ignores the
    last half-century of Supreme Court nondelegation jurisprudence.
        The Court also ruled on other general issues and on issues specific
    to each NAAQS. The Court upheld EPA's rules on some of these claims,
    but ruled against the Agency on others. In general, the Court did not
    find fault with the scientific basis for EPA's determinations regarding
    adverse health effects from ozone or PM. However, the Court did ask EPA
    to evaluate the adverse effects associated with reducing ozone.
        On June 23, 1999, the Administrator signed a notice clarifying the
    proposed Tier 2 rule in light of the Court's decision. That notice has
    been given to Committee staff. EPA has evaluated its authority to
    implement the proposed Tier 2/sulfur program after the Court's
    decision. EPA believes that the Court's decision does not impact EPA's
    proposed determination that the Tier 2/sulfur program is a necessary
    and appropriate regulatory program that would provide cleaner air and
    greater public health protection. EPA believes that the need for the
    Tier 2/sulfur program exists whether one measures this need against the
    new ozone and particulate matter NAAQS or against the preexisting NAAQS
    for ozone and particulate. Moreover, the Court's decision does not
    affect EPA's analysis of the benefits of the proposed Tier 2/sulfur
    rule in reducing air toxics, acid rain, visibility impairment, and
    other air quality problems.

        Question 3. What is the Agency's position on the Court's decision
    and what impact could that decision have on air quality if it is not
    successfully challenged?
        Response. As you are probably aware, the Agency strongly disagrees
    with the Court's decision. On June 28, 1999 EPA and the Department of
    Justice filed a petition for rehearing and rehearing en banc asking the
    D.C. Circuit to reverse the decision of the panel. If this decision is
    not overturned, the panel's decision will delay the health protection
    provided by the new NAAQ standards. The D.C. circuit panel's decision
    did not question the need for a new, more stringent, ozone standard and
    a new fine particle standard.

        Question 4. Why did the Agency choose to propose a definition of
    small refinery different than the one used in section 410(h) of the
    Clean Air Act?
        Response. Our Tier 2/gasoline sulfur proposal uses a definition of
    small refiner that targets a segment of the industry that may need
    additional time to comply, for example because of difficulties faced in
    raising capital and in arranging for installation of desulfurization
    equipment. The proposed definition is based on the Small Business
    Administration's definition of small refiner, which looks at the total
    number of a company's employees, rather than on volume of throughput.
    EPA started with this approach because the 1996 SBREFA amendments to
    the Regulatory Flexibility Act start with the SBA definition as a
    default. Like the definition of small refinery used in past EPA
    programs (described below), our proposed definition is aimed at
    identifying those refiners that may face particular economic
    difficulties in complying, for example, because they don't have the
    ability of a larger corporation to raise capital for investment in
    desulfurization. When we conducted the Small Business Advocacy Review
    Panel convened under SBREFA requirements, we did not exclude any
    parties on the basis of their number of employees even though we
    focused on reaching those refiners we believe most clearly meet the SBA
    definition.
        In the lead phase-down program for gasoline, EPA used a definition
    of ``small refinery'' that Congress adopted in 1977 specifically for
    the lead phase-down program. The definition was based on crude oil or
    feedstock capacity at a particular refinery, combined with total crude
    oil or feed stock capacity of the refiner that owned the refinery. In
    1990, the lead phase-down program was complete, and Congress removed
    this provision from the Act.
        Shortly before the Act was amended in 1990, EPA set standards for
    sulfur content in diesel fuel, including a 2-year delay for small
    refineries. EPA used the same definition of small refinery as it used
    in the lead phase-down program. This 2-year delay, like many of the
    small business flexibilities in the gasoline sulfur NPRM, was aimed at
    problems that small refineries faced in raising capital and in
    arranging for refinery construction.
        In the 1990 amendments to the Clean Air Act, Congress rejected this
    small refinery provision, and instead allocated allowances to small
    diesel refineries under the Title IV Acid Rain program. Section 410(h).
    This approach was also aimed at helping small refineries solve the
    problem of raising the capital needed to make investments to reduce
    diesel sulfur. Congress provided allowances to small refineries that
    met criteria similar to that used in the lead phase-down provision
    based on the volume of crude oil throughput at a particular refinery,
    combined with the total volume of crude oil throughput of the refiner
    that owned the refinery.
        While we have proposed a different definition for gasoline sulfur
    control in light of the SBREFA Panel's recommendations, in our proposal
    we are seeking comment on alternative definitions of small refiner,
    including definitions based on volume of crude oil processed (at a
    given refinery and/or corporate-wide) or volume of gasoline produced.
    However, we do believe that any relief offered to refiners must not
    result in a substantial loss of the environmental benefits of the
    program. Hence, we must ensure that whatever definition is selected,
    only a small percentage of the gasoline produced in the U.S. is
    eligible for the less restrictive standards. Our proposal would affect
    less than 4 percent of gasoline produced in the U.S. The crude oil
    capacity-based definition from Section 410(h) would encompass about 38
    percent of refiners in the U.S. (approximately 60 out of 158 refiners),
    although many of these may not produce gasoline.

        Question 5. What effect does the Agency expect that the Tier II/
    sulfur proposed rule, if implemented, would produce in terms of annual
    carbon dioxide emissions from mobile sources?
        Response. No loss in fuel economy or increase in CO2
    emissions from Tier 2 vehicles is expected as a result of the proposed
    rule, so there will be no direct increase in mobile source
    CO2 emissions as a result of this program. The Tier 2/
    gasoline sulfur rule will lead to a small increase in CO2
    emissions from domestic refineries due to the increased energy
    consumption needed to desulfurize gasoline. We estimated an increase of
    6.9 million tons in 2004. This represents 0.03 percent of projected
    worldwide CO2 emissions in 2004, and a 1.2 percent increase
    in 2004 over 2003 (based on current projections and assuming that all
    of the technology was installed and operational in 2004 for the
    purposes of this analysis). Since desulfurization technology will be
    installed and start operation over the course of several years, the
    increase in CO2 emissions in any 1 year relative to the
    previous year will be much smaller than this. If gasoline demand
    continued to grow at current rates beyond 2004, the incremental
    increase in CO2 emissions from the desulfurization of that
    gasoline would represent only 0.02 percent of projected annual growth
    in worldwide CO2 emissions in 2005 and beyond.

        Question 6. Please quantify the total estimated emissions of each
    pollutant (NOx, PM, etc.) that would be avoided by
    implementation of the proposed rule without change.
        Response. The following table summarizes our estimates of the
    emission reductions to be achieved from the Tier 2/gasoline sulfur
    program, as proposed. Since both the fuel and vehicle regulatory
    requirements would be phased-in over time, the estimated emission
    reductions increase over time. These estimates are based on an analysis
    of the emissions in 47 states (excluding California, Hawaii, and
    Alaska). The proposed program would apply in Hawaii and Alaska and in
    U.S. territories, and thus these areas would also see emission benefits
    from this program; however, we were unable to quantify these benefits.
    California, although subject to a separate vehicle and fuel control
    program, would benefit from lower-emitting Federal vehicles migrating
    to and/or traveling within the state, as well as California vehicles
    operating on lower sulfur non-California fuel (and avoiding
    irreversible damage from high sulfur levels) if they leave the state.
    These estimates do note account for the impact of the proposed small
    refiner provisions. However, we expect to revisit these estimates based
    on information received during the comment period as we prepare our
    analysis for the final rule.

                   Emission Reductions From Tier 2/Gasoline Sulfur Program, As Proposed (Annual Tons)
    ----------------------------------------------------------------------------------------------------------------
                          Year                           NOx          VOC          SOx         PM2.5*       PM10*
    ----------------------------------------------------------------------------------------------------------------
    2004...........................................      502,511      104,069      189,646       19,909       21,462
    2007...........................................      795,734      131,428      193,760       20,542       22,145
    2010...........................................    1,182,323      177,128      216,437       23,410       25,239
    2015...........................................    1,778,881      258,380      242,964       26,595       28,674
    2020...........................................    2,198,113      331,676      269,756       29,707       32,031
    2030...........................................    2,786,345      435,981      321,609       35,549       38,331
    ----------------------------------------------------------------------------------------------------------------
    *Assumes no growth in diesel engine sales in the light-duty market. If the market share of diesel engines
      increases in this sector, the PM2.5 and PM10 reductions of this proposal would be even greater since diesel
      light-duty vehicles and trucks currently meet less stringent standards than their gasoline counterparts.

        Question 7. In model year 2004, only about a quarter of
    manufacturers' vehicles will be required to meet the more stringent
    emissions standards in the proposed rule. Yet, refineries will still be
    manufacturing and shipping gasoline with an absolute sulfur content cap
    of 300 ppm. Won't this level of sulfur damage the advanced catalysts of
    some of those vehicles and cause catalyst poisoning? Under the proposed
    rule, what recourse would consumers have if their vehicle is damaged or
    requires repair due to higher sulfur content levels in gasoline than a
    vehicle manufacturer recommends?
        Response. As we explain in our proposal, we believe that Tier 2
    vehicles require gasoline sulfur levels to be limited to 80 ppm and
    averaging at lower levels to ensure that these vehicles achieve the
    emissions performance they were designed to achieve in-use. However, at
    the same time, we recognize that refiners need some flexibilities in
    meeting our proposed standards, to ensure that the program is
    implemented in an orderly manner (without supply shortages or
    substantial price spikes in the early months). Hence, in an attempt to
    balance the needs of the emission control technology with the
    regulatory burden, economic impact, and ability of the refining
    industry to reduce sulfur levels in this timeframe, we have proposed to
    allow less stringent caps in 2004 and 2005. We believe that the
    potential damages to Tier 2 vehicles as a whole are minimized over this
    time period because the vehicles would still be phasing in, and by the
    time a majority of new sales are required to meet Tier 2 standards
    essentially all gasoline would meet the 80 ppm cap. However, individual
    Tier 2 vehicles sold in 2004 and 2005 which are exposed to higher
    sulfur levels might incur some irreversible damage to their emission
    control systems. While this is clearly undesirable, the alternative is
    no better. If the Tier 2 standards are delayed until the entire fuel
    pool can be at 80 ppm sulfur or less, more vehicles will be produced
    under the National LEV program. These are higher emitting vehicles
    whose emissions are very sensitive to sulfur and which are likely to
    show the same degree of irreversible sulfur impacts as Tier 2 vehicles.
    Thus, delaying the Tier 2 standards would only exacerbate the problem.
        We did not propose any provisions for consumers to seek recourse if
    they have to replace a Tier 2 catalyst damaged by high sulfur levels in
    the early years of the program. The existing emissions warranty
    provisions would cover all Tier 2 vehicles.

        Question 8. If a regional plan, such as proposed by the American
    Petroleum Institute, or perhaps a plan with higher sulfur levels
    allowed in gasoline produced and used in PADD IV, were implemented,
    what impact would that have on air quality, vehicle performance, and
    consumers.
        Response. We estimated that the regional program proposed by API
    would result in 15-20 percent more NOx emissions than our
    proposal (without adjusting our assumptions about the emissions
    reductions achieved by Tier 2 vehicles because we believe the Tier 2
    standards would have to be less stringent if we were to adopt the API-
    proposed sulfur levels). These relatively higher emissions are
    attributable to both the emissions in the West resulting from the
    higher sulfur levels, and the irreversible damage to Tier 2 vehicles
    from the East (lower sulfur) region which could travel to the West and
    be exposed to the higher sulfur levels.
        In general, any regional program with higher sulfur levels would
    result in lower air quality benefits than our proposed program. Because
    higher sulfur levels impact absolute emission levels, such a regional
    program would result in higher emissions of ozone-forming compounds,
    particulates and their precursors and air toxics.
        Hence, the citizens in the high sulfur region would receive less
    environmental protection under such a regional program. Furthermore,
    they would be paying a higher cost for the low emitting Tier 2 vehicles
    but not reaping the full emission control benefits of those vehicles.
    Gasoline costs would likely be somewhat less in these areas, however.
                                     ______

          Responses by Carol M. Browner to Additional Questions from
                                Senator Moynihan
        Question 1. Please comment on the legal basis for the gasoline
    sulfur rule.
        Response. We proposed gasoline sulfur controls pursuant to our
    authority under Section 211(c)(1) of the Clean Air Act. Under Section
    211 (c)(1), EPA may adopt a fuel control if at least one of the
    following two criteria is met: (1) the emission products of the fuel
    cause or contribute to air pollution which may reasonably be
    anticipated to endanger public health or welfare, or (2) the emission
    products of the fuel will significantly impair emissions control
    systems in general use or which would be in general use were the fuel
    control to be adopted. We have used both criteria to support our
    proposal. Under the first criterion, we believe that emissions products
    of sulfur in gasoline used in Tier 1 and LEV technology vehicles
    contribute to ozone pollution, air toxics, and PM. Under the second
    criterion, we believe that gasoline sulfur in fuel that will be used in
    LEV and Tier 2 technology vehicles will significantly impair the
    emissions control systems expected to be used in such vehicles.

        Question 2. In your estimation, how much of the price difference
    between California gasoline and gasoline sold elsewhere is attributable
    to sulfur reductions? What other differences are there between
    California gasoline and that gasoline sold elsewhere?
        Response. California's reformulated gasoline standards (CaRFG 2)
    set limits not only on sulfur content, but also on benzene, aromatics,
    and olefins levels. The California standards also regulate the
    distillation properties known as T50 and T90 and set a flat limit on
    the volatility of the gasoline (as measured by Reid vapor pressure,
    RVP). It is difficult to calculate the exact breakdown of the cost
    difference between producing California gasoline and Federal gasoline.
    (Note that the term ``cost'' not ``price'' is used here--factors other
    than production costs can contribute to differences in price, so EPA
    does not make projections about price differences.) However, we have
    estimated that the sulfur reduction requirements, while significant,
    were responsible for only about one-third of the total costs and even
    less of the capital investments needed to meet the CaRFG 2
    requirements. Now that technology has evolved and refiners may have
    lower cost alternatives to meet low sulfur standards, we expect the
    costs for refiners nationwide to be lower than those experienced by
    California's refiners.
        Recently, there have been substantial differences in the price
    between California gasoline and gasoline sold elsewhere. California has
    experienced two significant refinery closures due to unforeseen
    accidents in recent months. Because of California's unique
    requirements, they cannot easily get gasoline from other parts of the
    country to make up for their supply shortage, so prices have gone up. A
    national low sulfur gasoline program would avoid this type of problem
    because if a refinery in one part of the country were unable to produce
    qualifying gasoline, fuel could be shipped from another part of the
    country without incurring such a substantial price increase (although
    some increase for transportation costs may be expected).

        Question 3. It has been noted that the Administration's cost
    estimate of 1-2 cents per gallon was based on ``unproven''
    technologies. However, some refineries have installed a currently
    available technology to reach the sulfur levels outlined in the
    proposed rule. How long has this technology been available? What would
    be the cost to consumers of a gasoline sulfur reduction which relied
    solely upon currently available technology?
        Response. Technologies that enable refiners to significantly reduce
    the level of sulfur in gasoline have been available for many years.
    Roughly 15 percent of current domestic gasoline production could meet
    the proposed gasoline sulfur standards with no or very little
    additional capital investment, and at most a small increase in
    operating cost. These refineries use traditional sulfur removal
    technologies, or, in some cases, have refinery configurations that can
    accommodate very low sulfur crude oils. Two examples of these
    traditional technologies are hydrotreating and hydrocracking the feed
    to the fluidized catalytic cracker unit (FCC), the unit in the refinery
    that produces the largest fraction of gasoline blendstock. These
    processes are capital intensive and demand large amounts of hydrogen
    and other utilities, resulting in high operating expenses. Another
    example is desulfurization of the gasoline stream coming from the FCC
    unit. Treating the FCC gasoline stream has the advantage of lower
    capital and operating costs than treating the FCC feed. The major
    concern with this approach is that the octane value of this gasoline
    blendstock is reduced at the same time that sulfur is reduced,
    particularly when the sulfur is being reduced to low levels. This lost
    octane must be made up by increasing the production of high-octane
    blendstocks from other units of the refinery, or by the addition of
    oxygenates. Making up this octane loss adds significantly to the cost
    of desulfurizing FCC gasoline.
        We have been very encouraged to see the recent development of
    several improved desulfurization processes that are now available at
    reduced capital investment and operating costs (and which avoid the
    octane loss that increases the costs of traditional technologies).
    Examples of these technologies are CDHydro and CDHDS (licensed by the
    company CDTECH) and OCTGAIN 220 (licensed by Mobil Oil). These
    technologies use conventional refining processes combined in new ways,
    with improved catalysts and other design changes that minimize the
    undesirable impacts (such as the substantial loss in octane) and
    maximize the effectiveness of the desulfurization approach. Hence, we
    do not believe these technologies are ``unproven'' although in some
    cases the specific combinations of proven technologies have not been
    commercially demonstrated. Since these processes provide less costly
    ways to reduce gasoline sulfur, we presume that they would be used by
    most refiners to meet the proposed gasoline sulfur standard, and have
    based our economic assessment on that presumption.
        We do not have a current estimate of the costs of using
    conventional gasoline desulfurization technologies to meet our proposed
    standards, since we believe refiners will use the lowest cost approach.
    In our May 1998 ``EPA Staff Paper on Gasoline Sulfur Issues'' we did
    estimate that the cost of gasoline would increase 5.1--8.0 cents per
    gallon if these traditional approaches were used. However, this
    estimate was based on a refinery model which is now known to contain
    significant errors which caused the projected costs to be over-
    estimated. Thus, a more accurate cost estimate could be lower. In
    contrast, our proposal was based on an estimated cost of one to two
    cents per gallon, calculated based on the improved, lower cost
    technologies now available.
                                     ______

          Responses by Carol M. Browner to Additional Questions from
                                 Senator Graham
        Question 1. It appears that the initial question is does high
    sulfur content in automobile fuel degrade the performance of catalytic
    converters?
        Response. Yes, there is substantial test information on catalyst
    equipped vehicles which shows that sulfur reduces catalyst efficiency.

        Question 2. Does it degrade the performance of all catalytic
    converters or only the catalytic converters required by the Tier 2
    regulation?
        Response. All catalysts are adversely impacted by gasoline sulfur
    (as well as by other compounds that may end up in gasoline; lead was
    banned from gasoline because it causes immediate and catastrophic
    failure of catalytic converters) to some degree. This is a phenomenon
    based on the chemistry involved in the operation of the catalyst, and
    every catalyst will suffer some loss in emissions performance after
    exposure to sulfur. Even very low sulfur levels, over time, will have
    an adverse impact on the catalyst. As emission standards have been
    pushed to lower levels to address ongoing air quality problems,
    catalysts have had to become more effective at reducing pollutants.
    Sulfur inhibits this effectiveness by reducing catalyst efficiency.
    This loss in catalyst efficiency can be substantial enough that the
    vehicle exceeds the emission standards for which it was designed. This
    is a concern that has been raised about NLEVs which were designed to
    operate on California sulfur levels. Test data generated by the auto
    manufacturers, oil industry, and others documents this sensitivity.
    Because Tier 2 catalysts would have to be as or more efficient than
    NLEV catalysts to meet the proposed standards, we believe Tier 2
    catalysts would be as or more sensitive to sulfur than NLEV catalysts.

        Question 3. Is this damage reversed?
        Response. The sulfur damage may or may not be reversible, depending
    on the vehicle model year and the conditions under which the vehicle is
    operated. Tier 0 and Tier 1 vehicles were not required to meet very low
    emission standards relative to NLEV and the proposed Tier 2 standards
    and their catalysts tend to be less sensitive to sulfur and to be more
    easily regenerated if they are exposed to high sulfur levels. Newer,
    more efficient catalysts, on the other hand, are not only more
    sensitive to sulfur but have a harder time recovering their original
    performance levels once they have been exposed to high sulfur. In
    addition to improving catalysts, manufacturers have also improved the
    ability of the engine to maintain the correct mixture of air and fuel,
    which both minimizes emissions out of the engine and maximizes the
    efficiency of the catalyst. It appears that this tight control of the
    air-fuel mixture hinders the removal of sulfur from the catalyst. Thus,
    the emissions from vehicles meeting the NLEV standards and the proposed
    Tier 2 standards, particularly those also meeting EPA's off-cycle
    emission standards, are less reversible than earlier vehicles. We
    estimate that a Tier 2 vehicle may suffer, on average, a permanent 50
    percent loss in emissions performance after exposure to high sulfur
    gasoline. This means that 50 percent of the damage caused by high
    sulfur levels cannot be reversed. We are continuing to gather data on
    the reversibility of the sulfur effect and will update our analysis as
    necessary.

        Question 4. How would damage be reversed?
        Response. The mechanism for reversing the sulfur impact--the way in
    which sulfur is removed from the catalyst--relies on a combination of
    high temperatures and in some cases, low oxygen or ``rich'' exhaust
    entering the catalyst. Different catalyst formulations require
    different combinations of heat and rich exhaust to partially or fully
    reverse the sulfur effect. While some vehicles may be operated
    periodically in a way that would achieve these conditions, we cannot
    guarantee that vehicles exposed to high sulfur levels would regularly
    be able to reverse the sulfur impact. Some test programs to assess
    sulfur sensitivity and reversibility found it very difficult to produce
    the conditions necessary to reverse the sulfur effect on certain
    catalysts, even in the laboratory setting. Calibrating vehicles to
    create these conditions in actual driving is problematic since that
    tends to create large increases in hydrocarbon and NOx
    emissions.

        Question 5. Is there another way to repair or ensure that catalytic
    converters, if damaged by high sulfur content in fuels, can be restored
    to their original performance levels?
        Some research vehicles have been able to regenerate their catalysts
    by being driven through unique aggressive driving patterns which
    created the ``hot, rich'' environment needed to release sulfur.
    However, these vehicles did not meet either the SFTP requirements being
    implemented over the next few years or the Tier 2 emission standards.
    Given the unique driving required to reduce sulfur on the catalyst and
    the likelihood that future emission requirements will constrain the
    ability of vehicles to create the hot, rich conditions needed, it seems
    unlikely that Tier 2 catalysts could be returned to their original
    condition on the vehicle in any manner which would occur consistently
    and would not otherwise compromise emission controls.

        Question 6. What is the estimated cost of replacing a catalytic
    converter?
        Response. The cost of replacing a catalytic converter varies
    depending on the age, make, and model of the vehicle and where the
    consumer goes to have the catalyst replaced. An aftermarket catalytic
    converter generally costs $200-300, while a converter purchased from an
    original equipment manufacturer (OEM) (say, through an automotive
    dealership) can cost anywhere from $500 to over $1,000.

        Question 7. If the damage is reversible, could regional regulations
    work?
        Response. If the sulfur effect is completely reversible under
    typical driving conditions, then yes, a regional sulfur program would
    not permanently compromise the emissions performance of vehicles
    exposed to the higher sulfur levels. However, the higher sulfur levels
    would result in higher emissions as long as the vehicle operates on
    high sulfur gasoline. Hence, many of the projected emissions benefits
    of the Tier 2 vehicles would be reduced for the vehicles operated in
    high sulfur areas. Furthermore, the projected benefits of low sulfur
    gasoline to the other vehicles in the fleet would not be realize.

        Question 8. If the damage is not reversible, could regional
    regulations, tailored to the air quality needs of each region,
    effectively reduce the impact of sulfur on catalytic converters?
        Response. If the sulfur damage is not reversible, any variation in
    sulfur levels across the country will have some adverse impact on Tier
    2 (and other) catalysts. While it may be possible to tailor the
    regional program(s) to consider regional air quality needs, vehicles
    that travel across regions may suffer permanent damage. We have
    estimated that perhaps as many as 25 percent of vehicles have traveled
    between the East and the West (due to business or pleasure travel or
    relocation) over their life. This could result in a lower emissions
    benefits in all areas. Furthermore, the consumers would be paying for
    emission controls that may not achieve the full reductions they were
    designed for simply because of higher sulfur levels in their region.

        Question 9. What percentage of vehicles are still using Tier 0
    technology?
        Response. Estimating the number of Tier 0 vehicles still in the
    fleet in a future year is quite difficult due to the number of model
    years involved, variations in sales from year-to-year, and other
    factors. For emissions estimation purposes, estimating the percentage
    of vehicle miles traveled (VMT) associated with different vehicle
    standards is much more important. Using estimations of VMT distribution
    by vehicle age assumed in EPA's emission factor model for highway
    vehicles, we can estimate that Tier 0 vehicles account for
    approximately 73 percent of passenger car VMT in 1999 and will account
    for approximately 39 percent in 2004.

        Question 10. I believe that your existing analysis shows that the
    entire fleet of cars in the United States will have transitioned to
    Tier 2 technology by the year 2030. Is this accurate?
        Response. We believe this analysis is essentially correct. There
    may be few vehicles on the road which are over 25 years old, but they
    will not be driven much. This estimate is based on two sources: the
    number of vehicles of each age is based on State registration records,
    while the mileage accumulated by vehicles of different ages is based on
    the Department of Transportation's National Personal Transportation
    Study. This information shows that in 2030, vehicles 24 years of age
    and younger would account for over 95 percent of the VMT by light-duty
    cars and trucks. Thus, Tier 2 vehicles would account for about 95
    percent of total VMT in 2030.

        Question 11. What reduction of air pollutants will accompany that
    transition?
        Response. Since the proposed Tier 2 standards would reduce
    emissions of NOx, NMOG, and PM, emission levels of these
    pollutants will continue to decrease as long as Tier 2 vehicles replace
    older models in the fleet. By 2030, we estimate annual reductions of
    436,000, 2,786,000, 322,000, and 36,000 tons of NMOG, NOx,
    SOx, and PM, respectively.

        Question 12. If the sulfur regulation you propose is adopted as
    currently written, by what date will that same level of reduction
    occur?
        Response. We have not analyzed the emissions reductions due to
    sulfur control apart from the emissions reductions due to the Tier 2
    standards, since we believe the Tier 2 standards cannot be achieved
    without this degree of sulfur reduction. In the early years of the
    program, the majority of the modeled emission reductions come from
    emissions benefits realized in the vehicles already on the road as a
    result of sulfur control. Later in the program, the majority of
    emissions benefits come as Tier 2 vehicles continue to replace older
    technologies.

        Question 13. Several of the witnesses on Tuesday discussed the
    transition of the vehicle fleet to Tier 2 technology as one possible
    guideline for a phased implementation of national sulfur regulations.
    Based on the numbers we have just discussed, what is your opinion on
    the viability of a phased sulfur regulation that was coordinated with
    the transition of the fleet to Tier 2 technology?
        Response. We are concerned that phasing in gasoline sulfur control
    in parallel with the introduction of Tier 2 vehicles, in a manner
    similar to the phase-in of unleaded gasoline in the 1970's as catalytic
    converters were first introduced into the marketplace, could
    significantly reduce the emissions reductions to be achieved in the
    early years of this program. This occurs because there is a loss in
    emissions reductions that can be achieved from vehicles already on the
    road. However, EPA has requested comment on the proposed time frame and
    plans to consider these comments in developing the final rule.

        Question 14. How many refineries do you estimate will go out on
    business as a result of your proposed rule?
        Response. We do not believe any refineries will close due to our
    proposed standards, because we have developed a program with multiple
    compliance flexibilities. These flexibilities include a sulfur
    averaging, banking, and trading program that allows refiners to use
    credits against the sulfur standards, a 3-year phase-down of sulfur
    levels, and special provisions for small refiners providing additional
    time for compliance. We are also asking for comment on a range of other
    alternatives, such as a hardship provision that could be available to
    any refiner regardless of size, that we will evaluate seriously as we
    proceed in developing our final program. It is certainly not our
    intention to implement a program that requires refinery closures.

         CLEAN AIR ACT: SULFUR IN THE TIER 2 STANDARDS FOR AUTOMOBILES

                                  ----------

                            THURSDAY, JULY 29, 1999

                                   U.S. Senate,
             Committee on Environment and Public Works,
    Subcommittee on Clean Air, Wetlands, Private Property, and
                                                Nuclear Safety,
                                                        Washington, DC.
        The subcommittee met, pursuant to notice, at 9:30 a.m., in
    room 406, Senate Dirksen Building, Hon. James M. Inhofe
    (chairman of the committee) presiding.
        Present: Senators Inhofe, Lautenberg and Bennett.
        Also present: Senator Thomas.

     OPENING STATEMENT OF HON. JAMES INHOFE, U.S. SENATOR FROM THE
                           STATE OF OKLAHOMA

        Senator Inhofe. The committee will come to order.
        I think we are going to be joined, probably not until after
    we recess for the votes, by both Senator Bennett and Senator
    Thomas, maybe Senator Hutchison.
        Today's hearing will discuss the EPA's proposed gasoline
    sulfur regulation. While this is officially our third hearing
    on the issue, the last hearing seemed to get off track with
    discussions on the NAAQS court case, you remember we got off
    and started talking about that, and we never really got back
    on. So we will not do that again today.
        The sulfur rule is very important, and I feel the agency is
    rushing into a decision without considering all the effects of
    the proposed rule. I have consistently raised a number of
    issues for over a year and a half which have not been addressed
    by the agency, such as the effect on fuel supply, the impact on
    both small refineries and refines, the timing of the proposal
    in light of the unproven technology and cost of equipment, and
    the impact on national security.
        In addition, the EPA has played games with expected
    benefits from the low sulfur standard. As I showed in the last
    hearing, 75 percent of the expected benefits come from one
    PM2.5 study, which President Clinton said should not
    be considered as a basis for this until there has been a
    scientific review. In addition, on June 23, the EPA issued a
    supplemental notice to address the NAAQS court case. The
    original proposal cited both the 8-hour and the 1-hour ozone
    standard for justification of the regulations.
        The supplemental addressed only the 1-hour ozone standard.
    But when the EPA calculated the affected populations based on
    the 1-hour standard, the numbers dropped to 39 million people.
    Instead of going forward and basing the regulation on the lower
    population figure, they switched to a different statistical
    model, which brought the number back up to 70 million people to
    justify the same sulfur standards.
        So it just appears that there is a lot of evidence out
    there that the EPA, first of all, picks the level they want to
    regulate or the standard they want to set, and then they
    conduct the analysis to justify that decision. It's my
    intention to begin to shed some light on the way regulatory
    decisions are made at the EPA.
        We have one witness, Mr. Perciasepe. I appreciate your
    being here on time. What I think we will do, since we are going
    to have three votes, the three votes will start in about 1
    minute, we will go for about 15 minutes, and I will run over
    and vote three times and be back and hopefully bring some
    members back with me. If not, the meeting will be shorter.
        So at this time, why don't you go ahead with your opening
    statement. We are very happy to have you here today.

     STATEMENT OF HON. ROBERT PERCIASEPE, ASSISTANT ADMINISTRATOR,
      OFFICE OF AIR AND RADIATION, ENVIRONMENTAL PROTECTION AGENCY

        Mr. Perciasepe. Thank you, Mr. Chairman. It is a pleasure
    to be here again to continue our discussion in the hearing
    format on the proposed sulfur rule.
        I know that you want to concentrate on sulfur and I will do
    that. But I do want to provide just a tad of context to it,
    because it is part of a larger process that we have going on,
    looking at tailpipe emissions from automobiles.
        So one of the things that we have been looking at and that
    we had in our report to Congress last year was the need for
    further tailpipe emissions reductions from mobile sources,
    particularly light duty vehicles in the United States. Just a
    couple of quick statistics on that, in 1970, at the beginning
    of the Clean Air Act, the first version of it in Congress,
    there were 100 million light duty vehicles in the United
    States. Last year, there were 200 million light duty vehicles
    in the United States. You might imagine the miles driven by
    these vehicles were increased commensurate with the number of
    vehicles. It was about a trillion miles a year in 1970, and
    last year it was about 2 trillion miles a year that we drive
    the vehicles.
        So even as the individual vehicles and the emissions
    standards have continued to improve over time, and indeed,
    automobiles are much superior in their emissions performance
    than they were in the early 1970's and 1960's, the numbers
    continue, of the miles driven, continues to increase. So when
    you look at this overall, a picture over the next decade, you
    find that, and of course the rule we are talking about takes
    effect over the next decade, it is not a quick implementation
    rule, you find that absent further attention to this that the
    emissions from light duty vehicles in the United States will
    start to increase during the next decade. Thus, while
    automobiles and emissions from the tailpipes part of the
    solution over the last 20 years, they will start to become part
    of the problem again unless we move forward.
        In our report to Congress, we looked at the air quality
    need, the feasibility of additional controls and then the
    comparable cost effectiveness. You mentioned the different or
    the numbers of people affected by it. Without getting into the
    standards and the status of standards, but just looking at the
    public health perspective, our estimate is that near 130
    million people would be affected one way or another. Indeed, as
    we move forward in the national program, every citizen in the
    United States will have improved air quality over the next 20
    years.
        We based this on data, we based our proposal on data from
    both industry and our own data. We looked at the feasibility of
    the
    emission standards. And most importantly, we looked at how to
    optimize achieving these goals with technology on the vehicle
    and improvements on the fuel. This gets us to, I think, the
    purpose of today's hearing, is how are we looking at that
    optimization between the technology on the car and the quality
    of the fuel. That is one of the primary focuses of our
    rulemaking, that for the first time we're trying to find a way
    to do this as a system.
        I want to point out that as we have done that proposal, we
    did it with extensive outreach. We worked with many in
    industry, both automobile and oil refining industry. We have
    reached out to States, environmental groups, public health
    officials. We tried to develop principles by which we would
    conduct the rulemaking. I just want to list them quickly.
        We wanted to develop a national program, so that we could
    help both the automobile and the oil industry to avoid boutique
    fuels, or opting into different State automobile standards. We
    did not want to constrain consumer choices.
        I see I'm on the yellow.
        Senator Inhofe. We try to limit opening remarks to 5
    minutes, but go ahead and take a couple more minutes.
        Mr. Perciasepe. Thank you very much, Mr. Chairman.
        Senator Inhofe. Your entire statement will be in the record
    for others to read.
        Mr. Perciasepe. I appreciate that.
        Treat the vehicles and the fuels as one system, cars and
    light trucks have the same emission standards. Build on the
    success of the national low-emission vehicle program. Be fuel
    neutral, not preclude the introduction of technologies that are
    both low emission and fuel efficient. Provide performance
    standards and develop flexible provisions on how to achieve
    those standards, and provide sufficient lead time.
        I know these are some of the questions that you have in
    your opening statement.
        We continue to conduct outreach. Our formal comment period
    closes next week. We will be having follow-up meetings with
    most of these groups, both the oil industry and the auto
    industry over the next month to get into the details of their
    comments.
        On the gasoline sulfur reduction, from the current fuel,
    our view and our proposal shows that we feel that this is
    critical, that there must be sulfur reduction in order to
    optimize the performance of the vehicle technologies. Some of
    the reasons for that have been laid out before, but let me just
    summarize again.
        The irreversibility of the effect, the fact that
    introduction of low sulfur fuel will have immediate benefits,
    even on existing automobiles. For instance, the automobiles
    that are being sold today in the Eastern part of the United
    States and in 2001 in the rest of the country will perform
    almost over 100 percent better on nitrogen oxide with lower
    sulfur fuel.
        And it's a technology enabling attribute of fuel, too, as
    we look at more modern engine technologies in the future, and
    that there is emerging and new technologies on how to do this
    at the refinery.
        We looked at flexibilities for refiners on how they will
    implement this rule. We have proposed a banking and trading
    program that would allow the development of early credits that
    could be used later to delay implementation on certain
    refineries, and allow refiners to have some flexibility in how
    they time their capital programs. These credits can originate
    as early as 2000.
        We have specific consultations with small refineries, and I
    know you want to get into the definition of those. But the
    provisions that we provided look at more time for small refines
    and additional hardship conditions for them.
        So in summary, one last thing I want to say about the small
    refines. I have also met with the Western Governors at the WGA
    meeting a month ago in Wyoming. We are participating in a
    process with the Western Governors looking at some of the
    unique issues of the so-called PAD-4, which is the Rocky
    Mountain area, and some of the refineries out there. Many of
    them are included in our existing small refinery proposal, but
    there are others, and there are other geographic anomalies out
    there. So I just wanted to let you know that we are continuing
    that process, and we will continue to do that.
        We are also engaged in looking at the permitting process
    and how we can make sure that the permitting process is
    streamlined so we have a deliberate process underway now with
    the oil industry to look at that.
        I am going to stop there.
        Senator Inhofe. That's good. As I said, the rest of your
    statement will be in there.
        You mentioned you met with these Governors out there and
    they proposed to you, their two regional approaches to this.
    What was your response to them?
        Mr. Perciasepe. When I met with them, we had a discussion
    about why they felt and what the issues were behind the
    regional recommendation. What we've committed to do, they have
    a coalition that they've put together of the Western States
    called the Western Regional Air Partnership. They have put a
    committee together to look at the specific issues related to
    the refineries in the West, and also the impact on air quality.
    The Western Governors are concerned also about visibility
    issues.
        So we have been providing technical assistance to that
    group. Some of the issues that they brought up were, for
    instance, well, if you have some of these small refineries in
    our area, having more time under the existing process that you
    have defined in your proposal, but there are other refineries
    that may not be owned by a refiner who is in that definition,
    they are going to be competing in a market where some other
    people will have an advantage because they have more time, and
    they don't, therefore they will be at a disadvantage.
        They also were concerned about the importation and
    exportation of petroleum in that energy region. That pad I
    think has about 20 percent of its fuel, gasoline is exported
    out, mostly toward the Northwest, and about 20 percent is
    exported in.
        Senator Inhofe. I was really just getting at specifically
    their two region approach. But also I wanted to get to a couple
    of things before we have to go over and cast those three votes.
    One is getting, as you mentioned, we are concerned about the
    refineries that would have to be shut down. In the written
    questions of the last hearing, I asked Administrator Browner if
    she had conducted refinery specific analysis similar to the
    study by Canada. Of course, Canada, their study came out and
    said that yes, refineries would have to close.
        First, the EPA said that no refineries would close, and in
    response to the specific question she said, and I'll read it,

        The EPA has not yet conducted a refinery specific analysis
    similar to the Canadian study. We intend to analyze the likely
    response of the refining industry to our gasoline sulfur
    proposal as we develop our final regulations.

        I think this analysis is key to the whole debate and should
    be subject to notice and comment as well as scrutiny by
    Congress.
        I will just ask you the question, why shouldn't the
    American public have access to this analysis before these
    decisions are made? Because it will have tremendous economic
    impacts on different areas.
        We're going to put a chart up here. There are quite a
    number, as I understand it right now, of refineries that, about
    50 or so, we just picked out a few of them here. I was hoping
    that Senator Baucus would be here so he could see the one in
    Montana. So we are talking about potentially a lot of
    refineries closing.
        Mr. Perciasepe. When you say employee rank, Mr. Chairman,
    do you mean employer rank in that State?
        Senator Inhofe. In that city.
        Mr. Perciasepe. In that city?
        Senator Inhofe. Yes.
        Mr. Perciasepe. So for instance, the Exxon one that you
    just mentioned in Billings, MT, is in the top 20 employers in
    Billings.
        Senator Inhofe. Yes.
        Mr. Perciasepe. OK. Let me respond quickly to that
    question. The study that Canada conducted, there were two
    things that I think are worth noting there. First, they did not
    make any assumptions, as we have, about new technology that is
    less expensive to achieve these goals. Their economic analysis
    was based on old technology.
        Second, they operated, they did an analysis based on
    starting this process in 2001, we are trying to provide more
    time, and certainly that's a key issue in the comments that
    we're receiving on our proposal on the timing of the whole
    thing. We still feel that there won't be any refinery closings
    because of our rule, and we are continuing to look at both the
    banking and trading program to provide that kind of flexibility
    and also how we should be looking at the definition of the
    small refinery that we have in our proposal vis-a-vis some of
    these other issues you're bringing up, some of which are in the
    West.
        Senator Inhofe. You're saying you still feel there will be
    no refineries closed?
        Mr. Perciasepe. I think refineries will likely close in the
    United States over time. But our view is that none will close
    due to this rule alone.
        Senator Inhofe. None will close due to this rule alone. I
    would like to share your optimism, and I'm sure that a lot of
    industry would, too. You could answer this for the record,
    perhaps, later, what you could put in place to offer that
    assurance to these people. Because if you really believe that,
    I would certainly like to get the assurances out there, so that
    maybe we can reduce the hysteria level just a little bit.
        Getting to the refiners versus refineries in our
    definition, and you've thought about this, I am sure, but if
    you have two refineries, each with the capacity of 35,000
    barrels a day with identical levels of sulfur in their
    gasoline, and both need to install the same equipment to meet
    new standards, both have identical cost margins, both have the
    same number of employees, why should the EPA say that only one
    should be eligible for a small refinery program?
        Mr. Perciasepe. Well, we are going to have a small refinery
    program in this----
        Senator Inhofe. In this case. I'm talking about two
    refineries, but one is owned by a large company.
        Mr. Perciasepe. I understand the question, I just wanted to
    preface it to make sure we are all clear that we are going to
    have a small refiner program. What is actively being discussed
    and we are getting comment on in the comment period, and we
    will be talking to folks, including the Western Governors and
    the refiners out there, what is being discussed is how, if any,
    change should be made from the proposal that we have put out
    for comment. We are actively discussing whether there should be
    modifications to that definition.
        One of the things that we are looking into is a situation
    where you might have, I think what I just heard you say is two
    refineries that are essentially the same size, one is owned by
    a company that has more than 1,500 employees and one is not.
        Senator Inhofe. That's correct.
        Mr. Perciasepe. The one that is owned by the company with
    more than 1,500 employees, one can make the assumption, well,
    maybe there is more capacity in that company to deal with this
    anomaly. But on the other hand, if it is an isolated facility,
    and it is going to have to compete in a situation where the
    other refiner is going to have additional flexibility, I think
    that is an important consideration that we have to take into
    account.
        Senator Inhofe. Can the reverse be true also? Say there is
    a small part of our overall picture and we can do without it,
    rather than go through all this and these changes?
        Mr. Perciasepe. Of course. Some of the comments we're
    getting from members of the oil industry, as you might imagine,
    is don't provide any small refinery flexibility. They want a
    level playing field, and you can imagine why they want that
    kind of level playing field, because they think they'll be able
    to compete better.
        So we do want to balance, as we are required to do by
    Congress under SBREFA----
        Senator Inhofe. Yes, but we're concerned also about the
    people in the cities. That's why we have the column up here on
    how it relates to the economy of these cities. Sometimes that
    is more important than the welfare of the refiner or the
    company that owns that refinery alone.
        Mr. Perciasepe. And I agree with that statement, and I
    think we have the obligation that Congress has given us under
    the Small Business Regulatory Enforcement and Flexibility Act
    that we do take that into account.
        I just wanted to point out that in the industry, there are
    different views on how we should go about doing that. But the
    issue you raise is one that we are actively looking at.
        Senator Inhofe. OK. I want to get into something that's
    rather complicated for me and probably not for you, and that's
    the banking and trading concept. However, I think I'll recess
    right now. Hopefully it will only take, in order to get three
    votes out of the way, the tail end of this and then the next
    and then a 10-minute vote, so it shouldn't be more than 20
    minutes.
        So breathe deep, get a cup of coffee, enjoy yourselves,
    have a conversation.
        [Recess.]
        Senator Inhofe. We will reconvene the meeting.
        Mr. Perciasepe, let's get into the banking and trading
    issue. There's been a lot of concern expressed to me and to you
    also about in 2000, they are supposed to be able to show the
    1997 and 1998 sulfur level as a baseline. It's my understanding
    that then, by 2004, they would use the baseline or 150 parts
    per million, whichever is less.
        I am kind of concerned how it works and how the timing is,
    I'm concerned about what will happen under the plan in October
    2003, if it becomes clear that credits will not be available
    for some refineries, and they are unable to produce low-sulfur
    levels. If it becomes clear that they can't produce low-sulfur
    gasoline due to perhaps permitting difficulties or construction
    delays, things that really are beyond their concern, what
    happens? Will they be shut down? Will the EPA risk fuel
    shortages or price spikes? What do you think would happen under
    these circumstances?
        Mr. Perciasepe. Well, there are a lot of questions embedded
    in there. Let me just say that----
        Senator Inhofe. Well, just one question, then. If for no
    reason, no fault of their own, and here again, construction
    delays, and there are only two companies that make the
    equipment, what will happen if they don't meet those deadlines?
        Mr. Perciasepe. I'll just go directly to that question, but
    there's a lot of context to this. Let me just say that we
    proposed, in the proposal, that we consider having what we call
    supplemental compliance pool of sulfur credits. We have had
    some discussions with the Department of Energy whether we would
    do it at EPA or whether they would have it. We don't specify in
    there. We take comment on it, and we put in the actual rule
    proposal itself that credits could come from a variety of
    places, including any supplemental pool.
        The idea with the supplemental pool is really two-fold, to
    try to deal with that kind of an eventuality, which I would
    like to also explain that we don't think will happen, and we
    are going to continue working on the banking and trading
    program so it doesn't happen.
        But not to get into that longer discussion, if for some
    reason what you suggest happens or for instance, there isn't
    enough confidence in the banking and trading program, that's
    why we wanted to put that idea on the table. It was an idea
    that came directly from some of our consultations with the
    industry and with the Department of Energy before we propose a
    rule. So the idea, quite simply, would be if somebody is for
    some reason short on credits, and this is assuming we do any
    other modifications we do to the banking and trading program
    before we go final, that there would be a door of last resort
    to be able to get credits upon the demonstration that they've
    had some kind of problem.
        Senator Inhofe. That's assuming there would be credits
    there. Let's call those orphan credits, then. Let's assume that
    they are going to be there. What assurances would I have, if I
    were not able to come up with the credits and that deadline
    comes up, that there would be credits in there, No. 1, and No.
    2, wouldn't it be simpler, then, to say, if your feeling is
    that they're not going to be shut down, to word it in some way
    that would give that assurance, rather than to assume that
    there are going to be orphan credits in there to take care of
    any problems in my particular refinery?
        Mr. Perciasepe. These would be credits that would not be
    generated by other actions. These would be credits that the
    Government would hold for some kind of an eventuality that
    you're describing. So we would have the ability to provide
    credits, if we follow through with that proposal. We have to
    figure out under what conditions and we have to figure out a
    lot.
        Senator Inhofe. I like what you're saying, and it's the
    first I'd heard of this, and I asked my staff, and it's the
    first they've heard of this, too.
        Mr. Perciasepe. It's in the proposal.
        Senator Inhofe. Would it be your intention to have that as
    a guarantee, so that that is there and they could know that
    those credits will be there? I see some staff nodding in the
    affirmative.
        Mr. Perciasepe. I'm afraid to turn around and see who's in
    the room.
        [Laughter.]
        Senator Inhofe. They don't want you to.
        Mr. Perciasepe. In order for a banking and trading program
    to work, the corporate entities or the facilities that are
    participating in it or would have to participate in it have to
    have some confidence in it. If you have no confidence in a
    banking and trading program, you may make economic decisions
    early on that are not the best.
        So one of the main reasons we put this in the proposal, and
    it's not completely flushed out in the issues you're talking
    about, who would get it and under what circumstances would they
    get it, have to be worked out. But the idea simply is to
    provide that there to enable folks to feel like, I'm going to
    have some confidence in this banking and trading program,
    because I've got that safety valve.
        Senator Inhofe. OK. I like the idea of a safety valve. And
    the other thing that I'm not going to ask you now, because I
    want to get to Senator Thomas, but it seems to me in this whole
    banking and trading process that those refiners who may have
    acted responsibly some time in the past preparing for this,
    their baseline would be different than it would be otherwise,
    and they would be punished for the--and don't respond to that,
    because we'll come back to that in just a minute.
        Mr. Perciasepe. You're talking about the 1997 and 1998
    baseline?
        Senator Inhofe. That's correct. The 1997 and 1998 baseline
    would show them in a more favorable position than if they had
    not prepared. Therefore, are they being punished for that.
        Senator Thomas.
        Senator Thomas. Thank you, Mr. Chairman. I'm pleased that
    you've brought this topic up again. We had one hearing before,
    and frankly didn't come away with very many answers.
        Are you aware of the letter that was sent to the
    Administrator by the Western Governors' Association? They sent
    a letter in June. They were concerned about a number of things.
    The Rocky Mountain areas, of course, will be impacted. Among
    other things, it talked about the definition of small
    refineries. Could you respond to that letter?
        Mr. Perciasepe. Yes. In fact, I went to Wyoming and met
    with the Western Governors in June myself, in a meeting with
    all the Governors that were present at that time. We discussed
    the letter, we discussed the western refinery issues that they
    had. I committed to work with their air quality planning group,
    the Western Regional Air Partnership, who has a work group that
    is now looking at this issue. We have committed to work with
    them.
        Of course, it's their work group, and the Governors decided
    at that meeting to refer the issue to that group. So we have
    people that are going to those meetings, it's their meeting,
    we're not a member of it, but we have been going to the
    meetings and coordinating and cooperating.
        I am hopeful that we can work on some recommendations from
    that group under that auspices to try to deal with some of the
    issues that they have. I think we continue those discussions,
    those discussions are ongoing. I am here today before you just
    to express optimism that we can do that.
        But I want you to know that I personally went to talk to
    the Governors as a result of that letter.
        Senator Thomas. That's good. I'm glad that you did. I think
    there is concern, most people felt like EPA ignored the Grand
    Canyon visibility recommendations and went ahead absolutely
    without using them, have rejected the regional phased-in
    approach to the sulfur that was advocated by the refining
    industry. So frankly, there's a good deal of skepticism on the
    part of these folks that whatever they do is going to be
    considered by EPA, which I think is too bad, with that sort of
    an attitude.
        Mr. Perciasepe. I hope I have allayed that concern.
        Senator Thomas. I hope so, too. I would like, Mr. Chairman,
    to submit this letter for the record, if I might.
        Have you taken a look at the impact on small refineries in
    California in terms of how they were impacted, as opposed to
    the larger ones, when they did something similar over much
    longer time?
        Mr. Perciasepe. We have had conversations with the State of
    California about their phase-in in the last decade. In fact,
    they did provide some additional flexibility to small
    refineries when they implemented their program. The indications
    we have from them, and if you have other indications or you
    know folks who have different ones, we would be willing to look
    at it.
        But the indications we have from the State of California is
    that the adjusting and the refining capacity out there was more
    driven by things like mergers and acquisitions and other
    economic and business decisions, and not by the proposed, the
    rulemaking that California went through. But they did have some
    provisions for small refineries in their program, and we have
    looked at those, and we have had discussions with them about
    what happened to the refineries. We will continue to dig into
    that a little bit as well.
        But I want to point out that we are actively working with
    small refineries, either through the Western Governors process
    of thinking about those issues out there, and we're also, since
    we've taken comment on, and our rulemaking comment period
    closes next week, we're taking comment on the definition of
    small refinery, some of the attributes of the banking and
    trading program that the chairman and I were just talking
    about, we're getting comments and we're going to have to follow
    up on those comments related to this issue of small refineries.
        So we plan to be doing that over the next several months.
        Senator Thomas. Well, as you know, as in many things, there
    is some uniqueness about low population areas. We have, for
    instance, four refineries in all of Wyoming. And so the idea of
    merger or consolidation is not nearly as likely there.
        What I have heard from some is that they think there is
    going to be something of a regulatory blizzard over the next 10
    years, reductions in sulfur in diesel fuel, MTBE, phase-out,
    mobile source air toxics and so on. Have you looked at the
    cumulative impact?
        Mr. Perciasepe. We have a process underway with the
    Department of Energy to look at that longer term horizon. We
    have also had conversations both with API folks, the
    Administrator himself has met with API, and I certainly have
    had ongoing discussions with them and with individual companies
    about how to look at all of those processes that are coming
    down the line.
        So I think a combination of working with the Department of
    Energy and continuing discussions with the individual companies
    about how this will, how these different requirements, at least
    the ones we can predict with some degree of certainty over the
    next decade, will affect the industry.
        We have actually gotten some letters in specifically on the
    issue of two of the ones you've mentioned there, sulfur and the
    oxygenate requirement. We have gotten letters in from specific
    refiners saying, here are some ideas on how this could be
    sequenced over the next decade that we think we can handle. Or,
    if you do this, it will make it easier to handle it. Or, don't
    do this, it will make it harder.
        So we have some specific input on that particular issue. So
    I would say, just to summarize again, specific conversations
    and input from specific refiners, as well as working with the
    Department of Energy, we want to take a look at that big
    picture. And we want our final rule to be in the context of all
    of that. The oil industry and the refining industry is too
    important to not make that kind of consideration.
        Senator Thomas. I am told that the cost estimate for the
    gasoline sulfur proposal is based largely on so far unproven
    technologies. How do you react to that?
        Mr. Perciasepe. The technology that is extremely promising
    and blossoming in our opinion in the industry, that we're
    getting more input, almost on a weekly basis, of processes that
    people are modifying, while they are new, they are based on
    existing technology. This isn't a revolution in technology,
    this is an evolution of existing technology that is used
    already, catalytic processes and others, that are already used
    and have been well established in the refining business for 100
    years, or 50 years, whatever.
        But the modifications to them to meet these new objectives,
    and the new approaches to how different catalysts react in
    different parts of the refinery stream, whether it be after the
    catalytic crack or before it, or any other streams that are
    flowing, are areas of innovation that are occurring. There are
    a number of processes that are already on the market, some have
    already been installed. We have confidential business
    information from a number of other refines who are some time
    between this summer or in the fall going to be announcing even
    new modifications of these technologies.
        So we're very confident that we're not talking about a leap
    here of insurmountable proportions by any stretch of the
    imagination, but rather, modifications to existing and
    improvements on existing technologies, to overcome some of the
    issues that have come up from the experience that happened in
    California when they did some of those.
        Senator Thomas. That's probably the way you have to go when
    you're sort of developing something. But when you're making out
    rules and regulations for something that is going to cost
    billions of dollars per year in the future, you have to base
    those on things that are pretty well tried and proven, it seems
    to me, before you do it.
        Thank you, Mr. Chairman.
        Senator Inhofe. Thank you, Senator Thomas.
        Senator Lautenberg. Thank you, Mr. Chairman. I'm sorry that
    I missed the presentation. But I have read it and I hope that
    we will be able to continue to pursue the course we're on, that
    is, to remove the emissions, toxic emissions.
        First, I would ask consent to include my statement in the
    record, the full statement in the record.
        Senator Inhofe. Without objection, so ordered.
        [The prepared statement of Senator Lautenberg follows:]
      Statement of Hon. Frank Lautenberg, U.S. Senator from the State of
                                   New Jersey
        Thank you, Mr. Chairman, for holding a hearing on this important
    topic.
        Mr. Chairman, Americans love their cars, but they love clean air,
    too. There's a lot we could do to make our air more breathable--by
    cutting down on unnecessary driving, congestion, and sprawl--but one
    essential step is to reduce tailpipe emissions.
        For that reason, Mr. Chairman, I support EPA's goal to limit the
    sulfur content of gasoline, because it is a relatively low cost way to
    keep our air clean. Sulfur is bad for catalytic convertors. And
    catalytic convertors that don't work right put a lot more nitrogen
    oxide, volatile organic compounds and carbon monoxide into our air.
    Another important point--catalytic converters exposed to high-sulfur
    gasoline are permanently damaged. Even if you go back to using low-
    sulfur gas, those converters will perform at an average of 50-percent
    below capacity.
        EPA's proposed standard would require the Nation's refiners to meet
    an average sulfur level of 30 parts per million by 2004, down from the
    current average of more than 300 parts per million. Small refiners--
    those with 1,500 employees or less--would have an additional 4 years to
    comply. Those who could prove a severe economic hardship could ask for
    an extension.
        The technology already exists to meet this standard. In fact,
    California already meets a standard that is essentially identical. The
    same thing goes for Japan. And the European Union and Canada are close
    behind. In fact, the rest of the industrialized world is moving more
    quickly than we are in taking this step.
        I look forward to hearing from our witness today. Thank you, Mr.
    Chairman.

        Senator Lautenberg. Mr. Perciasepe, if I missed this in
    either the dialog or your testimony, please feel free to say
    so. What's going to be the effect on the motorists if the plan
    goes through? It will cost more to operate a vehicle?
        Mr. Perciasepe. Our estimates, if you look at both the
    fuel, and we're looking at the automobile technologies and
    tailpipe emission control technologies and the fuel as a
    system, what we have analyzed is that for passenger cars, we're
    probably talking about around $100 for increased costs due to
    these improved catalytic converters. For larger light duty----
        Senator Lautenberg. Is that $100 annual cost?
        Mr. Perciasepe. No, cost of purchase. The annual cost shows
    up in the fuel costs. The larger light duty vehicles, like SUVs
    or some of the larger vans, pickup trucks, etc., we expect that
    equipment to cost about $200 a vehicle. So that gives you sort
    of a range on the vehicle costs, and you can do your comparison
    of the cost of a vehicle.
        At the pump, in terms of the cost of gasoline from reducing
    the sulfur, we estimate the cost to be between 1 and 2 cents a
    gallon.
        Senator Lautenberg. And again----
        Mr. Perciasepe. That's about $12 a year, I think, $12 to
    $20.
        Senator Lautenberg. If this has been reviewed, please tell
    me so, I don't want to tie up the time of the committee or
    yourself, what will the impact overall be on costs dealing with
    the environment, those that might result in reduced respiratory
    problems, might reduce wear and tear on structures, what kind
    of an estimate do we have on that?
        Mr. Perciasepe. Our estimates on all the benefits are
    between $3 billion to $19 billion a year, with the best
    estimate being around $16 billion. That would include all the
    things that you mentioned, and I would throw in also deposition
    in the estuaries from nitrogen oxide as well. There are some
    benefits there.
        Senator Lautenberg. And the $100 that you talked about for
    regular passenger vehicles would be a one-time charge for an
    improved catalytic converter?
        Mr. Perciasepe. That's right.
        Senator Lautenberg. Not about gasoline costs?
        Mr. Perciasepe. No, the catalytic converter cost for a
    passenger vehicle is about $100.
        Senator Lautenberg. Is there any wear on these? Does a car
    flunk inspections in those places where they test emissions?
        Mr. Perciasepe. If they see high sulfur fuel, there could
    be some irreversible damage to them. But our requirements would
    be that this equipment would work for 120,000 miles. Usually
    when there is a problem with the emissions from a vehicle,
    usually it's not because of the catalytic converter. It is
    because of the engine--it's hard to say tuning of an engine
    these days, because they're all electronic. But the engine
    ignition and fuel injection and air mixing system and how
    that's working.
        Senator Lautenberg. So the cost balance is one that I guess
    has been the subject of some discussion here.
        Mr. Perciasepe. I think it's on the list to talk about
    here.
        Senator Lautenberg. It's my understanding that lowering
    sulfur, gasoline sulfur, will encourage the development of more
    fuel efficient vehicles. Why might that occur?
        Mr. Perciasepe. The more fuel efficient engine technologies
    that engine manufacturers and automobile manufacturers are
    looking at now have more of a, there are enhancements on fuel
    engine type engines called direct injection. It also includes
    probably some additional, let me just say they burn leaner.
    They use less fuel per cycle of the pistons.
        That creates a challenge in the after-treatment. You can
    increase emissions, particularly nitrogen oxide, when you do
    that to an engine. So you have to have improved catalytic
    converters, nitrogen oxide absorption catalysts and other kinds
    of catalysts that require lower sulfur gasoline. Sulfur affects
    those catalysts even more than the kinds we were just talking
    about.
        And the same would be held true for even a clean diesel
    engine. As diesel engines are modified and they can meet these
    emission standards, which all indications are at some point
    they will be able to do that, they also burn very lean. They
    will require these kinds of after-treatment as well.
        In addition, they recirculate the exhaust gas in the
    engine. If there is sulfur in there, that can create a
    corrosivity problem and a durability issue with the engine in
    terms of the air handling system having more corrosivity in it
    due to acidic conditions or whatever. So lower sulfur fuel will
    enable those kinds of technologies. You can go beyond that and
    start talking about fuel cells and those kinds of things. But
    that's not subject to our--we want to make sure we don't
    preclude the kinds of technologies I was just talking about.
        Senator Lautenberg. Thanks, Mr. Chairman.
        Senator Inhofe. Senator Lautenberg, if you have any more
    questions, feel free to ask. Because I only have two more.
        Senator Lautenberg. I appreciate it. I know that you've
    gone over, as they say, some ground here. So we'll look at the
    record.
        Senator Inhofe. All right, sir.
        When Senator Lautenberg was talking about the benefits, I
    would just ask the question, isn't it true that 75 percent of
    these benefits, as we discussed here in the last hearing, came
    from the PM2.5 study? I think that's what was
    determined at the last committee hearing?
        Mr. Perciasepe. Yes, and I think you had a chart, if I
    remember, right out of the regulatory impact analysis. A big
    hunk of the estimated benefits are from reduced mortality and
    other factors from reduced PM.
        Senator Inhofe. That is the study, though, that the
    President claimed that he felt it wasn't, we should not be
    using at this time, as I mentioned in my opening statement.
        Mr. Perciasepe. I think what the President said is we
    shouldn't implement the PM standards, move forward on
    implementing the PM standards, until such time that another
    level of evaluation of that work was done, which of course is
    underway.
        We are not implementing PM standards here, we are
    controlling emissions from a vehicle to deal with ozone, which
    is primarily volatile organic compounds and nitrogen oxides.
    When you put these technologies on a car and you make these
    improvements to fuel, you are going to get PM reductions. And
    what we've done in the regulatory impact analysis is estimate
    the benefits of those reductions.
        But that is not, the purpose of this rule is not to
    implement the PM standards.
        Senator Inhofe. But still, when you are talking about the
    benefits, which is a significant question that needed to be
    answered for Senator Lautenberg, as I mentioned in my opening
    statement, 75 percent of the expected benefits came from that
    study that the President had stated should be subject to
    further scientific review before it is used for regulatory
    decisions. And maybe there are not other studies right now, and
    you are limited to what you can use.
        Mr. Perciasepe. When we do these cost benefit analyses and
    our regulatory impact analyses under the Executive order, we do
    them to inform our decision. But our regulatory decisions on
    this rule are based on the factors that are in the statute,
    which is the ability to attain or maintain a national ambient
    air quality standard. That in this case is predominantly ozone.
        Senator Inhofe. One last question I have before Senator
    Bennett resumes, this chart up here shows the States that favor
    the regional gasoline sulfur approach. Most of the western
    Governors, virtually all of them, have endorsed this. It is my
    understanding that phase one of the API proposal would get 78
    percent of the benefits of the EPA's proposal. Is that your
    understanding?
        Mr. Perciasepe. I don't have that information here. If you
    need a response to the record, I'll get it.
        Senator Inhofe. I think that's already in the record.
        Mr. Perciasepe. Obviously it would be less than all of
    them.
        Senator Inhofe. I'm taking that wording out of the RIA
    Table 3-9. It's also my understanding that the API phase II
    would achieve 91 percent of the EPA projected benefits by 2010.
    Again, that's out of a table.
        Considering and assuming that this is true, which I think
    we all could probably agree on, wouldn't it be prudent to go
    ahead and adopt this? You would be accomplishing virtually what
    you are trying to accomplish, and yet overcoming the objections
    to all of these that I had mentioned in my opening statement as
    well as those that came for questions. Are you subject to
    reconsideration of that two region approach?
        Mr. Perciasepe. We have put, and the fact that we were able
    to get that out of the regulatory analysis is that we've
    presented for comment the proposals that we have from the API.
    We are obviously going to consider everything that they have
    suggested.
        I think that those estimates that they make do not take
    into account, or that were subject there, I don't believe they
    take into account the damage to catalysts from the varying fuel
    sulfur levels that would be present in the United States. They
    also don't take into account the technology issues that Senator
    Lautenberg was just bringing up as well.
        So looking at the entire ability of the fuel and the car to
    work as a system, and optimizing that, we made a call in our
    proposal to go with a national program. Obviously, since we
    have put their proposal out for public comment, we are going to
    take comment on it and we are going to continue to discuss it
    with them.
        Senator Inhofe. All right. And I understand that there is
    disagreement with that position, but there is disagreement on
    both sides.
        Senator Bennett, we have completed everything. I am going
    to turn it over to you for your questions. At the conclusion of
    your questions, you can go ahead as chairman and conclude the
    meeting.
        Senator Bennett [assuming the chair]. Thank you, Mr.
    Chairman. I apologize that I wasn't able to be here earlier. I
    don't have a lot of questions. Let me just make one very brief
    philosophical statement.
        If we, I think, have learned anything in our relatively
    recent concern as a Nation with the environment, and it has
    been relatively recent, as we look over our 200-plus year
    history, it has only been in the last maybe 30, 40 years that
    we have paid attention to this. If we have learned anything in
    this last 30, 40 years, from my point of view, I think it
    should be humility in our ability to predict what really is
    happening with natural forces.
        To take an area unrelated to the one that you are talking
    about, I remember the headlines, the scientific studies, the
    great concern, about the new ice age that was coming. Headlines
    in the New York Times that said not only global cooling, global
    freezing was headed our way. The leading scientists were all
    saying that's what we were facing.
        Now we get information about global warming that's headed
    our way and the new set of studies that says that the
    information on which many of the projections about global
    warming were based was faulty, and the science on which it was
    based was, well, there were huge gaps that as they get filled
    in now are causing people to rethink some of the global warming
    circumstance.
        Unfortunately, we begin to give religious significance, if
    you will, to positions taken early. When additional scientific
    information comes in, we don't want to give up those earlier
    positions to which we have attached such great allegiance.
        You may very well be right in your scientific analysis and
    the need for a total national standard. And if indeed that
    proves to be the case, I'm one that is willing to embrace a
    national standard, even if it upsets the refineries in my own
    home State, from whom I have heard at great length on this
    issue.
        But I nonetheless have a sense of the requirement of
    humility in dealing with scientific data, and concern about
    rushing to locking into Federal regulations which then
    virtually can never be changed. I know legally they can be, I
    know the process is there that they can be. But I have learned
    by experience over the years that the power of inertia, not
    inertia of rest, but inertia of motion, in the Federal
    Government, is one of the strongest powers with which we deal.
        So I would simply ask you, as you go through this issue, to
    approach the scientific data with the humility that I have
    talked about, constantly keeping in mind the possibility that
    additional data may come along that says to you, your initial
    inertia in direction A now in the light of additional
    information should be tempered and it maybe should be A sub 1,
    or maybe even toward B, before we go charging ahead.
        I would like you to consider the possibility of a test
    along, taking that chart and map in front of us, along the
    eastern seaboard to see how it works, and see what really
    happens. Yes, theoretically someone might be able to drive to
    Yellowstone Park and ruin their catalytic converter because
    they get some bad gas.
        But statistically, that's a risk I'm willing to run to be
    absolutely sure we're right before we charge down a road that
    we have charged down in the past in the name of science, and
    then discover that science tells us something else, but it's
    too late. The regulation is in force, the bureaucracy has built
    up around it, the inertia is overwhelming and we can't change
    back.
        I think we've seen an example recently where an approach to
    clean air then scientifically turned out to have created dirty
    water. That just hit the headlines, so it's dangerous for me to
    quote it. I don't have it exactly at my fingertips.
        But that's the only comment I would make as a member of
    this committee. You're dealing with very, very serious issues.
    I know you take them seriously. But as we embrace scientific
    information that is before us, let's do so with a little bit of
    humility, rather than certainty, that the scientific
    information is always right and never will be altered, and
    therefore must be acted on immediately.
        If you have a comment, I'll be glad to hear it. Otherwise
    we can both go home.
        Mr. Perciasepe. Being a practical person, it's virtually
    impossible for me to disagree in general with what you just
    said. And I can only assure you that we will obviously, as we
    go to a final rule, look at all the available information,
    analyze all the studies that are currently being done, either
    by us or others, at some of these issues related to the
    interaction of the fuels and the vehicle technology.
        It's probably the big challenge of doing this kind of a
    proposal, but it's also the big opportunity of doing this kind
    of proposal, that you do have the opportunity to look at the
    fuel and the vehicles technology and how to optimize that for
    the long term, both for the automobile industry and for the oil
    industry.
        We will have many consultations between now and the final
    rule with the oil industry. So advice is well taken to keep an
    eye in the skeptical mode at all times. I appreciate it, and I
    can assure you that we will run all these questions aground.
        I know that this committee is extremely interested in this.
    This is at least the third hearing on it. So we will obviously
    want to get back to the committee, either in a hearing or in
    briefings for sure, as we move forward, as we get more answers
    or more questions. So I appreciate the comments.
        I don't want to get into a debate about it, because it's
    good common sense, that we keep an eye out on the side.
        Senator Bennett. All right, fine. Well, I would have some
    additional questions that I will look at and I will submit them
    to you in writing as we proceed. I thank you for your
    willingness to do that.
        We thank you for being here today. This subcommittee now
    stands adjourned.
        [Whereupon, at 11:17 a.m., the subcommittee was adjourned,
    to reconvene at the call of the chair.]
        [Additional statements submitted for the record follow:]
    Prepared Statement of Robert Perciasepe, Assistant Administator, Office
             of Air and Radiation, Environmental Protection Agency
        Thank you, Mr. Chairman and Members of the Subcommittee, for the
    invitation to appear here today to discuss our proposed Tier 2
    standards for cars and light-duty trucks and the accompanying low
    sulfur requirements for gasoline.
        Our proposal follows from sweeping changes over the past couple of
    decades in how Americans move around. We've gone from under 100 million
    light vehicles in 1970 to 200 million last year. And we're driving
    farther--from about one trillion miles per year in 1970 to over two
    trillion miles per year today. And as you probably know, there has been
    a dramatic shift in recent years toward sales of the larger light
    vehicles meeting emission standards 2 to 5 times less stringent than
    passenger cars. All indications are that these trends will continue
    indefinitely into the future, and they will have significant impacts on
    increasing emissions from motor vehicles without the progress in
    cleaner engines and gasoline that we propose.
        Our proposal, over the next decade, will improve and maintain the
    nation's air quality by phasing-in both cleaner engines and cleaner
    burning gasoline using flexible, market-driven mechanisms that we
    believe are fair to industry and will result in minimal consumer costs
    while preserving vehicle choice.
                            justification for action
        These issues were highlighted in the context of the Clean Air Act's
    requirement that we reassess light-duty standards. We reported to
    Congress last year on the three issues specified in the statute:
    whether there would be an air quality need for new tailpipe standards
    in the post-2004 timeframe, whether such standards could be
    technologically feasible, and whether they could be cost-effective. We
    presented evidence in the report that we believe supports our proposed
    determination that new standards are in fact needed and that
    significantly more stringent standards would be feasible and cost-
    effective.
        In our proposed rule, published last May 13, we assessed these
    issues further and presented a sizable body of new data and analysis to
    support our conclusions. Before I summarize the content of the
    proposal, let me say a few more words about the strong case we see for
    new emission standards for passenger cars and light trucks. As we
    describe in much detail in the proposed rule, our air quality
    projections identified large parts of the country, involving about one
    hundred thirty million residents, that would be at or near unhealthy
    levels of pollution in the middle of the next decade, even with all
    expected control programs in place. A large part of that problem will
    be ozone, which reduces the lung function of otherwise healthy people
    and increases hospital admissions for people with respiratory ailments
    like asthma and which, under longer exposures, permanent lung damage
    can occur. Particles are the other major part of the problem because
    they can penetrate deep into the lungs and are linked with premature
    death, increased hospital admissions, and changes in lung tissue. Other
    environmental problems related to pollution from motor vehicles, such
    as agricultural damage, impaired visibility, and nitrogen deposition in
    our nation's waterways, also remain a concern across the nation.
        Although today's vehicles are over 90 percent cleaner than cars
    available 25 years ago, the vehicles covered by the proposal--cars,
    minivans and full-size vans, pickups, and SUVs--are big contributors to
    air quality problems. For example, they will be responsible for about
    20 percent of ozone causing NOx emissions nationwide and
    approach 40 percent in some metropolitan areas like Atlanta in 2004.
    And since more vehicles are being purchased and more miles are being
    driven, total emissions from these vehicles will increase after 2010,
    eroding the progress made by local and State government in cleaning the
    air. This was a large part of the evidence that led to our decision to
    propose new standards for this vehicle class.
        Based on a significant body of industry and government data, we
    have proposed that much lower vehicle emission standards are within
    reach of current and developing emission control technologies;
    improvements in today's technology, not new breakthroughs, are what
    will be needed. In fact, many vehicles being sold today in California
    and the Northeastern U.S. are already employing technologies that can
    achieve lower emission levels when operated on low sulfur gasoline.
    Based on data generated by industry test programs and our own vehicle
    certification process, we believe that substantially lower emission
    levels are technologically achievable. Since these large emission
    reductions would come at a fairly modest cost, we estimated that the
    program would be cost-effective compared to other programs that could
    achieve similar air quality results. All in all, our broader analyses
    for the proposed rule reinforce the findings on air quality need,
    feasibility, and cost- effectiveness that we reported to Congress last
    year and confirm our direction regarding new emission standards for
    light vehicles.
        On the fuel side of the equation, it became clear early on that
    lower sulfur gasoline will be needed to allow the improved emission
    control technologies to be effective in reducing emissions. There is
    widespread agreement that sulfur degrades emission control performance
    for all vehicles, reducing the effectiveness of the catalyst in
    converting pollutants such as hydrocarbons, carbon monoxide, nitrogen
    oxides, and particulate matter. Further, a joint industry research
    project by the Coordinating Research Council, a consortium of oil and
    auto companies, as well as other research, has found that high levels
    of sulfur permanently damages vehicle emission controls. Unfortunately,
    this problem will get worse in the future because as emissions levels
    are lowered, the more effective emission control systems are even more
    sensitive to sulfur. So we recognized that gasoline sulfur levels must
    be reduced--significantly--to enable cleaner emission control
    technologies to work their potential and to reduce the damage to
    current vehicles' emission control performance, and we have proposed a
    comprehensive program to reduce gasoline sulfur levels. Though our
    proposed program would not directly regulate California vehicles, ozone
    levels in California will be reduced through reductions in emissions
    from vehicles sold outside California that later enter California
    temporarily or permanently. According to California, about 7 to 10
    percent of all car and light truck travel in California takes place in
    vehicles originally sold outside of California.
        Shortly after we released our Tier 2/Gasoline Sulfur Control
    proposal, a panel of the Court of Appeals for the District of Columbia
    Circuit ruled, among other things, that the Clean Air Act provisions
    EPA relied on in promulgating national ambient air quality standards
    (NAAQS) for ozone and PM represented unconstitutional delegations of
    authority, and remanded the record to EPA for further consideration. We
    have since issued a Supplemental Notice that analyzes this decision in
    the context of our Tier 2/Gasoline Sulfur proposal. We stated that the
    decision of the panel does not change EPA's proposed requirements for a
    Tier 2 program and does not impact EPA's proposed determination that
    the Tier 2 program is a necessary and appropriate regulatory program
    that would provide cleaner air and greater public health protection. In
    addition, the Supplemental Notice also provides additional ozone
    modeling information that supports the need for the proposed program.
        For example, in our original proposal, we established that states
    will need the Tier 2/gasoline sulfur program to attain and maintain the
    old (1-hour) ozone standard and pre-existing PM-10 standard,
    as well as the new (8-hour) standard and revised PM-10
    standard. In the Supplemental Notice, we presented a more detailed
    description of the available ozone modeling data, which shows a strong
    need for additional emission reductions to meet the 1-hour standard. We
    concluded that more than 70 million people living in 17 areas will be
    affected by violations of the 1-hour standard. We also concluded that
    15 million people living in 21 counties will be impacted by violations
    of the pre-existing PM-10 NAAQS. In total, approximately 83
    million people in this country will live in areas that violate one or
    both of these air quality standards in 2007. Additional emission
    reductions will be needed to-meet these standards, and since light duty
    vehicles contribute a significant fraction of these emissions, the
    emission reductions that will be obtained from the Tier 2/gasoline
    sulfur proposal will help to address this need.
                                    process
        Our proposal is the culmination of an extensive deliberative
    process during which we worked intensively with a wide range of
    stakeholders. Before completing the proposal, we met repeatedly with
    the vehicle manufacturing industry, the oil refining industry
    (including a special outreach process with small refiners), states,
    environmental organizations, and other parts of the Federal Government.
    We logged many hours at all management levels in meetings with
    individual companies and trade associations, State organizations, and
    others to understand the issues and the capabilities of each group to
    respond to these concerns. The perspectives of these many stakeholders
    are reflected in the design of our proposed program and the principles
    on which we based it.
                                   principles
        Through this broad deliberative process, we developed a list of
    overarching principles for the design of a strong, national program,
    including:
         Do not constrain consumer choice of vehicles or driving
    styles, either due to cost or technical factors,
         Treat vehicles and fuels as one system;
         Hold cars and light trucks to the same emission standards,
    since in the vast majority of cases they are used for the same
    purposes, and the fleet mix is shifting toward larger vehicles;
         Set emission standards that build on the success of the
    National Low Emission Vehicle Program (NLEV) and that are fuel neutral,
    so that it won't matter whether the vehicle is fueled by gasoline,
    diesel, or an alternative fuel;
         Make sure that the standards and accompanying program not
    preclude the introduction of technologies that are both low emission
    and fuel efficient;
         Employ performance standards and provide both automakers
    and gasoline refiners a menu of flexible provisions for demonstrating
    compliance with the program; and
         Provide sufficient lead time to allow automakers to design
    even their heaviest light-duty trucks to meet our standards and to
    allow refiners to install the necessary equipment.
                                vehicle program
        The auto and oil industries and other stakeholders provided
    meaningful proposals during the development of the proposal. Based on
    our work with all stakeholders, including of floes within the
    Administration, we drafted a proposed set of standards which balance
    concerns regarding cost, benefits, and timing. We believe that the Tier
    2/gasoline sulfur standards that we proposed in May represent a common
    sense, cost-effective plan resulting from the many levels of
    interaction and cooperation we experienced in this process.
        Our proposal consists of two parts: Tier 2 emission standards and
    gasoline sulfur requirements. Even though the focus of this hearing is
    on gasoline sulfur levels, I want to briefly talk about the vehicle
    requirements included in the Tier 2 program since it is critical to
    treat vehicles and fuels as one system in order to achieve the full air
    quality benefits of additional control requirements. The emission
    standards require manufacturers to meet a corporate average
    NOx standard of 0.07 grams/mile--a 77 percent reduction from
    NLEV levels and approximately 90 percent reduction from Tier 1 levels.
    These standards are phased-in over time beginning in 2004, and the
    heavier vehicles (between 6,000 lbs. and 8,500 lbs GVWR) are given the
    greatest amount of time, until 2009. During the phase-in period, the
    remaining cars and smaller trucks will continue to meet NLEV emission
    levels, and the heavier trucks, which are currently certified to Tier 1
    standards, will have to meet much cleaner average levels of 0.2 g/mi
    NOx. The program as proposed should provide flexibility for
    manufacturers to comply with the Tier 2 standards while still meeting
    their customers' desires for larger trucks and SUVs, potentially
    including clean-technology diesel-fueled vehicles. For example,
    manufacturers that surpass their corporate average standard in a given
    year could bank NOx credits for future use or sell them for
    use by manufacturers that are having trouble meeting the corporate
    average standards.
        Based on vehicles already in development, including some on the
    road today, as well as technology demonstration at our own laboratory,
    we believe that these challenging levels are technically feasible and
    that manufacturers can comply with these standards in the proposed
    timeframe, even for the increasingly popular larger light trucks.
        Overall, we have estimated that these requirements will result in
    only modest increases to the cost of producing these vehicles. We
    estimate that the technologies required for cars and the smaller light
    trucks will average about $100/vehicle. The heavier trucks will require
    more changes, particularly since they are starting from less stringent
    standards; still, this technology will average about $200/vehicle.
                            gasoline sulfur program
        To enable the emission control technologies necessary to meet these
    proposed standards, we have proposed a national gasoline sulfur
    standard of 30 ppm on an annual average basis and a maximum cap of 80
    ppm, with a credit program to allow for compliance as late as 2006.
    Based on the air quality concerns I mentioned earlier, we believe a
    national program is the best option, due to the permanent damage that
    sulfur causes to vehicle emission control performance and the magnitude
    of environmental benefits to be achieved from this program. The
    technologies anticipated to be used to meet Tier 2 emission levels are
    expected to be even more sensitive to sulfur than today's technologies,
    and these new technologies simply cannot operate on high sulfur levels
    and continue to perform as designed.
        Current information also indicates that these catalysts will have a
    partial but permanent loss in performance if they are exposed to high
    sulfur levels for even a short period of time. This permanent damage
    can on average mean a loss of as much as 50 percent of the emission-
    reducing capacity of a catalyst, which means some Tier 2 vehicles would
    have emissions performance similar to vehicles currently available. For
    example, a 1999 Ford Taurus designed to meet National LEV standards
    that was a part of an industry testing program only recovered 40
    percent of its capacity after a short exposure to gasoline with a
    sulfur content typical of current gasoline. As vehicles are required to
    maintain tighter controls on operations in order to meet low emission
    standards over a range of operating conditions, the ability of the
    catalyst to reverse the negative sulfur impact is further lost. Hence,
    tighter emission standards would require not only substantial
    reductions in sulfur levels, but timely and uniform reductions across
    the country to protect the new technology.
        There are additional reasons for a nationwide sulfur control
    program. NLEV vehicles being sold today in the Northeast and by 2001 in
    the rest of the country are currently using high sulfur fuels. As a
    result, NOx emissions from these vehicles may be on average
    140 percent higher than they would be for an NLEV vehicle operated on
    30 ppm gasoline. Sulfur reductions will thus result in emission
    benefits from existing vehicles as well as enabling future Tier 2
    vehicles. A low sulfur program will also be consistent with similar
    programs currently in place in California and Japan and in Canada and
    Europe by 2005, thereby helping facilitate introduction of cleaner
    vehicles worldwide.
        The role that sulfur irreversibility will play on vehicles which
    travel across the country also supports the need for a national
    program. A regional sulfur control program would compromise the ability
    of a vehicle/fuel program to achieve the air quality reductions needed
    to protect public health by limiting the effectiveness of the emission
    control systems in ``high-sulfur'' regions versus ``low-sulfur''
    regions. In addition, clean vehicles which for any number of reasons
    might travel to a ``high-sulfur'' region would be irreversibly damaged.
    Along those lines, although the State of California already has a
    strong gasoline sulfur control program, that State will see additional
    air quality benefits from a national program from vehicles crossing the
    border as well as gasoline market benefits associated with the broader
    availability of clean gasoline.
        A national program will better provide broad environmental and
    health benefits including: reduced levels of criteria pollutants such
    as nitrogen oxides and particulate matter, reduced air tonics, reduced
    acid rain, improved visibility, reduced nitrogen deposition in our
    nation's waterways, and reduced agricultural damage. Finally, we
    believe that a national 30 ppm sulfur program would likely be
    sufficient to enable the introduction of fuel efficient technologies,
    such as gasoline direct injection.
        We believe that there are a number of promising technologies
    available to refineries to remove sulfur now or in the near future.
    Several technologies have been developed that reduce the capital
    investment, the loss of octane value, and the energy consumption
    involved in desulfurizing gasoline compared to conventional methods.
    Two specific technologies, CDTech's CDHydro/CDHDS and Mobil's OCTGAIN,
    were closely examined during the development of this proposal and we
    believe they will be cost-effective viable technologies for removing
    sulfur from gasoline. In addition, a number of refineries and other
    companies are exploring other technologies. We believe the industry
    will make extensive use of these technologies in meeting the proposed
    requirements.
        To enhance the flexibility of compliance for the oil industry, we
    have proposed to provide refiners with two additional years, until
    2006, to comply with the proposed requirements through a voluntary
    banking and trading credit program. This credit program will allow
    sulfur credits to be generated as early as 2000 by refineries making
    early reductions in sulfur levels. To provide some protection to the
    Tier 2 vehicles that will be phasing into the fleet in this same
    timeframe as the credit program for refiners, refiners will meet a
    maximum cap standard of 300 ppm in 2004 and of 180 ppm in 2005 as well
    as actual in-use average sulfur level standards that are substantially
    lower than current sulfur levels. The rule is expected to be finalized
    at the end of this year. Under this proposal, refiners will have 4
    years for planning and construction. If early credits are generated and
    sold, refiners purchasing those credits would have up to two additional
    years to phase-in the 30 ppm average standard.
        In addition to these provisions, the particular problems of small
    refiners have been carefully considered. We convened a panel under the
    Small Business Regulatory Enforcement Fairness Act (SBREFA) to evaluate
    the potential impact on small refiners of our proposed gasoline sulfur
    standards. The panel used the Small Business Administration (SBA)
    definition of small refiner based on the total number of employees in
    the corporation, including any nonrefining functions. Based on the
    panel's recommendations, we have proposed to allow refiners employing
    no more than 1,500 people an additional 4 to 6 years (beyond 2004)
    before they will be held to the 30 ppm average/80 ppm cap standards. In
    the interim, about half of these small refiners would have to reduce
    their sulfur levels below 300 ppm, but they would not have to meet the
    same levels that the majority of refiners will be held to in 2004. This
    delay would allow small refiners to make the required investments over
    a longer time, and we expect that all of them would be able to comply
    by the end of the delay period.
        Throughout the proposal development process a number of specific
    issues were identified as a concern. We listed these issues in the
    proposal and are asking for comment on how to address these concerns.
    As an example, we have asked for specific comment on other potential
    definitions for small refiners--ranging from the crude oil processing
    capacity of the refinery to counting employees only involved in
    gasoline production. While the purpose of these provisions is to
    provide some relief to the smallest refiners, we are looking forward to
    working with the entire industry to find the most appropriate
    definition.
        A number of other issues are outlined in the proposal where we are
    keenly aware of the concerns likely to be expressed and are seeking
    input and ideas from the public and the industry. A specific example is
    the concerns expressed by refiners regarding the time constraints on
    being able to construct the necessary desulfurization equipment in time
    to meet our standards or to generate credits through early reductions.
    We have proposed to work with industry and the states to streamline the
    construction permitting process to minimize the potential that
    permitting could be a roadblock to early compliance. In addition, we
    are requesting comments on a general hardship provision.
        Although I believe our proposal expresses a clear willingness to
    design the most workable program possible, I do not want to minimize
    the cost and effort that the oil industry will expend in meeting the
    proposed standards. We estimate that it will cost 1-2 cents/gallon to
    reduce gasoline sulfur levels to the proposed standards. However with
    the flexibilities we have outlined in the proposal and the advances in
    desulfurization technologies that have occurred in recent years, we
    believe we have outlined a sound and effective proposal for reducing
    sulfur from gasoline.
        Since diesel cars and light trucks will also be impacted by the
    proposed vehicle standards, we've also released an Advance Notice of
    Proposed Rulemaking which raises questions about the need to control
    diesel sulfur levels to enable these technologies to meet the Tier 2
    standards. After we consider the comments we received last week on the
    issues associated with controlling diesel sulfur levels, we plan to
    issue a Notice of Proposed Rulemaking late this year, so that refiners
    have this information at the same time that they receive our final
    regulations for gasoline sulfur control. Since this decision has
    significant implications for the refining industry, we would work with
    representatives of this industry to identify workable options and we
    would work with small refiners to address their unique concerns.
                                public hearings
        To gather reaction to our proposal, we held 5 days of public
    hearings in June in four sites across the country: Philadelphia,
    Atlanta, Denver, and Cleveland. We heard testimony from a large number
    of individuals, representing environmental and public interest groups,
    automotive and oil companies, states and State organizations and many
    private citizens. By and large, the responses we've received have been
    positive. While we received constructive feedback about specific
    aspects of our proposed program, the majority of testifiers expressed
    support for our proceeding with Tier 2 emission standards and the
    associated gasoline sulfur standards. The comment period for the
    proposal closes on August 2, 1999.
        We look forward to working with the states, environmental
    organizations, oil and auto industries, and other stakeholders to
    better understand their recommendations so that we can develop the
    strongest possible program. As an example, we are currently working
    with the Western Governor's Association to better address concerns of
    Western states and Western refiners in our program. We intend to
    complete this process and issue final requirements for Tier 2 vehicles
    and gasoline sulfur levels by the end of this year.
                                   conclusion
        In conclusion, let me emphasize that we believe that the progress
    that has been made to date to bring cleaner vehicles to our nation's
    highways has been one of the reasons our air quality continues to
    improve. However, as we move into the next century, there is no doubt
    that even cleaner vehicles and gasoline need to continue to be part of
    the solution as we strive to ensure clean air across our nation.
        Thank you again for this opportunity to discuss our program with
    you. I would be happy to respond to any questions that you may have.

          Responses of Robert Perciasepe to Additional Questions from
                                 Senator Thomas
        Question 1. Small Refiners.--Why is EPA relying on an auto
    industry-funded study for purposes of determining the impact of its
    gasoline sulfur proposal on PADD IV refiners? Isn't it more appropriate
    for EPA to conduct this study as part of its rulemaking?
        Response. The impacts of our proposal are based primarily on our
    own cost analysis, documented in the proposal, which shows that
    refiners in PADD 4 will incur capital and per-gallon costs to meet our
    proposed standards that are only slightly higher than those estimated
    for the average U.S. refiner. In our proposal, we also do reference a
    study commissioned by the automotive industry and performed by MathPro,
    Inc., which evaluates the economic impacts of sulfur control on
    refiners located in PADD 4. We cite this study as further evidence that
    the costs of our proposed program would not be unreasonable for these
    refiners and that refinery closures would be unlikely to occur as a
    result of our proposal. Furthermore, we note that our proposed program
    for small refiners--many of whom are located in PADD 4--will help to
    lessen the costs and other burdens of our proposal on refiners in this
    region. As we develop our final rule, we continue to evaluate this
    issue and will update our analyses as appropriate.

        Question 2. What happened to small refineries in California as it
    proceeded to reduce gasoline sulfur levels?
        Response. California's reformulated gasoline standards (CaRFG 2)
    control many gasoline properties, not only gasoline sulfur. The sulfur
    reduction requirements, while significant, were responsible for only
    about one-third of the total costs and even less of the capital
    investments needed to meet the CaRFG 2 requirements. Some refineries in
    California closed or stopped producing gasoline for the California
    market beginning in the late 1980's, largely as a result of substantial
    overcapacity. Most of these closures or shifts in markets, including
    three refiners who closed or shifted their output to other markets in
    1995, happened prior to 1996, when the most stringent standards,
    including the 30 ppm average sulfur requirement, took effect. As a
    result of these closures and market shifts, the utilization rate for
    California refineries increased from 85 percent to 97 percent. While
    many of the refineries which closed in California were small, the
    refinery industry in California remains diverse with small refineries
    continuing to serve the California gasoline market today.

        Question 3. Given the limited number of the vendors, are you
    confident that small refiners will have adequate access to the
    emerging, low cost technologies?
        Response. Yes, we believe small refiners--and all refiners, for
    that matter--will have adequate access to the lowest cost technologies
    for reducing gasoline sulfur levels. Every refinery presents a unique
    engineering situation, and as a result, refiners would choose from a
    range of options to achieve our proposed standards. We have been very
    encouraged to see the recent development of several improved
    desulfurization processes that are now available at reduced capital
    investment and operating costs (and which avoid the octane loss that
    increases the costs of traditional technologies). While in our proposal
    we only specify two technologies being licensed by two vendors, we are
    aware of several other companies that are developing technologies right
    now. These other technologies appear to be capable of achieving low
    gasoline sulfur levels at costs substantially reduced from older
    technologies, and we believe still more companies will be developing
    alternative approaches shortly. For example, Black and Veatchis
    developing a process which removes sulfur in a different manner than
    the processes we analyzed in the proposal. In addition, Phillips
    Petroleum Company announced on August 31, 1999 that it has created a
    new technology, a regenerative sorbent that chemically attracts sulfur
    and removes it from gasoline blendstocks, that significantly lowers
    sulfur content in gasoline at lower costs than conventional
    desulfurization technology. Furthermore, since most of these companies
    license technology which, once licensed, can be designed for and
    installed in a specific refinery by any number of engineering and
    construction firms, we believe that all refiners will be able to
    install the needed equipment in the proposed timeframe.
        Addressing potential concerns about the availability of technology
    and resources to meet the sulfur program requirements was an important
    factor in developing the sulfur reduction proposal. We believe the
    averaging, banking, and trading provisions, the phase-in to the 30 ppm
    average, and the small refiner requirements included in our proposal
    would all help to provide for an orderly transition to a nationwide low
    sulfur requirement.

        Question 4. Regional Approach.--A letter signed by 10 western
    Governors (Governors from Wyoming, Utah, Alaska, South Dakota, Idaho,
    North Dakota, New Mexico, Nevada, Nebraska, and Oregon) discusses
    concerns with the severity of the EPA's gasoline sulfur proposal and
    its impact on small refineries. These Governors have asked EPA to work
    with the Western Regional Air Partnership and consider its
    recommendations before developing a final rule. Discuss steps that the
    Agency will take to address these concerns.
        Response. We have been working closely with the Western Regional
    Air Partnership, and specifically the subcommittee charged with
    developing recommendations to EPA to address the concerns of the
    Western Governors. While we are not a voting member of this
    subcommittee, we have sent staff to meetings and have provided
    extensive technical support to the group as they evaluate the range of
    options available to them. We look forward to receiving the formal
    recommendation from the Western Governors Association shortly and will
    be including it in our analysis of other similar components as we
    develop the final rule.

        Question 5. Permitting Questions.--What tools has EPA provided to
    states to assist them in expediting the permit process so refiners may
    install the technologies necessary to comply with the gasoline sulfur
    proposal? Are these tools adequate? What more should the Agency do?
        Response. We recognize that compliance with Clean Air Act
    permitting requirements--under both the New Source Review (NSR)and
    Title V Operating Permit programs--will be an integral component in any
    refiner's plan to implement a gasoline sulfur control program under our
    proposal. In order to achieve the significant environmental benefits
    from the proposed program as soon as possible, we are exploring a
    number of possible options to streamline the air permitting process.
    Our goal is to both simplify and accelerate the air permitting process,
    so that refiners can begin producing low sulfur gasoline well within
    the lead time provided by our proposal. In the proposal, we are seeking
    public comment on a number of ideas to help streamline the processing
    of permits for refinery gasoline sulfur control programs. We already
    have begun a constructive dialog with the refining industry to identify
    what specific permit streamlining options they would benefit from most,
    and we plan to continue this dialog with refiners, states, the
    environmental community, and other stakeholders as we work toward the
    final rule.
        The kinds of permit streamlining approaches we're evaluating
    include:
        (1) developing ``model'' permits and permit applications that would
    serve as templates for the refining industry;
        (2) developing clear Federal guidance on technology to control any
    pollutant emission increases at the refinery associated with a gasoline
    desulfurization project; and
        (3) in nonattainment areas, promoting the availability of emission
    ``offsets'' (that is, emission reductions from other sources), which
    refineries may need prior to obtaining a construction permit.
        In addition to these and several other streamlining options we're
    exploring, if refiners and State permitting agencies are interested, we
    could hold a workshop to focus on refinery permitting arising from the
    gasoline sulfur control program.

        Question 6. If a facility does not meet the gasoline sulfur
    proposed regulatory deadline of January 1, 2004 because of a permitting
    issue, what will happen and who bears the responsibility?
        Response. It is EPA's experience that, on average, the major NSR
    permitting process takes less than 1 year to complete from the date a
    complete application is submitted to the permit reviewing agency.
    Although the 1-year timeframe should be sufficient for refiners to
    comply with the 2004 deadline, as discussed above and outlined in the
    preamble to the proposed rulemaking, EPA solicited comment on, and is
    currently evaluating, numerous options to ensure the timely issuance of
    any necessary Clean Air Act permits. While we believe that the
    application of one or more approaches to reducing the permit burden
    needed to incorporate the gasoline desulfurization requirements would
    provide flexibility to refiners, we note that the use of such
    approaches would have accompanying resource requirements. We note there
    has been some recent action that could indicate the scope of the
    permitting issue and actions required to develop workable solutions.
    For example, the Texas Natural Resource Conservation Commission
    recently told refiners at the BP Amoco Environmental Forum that Texas
    averages a 120-day turnaround on permits for their overall permitting
    programs. We understand that even major source NSR permits average a 6
    month turnaround in Texas. Thus, Texas doesn't anticipate any problem
    issuing permits for gasoline sulfur projects. There are approximately
    24 refineries in Texas that will be implementing gasoline sulfur
    projects, which is more than any other state. Other states have
    expressed an interest in expediting the permits for these changes.
    Given the amount of lead time already proposed, combined with our
    efforts to streamline the permitting process (described above), we
    believe refineries will have sufficient time to obtain air permits in
    time to meet the proposed compliance dates for gasoline sulfur control.
    Therefore, no relief from the deadline was included in the proposal.

        Question 7. Timing.--The refining industry will be hit with a
    regulatory blizzard over the next 5-10 years--proposed reductions in
    the sulfur content of diesel fuel, possible MTBE phaseout, mobile
    source air toxins, etc. What analysis has EPA performed to look at the
    cumulative impact of these fuels activities on the refining industry,
    motorists, petroleum supplies, and air quality?
        Response. We are sensitive to the impacts that other regulatory
    requirements besides sulfur reduction could have on the refining
    industry. We proposed compliance flexibilities in part to address these
    concerns. We continue to carefully evaluate the relationship between
    any sulfur reduction requirements and other potential impacts, like
    MTBE reductions, and will incorporate this analysis into our final
    rulemaking.

        Question 8. How many Tier II vehicles will be on the road on
    January 1, 2004 when the 30 ppm gasoline sulfur standard is effective?
    What percent of the U.S. fleet will Tier II vehicles represent in 2004?
        Response. Model year 2004 vehicles will go on sale in the Fall of
    2003, when we have proposed the initial per gallon sulfur cap to take
    effect. By January 1, 2004, we can assume that about 25 percent of the
    entire 2004 model year would be on the road. Given that only 25 percent
    of 2004 model year vehicles (passenger cars and light light-duty
    trucks) are required to meet Tier 2 standards, about 6 percent of the
    entire 2004 model year would be Tier 2 vehicles on the road by January
    1, 2004. It is important to note that manufacturers, in order to design
    their vehicles properly, have to know what type of fuel will be
    available to consumers. Having low sulfur fuel available in the
    marketplace in 2004 and knowing of this availability during the vehicle
    design stage would thereby facilitate the introduction of lower
    emitting Tier 2 vehicles.
        In our Regulatory Impact Analysis we project passenger car and
    light truck sales of 13.6 million in 2004 for the 49 states affected by
    Tier 2. Using the 6 percent figure above, approximately 850,000
    vehicles affected by Tier 2 requirements would be sold by January 1,
    2004 and about 3.4 million would be sold by the end of the 2004 model
    year. This would represent less than 1 percent of the passenger car and
    light truck fleet by January 1, 2004. By the end of 2004, Tier 2
    vehicles could be expected to represent just under 3 percent of the car
    and light truck fleet.
        In addition, as we stated in the proposal, the sulfur reductions
    would have a significant impact on the low emission vehicles already in
    the fleet by 2004 as well as those vehicles produced and sold after
    2004 that do not meet the final Tier 2 standards. In 2004, we estimate
    that 23 percent of the light-duty vehicles and trucks in the fleet
    would comply with either the National LEV standards or the proposed
    Tier 2 interim standards for trucks between 6,000 and 8,500 pounds
    GVRW. We estimated over 500,000 tons of NOx would be reduced
    nationwide in 2004 as a result of the Tier 2/gasoline sulfur program.
        As we stated in the proposal, low sulfur fuel will provide
    significant emission benefits to the National LEV fleet.

        Question 9. Supply.-- Discuss the research that EPA has conducted
    to look at the implications of the gasoline sulfur proposal on
    petroleum supplies. Do you believe that the Agency has adequately
    studied the impacts of this proposal on petroleum supplies?
        Response. We have considered the impacts of reducing sulfur on
    gasoline supply in our proposed rule. Generally, when concerns are
    raised about how this rule may impact supplies of gasoline, the
    concerns stem from one of two hypothetical scenarios of gasoline sulfur
    control: refiners may be unable to comply in the timeframe discussed
    and thus gasoline supplies will fall short, or the technologies used to
    desulfurize gasoline may reduce gasoline yield to the extent that there
    are insufficient supplies. In response to the first scenario, as stated
    in the proposal we believed our proposed program allows sufficient
    time, and provides refiners enough flexibility, to be able to comply
    fully with the requirements in the proposed timeframe. Our proposal
    discusses the reasons for why we think we have proposed a reasonable
    start date for our program, assuming we finalize our program
    requirements at the end of this year, and provides an example of how
    refiners might meet the requirements. Thus, as we stated, we do not
    expect there to be a shortfall of gasoline when refiners are first
    required to provide lower sulfur gasoline as a result of these proposed
    regulations.
        In response to the second scenario, while it is true that
    conventional gasoline desulfurization approaches tend to reduce the
    volume of gasoline produced by the refinery by affecting octane levels
    or gasoline yield, the improved technologies we believe most refiners
    will use in response to our regulations substantially reduce this
    impact. Furthermore, these technologies continue to evolve, as
    discussed in a previous response, and some of the newest approaches
    actually improve gasoline yield. We fully expect that the refining
    industry will find ways to minimize any yield losses and will continue
    to produce gasoline at the high volumes they do today.
        The various flexibilities incorporated into the gasoline sulfur
    proposal, such as the credit program, are designed to mitigate
    detrimental impacts on petroleum supply. In addition, we will continue
    to evaluate these scenarios as we develop our final gasoline sulfur
    program. We will also continue to work with the Department of Energy on
    issues related to this proposal. Overall, we believe our consideration
    of these issues has been adequate and that based on our current
    understanding and addressing the comments we have received on this
    issue, we expect to have sufficient information to make a reasonable
    decision as we finalize our program plans.

        Question 10. The refining industries Europe and Canada are also
    facing economic challenges, similar to the U.S., and announced plans to
    implement stringent new fuel requirements in a short timeframe. Discuss
    EPA's analysis of the impacts of international gasoline sulfur programs
    on domestic petroleum supplies.
        Response. Overall, we think the actions in Europe and Canada will
    help insure adequate supplies of gasoline in the U.S. There are several
    reasons for our confidence on this issue, though we note it is
    difficult to predict what actions foreign refiners would take to comply
    with low sulfur requirements coming into place around the world. First,
    since many European and Canadian refiners will have to make investments
    earlier than U.S. refiners, they will be able to test out some of the
    improved technologies before U.S. refiners have to make substantial
    investments. This will not only help to alleviate domestic refiners'
    concerns about the technologies, but will also help to ``trouble-
    shoot'' these technologies to ensure that U.S. refiners select the most
    reliable processes. Second, since foreign refiners will likely be
    producing low sulfur gasoline, should an unforeseen shortage of
    gasoline occur somewhere in the U.S., these refiners will be able to
    temporarily send low sulfur gasoline to the U.S. to avoid a major
    supply disruption until the problem is resolved. Finally, because much
    foreign gasoline will also be low sulfur and thus will incur higher
    production costs, imported gasoline from these regions will not be at a
    substantial price advantage compared to domestic gasoline, which will
    help to limit the influx of imports based solely on economics.

        Question 11. Cost and Economic Impacts.--EPA has based its cost
    analysis for the gasoline sulfur proposal on emerging, unproven
    technologies. Is this prudent? Are you aware of other rulemakings based
    on cost estimates of unproven technologies?
        Response. We have been very encouraged to see the recent
    development of several improved desulfurization processes that are now
    available at reduced capital investment and operating costs (and which
    avoid the octane loss that increases the costs of traditional
    technologies). Examples of these technologies are CDHydro and CDHDS
    (licensed by the company CDTECH) and OCTGAIN 220 (licensed by Mobil
    Oil). The OCTGAIN process is actually only a slight variation on
    ``conventional'' desulfurization technologies, relying on a new
    catalyst formulation to improve the performance of desulfurization
    equipment commonly found in refineries today. The CDTECH technologies
    use conventional refining processes combined in new ways, with improved
    catalysts and other design changes that minimize the undesirable
    impacts (such as the substantial loss in octane) and maximize the
    effectiveness of the desulfurization approach. Based on this
    understanding, we do not believe these technologies are ``unproven,''
    although in some cases the specific combinations of proven technologies
    have not been commercially demonstrated. Since these processes provide
    less costly ways to reduce gasoline sulfur, we presume that they would
    be used by most refiners to meet the proposed gasoline sulfur standard,
    and have based our economic assessment on that presumption. We believe
    that the research and development on desulfurization technologies has
    reached a stage where significant cost savings over current technology
    are very practicable and feasible.
        It is quite typical for EPA to base our regulatory actions on
    technologies that have been demonstrated in the laboratory or in small-
    scale demonstrations but have not been tested by widespread use in the
    field. Most of our vehicle emission control regulations are based on
    engineering developments achieved by EPA, other regulators, or some in
    industry, but not used widely by the entire industry at the time we
    promulgate our regulations. Hence, it is not unusual for EPA to use new
    and emerging technologies to justify and support our regulatory
    efforts.

        Question 12. EPA projects that gasoline purchases will increase by
    $2.2 billion per year in 2004. What studies have EPA undertaken that
    assess the impacts of this cost increase on the U.S. economy?
        Response. Our analysis is included in the Regulatory Impact
    Analysis. The $2.2 billion annual fuel cost estimate works out to be an
    increase to the consumer of approximately $10 per year, or $100 over
    the life of the vehicle, which we do not believe will have any
    noticeable effect on the U.S. economy. We considered the impacts of
    this cost on the U.S. economy in the context of our benefit cost
    analysis. In this analysis, we concluded that the economic value of the
    overall environmental and human health benefits of the proposed Tier 2/
    gasoline sulfur standards is greater than the costs of the programs.
                                     ______

          Responses of Robert Perciasepe to Additional Questions from
                                Senator Bennett
        Question 1. The Agency has decided to use the ``small refiner''
    definition used by the Small Business Administration in its awarding of
    contracts to small businesses. The SBA definition is based on the
    number of corporate employees and not refinery size. In the Clean Air
    Act, Congress included a definition of small refiner based on size for
    purposes of the low sulfur diesel program. It defines a small refiner
    as one having refining of 50,000 bid or less and owned by a refiner
    with a total capacity less than 137,500 bid. Is the SBA definition
    appropriate for use in the gasoline sulfur rulemaking?
        Response. As you note, our proposed definition is based on the
    Small Business Administration's definition of small refiner, which
    looks at the total number of a company's employees, rather than on
    volume of throughput. EPA started with this approach because the 1996
    SBREFA amendments to the Regulatory Flexibility Act start with the SBA
    definition as a default. Like other definitions of small refinery used
    in past EPA programs and the Clean Air Act section you mention, our
    proposed definition is aimed at identifying those refiners that may
    face particular economic difficulties in complying, for example,
    because they don't have the ability of a larger corporation to raise
    capital for investment in desulfurization. When we conducted the Small
    Business Advocacy Review Panel convened under SBREFA requirements, we
    did not exclude any parties on the basis of their number of employees
    even though we focused on reaching those refiners we believe most
    clearly meet the SBA definition.
        While we have proposed a definition in light of the SBREFA Panel's
    recommendations, in our proposal we sought comment on alternative
    definitions of small refiner, including definitions based on volume of
    crude oil processed (at a given refinery and/or corporate-wide) or
    volume of gasoline produced. However, we do believe that any relief
    offered to refiners must not result in a substantial loss of the
    environmental benefits of the proposed program. We received comments on
    this issue and will be addressing them as we move forward with a final
    rule.

        Question 2. What will EPA do to ensure an equitable treatment of
    small refiners under SBREFA for purposes of the gasoline sulfur
    proposal?
        Response. Regardless of the definition of small refiner we
    ultimately adopt, we intend to provide all refiners who meet our
    criteria equitable treatment in terms of their requirements under our
    gasoline sulfur program. We believe it is important that small
    refiners' needs be addressed by our program.
        Whatever approach is adopted in the final rule, it should address
    those refiners facing particular economic difficulties in complying
    based on their size without unduly interfering with the environmental
    benefits of the program. There may be some refiners who fall outside of
    the SBREFA definition but believe that their needs should also be
    addressed in our final rule. As we develop our final program, we are
    considering what additional options may be appropriate to provide such
    refiners with flexibility in meeting the gasoline sulfur requirements.
    Such provisions may differ from those applicable to small refiners, but
    we will attempt to appropriately address their concerns without
    compromising the benefits of our program.

        Question 3. The flaw in the banking and trading program is that
    credits must be generated by 2003, and there simply isn't enough time
    to accomplish the necessary permitting and construction. What else
    could the Agency do to make banking and trading more useful? What
    prevents the Agency from extending the period to generate credits?
        Response. The proposal described one example of how the refining
    industry may respond to the sulfur banking and trading program that
    demonstrates that sufficient credits can in fact be generated prior to
    2004 to allow many refiners to delay construction of desulfurization
    equipment a year or two. We permit winter reformulated gasoline to
    generate credits if summertime sulfur levels are maintained (which is
    not required in the current RFG program). We know of several refiners
    who plan to install some desulfurization equipment in the near future--
    these refiners will be positioned to generate credits prior to 2004.
    Some refiners could also modify their existing operations to reduce
    sulfur levels and possibly earn credits without having to install new
    equipment. We also believe that once the industry sees our final
    program requirements later this year, refiners will begin to snake
    investment plans and this will likely lead to some installing
    desulfurization capacity prior to 2004, thereby being able to generate
    sulfur credits. Finally, as we have explained in responses to previous
    questions, we will work to streamline the construction permitting
    process to ensure that the desulfurization equipment could be installed
    in sufficient time to generate credits. We look forward to working with
    the refining industry to improve on this proposal, but we believe our
    proposal has the potential to provide credits if we finalized it as
    currently designed.
        We have taken comment on alternative approaches and issues
    associated with this proposed program. The comments we have received
    thus far provide many suggestions for how to improve our credit
    program. A range of options are under consideration, from expanding the
    number of credits that can be generated by changing the sulfur baseline
    refiners use to eliminating the specification of a minimum level of
    sulfur reduction before credits can be generated. We've also received a
    number of comments suggesting that if we change the timing and rate of
    phase-in of our sulfur program we won't need a credit program. We'll
    consider all of these alternatives as we proceed. In addition, our
    efforts to streamline the permitting process and otherwise ensure that
    our final program is technologically feasible will help to ensure that
    sufficient credits will be generated.
        In response to the question about extending the time in which
    credits can be generated, in the proposal, we would allow credits to be
    generated in 2004 and beyond, but only for those refiners who produce
    gasoline below the 30 ppm average standard. We will certainly consider
    alternative approaches to credit generation and use.

        Question 4. Canada is also adopting a low sulfur program. As part
    of the proposal, Canadian officials studied their refining industry and
    concluded from 3-6 of their 18 refineries will close as a result of its
    gasoline sulfur proposal. This will be a significant loss of capacity.
    Shouldn't EPA conduct a similar analysis? Isn't it likely that we will
    see refinery if the EPA proposal is adopted?
        Response. We designed our proposal with a goal of trying to ensure
    that no refinery would cease operation based on these requirements. The
    proposed small refiner provisions and credit program would both provide
    significant flexibility to affected refiners and, we believe,
    sufficient time to reduce sulfur levels to a 30 ppm average. We believe
    we have proposed a program that provides enough flexibility and options
    for refiners to minimize the likelihood that refineries will be closed.
    A large number of factors impact a refiner's decision to close a
    refinery, and we have concerns about the ability to predict the degree
    to which such a decision will be made solely on the basis of a single
    regulatory requirement. Refineries owned by small businesses would
    benefit from special provisions in our proposal. Furthermore, as we are
    considering the comments that have been received to date, we are
    evaluating additional options for providing some refiners temporary
    relief to ensure that all refineries can comply with our requirements.
    Obviously, we do not want our program to result in refinery closures
    and will try to ensure that this does not happen as a result of our
    program.
        Although the potential loss of up to one-third of all Canadian
    refineries would indeed be a significant concern, we do not believe
    that Canada will experience the level of refinery closures that are
    cited. We have consulted with Canadian officials on this issue, and
    believe that the following information argues against the likelihood of
    a significant number of refinery closures in Canada or the U.S. as a
    result of gasoline sulfur controls.
        In May 1997, a study of the implications of various gasoline and
    diesel fuel sulfur standards on Canadian oil industry competitiveness
    was completed. This study projected that if a 30 ppm sulfur standard
    were implemented in 2001, 3-4 refineries in Canada may be at risk for
    closure due to a combination of factors, including the costs of
    desulfurization technology, the very poor refining margins currently
    experienced in the industry, and competition from U.S. refiners who
    were portrayed as larger and more sophisticated than most Canadian
    refineries. In addition, the Canadian program calls for a more
    stringent implementation schedule than the gasoline sulfur program we
    proposed.
        Since the time of that study, the improved, lower cost
    desulfurization technologies which we based our proposal on--and which
    the Canadian study had not considered--are being demonstrated
    commercially. These technologies would substantially reduce (we
    estimate by at least 50 percent) the capital costs assumed for
    desulfurization to 30 ppm. As a result, we and the Canadian officials
    we consulted believe that refiners will have a much improved ability to
    meet Canada's gasoline sulfur standards than was previously assumed
    Hence, the likelihood of refinery closures due to their proposed
    regulations will be substantially reduced.

        Question 5. California's achievement of a 30 ppm gasoline sulfur
    standard took place over a 20-year period. Given that the rest of the
    country does not have the severe California air quality problems, how
    can the Agency justify the rush to finalize a 30 ppm standard
    nationwide in less than 4 years?
        Response. California's reformulated gasoline standards (CaRFG 2)
    control many gasoline properties, not only gasoline sulfur. While
    California did have a 300 ppm cap on sulfur levels for about 20 years
    prior to the 1996 start of the CaRFG 2 program, California did not
    finalize their CaRFG 2 requirements until late 1991 (with further
    amendments adopting the Predictive Model not completed until 1994).
    Thus, California refiners were given only a few months more time to
    respond to the requirements that we expect refiners nationwide will
    have when we finalize our requirements. Furthermore, the time provided
    to California refiners required substantial refining changes beyond
    sulfur reduction; it is not clear that 4\1/2\ years would have been
    provided if sulfur levels were the only change made in CaRFG 2. The
    experience gained at California refineries, as well as the improvements
    in desulfurization technology which have occurred since then, will help
    the rest of the industry respond to the Federal requirements more
    efficiently. . However, we will consider comments about what would
    constitute adequate leadtime for refiners and will work to meet our
    intention that our final program requirements can be met by all
    refiners.

        Question 6. What happened to small refineries in California as it
    proceeded to reduce gasoline sulfur levels?
        Response. As stated in the response to a similar question from
    Senator Thomas, California's reformulated gasoline standards (CaRFG 2)
    control many gasoline properties, not only gasoline sulfur. The sulfur
    reduction requirements, while significant, were responsible for only
    about one-third of the total costs and even less of the capital
    investments needed to meet the CaRFG 2 requirements. Some refineries in
    California closed or stopped producing gasoline for the California
    market beginning in the late 1980's, largely as a result of substantial
    overcapacity. Most of these closures or shifts in markets, including
    three refiners who closed or shifted their output to other markets in
    1995, happened prior to 1996, when the most stringent standards,
    including the 30 ppm average sulfur requirement, took effect. As a
    result of these closures and market shifts, the utilization rate for
    California refineries increased from 85 percent to 97 percent. While
    many of the refineries which closed in California were small, the
    refinery industry in California remains diverse with small refineries
    continuing to serve the California gasoline market today.

        Question 7. Why is EPA requiring the implementation of the new
    gasoline sulfur standards in 2004 when only a small percentage of the
    Tier II vehicles will be on the road?
        Response. Sulfur reductions will benefit the in-use fleet in 2004.
    In 2004, we estimate that 23 percent of the light-duty vehicles and
    trucks vehicles in the fleet would comply with either the NLEV
    standards or the proposed Tier 2 interim standards for trucks between
    6,000 and 8,500 pounds GVRW. As discussed in our proposal, vehicles
    meeting these standards have demonstrated a strong sensitivity to
    gasoline sulfur. Hence, the emissions performance of these vehicles
    will be reduced as long as they are exposed to high sulfur levels, and
    will be permanently compromised to some degree. Delaying the gasoline
    sulfur requirements until a greater fraction of the fleet meets Tier 2
    standards would substantially reduce the air quality and other
    environmental benefits associated with the proposed sulfur program.
        As we explain in our proposal, we believe that Tier 2 vehicles
    would require gasoline sulfur levels meeting a 30 ppm average and 80
    ppm cap in order to achieve the emissions performance they were
    designed to achieve in-use. However, at the same time, we recognize
    that refiners need some flexibilities in meeting our proposed
    standards, to ensure that the program is implemented without supply
    shortages or substantial price spikes in the early months. Hence, in an
    attempt to balance the needs of the emission control technology with
    the regulatory burden, economic impact, and ability of the refining
    industry to reduce sulfur levels in this timeframe, we proposed to
    allow less stringent caps in 2004 and 2005. We believe that the
    potential damage during this time period to the future fleet of Tier 2
    vehicles would be minimized over because the vehicles would still be
    phasing in. By the time most new vehicles would be required to meet
    Tier 2 standards essentially all gasoline would meet the 80 ppm cap.
    However, individual Tier 2 vehicles sold in 2004 and 2005 and are
    exposed to higher sulfur levels might incur some irreversible damage to
    their emission control systems. While this is clearly undesirable, the
    only way to prevent this would be to require all gasoline to meet the
    80 ppm cap from the first day that Tier 2 vehicles are sold. We do not
    believe this would be a reasonable burden to place on the refining
    industry.

        Question 8. Are you aware of any energy security implications from
    the gasoline sulfur proposal that need to be acknowledged and
    addressed?
        Response. At the time of our proposal, we had no energy security
    concerns with our proposed program. We are reviewing the public
    comments and will address any comments related to this topic in the
    design of our final program. We will also continue to work with the
    Department of Energy and others in addressing any concerns related to
    this issue.

        Question 9. Would you summarize EPA's economic impact analysis on
    the refining industry? Is it comprehensive? What more will you do
    before the final rule is issued?
        Response. Based on this analysis we estimate that, on average,
    refiners in the year 2004 would be expected to invest about $45 million
    for capital equipment and spend about $16 million per year for each
    refinery to cover the operating costs associated with these
    desulfurization units. Since this average represents many refineries
    diverse in size and gasoline sulfur level, some refineries would pay
    more and others less than the average costs. When the average per-
    refinery cost is aggregated for all the gasoline expected to be
    produced in this country in 2004, the total investment for
    desulfurization processing units is estimated to be about $4.7 billion
    dollars, and operating costs for these units is expected to be about
    $1.5 billion per year. We believe that the $4.7 billion in capital
    costs would be spread over several years, especially by the refiners'
    participation in the proposed averaging, banking, and trading program.
        Additional cost reduction is expected as refiners increase the
    throughput (debottleneck) of their refineries to lower their per-gallon
    fixed costs. This increase in throughput for the industry as a whole is
    termed ``capacity creep'' and it is has allowed a shrinking number of
    U.S. refineries to handle the increasing demand for refined products.
    Our analysis presumes that as an industry, refiners will debottleneck
    their refineries at a rate consistent with the forecasted increase in
    gasoline demand, which is about 2 percent per year. Thus, the fixed
    operating cost, and a portion of the capital costs for these
    desulfurization technologies, would decrease over time on a per gallon
    basis as the volume of gasoline processed at each refinery increased.
        Since, in developing the national average costs of the program, we
    have considered variations due to refinery location, size, and
    configuration, we believe our analysis was quite comprehensive.
    However, we continue to receive additional information about the costs
    of various desulfurization technologies and the impacts of gasoline
    desulfurization on different types of refineries. Much of this
    information was provided in comments from industry and others which we
    have only recently received. We will consider all of this information
    and will update our analysis as necessary for the final rule.

        Question 10. EPA estimated that a 30 ppm gasoline sulfur standard
    in PADD IV will cost twice the national average cost increase of 1.8
    cents per gallon. What problems will a 100 percent difference cause
    motorists in PADD IV?
        Response. Motorists in the Rocky Mountain region today often face
    higher costs for gasoline and other products than the average U.S.
    citizen. In the case of gasoline, these higher costs are due to a range
    of factors, including the limited number of refiners supplying the
    region, the generally small size of these refiners (which results in
    higher costs-per-gallon due to fewer economies of scale), the higher
    transportation costs, and many others. Many of these factors
    contributed to our estimate that refiners in PADD IV would incur higher
    than average costs to meet our proposed 30 ppm average standard. We did
    estimate that at least five refineries in PADD IV would be eligible for
    inclusion in the small refiner program, which would help to reduce
    costs to these refiners and thus to consumers. In addition, we have
    been in discussions with the Western Governors Association regarding
    their concerns and look forward to reviewing and analyzing their
    proposal for addressing the concerns of small refineries. If the cost
    of sulfur control in PADD IV is twice our estimated national average
    cost increase, this would result in an approximate $20/year increase in
    the cost of gasoline to the consumer in this region. The production
    cost of gasoline would likely increase everywhere as a result of a 30
    ppm standard. How this is translated in the marketplace will depend on
    a range of economic factors and market forces which we cannot predict
    nor control.

        Question 11. What are your plans to work with the refining and
    automobile industry to reach consensus fuel standards in the future?
        Response. We are currently reviewing the comments received from
    industry representatives, some of which we heard at our public hearings
    in June but most of which have just arrived in the last few weeks.
        We have ongoing discussions with technical and corporate staff in
    various companies to further understand their issues and concerns. As
    we narrow the range of options we will consider for our final program,
    we will continue to consider these concerns and will be proactive in
    trying to understand comments and develop creative solutions in trying
    to reach consensus. We are hopeful that our final program will meet the
    requirements of both industries.
                                     ______

          Responses of Robert Perciasepe to Additional Questions from
                                 Senator Inhofe
        Question 1. In 2004 and 2005, you have proposed basically three
    different sulfur standards. (a) An average gasoline sulfur content at
    each refinery to not more than 30 ppm. (b) A maximum sulfur content on
    every gallon of gasoline; (c) An average sulfur content on a corporate
    basis. The fact that you have all three at the same time is part of the
    reason I don't think the banking and trading program will work. The
    corporate average seems duplicative. Couldn't you simplify the program
    and increase the opportunity of using credits by dropping the corporate
    average?
        Response. In our proposal, we expressed different reasons for each
    of the standards that apply in 2004 and 2005. The 30 ppm average
    refinery standard represents a level we believe would enable Tier 2
    vehicles to achieve the desired environmental benefits. However, to
    provide sufficient flexibility to refineries in the country to help
    meet this standard in 2004, we would allow each refinery to use credits
    to meet this standard. Since Tier 2 vehicles would be sold beginning in
    2004 and their emission control systems can be damaged by high sulfur
    levels, we found it necessary to specify a maximum per gallon level in
    2004. However, this ``cap'' does not represent a level that we believe
    Tier 2 vehicles, designed to operate on an average of 30 ppm and a
    maximum of 80 ppm sulfur, should experience regularly. Had we not
    specified a corporate average standard in addition to the cap and the
    refinery standard (which can be met with credits), we were concerned
    that average sulfur levels experienced by Tier 2 vehicles in these
    interim years would be much higher than 30 ppm, depending on the
    availability of credits to bring averages down to 30 ppm. Hence, we
    specified a corporate average that we expect will bring sulfur levels
    across the country down to more reasonable levels for Tier 2 vehicles.
    The rest of the vehicles in the fleet, including specifically the NLEV
    vehicles, would also see improved emissions as a result of these lower
    sulfur levels.
        We are considering a range of alternative designs as we evaluate
    options for our final program. We intend to make appropriate
    enhancements to ensure the program works as we intended while ensuring
    that we achieve the stated environmental goals of this program while
    providing flexibility to the refining industry.

        Question 2. Most companies making expensive equipment changes will
    only try proven technologies, particularly the smaller the company, the
    less risk, because they have more to lose in a bad business decision.
    New desulfurization technologies have been announced and it's expected
    that more will be in the near future. How will EPA ensure that the
    Banking and Trading program will allow refiners time to select the new
    technologies?
        Response. We designed the banking and trading program for two main
    reasons, to encourage early sulfur reductions by rewarding refiners who
    make investments prior to 2004, and to provide other refiners some
    flexibility in meeting the standards in the first years of the program
    rather than having to make these same investments by 2004. If we adopt
    the proposed trading and banking program in concert with the proposed
    standards, refiners who want to demonstrate new approaches to gasoline
    desulfurization prior to 2004 will be compensated in terms of sulfur
    credits. We believe that these demonstrations will help to alleviate
    the industry concerns about the ``newness'' of these technologies and
    will help other refiners to be more comfortable in selecting some of
    these lower cost alternatives to meeting the standards. Furthermore, as
    indicated in the proposal, we believe that our overall program provides
    adequate time to refiners to consider all of their options before
    making their investments. The refiners have identified the start of the
    program as a critical issue, and we are seriously evaluating this issue
    as we develop our final program.

        Question 3. Have you considered the ``disbenefits'' or the negative
    impact of reducing NOx in the formations of ozone? Which
    areas of the country might experience this increase in ozone when
    NOx are reduced?
        Response. Our analysis of the benefits of the proposed Tier 2/
    Sulfur rule accounted for the full range of NOx effects on
    ozone and particulate matter levels, including those cases where ozone
    levels were projected to increase. We also accounted for the
    significant VOC reductions from the proposed Tier 2/Sulfur program,
    which would help mitigate any disbenefits associated with
    NOx reductions. Based on these analyses, we concluded that
    the expected air quality benefits of our Tier 2/Sulfur proposal would
    greatly outweigh its potential disbenefits. We also concluded that the
    proposed program's economic benefits would exceed its costs by a
    substantial margin. These analyses took into account the location and
    magnitude of ozone changes due to the proposed Tier 2/Sulfur program
    and the number of people exposed to those changes.
        We looked at areas of disbenefits using two approaches: the
    exceedance approach (which is detailed in the Supplemental Notice of
    the Tier 2 NPRM), and the roll-back approach (which is detailed in the
    RIA of the NPRM). In no area does the projected number of exceedences
    increase with implementation of the Tier 2 and sulfur controls. The
    roll-back method comparing design values actually measured in 1995-1997
    to those expected to occur after implementation of the NOx
    SIP Call and Tier 2 programs shows ozone increases in 1 hour of a
    particular day in 2 counties (Cook County, Illinois, Bronx County, New
    York) under the 8-hour ozone NAAQS. None of these projections account
    for the impact of future Federal controls on VOC emissions from sources
    like nonroad gasoline engines and recreational marine engines nor do
    they account for the impact of future local controls on VOC emissions
    from stationary and area sources. These counties experience
    improvements in ozone concentrations for other hours and days in the
    year.
        While it is possible for specific NOx reductions to lead
    to slightly higher ozone peaks at specific locations and times under a
    specific set of conditions, it is nonetheless true that overall
    reductions in NOx must lead to the production of lower
    amounts of ozone overall and reduced areawide peak ozone
    concentrations. Both the National Research Council (NRC) and the Ozone
    Transport Assessment Group (OTAG) have concluded that efforts to reduce
    ozone should include strategies to reduce NOx emissions,
    despite the potential for NOx disbenefits. In fact, the
    Ozone Transport Assessment Group concluded that ``On balance (across
    the full domain and all modeling days), NOx reductions are
    beneficial. NOx reductions, especially urban NOx
    reductions, produce widespread decreases in ozone concentrations on
    high ozone days.''
        We have received comments on this issue and will be addressing them
    in our analyses for the final rule. Any additional information on this
    issue will also be placed in the public docket.

        Question 4. Has EPA done a feasibility assessment to determine that
    the recommended desulfurization technology will be (1) feasible, (2)
    applicable to most refineries and, (3) in sufficient supply to address
    the needs of over 100 refineries that will need to install the new
    technology in short order?
        Response. Yes, we considered all of these issues in our proposal
    and are continuing to evaluate them as new information becomes
    available. We believe the two technologies we profiled in our
    Regulatory Impact Analysis are certainly feasible. While some in the
    refining industry view them as ``new,'' they use known refining
    techniques, simply applied in a different way than in the past. Hence,
    we expect them to work. Since we released our proposal, we've learned
    of several other technologies and approaches for sulfur control. We
    will continue to monitor these technologies. Refiners will thus have a
    range of options available to choose from in making their investments,
    and what is most cost-effective will vary by refinery depending on a
    range of factors. As for whether the entire industry can make these
    investments in the time available, we believe they can. Our proposal
    encourages early compliance and allows investments to be stretched out
    over many years through the banking and trading program to ensure an
    orderly transition. We have consulted with the licensers of these new
    technologies, as well as other experts in the industry, to reassure
    ourselves that these parties will be able to meet the demands of the
    industry in this timeframe. We will consider all of this input as we
    develop our final program.

        Question 5. The original Regulatory Impact Analysis for this rule
    showed that the entire country except for eight metro areas and two
    rural areas would reach attainment for the 1-hour ozone standard by
    2007, without this rule. In the Supplemental Notice you switched to a
    different modeling system. Instead of the extensive modeling and
    analysis that was prepared in the years leading to the proposal, EPA
    now points to ``preliminary analysis,'' which is not yet available for
    public comment. What is this ``analysis'' and when will it be available
    for public comment?
        Response. In the Tier 2 Supplemental Notice, we provided additional
    information regarding the air quality need for further ozone precursor
    emissions controls. This information focused on the need for such
    reductions to help areas attain the current 1-hour ozone standard and
    discussed the use of the ``exceedence'' method to estimate future ozone
    levels from modeling. We had provided similar information in the Tier 2
    NPRM, based on an analysis approach called the ``rollback technique.''
    Both approaches utilize the same air quality inventory and merely
    represent different ways of analyzing the data. Additional information
    describing both approaches can be found in the May 13, 1999 and June
    30, 1999 Federal Register notices.
        Recognizing this fact, we evaluated the need for additional ozone
    reductions to attain the existing 1-hour ozone NAAQS using the
    exceedence method in the Tier 2 Supplemental Notice. That information
    is presented in the SNPRM and has been placed in the Tier 2 docket for
    public review. We are also updating our air quality emission
    inventories and analyses to more accurately reflect the impact of the
    Tier 2 program. We have also received comments on our modeling
    assumptions and results and we will be incorporating this information
    into our analyses done for the final rule.

        Question 6. In the Regulatory Impact Analysis EPA assumes that
    construction of new desulfurization units will be strung out with 28
    units installed during 2004 and 30 installed during 2005. Are you
    confident that these 58 refineries can get sufficient early credits and
    wait and defer construction? What assurances will these refineries have
    in 2000 that early credits will be available?
        Response. The analysis in the Regulatory Impact Analysis portrayed
    one of many examples of how the credit program could work to spread out
    investments and provide refiners flexibility in meeting the 30 ppm
    average standard. Any such analysis is based on the assumptions made
    about how many credits would be generated prior to 2004. We believed
    that this represented a reasonable scenario. However, there are many
    ways that the industry can respond. As we consider alternative designs
    for the credit program in response to comments received, we will be
    able to reevaluate these assumptions and conclusions. We've also
    proposed, or sought comment on, a number of additional flexibilities
    that could further ensure the availability of sufficient credits. For
    example, we sought comment on the concept of a government-created and
    operated compliance supplement pool. Under this concept, the government
    would create a pool of additional credits that could be provided to
    refiners/importers. This pool would build refiner confidence that a
    supply of credits would be available in the market and that credits
    could in fact be considered as part of the business plan for 2004-2005
    compliance. We will continue to evaluate this and other options and
    intend to develop a final program in which refiners can be confident
    that credits will be available should they make the business decision
    to defer investments for a year or two.

        Question 7. Relatively low oil prices and low refining margins have
    resulted in major restructuring of the refining industry with
    considerable merger activity. Has the Agency looked at the ability of
    the refining industry to raise $4.65 billion in capital in less than 4
    years to meet the proposed gasoline sulfur rule?
        Response. We agree that the large number of mergers within the
    refining industry are due in large part to the relatively low oil
    prices and low refining margins that have been experienced in recent
    years. Those companies who have exploration and production components
    have found those businesses to be reasonably profitable of late,
    particularly in light of recent increases in crude oil prices, but
    companies which only focus on refining and marketing have not generally
    made profits. Because the refining industry is highly competitive,
    refiners are not often able to command the prices for finished gasoline
    that would generate higher margins.
        In response to your question, in our proposed rule we presented an
    analysis of the ability of the refining industry to raise billions of
    dollars in capital to finance the investments required to desulfurize
    gasoline. We found that when these investments are spread out over
    several years (2001-2005, in our analysis), the individual capital
    expenditure in any given year is no greater than--and in most cases
    less than--historic capital expenditures made by the refining industry
    for environmental programs. In the early 1990's, companies invested $1-
    2 billion per year for environmental controls; this represented about
    one-third of total capital investments during this time period. Since
    these environmental capital investments reflect costs incurred by less
    than three-quarters of the industry (since many refiners were
    unaffected by the programs that came out of the 1990 Clean Air Act
    Amendments), and since our estimated annual capital expenditures are in
    this same range, we believe the industry would be able to finance the
    required capital investments to meet the demands of our proposed
    program.

        Qustion 8. EPA estimates that its proposal will result in an
    increase in CO2 emissions across the domestic refining
    industry of 6.9 million tons per year. This looks to be very large.
    Will this Tier 2/Sulfur proposal initiate greenhouse gas emissions
    reductions elsewhere to offset this increase? Are you concerned about
    the size of this increase? Will refiners later be penalized for this
    increase if the Kyoto treaty is implemented?
        Response. The increase of 6.9 million tons CO2 from
    domestic refiners, as calculated in the proposed Regulatory Impact
    Analysis, is a relatively small increase in CO2 emissions in
    the context of the scope and benefits of the proposed Tier2/Sulfur
    program. This represents only 0.1 1 percent of total U.S. carbon
    emissions from CO2, and 0.36 percent of U.S. transportation
    carbon emissions from CO2 relative to 1997 emissions as
    cited in the most recent edition of ``Emissions of Greenhouse Gases in
    the United States 1997,'' (DOE/EIA, October 1998). The estimated
    increase was a one-time step increase addressing the potential
    CO2 increases of desulfurization across the entire industry.
    The proposal indicated this estimate may be high because the analysis
    was based on conservative assumptions and the actual increase will
    likely be lower when refiners optimize their desulfurization processes.
    In addition, refiners may choose to use one of the adsorption
    desulfurizing technologies recently announced by Black and Veatch and
    Phillips Petroleum which are lower in carbon emissions. We are
    encouraged there appears to be process improvements and technology
    development addressing sulfur reductions which might minimize the
    impact on CO2 emissions.
        We have not proposed any sort of greenhouse gas reductions as part
    of the Tier 2 gasoline sulfur program to offset this increase. The
    Administration has made no policy determinations as to how a domestic
    implementation program would be structured. Thus, it is premature at
    this time to determine what impact this might have on refiners if the
    Kyoto Protocol were ratified after Senate advice and consent.

        Question 9. For purposes of the gasoline sulfur proposal, states
    with multiple refining facilities will have to process permits for
    technology and operating changes at approximately at the same time.
    Based on your experience with State environmental agencies, will these
    officials able to handle this increased permit activity in an expedited
    manner? What type of relief has EPA offered--if the gasoline sulfur
    schedule cannot be met because of permitting requirements and backlogs?
        Response. As discussed in responses to questions on permitting from
    Senator Thomas, EPA is committed to both simplifying and accelerating
    the air permitting process, so that refiners can begin producing low
    sulfur gasoline within the lead time provided by our proposal. While we
    believe that the application of one or more approaches to reducing the
    permit burden needed to incorporate the gasoline desulfurization
    requirements would provide flexibility to refiners, we note that the
    use of such approaches would have accompanying resource requirements We
    note there has been some recent action that could indicate the scope of
    the permitting issue and the actions required to develop workable
    solutions. For example, we are currently working with Exxon on a pilot
    permit program. Also, the Texas Natural Resource Conservation
    Commission recently told refiners at the UP Amoco Environmental Forum
    that Texas averages a 120-day turnaround on permits for their overall
    permitting programs. We understand that even major source NSR permits
    average a 6-month turnaround in Texas. Thus, Texas doesn't anticipate
    any problem issuing permits for gasoline sulfur projects. There are
    approximately 24 refineries in Texas that will be implementing gasoline
    sulfur projects which is more than any other state. We believe that all
    of the other states will also be able to process the permits in a
    timely manner and we will work with them to ensure the schedules are
    met. Given the amount of lead time already proposed, combined with our
    efforts to streamline the permitting process (described above), we
    believe refineries would have sufficient time to obtain air permits and
    meet the proposed compliance dates for gasoline sulfur control.
    Therefore, no relief from the deadline was included in the proposal.
                                     ______

                   Mercatus Center Regulatory Studies Program
        Summary of RSP Comment.--EPA should not proceed with the proposed
    stringent vehicle and gasoline standards. It has not demonstrated that
    they are (1) necessary, (2) feasible, and (3) cost-effective, as
    required by the Clean Air Act. EPA's lack of support for the emission
    and sulfur levels it has proposed reflects the same flaws that led the
    District Court to rule on its 1997 ambient air quality standards, that
    EPA had interpreted sections of the CAAA ``so loosely as to render them
    unconstitutional delegations of legislative power.''
        EPA has not demonstrated that its proposal is necessary to meet the
    current ozone air quality standard, since the vast majority of the
    Nation will be in compliance with them by the time the effects of this
    proposal are seen. Furthermore, its evaluation of cost-effectiveness is
    based solely on estimates of average cost-per-ton of ozone precursor
    emissions removed, which does not capture the very large differences in
    costs and benefits across the nation. Our own analysis of EPA data
    reveals that consumers in some western states will pay 10 times EPA's
    national average to reduce one ton of emissions. Furthermore, these
    consumers will derive no benefit, since they already enjoy air quality
    that meets the standards, and in some areas, they will actually see a
    decline in air quality. In addition, the cost-effectiveness of emission
    controls for different classes of vehicles varies significantly.
        Given State and regional track records for instituting necessary
    controls (including reformulated gasoline and inspection and
    maintenance programs), EPA should leave decisions regarding the sulfur
    content of gasoline to individual states, perhaps with the cooperation
    of, or recommendations from, the Ozone Transport Assessment Group
    (OTAG). If EPA feels compelled to issue Federal regulations governing
    gasoline sulfur content, it should seriously evaluate a petroleum
    industry proposal whereby low-sulfur gasoline would be provided only
    for the eastern half of the nation. Furthermore, California's low
    emission vehicle rules, and the OTAG-state-initiated NLEV program offer
    evidence that even vehicle standards do not need to be mandated at the
    Federal level.
     Proposed Tier 2 Motor Vehicle Emissions Standards and Gasoline Sulfur
                              Control Requirements
        The Regulatory Studies Program (RSP) of the Mercatus Center at
    George Mason University is dedicated to advancing knowledge of
    regulations and their impacts on society. As part of its mission, RSP
    produces careful and independent analyses of agency rulemaking
    proposals from the perspective of the public interest. Thus, the
    program's comments on EPA's proposed Tier 2 motor vehicle emissions
    standards and gasoline sulfur control requirements do not represent the
    views of any particular affected party or special interest group, but
    are designed to protect the interests of American citizens.
        The first section of these comments provides background on the
    statutory authority for regulating vehicle emissions, and summarizes
    EPA's May 13, 1999 proposal. Section II evaluates EPA's proposal
    against the criteria set forth by Congress, including air quality need,
    technological feasibility, and cost-effectiveness. Section III examines
    whether the proposal would improve the health and welfare of American
    citizens. Section IV presents RSP's recommendations and conclusions.
    Appendix 1 presents RSP's Checklist for the proposal, and Appendix 2
    provides detail on the cost-effectiveness estimates presented in
    Section II.
                                 i. background
    A. What is the legal basis for EPA's proposal?
        The Clean Air Act Amendments of 1990 (CAAA) set numerical ``Tier
    1'' exhaust standards that applied to certain light-duty vehicles
    (LDVs) and light-duty trucks (LDTs) beginning with the 1994 model year.
    The Amendments also directed EPA to determine whether to establish more
    stringent standards specified in the Act (CAAA Tier 2) for vehicles
    with a loaded weight of 3,750 lbs. or less, for model years commencing
    after January 1, 2003. While the Amendments specified emission levels
    (see Table 1, below) and a useful life of 10 years or 100,000 miles, it
    directed that EPA consider other standards and useful life periods that
    are either more or less stringent than the default Tier 2 standards set
    forth in the Act, based on three considerations:
         the need for further reductions to meet national ambient
    air quality standards (NAAQS),
         the availability of technology (including the costs
    thereof, and considering lead time, safety and energy impacts), and
         the need for, and cost-effectiveness of further reductions
    from vehicles (compared to other approaches to attaining the NAAQS).
        This proposal reflects EPA's determination that Tier 2 standards
    more stringent than the default levels specified in the CAAA are
    necessary and appropriate. Further, EPA proposes to apply the same
    standards to vehicles weighing up to 8,500 lbs. rather than restricting
    them to vehicles weighing 3,750 lbs. or less. (Appendix 3 lists the
    type of vehicles by class that would be covered by this rulemaking.)
    EPA proposes a useful life (the period during which vehicle
    manufacturers are formally responsible for the vehicle's emission
    performance) of 120,000 miles instead of 100,000 miles. In addition,
    because sulfur may poison new catalytic converters needed to meet the
    vehicle exhaust standards, EPA proposes to determine that gasoline
    sulfur standards are also necessary.

                                  Table 1.--Emission Standards for Light Duty Vehicles
                                        Grams/mile over 100,000 mile useful life
    ----------------------------------------------------------------------------------------------------------------
                                                                         NOx\1\  NMHC\1\      PM\1\         CO\1\
    ----------------------------------------------------------------------------------------------------------------
    Tier 1.............................................................   0.60    0.31           0.10           4.2
    CAA Tier 2\2\......................................................   0.20   0.125             NA           1.7
    NLEV\3\............................................................   0.30    0.09           0.08           4.2
    Proposed Tier 2....................................................   0.07   0.09\4\         0.01    2.4-4.2\4\
    ----------------------------------------------------------------------------------------------------------------
    \1\Oxides of nitrogen (NOx), nonmethane hydrocarbons (NMHC), particulate matter (PM), and carbon monoxide (CO).
    \2\Emission levels specified in Table 3 of the CAAA.
    \3\Vehicles will generally be required to meet LEV emission levels nationally under the voluntarily agreed to,
      but federally enforceable, NLEV program by model year (MY) 2001.
    \4\While the proposal does not explicitly define average standards for pollutants other than NOx, average NMHC,
      PM and CO emission limits are implicit in the proposed bin structure. (Preamble Section IV-B).

                1. ``There is a substantial need for further emission
                        reductions in order to attain and maintain NAAQS.''
        In the preamble to the proposal, EPA justifies the need for
    emission reductions by widespread and significant nonattainment with
    the new ozone (and, to a lesser extent, particulate matter) NAAQS,
    which were promulgated in 1997. However, the day after the Tier 2
    proposal was published, these NAAQS were struck down in a decision of a
    three-judge panel of the U.S. Court of Appeals for the District of
    Columbia.\1\ In a supplemental notice published on June 30, 1999, EPA
    states that the panel decision does not change its proposed
    requirements. The supplemental notice offers ozone modeling information
    to support the proposal based on the ozone and PM NAAQS that were in
    effect prior to the promulgation of the 1997 standards (``the
    preexisting standard''). The preexisting (and now current) ozone
    standard set maximum ozone concentrations at .12 parts per million
    (ppm), compared to .08 ppm set by the overturned 1997 standard.\2\
    ---------------------------------------------------------------------------
        \1\ American Trucking Associations, Inc., et. al. v. United States
    Environmental Protection Agency. 1999 U.S. App. LEXIS 9064.
        \2\ There are also differences in the ``form'' of the ozone
    standard, with the preexisting standard measuring compliance based on
    exceedances of the standard over one-hour intervals, and the 1997
    standard basing compliance on 8-hour average concentrations.
    ---------------------------------------------------------------------------
                2. ``More stringent standards for light-duty vehicles and
                        trucks are technologically feasible.''
        EPA asserts that the technological feasibility of controlling
    vehicle emissions beyond the Tier I standards is demonstrated by
    manufacturers' voluntary agreement to meet national low emission
    vehicle (NLEV) standards in model year (MY) 1999,\3\ and compliance
    with more stringent California standards. In order to assure compliance
    over the 100,000-mile life of the vehicle (as required by the NLEV
    program) manufacturers have certified new vehicles at emission levels
    equivalent to or lower than the default Tier 2 standards set by the
    CAAA. While EPA recognizes that manufacturers must certify vehicles to
    levels lower than the standard to ensure compliance after 100,000 miles
    of use,\4\ it uses these margins to justify its determination that even
    more stringent emission standards will be feasible by 2004. This
    determination is most questionable for heavy light duty trucks, such as
    full-sized pick up trucks and vans, however, EPA proposes to offer them
    relief through a longer phase-in period, and the ability to average and
    trade emissions.
    ---------------------------------------------------------------------------
        \3\ The NLEV program is a voluntary program between automakers and
    the OTAG states, under which manufacturers committed to meet tailpipe
    standards for cars and light light-duty trucks that are more stringent
    than EPA could mandate, in return for regulatory stability from states
    and the EPA. NLEV vehicles became available in Connecticut, Delaware,
    Maryland, New Hampshire, Rhode Island, Virginia, and the District of
    Columbia in the 1999 model year, and will be available throughout the
    country by 2001.
        \4\ Tier 2 Report to Congress, IV.A. July 1998.
    ---------------------------------------------------------------------------
                3. ``More stringent standards for light-duty vehicles and
                        trucks are needed and cost effective compared to
                        available alternatives.''
        EPA estimates that it will cost less to meet the ozone and
    particulate matter standards using the proposed emissions and gasoline
    controls than with other alternatives. EPA bases this conclusion on the
    average cost-per-ton of NOx and NMHC removed once all
    vehicles on the road meet the new standard.
    B. What would EPA's proposal do?
        EPA's proposal, published in the Federal Register on May 13, 1999,
    has two main components:
         It would set stringent new emission standards for
    passenger cars and light trucks. The proposal would limit emissions of
    oxides of nitrogen (NOx) from new vehicles to an average of
    0.07 grams per mile (g/mi.). For comparison, model year 1999 vehicle
    emissions based on the recent NLEV standards range from 0.30 to 1.53 g/
    mi. It would also limit emissions of nonmethane hydrocarbons (NMHC),
    carbon monoxide (CO) and particulate matter (PM). The Tier 2 standard
    would be phased in between 2004 and 2007 for passenger cars (LDVs or
    light duty vehicles) and light light-duty trucks (LLDTs or LDT1s and
    LDT2s), and between 2008 and 2009 for heavy light-duty trucks (HLDTs or
    LDT3s and LDT4s). Manufacturers could meet the standard by averaging
    across their fleet, and trading.
         It would significantly reduce the sulfur content of
    gasoline. Sulfur in gasoline would be reduced to an average of 30 ppm,
    with a cap of 80 ppm. By comparison, the average sulfur content of
    gasoline sold outside of California in 1996 was 340 ppm. Refiners would
    be allowed to meet the average standard by trading sulfur credits.
           ii. is epa's proposal justified by the rulemaking record?
    A. EPA has not adequately justified the need for its proposal.
        In the preamble to the proposal, EPA relies on expected widespread
    nonattainment with the overturned 1997 (.08 ppm) NAAQS to justify the
    ``need'' for the proposed vehicle and gasoline standards. However, the
    recent court decision diminishes EPA's argument that the stringent
    national standards are ``needed,'' as nonattainment with the
    preexisting (.12 ppm) NAAQS is much less widespread, and less
    significant than nonattainment with the remanded NAAQS. Figure 1 of
    these comments reproduces a map from EPA's air quality analysis, which
    illustrates that, with the exception of California, which is not
    covered by this rulemaking, expected nonattainment with the .12 ppm
    NAAQS for ozone in 2010 is limited to a handful of localized areas.\5\
    (Note that even the few dark shaded areas on this map, which represent
    single maximum concentrations greater than the standard, overstate the
    degree of nonattainment with the standard because noncompliance is
    actually determined by the third highest 1-hour maximum ozone level.)
    ---------------------------------------------------------------------------
        \5\ ``Tier II Proposed Rule: Air Quality Estimation, Selected
    Health and Welfare Benefits, and Benefit Analysis Results,'' April
    1999. Prepared by Abt Associates for EPA, Air Docket A-97-10, document
    No. II-A-28. Exhibit A-14.
    ---------------------------------------------------------------------------
        In a supplemental notice published in the Federal Register on June
    30, 1999, EPA estimates that only eight metropolitan areas and two
    rural counties will be out of attainment with the .12 ppm ozone
    standard in 2007. These 10 areas contain about 39 million people.\6\
    This EPA table is reproduced as Table 2, below. Note that, since
    concentrations as high as 124 ppb would be classified as in attainment
    (as they would be rounded down to .12 ppm) several of these areas are
    very close to attaining the standard. In fact, almost 15 million of the
    39 million people who are expected to live in nonattainment areas (over
    38 percent of the population in this table) live in areas that are
    within .002 ppm of attaining the standard.
    ---------------------------------------------------------------------------
        \6\ An alternative modeling approach, which EPA says is more
    consistent with the exceedance form of the 1-hour standard, predicsts
    that seventeen areas affecting a population of 74,479,686 will be
    unable to attain the 1-hour ozone standard in the absence of Tier 2
    controls. Even under this approach, however, ozone nonattainment is
    largely limited to the eastern part of the U.S.

      Table 2.--Metropolitan areas/ rural counties projected to exceed the
            0.12 ppm standard in 2007 without Tier 2/Sulfur Controls*
    ------------------------------------------------------------------------
                   Name                    Ozone (ppm)         Population
    ------------------------------------------------------------------------
    Iberville County LA...............               .132             31,049
    La Porte County IN................               .131            107,066
    Beaumont-Port Arthur, TX MSA......               .129            361,218
    Hartford, CT MSA..................               .125          1,157,585
    Houston-Galveston-Brazoria, TX                   .175          3,731,029
     CMSA.............................
    Longview-Marshall, TX MSA.........               .129            193,801
    Memphis, TN-AR-MS MSA**...........               .125          1,007,306
    New York-Northern New Jersey-Long                .136         19,549,649
     Island, NY-NJ-CT-PA CMSA.........
    Philadelphia-Wilmington-Atlantic                 .126          5,893,019
     City, PA-NJ-DE-MD CMSA...........
    Washington-Baltimore, DC-MD-VA-WV                .126          6,726,395
     CMSA.............................
      Total population................  .................         38,758,117
                                         # of metro areas                  8
                                               metro pop.         38,620,002
                                            # of counties                  2
                                              county pop.           138,115
    ------------------------------------------------------------------------
    *Table 1 of EPA, ``Clarification of Proposed Rule, Provision of
      Supplemental Information and Request for Comment,'' June 30, 1999.
    **1-hour ozone NAAQS no longer applies in a portion of the MSA.

        While EPA presents the modeled degree of nonattainment with the
    pre-existing .12 ppm standard in its supplemental notice, it does not
    estimate the extent to which Tier 2 controls will help achieve
    attainment in those areas. Instead, the supplemental notice simply
    asserts that ``[t]o the extent that significant additional reductions
    in precursors are needed for the areas discussed above to attain or
    maintain the 1-hour [.12 ppm] ozone NAAQS, EPA believes that reductions
    from LDVs and LDTs in particular will be necessary.''\7\ EPA does not
    ever make the necessary determination that reductions in precursors are
    necessary.
    ---------------------------------------------------------------------------
        \7\ ``Clarification of Proposed Rule, Provision of Supplemental
    Information and Request for Comment,'' p. 16.
    ---------------------------------------------------------------------------
        Indeed, EPA's April 1999 air quality analysis reveals that, while
    the proposal may result in a decrease in seasonal mean ozone
    concentrations of up to .0025 ppm in some eastern sections of the
    country, it may actually increase ozone concentrations (up to .0016
    ppm) in other areas, including parts of the Great Lakes region, parts
    of Texas, New Mexico, Arizona, Southern California, Utah, Washington,
    Colorado, Southern Florida, and even parts of the Northeast.\8\ (Figure
    2 of these comments reproduces EPA's map that documents this
    deterioration in air quality.) This outcome is not discussed or
    explained in the air quality analysis nor elsewhere in the proposal or
    the Regulatory Impact Analysis.
    ---------------------------------------------------------------------------
        \8\ Tier 2 Air Quality Estimation, Abt Associates, op. cit. Exhibit
    A-19.
    ---------------------------------------------------------------------------
        It is important to recognize, as EPA does in the quote above, that
    NOx and NMHC are precursors to ozone, but they do not create
    ozone in a simple, direct fashion. A 1992 National Academy of Sciences
    report explains that ``NOx reductions will have
    significantly different effects depending on the particular VOC/
    NOx ratio, which varies significantly within an air
    basin.''\9\ In ``Rethinking the Ozone Problem in Urban and Regional Air
    Pollution,'' NAS observes that ``lowering NOx can, under
    some conditions, lead to increased ozone, [as a result of] the complex
    chemistry involved in ozone formation in VOC NOx
    mixtures.''\10\ This complex chemistry sometimes results in lower ozone
    levels in urban cores than in surrounding areas, and may explain why
    EPA predicts that NOx reductions from the Tier 2 proposal
    will actually increase seasonal ozone levels in the New York City area.
    (See Figure 2.)
    ---------------------------------------------------------------------------
        \9\ Page 168.
        \10\ Page 167.
    ---------------------------------------------------------------------------
    B. The technological feasibility of the proposal has not been
            demonstrated.
        The Clean Air Act Amendments direct EPA to determine whether more
    stringent standards are appropriate based on:

    the availability of technology (including the costs thereof), in the
    case of light-duty vehicles and light-duty trucks with a loaded vehicle
    weight (LVW) of 3,750 lbs. or less, for meeting more stringent emission
    standards than [the default Tier 1 standards] for model years
    commencing not earlier than after January 1, 2003, and not later than
    model year 2006, including the lead time and safety and energy impacts
    of meeting more stringent emission standards.\11\ (emphasis added)
    ---------------------------------------------------------------------------
        \11\ Clean Air Act Subsection 202(i)(2)(i).

        EPA appears to have embraced its statutory mandate selectively,
    focusing mainly on whether technologies available and under development
    could be applied to vehicles, while giving little attention to the
    cost, lead time, safety and energy impacts inherent in these
    technologies. EPA also assumes that technologies available for vehicles
    would be feasible for trucks weighing up to 8,500 lbs. This includes
    most sport utility vehicles, mini vans, and pick-up trucks, which weigh
    more than 3,750 lbs., and thus were not included by the statutory
    language.
                1. Feasibility of vehicle emission standards
        EPA determines that more stringent standards for light-duty
    vehicles and trucks are technologically feasible. While the agency
    expresses confidence ``that by 2004, all LDVs should be capable of
    meeting Tier 2 standards,'' it admits that ``fewer data are available
    addressing the ability of LDTs to meet the design targets implied by
    the proposed Tier 2 [NMHC] and NOx standards,'' and that
    ``no current LDTs have been certified at such low emission
    levels.''\12\
    ---------------------------------------------------------------------------
        \12\ RIA Chapter IV.B.1.b.v.
    ---------------------------------------------------------------------------
        Manufacturers have argued that the technological feasibility of the
    standard for heavier vehicles (particularly light duty trucks over
    6,000 lbs. or LDT3s and LDT4s) has not been demonstrated and is
    questionable. In particular, the Alliance of Automobile Manufacturers,
    in written comments to EPA, argued that technology to meet the combined
    NOx and NMHC levels required by the bin structure was not
    available, due to tradeoffs between NOx and NMHC control for
    3-way catalysts.\13\ Recognizing that ``HLDTs will face the greatest
    technological challenge in complying'' with the proposed standard, EPA
    proposes a later compliance date, and requests comment on need for a
    ``technology review'' for HLDTs (heavy light duty trucks, or trucks
    weighing over 6,000 lbs.).
    ---------------------------------------------------------------------------
        \13\ Alliance of Automobile Manufacturers proposal to EPA,
    communicated in a letter from Josephine Cooper to Robert Perciasepe
    dated March 26, 1999.
    ---------------------------------------------------------------------------
        Manufacturers have also questioned the technological feasibility of
    the proposed evaporative standards and raised concerns about testing
    variability and non-fuel background emissions.\14\
    ---------------------------------------------------------------------------
        \14\ Alliance of Automobile Manufacturers, op.cit.
    ---------------------------------------------------------------------------
        By focusing on its expectations regarding the availability of
    technologies, EPA does not adequately address cost, safety or energy
    impacts, as required by the CAAA. In particular, there appear to be
    real tradeoffs between fuel efficiency and NOx emissions,
    and EPA's proposal, with its stringent emission limits and short lead
    time, are likely to preclude promising fuel-efficient technologies
    (such as gasoline direct-injection (GDI) engines sold in Japan and
    Europe) from competing in the U.S. market.\15\ Diesel vehicles and
    trucks also hold promise for increasing fuel-efficiency, but they are
    less likely to be able to comply with the proposed standards without
    expensive after-treatment devices (that also have other effects, such
    as a requirement to refuel periodically with urea, which EPA observes
    ``has a very objectionable odor.'')\16\ An April 1999 report of the
    National Research Council expressed concerns that the standards ``could
    jeopardize research efforts of the public-private program to create a
    highly fuel-efficient, affordable car.''\17\ Furthermore, neither the
    preamble nor the Tier 2 study submitted to Congress discusses whether
    the new technologies pose any safety concerns.
    ---------------------------------------------------------------------------
        \15\ RIA Chapter IV.B.1.c.
        \16\ RIA Chapter IV.B.5
        \17\ NRC press release issued April 29, 1999, citing report titled,
    ``Review of the Research Program of the Partnership for a New
    Generation of Vehicles.'' 1999.
    ---------------------------------------------------------------------------
        This information suggests that EPA has not, in fact, demonstrated
    that its vehicle emission standards are technologically feasible,
    according to the factors specified in the statute. At a minimum, a
    technology review in 2004 is advisable, but we question EPA's decision
    to proceed at this time without adequate assurance that these standards
    are feasible, fuel efficient, and safe. While the CAAA forbids EPA to
    promulgate mandatory standards more stringent than Tier 1 until the
    2004 model year, nothing in the statute requires EPA to rush to a
    determination on the need for more stringent standards commencing in
    2004.\18\ (Check with a lawyer on that. See EPA footnote 4 of preamble,
    pg. 15)
    ---------------------------------------------------------------------------
        \18\ See EPA footnote 4 of preamble and Section 202(b)(1)(C).
    ---------------------------------------------------------------------------
                2. Gasoline sulfur content
        According to EPA, the feasibility of the emission standards depends
    not only on technological improvements in vehicles, but on the
    availability of low-sulfur gasoline. EPA observes that refiners are
    already able to produce low-sulfur gasoline in compliance with
    California laws,\19\ and offers this as evidence that refineries
    nationally can produce gasoline that is an order of magnitude lower
    than current average levels (30 ppm vs. 330 ppm). However, the
    California requirements were phased in over a 15-year period, during
    which many small refineries went out of business.
    ---------------------------------------------------------------------------
        \19\ The State of California requires gasoline sold in the state to
    meet the same sulfur-content standards (30 ppm average sulfur content
    with an 80 ppm cap) as in the proposed rule.
    ---------------------------------------------------------------------------
        The cost estimates that form the basis of this determination are
    much lower than the costs EPA estimated for removing sulfur from
    gasoline in its May 1998 Staff Paper on Gasoline Sulfur Issues. A year
    ago, EPA estimated the cost of achieving a 40 ppm sulfur standard at
    between 5.1-8.0 cents per gallon, while the current proposal predicts
    national average costs of 1.7 cents per gallon for the proposed 30 ppm
    standard and 1.5 cents per gallon for a 40 ppm standard.
        The dramatic 3- to 4-fold reduction in cost estimates is based on
    two new technologies that are currently in the pilot stage, yet EPA
    assumes a perfectly elastic supply of these new units--enough to supply
    all refiners by 2003 at these low costs. These are very unrealistic
    assumptions for technologies that are not commercially proven and have
    yet to be installed and operated at a refinery.\20\ They serve to
    understate cost, and overstate the cost-effectiveness of achieving the
    proposed gasoline sulfur standard.
    ---------------------------------------------------------------------------
        \20\ RIA IV.B.6.
    ---------------------------------------------------------------------------
        EPA's conclusion that its sulfur standards are technologically
    feasible also depends heavily on its projection that excess credits
    will be generated by refiners that must meet the Phase 2 requirement of
    the reformulated gasoline (RFG) program starting in 2000, and that the
    availability of these credits will ease compliance with the sulfur
    standards starting in 2003.\21\ However, the projected availability of
    these credits is subject to numerous assumptions, and EPA admits that
    the generation of early credits may be optimistic.\22\ Whether the
    reductions achieved by compliance with the RFG program would actually
    offer credits is also questionable, since those reductions would be
    attributable to existing, not new programs.
    ---------------------------------------------------------------------------
        \21\ The reformulated gasoline program (RFG) was introduced for
    nonattainment areas in 1994. Phase 2, which becomes effective in
    January 2000, would require gasoline in certain areas to meet more
    stringent levels of different constituents, including sulfur.
        \22\ RIA IV.B.8 identifies several assumptions underlying its
    prediction of excess credits which it recognizes may not hold true,
    such as alternate schedules for phasing in desulfurization units, or
    higher baseline sulfur levels resulting in the need for more than one
    desulfurization unit.
    ---------------------------------------------------------------------------
        EPA promises expedited permitting of desulfurization units needed
    to comply with the new standard, but since the permit programs (such as
    New Source Review and Prevention of Significant Deterioration) are
    delegated to individual states, EPA actually does not have the
    authority to offer such relief. Unless EPA declares the new
    desulfurization units ``pollution prevention programs,'' and allows
    facilities to take mobile source credits for installing them; they are
    likely to endure typical permit reviews, which can take years.
        Furthermore, EPA data reveal that the desulfurization process
    itself will actually increase refinery emissions of NOx by
    4,500 tons per year, VOC by 7,840 tons per year, SOx by 410
    tons per year, PM by 96 tons per year, and carbon moNOxide
    by 1,130 tons per year.\23\ State concerns over these emissions may
    further delay permits.
    ---------------------------------------------------------------------------
        \23\ Office of Mobile Sources, March 22, 1999 memorandum from Karl
    Simon, EPA to Eric Haxthausen, OMB.
    ---------------------------------------------------------------------------
                3. Diesel vehicles and fuels
        EPA intends for this proposal to be ``fuel-neutral'' (i.e., one
    uniform standard would apply to all vehicles, regardless of the type of
    fuel used) yet it has not proposed fuel standards for diesel fuel. This
    creates considerable uncertainty for both petroleum refiners and
    automotive manufacturers. At this time, the technological feasibility
    of the proposed fuel-neutral principle has not been established.
    C. EPA has not adequately examined the cost-effectiveness of its
            proposal
        EPA estimates the cost-effectiveness of the proposed emission/
    gasoline standards by calculating an average national cost-per-ton of
    combined NOx plus NMHC removed, and comparing this cost-per-
    ton with other cost-per-ton estimates from other programs. EPA
    estimates that its proposal will cost $2,134 per ton in the near term
    and $1,748 per ton in the long term\24\ to remove NOx and
    NMHC, which it finds are in the range of previously implemented mobile
    source programs, including Tier 1 vehicle controls and the NLEV
    program, which was entered into voluntarily.
    ---------------------------------------------------------------------------
        \24\ EPA also calculates a near- and long-term ``credited'' cost
    per ton of $1,599 and $1,213, respectively. These credited cost-
    effectiveness figures reflect a deduction to the cost numerator to
    account for the fact that the required controls will achieve reductions
    in sulfur dioxide (SO2) and particulate matter (PM) as well
    as NOx and NMHC. The problem with this approach is that EPA
    implicitly assumes that the average cost-effectiveness (in $/ton) of
    other regulations designed to reduce SO2 and PM is equal to
    the incremental value society places on their reduction, which may not
    be true for several reasons. First, the marginal benefit of reducing
    further increments of SO2 and PM are not likely to equal the
    average cost of existing programs. Second, EPA has not based the
    regulation of SO2 and PM on any balancing of benefits and
    costs, so there is little reason to believe that the social benefits of
    reducing those pollutants reflects the social costs imposed by EPA
    regulations. In fact, in comments on the 1997 PM NAAQS, RSP highlighted
    flaws in EPA's selection of the standard and the benefit estimates that
    lead to the $10,000/ton figure EPA is using as a credit in this
    proposal. (RSP 1997-1)
    ---------------------------------------------------------------------------
        There are several problems with this approach:
        1. This focus on average cost-per-ton masks important information,
    and does not permit EPA to examine the merits of individual components
    of its proposal, nor more or less stringent standards.
        2. The use of tons of pollutants in the denominator of EPA's cost-
    effectiveness calculation is inappropriate, because tons of
    NOx and NMHC removed is not a good proxy for the risk of
    concern (health risks from human exposure to high ozone concentrations
    in non-attainment areas during peak ozone periods).
        3. EPA compares the average cost-per-ton figures with the cost-per-
    ton of a few existing programs, but not against available alternatives
    to the Tier 2 standards, as directed by the CAAA.
        We discuss each of these problems, and using data provided in the
    rulemaking record, we make some adjustments to develop rough estimates
    of cost-effectiveness that are both more meaningful and more consistent
    with EPA's mandate under the CAAA.
                1. The cost-per-ton of individual components of the
                        proposal are significantly higher than the average
                        EPA presents.
        Using data in Regulatory Impact Analysis Tables V-12, V-45, VI-3
    and Appendix VI-A, we have estimated, for each category of vehicle, the
    cost-per-ton of meeting the proposed 0.07 g/mi. vehicle emission
    standards, and the cost-per-ton of achieving the 30 ppm sulfur standard
    for gasoline. Table 3 of this comment summarizes our results on a
    nationwide basis for the ``near-term'' cost-per-ton of components of
    EPA's proposal.\25\ Appendix 2 explains our calculations and provides
    more detail.\26\
    ---------------------------------------------------------------------------
        \25\ Based on information in RIA Chapter III, it appears that
    annual emissions of about 50 pre-Tier 2 vehicles would comprise one ton
    of NOx.
        \26\The fuel costs vary across vehicle classes because different
    vehicles are modeled to have different fule consumption over a
    lifetime.

                Table 3.--Cost-ton by Vehicle Class* and Control Measure ``Near-term'' Nationwide Average
    ----------------------------------------------------------------------------------------------------------------
                                                                      Cost/ton Vehicle          Cost/ton Gasoline
                                                                      Emission Controls          Sulfur Controls
                            Vehicle Class                        ---------------------------------------------------
                                                                      NOx        NOx+NMHC       NOx        NOx+NMHC
    ----------------------------------------------------------------------------------------------------------------
    LDV (all passenger cars)....................................       $2,198       $2,198       $3,766       $2,818
    LDT1 (e.g., small mini vans and SUVs up to 3450 lbs.).......       $1,398       $1,398       $4,897       $4,283
    LDT2 (e.g., avg.-sized mini vans 3450 to 6000 lbs.).........        2,341        2,220        5,285        4,573
    LDT3 (e.g., full-sized vans and trucks).....................        2,558        1,903        4,241        3,748
    LDT4 (e.g., pick-up trucks, SUVs and vans over 5750 lbs.)...        1,460        1,157        3,897       3,472
    ----------------------------------------------------------------------------------------------------------------
    * Vehicle class weights are from EPA's 1998 Tier 2 Report to Congress

        Our estimates show that the variance in the per-ton-costs of
    emission controls across different classes of vehicles is high. For
    example, the cost-per-ton of NOx removed is over $1,000 more
    for full-sized vans and compact trucks than for small light trucks
    weighing less than 3450 lbs.
        One counter-intuitive result from this disaggregation is that the
    cost-per-ton of achieving the standards for full-sized trucks is among
    the lowest, and lower even than for passenger cars. This result may be
    partly due to greater emission reductions from those vehicles (i.e., a
    larger number in the denominator), but it may also suggest that costs
    are underestimated for these heavier trucks. This result may not be
    consistent with EPA's expressed concerns about the technological
    feasibility of achieving emission reductions for these heaviest
    vehicles.
        Also, the data reveal that the gasoline sulfur component of the
    rule costs significantly more than the vehicle controls, with costs-
    per-ton of NOx removed as high as $5,285. Note that in all
    likelihood, this is a significant underestimate of the cost-per-ton, as
    it depends on unlikely assumptions about the availability of, and low
    cost of, unproven desulfurization technologies, as discussed above.
    Further, these national statistics disguise regional variations in cost
    and true ``effectiveness.''
        To understand the regional consequences of the sulfur standard, we
    adjusted EPA's average cost estimates using data on the per-gallon
    costs of meeting a 30 ppm average sulfur level in two of five regions,
    as presented in Regulatory Impact Analysis Table V-34. Tables 4 and 5,
    below, present the cost-per-ton estimates for the two Western regions
    of the country, which, according to EPA data, would face the highest
    costs associated with removing sulfur from gasoline. The cost-per-ton
    figures in these tables reflect the mix of conventional vs.
    reformulated gasoline, and the presence of inspection and maintenance
    (I&M) programs in these states.\27\ Details of our calculations are
    provided in Appendix 2.
    ---------------------------------------------------------------------------
        \27\ Memorandum from David J. Korotney to EPA Air Docket A-97-10,
    ``Nationawide and regional population fractions,'' document No. II-B-
    07.)

      Table 4.--Table 4 Near Term Cost-per-ton of Gasoline Sulfur Controls
        Rocky Mountain Region (Montana, Idaho, Wyoming, Utah & Colorado)*
    ------------------------------------------------------------------------
                                                    Cost/ton Gasoline Sulfur
                                                             Controls
                     Vehicle Class                 -------------------------
                                                        NOx        NOx+NMHC
    ------------------------------------------------------------------------
    LDV (all passenger cars)......................       $6,487       $4,830
    LDT1 (e.g., small mini vans and SUVs up to            8,431        7,343
     3450 lbs.)...................................
    LDT2 (e.g., avg.-sized mini vans 3450 to 6000         9,101        7,839
     lbs.)........................................
    LDT3 (e.g., full-sized vans and trucks).......        7,303        6,428
    LDT4 (e.g., pick-up trucks, SUVs and vans over        6,710        5,957
     5750 lbs.)...................................
    ------------------------------------------------------------------------
    *EPA's data are based on Petroleum Administrative Districts for Defense
      (PADD), and this region encompasses PADD IV.

     Table 5.--Near Term Cost-ton of Gasoline Sulfur Controls  Pacific Coast
              & Southwest (Washington, Oregon, Nevada, & Arizona)*
    ------------------------------------------------------------------------
                                                    Cost/ton Gasoline Sulfur
                                                             Controls
                     Vehicle Class                 -------------------------
                                                        NOx        NOx+NMHC
    ------------------------------------------------------------------------
    LDV (all passenger cars)......................       $6,014       $4,134
    LDT1 (e.g., small mini vans and SUVs up to            7,878        5,873
     3450 lbs.)...................................
    LDT2 (e.g., avg.-sized mini vans 3450 to 6000         8,542        6,348
     lbs.)........................................
    LDT3 (e.g., full-sized vans and trucks).......        6,813        5,203
    LDT4 (e.g., pick-up trucks, SUVs, and vans            6,248        4,743
     over 5750 lbs.)..............................
    ------------------------------------------------------------------------
    *PADD V, excluding California.

        These tables present a very different picture of the cost-
    effectiveness of the sulfur standard than EPA's average near-term cost-
    per-ton estimate of $2,134. The cost per ton of NOx removed
    reaches as high as $9,101, which is very close to the $10,000 per ton
    upper limit that EPA would consider in its ozone NAAQS analysis.
        Note that these tables are based on regional aggregate estimates of
    refinery costs, so individual refineries in these regions will face
    even higher costs. Furthermore, within these regions, some states will
    face higher costs than others will. For example, parts of Arizona would
    face costs of over $13,000 per ton of NOx removed, as Table
    6 shows.

                                          Table 6.--Near Term  Cost-ton of Gasoline Sulfur Controls for Western States
    --------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                                    Idaho
                                                          Utah       Arizona      Arizona      Colorado      Nevada       Oregon     Washington    Montana
                                                                    (non-API)      (API)                                                           Wyoming
    --------------------------------------------------------------------------------------------------------------------------------------------------------
    LDV.............................................       $7,077        5,937        9,135        7,050        6,295        5,111        5,903        3,010
    LDT1............................................        9,402        7,806       12,357        9,358        8,394        6,448        7,750        5,757
    LDT2............................................       10,275        8,483       13,629       10,222        9,194        6,839        8,415        5,947
    LDT3............................................        8,109        6,746       10,623        8,072        7,235        5,618        6,700        5,087
    LDT4............................................        7,411        6,181        9,665        7,379        6,606        5,200        6,141        4,774
    --------------------------------------------------------------------------------------------------------------------------------------------------------

                2. The variation in cost-effectiveness is more dramatic
                        when effectiveness is defined in terms of health
                        and welfare impacts
        The fact that consumers in Western states will pay between two and
    four times EPA's estimated national average cost per ton for reducing
    NOx and NMHC is striking in itself. However, even more
    significant is the fact that the tons of NOx and NMHC that
    will be reduced in these western states will not contribute to
    compliance with the ozone standard. These states are all expected to be
    in attainment with the .12 ppm ozone standard (see Figure 1), so
    reductions in ozone precursors (NOx and NMHC) are not
    necessary to meet the health and welfare based standard, and will offer
    little in the way of public health benefits. In fact, as Figure 2 above
    illustrates, EPA estimates that seasonal ozone levels will actually
    increase in parts of these western states.\28\
    ---------------------------------------------------------------------------
        \28\ ``Tier II Proposed Rule: Air Quality Estimation, Selected
    Health and Welfare Benefits, and Benefit Analysis Results,'' April
    1999. Air Docket A-97-10, document No. II-A-28. Exhibit A-19. While we
    did not find an explanation for (or even recognition of) this result in
    the rulemaking record, it may be due to complex chemical interactions
    between NOx and volatile organic compounds in the
    atmosphere, as described in NAS, 1992.
    ---------------------------------------------------------------------------
        This illustrates another major flaw in EPA's approach to cost-
    effectiveness. EPA states in Chapter VI of the Regulatory Impact
    Analysis,

            The object of our cost-effectiveness analysis is to compare the
            costs to the emission reductions in an effort to assess the
            program's efficiency in helping to attain and maintain the
            NAAQS.\29\ (emphasis added)
    ---------------------------------------------------------------------------
        \29\ Chapter VI.B.3.

        Yet, precursor emission reductions are not a good measure of the
    program's efficiency in helping to attain and maintain the ozone and PM
    NAAQS. This flaw is fatal, given the statutory basis of this rule to
    meet the ozone NAAQS. (Note that gasoline-powered vehicle emissions,
    such as NOx and NMHCs, contribute very little to PM levels.)
    As discussed in detail in RSP's comments on EPA's NOx
    Trading rule,\30\ tons of NOx reduced are not a good proxy
    for an action's effectiveness at meeting the NAAQS or achieving the
    desired health benefits for several reasons:
    ---------------------------------------------------------------------------
        \30\ RSP 1998-1, ``Comments on the U.S. Environmental protection
    Agency's Supplemental Notice for the Finding of Significant
    Contribution and Rulemaking for Certain states in the Ozone Transport
    Assessment Group Regions for Purposes of reducing Regional Transport of
    Ozone; Proposed Rule,'' submitted June 25, 1998.
    ---------------------------------------------------------------------------
         The relationship between NOx emissions and
    ozone concentrations is not linear. In the presence of heat and
    sunlight NOx can react to form ozone, but each unit of
    NOx emitted does not form an equivalent unit of ozone.
         Nonattainment with the ozone standard is primarily a
    problem for urban areas, mainly in the eastern part of the country. Not
    only are ozone concentrations in a particular area more heavily
    affected by NOx emissions from nearby sources than from
    distant ones, but they also depend on a variety of other factors,
    including complex meteorological conditions.
         Ozone has been linked to acute, rather than chronic health
    risks, which result from a few high ozone days that occur during
    certain weather conditions in the summer months.
        Adding the tons of NOx and NMHC emissions together
    provides an even less meaningful metric of the program's effectiveness
    at improving health and welfare. As the National Academy of Sciences
    pointed out, depending on the relative ratios of NOx to
    volatile organic compounds or VOCs (of which NMHCs are a component),
    reductions of one or the other precursor can actually increase ozone
    concentrations. As a result, combined nation-wide NOx and
    NMHC emissions, which are the focus of this proposal, are not a good
    proxy for either effectiveness at meeting the ozone NAAQS, nor
    achieving the public health effects that are of concern with ozone.
        This is particularly important considering the large cost
    differences among regions of the country. Clearly, reducing
    NOx and NMHC emissions in western regions of the country
    will have trivial impacts, at best, on attainment with the ozone NAAQS.
    (See EPA's predicted impacts in Figure 2.) Yet, according to EPA's
    estimates, residents of western states will pay much higher prices for
    the controls EPA has proposed to reduce NOx and NMHC than
    eastern states. If EPA defined effectiveness in terms of incremental
    improvements in attainment with the ozone air quality standard, rather
    than tons of pollutant removed, the denominator of the cost-
    effectiveness calculation for attainment areas would have to be zero.
    This implies that, for many parts of the nation, the proposed national
    standards will impose high costs with no corresponding clean air
    benefit.
                3. EPA does not compare the cost-effectiveness of the
                        proposal against viable alternatives
        The third major flaw in EPA's cost-per-ton approach is that it does
    not compare the cost-effectiveness of the proposal against viable
    alternatives. This is not only good public policy, as described in the
    Administration's Economic Analysis Guidelines of Federal Regulations
    (Best Practices), but it is required by the Clean Air Act
    Amendments.\31\
    ---------------------------------------------------------------------------
        \31\ CAAA Subsection 202(i)(2)(A)(ii) requires EPA to examine ``the
    need for, and cost effectiveness of, obtaining further reductions in
    emissions from such light-duty vehicles and light-duty trucks, taking
    into consideration alternative means of attaining or maintaining the
    national primary ambient air quality standards pursuant to State
    implementation plans and other requirements of this Act, including
    their feasibility and cost effectiveness.''
    ---------------------------------------------------------------------------
        Rather than compare a national average cost-per-ton figure for all
    the elements of the proposal against the cost-per-ton of previously
    implemented actions,\32\ EPA should, at a minimum, examine the cost-
    per-ton of each component of its proposal against other components of
    the proposal and alternative approaches to achieving the NAAQS. Our
    tables 3 through 6 above reveal that the gasoline sulfur controls will
    be significantly more costly per ton of pollutant removed than vehicle
    controls.\33\ They also suggest that costs-per-ton for vehicle controls
    vary by vehicle class. Furthermore, the per-ton cost of sulfur controls
    varies significantly by region, as do the benefits of NOx
    emission reductions. A comparison of the incremental cost-per-ton of
    the different elements of EPA's proposal suggests that targeted
    approaches can more effectively achieve ambient air standards. In this
    section, we discuss some key alternatives that would be significantly
    more cost-effective than the proposed approach.
    ---------------------------------------------------------------------------
        \32\ Other actions initiated by EPA's Office of Mobile Sources
    offer NOx reductions at costs significantly below those of
    this proposal.
        \33\ The cost-per-ton of vehicle controls in these tables assumes
    vehicles are operated on high sulfur fuel, while the cost-per-ton of
    fuel controls is the marginal, or incremental, cost of adding fuel
    controls once vehicle controls are in place. If EPA's assertion that
    fuel controls act as complements to vehicle controls, our approach to
    estimating marginal cost per ton should overstate the effectiveness of
    fuel controls (since the synergistic emission reductions are attributed
    to fuel). However, that does not seem to be supported by EPA's data, as
    discussed below and in appendix 2.
    ---------------------------------------------------------------------------
         (a) Regional and local initiatives and individual responsibility
                        should receive greater attention
        The proposal is driven by ozone, which is expected to pose
    temporary, reversible health threats to certain individuals with pre-
    existing respiratory conditions in a few urban areas on certain summer
    days when atmospheric conditions combine to create elevated ozone
    levels. Regional, or even state, programs could target these concerns
    more cost-effectively, and avoid imposing unnecessary costs on all
    parts of the country throughout the entire year.
        RSP's comments on EPA's NOx Trading rule argued that a
    trading mechanism covering a wide geographic area could actually
    increase the ozone concentrations on peak days in nonattainment areas
    by allowing trading of emissions into those areas from other regions.
    The sulfur-trading program envisioned by this rule could have the same
    effect, but it would cover an even larger area (the whole nation).
        Subsequent to the 1990 CAAA, under EPA's direction and with its
    participation, the Environmental Council of States (ECOS) formed the
    Ozone Transport Assessment Group (OTAG), an organization of
    environmental agencies from the 37 eastern-most states. This group has
    recommended strategies for achieving ozone air quality standards in the
    half of the country where the standard has been most difficult to
    achieve, and offers one mechanism for instituting a regional program of
    sulfur control. Also, individual State and local efforts for inspection
    and maintenance programs and reformulated gasoline provide further
    evidence that regional controls can effectively target regional
    problems. Finally, the petroleum industry has proposed a regional
    program, whereby it would make low-sulfur gasoline for the eastern half
    of the nation, except those areas already using reformulated
    gasoline.\34\
    ---------------------------------------------------------------------------
        \34\ API Info Brief, ``Lower Sulfur Gasoline,'' 10/09/98.
    ---------------------------------------------------------------------------
        Given State and regional track records for instituting necessary
    controls, EPA should leave decisions regarding the sulfur content of
    gasoline to individual states, perhaps with the cooperation of, or
    recommendations from, OTAG. If EPA feels compelled to issue Federal
    regulations governing gasoline sulfur content, it should seriously
    evaluate the industry proposal.
        EPA is concerned that because sulfur may have irreversible impacts
    on a vehicle catalyst, permitting higher sulfur fuel in some parts of
    the country poses the risk that vehicles that operate in non-attainment
    areas could be contaminated. However, EPA has not justified its
    contention that sulfur effects on catalysts are irreversible. In fact,
    its test vehicle studies suggest the opposite is true.
        The rulemaking record is not clear on how much, and to what extent
    exposure to sulfur in different concentrations (e.g., 80 ppm vs. 100
    ppm or over 300 ppm) would affect catalysts and, thereby, vehicle
    emissions. However, interagency correspondence suggests that the
    incremental effect of extended exposure to sulfur may be small (e.g., a
    vehicle designed to meet a .07 g/mi. NOx standard might only
    be able to recover to .09 g/mi. after extended exposure to high sulfur
    fuel).\35\
    ---------------------------------------------------------------------------
        \35\ Suggested changes to preamble languate during interagency
    review, available in OMB docket.
    ---------------------------------------------------------------------------
        Another relevant question that has not been addressed is whether
    engine or catalyst designs could be cost-effectively modified to
    minimize irreversibility. The American Petroleum Institute reports that
    tests of the Coordinating Research Council revealed that some current
    vehicles designed to operate on 30 ppm sulfur fuel were able to meet
    the default CAAA Tier 2 standards when operating on gasoline with
    sulfur levels over 500 ppm.\36\
    ---------------------------------------------------------------------------
        \36\ API Info Brief, op. cit.
    ---------------------------------------------------------------------------
        Furthermore, EPA's assertion that high sulfur fuel poisons
    catalysts such that significant synergies are offered by a combined
    vehicle/fuel approach to regulating emissions is not supported by its
    emissions modeling results. If EPA's assertion were true, one would
    expect to see fewer tons of NOx reduced by initiating just
    one control (either vehicles only or fuel only) and greater relative
    reductions from initiating the second measure (because only with the
    addition of the second measure would we see the synergies from both
    combined). This is not what the emission data in Appendix VI-A reveal.
    For areas with I&M controls and conventional fuels, for example, EPA's
    data suggest that, with the exception of the heavy light duty trucks,
    the incremental emission reduction of instituting either fuel standards
    or vehicle standards once the other standard is in place is less than
    the emission reduction achieved by either alone. This result suggests
    that vehicle and fuel controls are more accurately viewed as
    substitutes than complements.
        California's low emission vehicle rules and the NLEV program,
    initiated by the OTAG states and voluntarily entered into by vehicle
    manufacturers, offer evidence that even vehicle standards do not need
    to be mandated at the Federal level.
        A national standard may reduce per-vehicle costs, but it does so by
    spreading capital, research and development, and production costs to
    those who don't benefit from them. Thus, while it may be that the
    proposal could reduce costs to consumers in California and the OTAG
    region, (due to economies of scale), this is only because consumers in
    other regions are forced to pay for vehicle attributes they don't want
    or need.
        The requirement that vehicles have a useful life of 120,000 miles,
    during which period vehicle manufacturers are formally responsible for
    the vehicle's emission performance, reduces consumer responsibility for
    maintaining their vehicles. Manufacturers must design vehicles with
    emissions significantly lower than the standard to ensure that after a
    decade of use under conditions over which manufacturers have no
    control, emissions still remain below the standard.\37\
    ---------------------------------------------------------------------------
        \37\ There may be a valid argument for placing this burden on the
    manufacturer due to asymmetic information about the durability of
    emission controls. EPA should examine this question explicity before
    extending the useful life.
    ---------------------------------------------------------------------------
        The averaging program, discussed in more detail below, not only
    requires that manufacturers produce vehicles that meet the standard but
    also requires that consumers buy the right mix of cars. Whether a
    company is in compliance with the average emission standard is
    determined by the sales-weighted average emission level of their fleet.
    This type of program introduces many other inefficiencies and may have
    unintended effects. For example, how would it interact with corporate
    average fuel economy (CAFE) standards, and how would it affect the
    pricing of vehicles?
             (b) The ``bin'' structure on which EPA's vehicle emission
     ``averaging and trading'' program is based would constrain efficiency
                             and hinder innovation
        Manufacturers would have to certify different vehicles in their
    fleet to certain ``bins'' with each bin delimiting maximum emission
    levels for 5 different pollutants. For example, to certify at Bin 2, a
    vehicle, under EPA's test conditions, would have to emit no more than
    0.02 g/mi. of NOx, 2.1 g/mi. of carbon monoxide (CO), 0.01
    g/mi. of PM, etc. Bin 6, on the other hand, would have maximum
    emissions that are above the standard (0.15 g/mi., 4.2 g/mi., and 0.02
    g/mi. of NOx, CO, and PM, respectively).
        In addition to certifying that each vehicle meets the requirement
    for a specific bin, the manufacturer must also meet a corporate average
    emission standard based on the bin levels (rather than actual vehicle
    emissions) averaged across the cars and trucks actually sold to
    consumers. So if consumers do not buy enough cars and trucks to meet
    the corporate average emission level, the manufacturer must buy
    emission credits or alter price levels to induce consumers to purchase
    the appropriate vehicle mix.
        This approach reduces manufacturers' flexibility, needlessly
    constrains the ratios of pollutants emitted, and encourages
    manufacturers to innovate to meet bin emission levels under EPA test
    conditions rather than to improve air quality. For example, once a
    vehicle met Bin 4 (with a NOx standard of 0.07 g/mi.)
    manufacturers would have no incentive to introduce further controls to
    lower vehicle emissions to .06 g/mi. or .05 g/mi., because they would
    not get credit until they lowered emissions a full .03 g/mi. and
    thereby moved the vehicle into Bin 3 (with a NOx standard of
    0.04 g/mi.).
        The full social cost of inhibiting innovation to improve air
    quality cannot be known, since it is impossible to predict what
    technologies might have been developed under different incentives.
    However, EPA's rulemaking record offers evidence that several promising
    technologies would be discouraged under the proposed approach. For
    example, EPA admits that its test conditions for the bin approach would
    not permit a novel technology that would convert ozone (O3)
    to oxygen (O2). In addition, new fuel-efficient lean-burn
    technologies, supported by the private-public Partnership for a New
    Generation of Vehicles (PNGV), could not meet bin levels.\38\
    ---------------------------------------------------------------------------
        \38\ Alliance op. cit. 3/26 p.5
    ---------------------------------------------------------------------------
        Furthermore, the bin structure constrains the ratio of
    NOx and NMHC emissions for each vehicle, and thus would
    hinder the development of 3-way catalysts, which are limited in their
    ability to reduce emissions of both constituents simultaneously.\39\ A
    simple averaging approach for each pollutant would not impose such
    constraints, because while one vehicle could be designed to emit very
    low levels of NOx, another could emit low levels of NMHC,
    but their total emissions of each pollutant would meet an average
    standard.
    ---------------------------------------------------------------------------
        \39\ Alliance op. cit. 3/26 p.3
    ---------------------------------------------------------------------------
        This structure is problematic not only because of the impact on
    innovation as described above, but also because of the additional
    requirement that manufacturers must meet an average level across cars
    and trucks that are sold. These corporate average emission levels may
    interfere with manufacturers' pricing decisions and could unnecessarily
    complicate their marketing strategies and their compliance with
    corporate average fuel economy standards.
        EPA offers an alternative ``family emission limit (FEL)'' approach
    that is not subject to the constraints of the bin approach. Under this
    approach, which EPA has used in other mobile source programs,
    manufacturers declare an FEL for each family of vehicles manufactured,
    and the number of credits generated or needed are determined based on
    the sales-weighted average emissions for each pollutant at the end of
    the model year. EPA observes that this approach is equivalent to an
    unlimited continuum of bins, and that it adds flexibility and could
    increase incentives for cost-effective improvements in vehicle
    emissions performance. Unlike a bins approach, in which manufacturers
    incentives are limited to large step-wise improvements, an FEL approach
    offers incentives to achieve smaller, lower-cost emission improvements,
    as well as large improvements.
        The preamble expresses concerns that the FEL approach poses greater
    compliance monitoring burdens for the agency. The Regulatory Impact
    Analysis observes that, under the bin structure, manufacturers would
    have to design vehicles to meet 50 to 70 percent of the bin emission
    level to ensure compliance. It notes that manufacturers would thus be
    more likely to ``over-qualify'' under the bin approach, thereby
    achieving a standard tighter than .07 ppm.\40\ While EPA suggests that
    over-compliance is a benefit of the bin approach, it really reflects
    the inefficiency and lack of flexibility of the approach. Finally, EPA
    is worried that changes in a declared FEL would not reflect real
    changes in vehicle emissions. This also is not a legitimate concern, as
    long as the 0.07 g/mi. average is met.
    ---------------------------------------------------------------------------
        \40\ RIA V.B.1.a.
    ---------------------------------------------------------------------------
        The FEL approach appears to both be more cost-effective and offer
    more incentives for innovation than the bin approach, although it also
    adds constraints on manufacturer production and pricing policies, which
    when combined with CAFE constraints may be daunting and have unintended
    effects. EPA should examine the difference in cost-effectiveness, by
    vehicle class, of the two approaches. At a minimum, EPA should add more
    bins to increase flexibility and efficiency. Since manufacturers would
    still be constrained by average standards for different pollutants, the
    addition of bins will not limit incentives to develop advanced
    technologies.
         (c) EPA has not demonstrated that the proposed average and cap on
                         sulfur levels are appropriate
        EPA has proposed an average sulfur content of 30 ppm and a cap,
    applicable to every batch of gasoline produced at the refinery, of 80
    ppm. The selection of these levels is not well justified. EPA's lack of
    support for 30 ppm compared to 20 or 80 ppm, for example, reflect the
    same flaws that led the District Court to rule on the recent ozone and
    PM NAAQS, that EPA had interpreted sections of the CAAA ``so loosely as
    to render them unconstitutional delegations of legislative power.''
        The preamble justifies the 30 ppm average standard by observing
    that ``even very low levels of sulfur have some negative impact on
    catalyst performance,''\41\ but it presents no evidence that 30 ppm is
    more appropriate than 20 ppm or 80 ppm. Chapter V of the Regulatory
    Impact Analysis presents cost curves for reducing gasoline sulfur in
    each of five regions of the nation. These reveal graphically that the
    incremental cost of achieving a 30 ppm average is significantly higher
    than achieving 40 ppm or 80 ppm. This is true nationally,\42\ but most
    dramatic in the western states.\43\ EPA should examine the cost-
    effectiveness of its proposed 30 ppm average against other average
    standards. (Note that these comparisons should be based on the cost-
    effectiveness of the sulfur component alone, not combined vehicle
    emission and sulfur content.)
    ---------------------------------------------------------------------------
        \41\ Preamble, IV.C3.a.ii.
        \42\ RIA figure V-7.
        \43\ RIA figure V-5 and V-6.
    ---------------------------------------------------------------------------
           (d) The per-gallon sulfur cap is unnecessary, and inefficient
        EPA justifies the 80 ppm per-gallon cap on its belief that it
    ``would be required to provide appropriate insurance for maintaining
    Tier 2 standards in use and to give automakers an indication of the
    maximum sulfur levels for which they would need to design their
    vehicles.''\44\ However, if sulfur's irreversibility is not a big
    concern, as discussed above, then neither a maximum cap nor a national
    standard is necessary.
    ---------------------------------------------------------------------------
        \44\ Ibid.
    ---------------------------------------------------------------------------
        A cap on sulfur content at the refinery level may ease enforcement,
    but it also imposes costs and reduces efficiency. It could constrain
    refiners' ability to blend fuel and take advantage of the trading
    program. EPA does not estimate the cost associated with the sulfur cap,
    but it is real. An average standard assumes a distribution of costs
    around a mean of 30 ppm, while a cap adds further constraints by
    cutting off one tail of the distribution. EPA should examine what
    effect that would have on the average sulfur content of gasoline. It
    should evaluate the tradeoffs in terms of enforcement, costs, and
    benefits of imposing a cap.
            (e) A longer phase-in would be more feasible and less costly
        EPA should carefully consider a longer phase-in period.
    Particularly for the heavier trucks, for which EPA is under no
    statutory obligation to issue Tier 2 standards, a longer phase in
    period could greatly increase the likelihood that the standards will be
    technologically feasible and cost-effective.
        EPA's prediction that achieving the sulfur standards will be
    technologically feasible and cost-effective by 2003 depends heavily on
    a few new desulfurization technologies that have not been commercially
    tested. During the comment period on this rulemaking, an additional
    potential technology has emerged. Extending the deadline would allow
    other innovative solutions to develop and offer a much more efficient
    transition to lower sulfur fuel.
        (f) Targeted approaches could better achieve air quality and health
                                     goals
        Other, more targeted approaches to address violations of the
    standards on peak ozone days are likely to be more cost-effective. As
    we concluded in our 1997 comments on the proposed .8 ppm ozone NAAQS,
    non-regulatory approaches are available to achieve the public health
    benefits targeted by the NAAQS. As EPA's Clean Air Science Advisory
    Committee (CASAC) recommended in its November 30, 1995 closure letter
    on the primary standard, public health advisories and other targeted
    approaches may be an effective alternative to standard setting.
        Because there is no apparent threshold for responses and no
    ``bright line'' in the risk assessment, a number of panel members
    recommended that an expanded air pollution warning system be initiated
    so that sensitive individuals can take appropriate ``exposure
    avoidance'' behavior. Since many areas of the country already have an
    infrastructure in place to designate ``ozone action days'' when
    voluntary emission reduction measures are put in place, this idea may
    be fairly easy to implement.
          iii. would epa's proposal improve the health and welfare of
                               american citizens?
        Government actions should make people better off. Benefit-cost
    analysis attempts to quantify the consequences, both benefits and
    costs, of a regulatory action to determine whether it achieves this
    objective. EPA estimates that the annual long-term benefits of the
    proposal will range from $3.2 billion to $19.5 billion, and that annual
    long-term costs will be $3.5 billion. This is based on a snapshot
    approach that reflects maximum emission reductions, and lowest costs,
    thus resulting in net benefits ``close to their maximum point.'' In
    other words, for the next 40 years (between 2004 and 2040), the costs
    of the rule will be higher, and the benefits lower, than EPA's benefit-
    cost figure suggests. A much more informative measure would involve
    estimating the net present value of the streams of costs and benefits
    over time.
        These benefit and cost estimates are also based on numerous
    assumptions, as benefit-cost analyses necessarily are. In this case,
    though, EPA appears to have relied on assumptions that consistently
    bias its benefit estimates upward. Since the key assumptions driving
    the Tier 2 benefit estimates have been discussed at length in reviews
    of EPA's Section 812 reports, and its Regulatory Impact Analyses for
    the ozone and PM NAAQS, we address them only briefly here. While EPA's
    benefits are biased upwards, EPA's cost estimate suffers from
    assumptions and approaches that may understate social costs, as
    discussed below.
    A. The proposal would offer very small improvements air in quality.
        EPA estimates that the change in seasonal ozone values would
    decline by at most .0028 ppm as a result of the implementation of this
    proposal. Thus, its most optimistic estimate is a 16.7 percent
    improvement. At the other end of the range, EPA's analysis indicates
    that the proposal could result in an increase in ozone concentrations
    of .0016 ppm (2.6 percent). EPA's population-weighted average decline
    in air quality is expected to be .0004 ppm or only 1.3 percent.\45\ To
    put this air quality improvement in perspective, EPA's current proposal
    would improve air quality levels by an amount that is only one-third of
    1 percent of the .12 ppm ambient ozone standard.
    ---------------------------------------------------------------------------
        \45\ RIA VII.B.1.f.
    ---------------------------------------------------------------------------
        Moreover, EPA notes that urban areas will have smaller reductions
    in ozone than less populated areas, revealing that the majority of even
    these small reductions will contribute less to improvements in ozone
    levels in the heavily populated urban areas where ozone is believed to
    pose health risks than to less populated parts of the country where
    ozone concentrations pose no health threats.\46\
    ---------------------------------------------------------------------------
        \46\ Ibid.
    ---------------------------------------------------------------------------
        In some regions, these air quality improvements are less than in
    others. For example, the Rocky Mountain region, where the costs are
    highest, comprise a small fraction (less than 4 percent) of national
    vehicle miles traveled (VMT), so emissions reductions and air quality
    improvements from Tier 2 compliance will be small.\47\ The eastern OTAG
    region would achieve the majority of the emission reductions--1.6
    million tons of NOx per year compared to 1.8 million tons
    per year for all 47 contiguous states.\48\
    ---------------------------------------------------------------------------
        \47\ The Pacific Northwest and Southwest, excluding California,
    comprise 7 percent of VMT.
        \48\ Interagency correspondence. A similar pattern holds true for
    emissions of sulfur dioxide and volatile organic compounds.
    ---------------------------------------------------------------------------
        Though reductions in particulate matter (PM) do not drive the Tier
    2 standards, EPA also concludes that PM ``concentration changes are
    generally very small.'' Indeed, the population-weighted average
    improvement is .20 micrograms per cubic meter for both PM10
    and PM25, which represents 0.4 percent and 1.3 percent of
    those standards, respectively.
        Furthermore, as we highlighted in our 1997 comments on the proposed
    revision to the ozone NAAQS, even in the urban areas of the Mid-
    Atlantic and Northeast states, reductions in ambient ozone
    concentrations (the objective of this proposal) would, at best, result
    in small changes in the health of a small number of sensitive
    individuals.\49\ As EPA's Science Advisory Board (SAB) scientists
    confirmed in Senate hearings on that rule, the vast majority of the
    population will observe no effect in their health or well-being from
    reductions in ambient ozone concentrations that are more than ten times
    greater than reductions expected from the Tier 2 proposal.\50\
    ---------------------------------------------------------------------------
        \49\ RSP 1997-2. As discussed in our comment, the uncertain
    scientific evidence suggests that the 8-hour standard would provide
    benefits in the form of transient, reversible, and largely asymptomatic
    respiratory effects. In its comments to EPA dated 12/13/96, the
    President's Council of Economic Advisors concluded: ``Reductions in
    adverse health effects, even for `sensitive' populations, are small.''
        \50\ See Dr. Lippman's response to questions by Senator Allard on
    February 5, 1997. Compliance with the remanded ozone standard, which
    Dr. Lippman and Senator Allard were discussing, would have resulted in
    ozone reductions of approximately o.01 ppm, compared to spatial average
    reductions of 0.0008 predicted for Tier 2 in RIA Chapter VII.
    ---------------------------------------------------------------------------
    B. EPA examines the health impacts only peripherally
        As discussed in section II.C of these comments, EPA fails to
    consider effectiveness in a meaningful way. Defined correctly, a focus
    on cost-effectiveness should guide decisions to policies that are
    likely to improve public health and welfare. However, EPA's
    construction of cost-effectiveness (defined as cost per ton of
    NOx and NMHC reduced), without regard to where or when those
    emissions occur, is unlikely to minimize health risks.
                1. EPA fails to consider risk in a broader context
        EPA does not consider either comparative risks or potential
    indirect health effects of the standard. The 1997 final report of the
    Presidential/Congressional Commission on Risk Assessment and Risk
    Management (Presidential Commission) points out that ``many risk
    management failures can be traced to . . . not considering risks in
    their broader context'' and that traditionally ``most risk management
    has occurred in an artificially narrow context'' without regard for
    other risks.\51\ For example, at the low end of EPA's range, air
    quality actually gets worse. Additionally, EPA predicts that the
    process of removing sulfur from gasoline would increase carbon dioxide
    emissions by 6.9 million tons per year.
    ---------------------------------------------------------------------------
        \51\ The Presidential/Congressional Commission on risk Assessment
    and Risk Management, Framework for Environmental Health Risk
    Management, Final Report, Vol. I, January 1977, pp 5, 9.
    ---------------------------------------------------------------------------
        The Presidential Commission emphasizes that ``tradeoffs among
    different risks must be identified and considered.'' It concludes that
    ``analysis must consider whether an option may cause any adverse
    consequences,''\52\ but EPA appears not to have done so. For example,
    while EPA admits in the Regulatory Impact Analysis supporting the
    proposal a reduction in ground-level ozone ``is likely to increase the
    penetration of ultraviolet light, specifically UV-b,'' it claims it is
    not able to quantify those effects. Yet, as we pointed out in our
    comments on the 1997 ozone NAAQS proposal, EPA's own analysis
    supporting its Stratospheric Ozone rule reveal that increases in
    malignant and non-melanoma skin cancers and cataracts, as well as other
    health risk from ultraviolet radiation are significant and could dwarf
    the positive benefits EPA attributes to the proposed standard. As
    detailed in Appendix B to our earlier comments, a 10 ppb change in
    ozone levels could result in 25 to 50 new melanoma-caused fatalities,
    130 to 260 incidents of cutaneous melanoma, 2,000 to 11,000 new cases
    of non-melanoma skin cancer, and 13,000 to 28,000 new incidents of
    cataracts each year.\53\
    ---------------------------------------------------------------------------
        \52\ Presidential Commission, p. 35.
        \53\ RSP 1997-2.
    ---------------------------------------------------------------------------
        Ignoring important tradeoffs can have serious public health
    consequences; a study conducted at the Harvard Center for Risk Analysis
    found that a reallocation of current spending from lower risk to higher
    risk problems could more than double the life-saving results of Federal
    regulatory programs.\54\ Significant gains are likely even when various
    bureaucratic constraints are left untouched; if each agency kept
    imposing the same total regulatory cost but merely targeted its efforts
    more efficiently, the life years saved in the cases the Harvard study
    examined would have nearly doubled.
    ---------------------------------------------------------------------------
        \54\ Tammy O. Tengs and John D. Graham, ``The Opportunity Cost of
    Haphazard Social Investments in Life-Savings,'' in R. Hahn (editor),
    Risks, costs, and Lives Saved: Getting Better Results from Regulation
    (New York: Oxford University Press, 1996).
    ---------------------------------------------------------------------------
                2. EPA ignores other health tradeoffs
        Furthermore, regulatory costs themselves affect public health. The
    Risk Commission recognizes the importance of such cost-health
    tradeoffs, noting that risk management decisions should consider
    ``diversion of investments, or opportunity costs such as having to
    spend money on environmental controls instead of using those resources
    to build a school or reduce taxes.''\55\
    ---------------------------------------------------------------------------
        \55\Risk Commisison, p. 33
    ---------------------------------------------------------------------------
        As the Risk Commission points out, there may be even broader public
    health or ecological contexts that local governments and public health
    agencies have to confront and weigh against chemical exposures for
    example, a high incidence of HIV or other infections, a low rate of
    childhood vaccination, a high drug use and crime rate, or a high rate
    of alcoholism and its contribution to liver disease, birth defects, and
    injuries from automobile accidents.\56\
    ---------------------------------------------------------------------------
        \56\ Risk Commisison, p. 10
    ---------------------------------------------------------------------------
        As we observed in our 1997 comment on the ozone NAAQS, the main
    health effect attributed to reductions in ozone concentrations is
    aggravated respiratory problems, particularly asthma, yet recent
    studies suggest that poverty is a more important risk factor for asthma
    than air quality.\57\ The large costs of the Tier 2 rule, then, may
    well increase the very disease it is targeted at improving. Even
    without this direct link between poor living conditions and asthma, it
    is widely recognized that, as family incomes rise, health improves.
    There is a growing body of empirical evidence regarding the negative
    public health impacts of regulatory programs that reduce incomes. As
    described in the Regulatory Program of the United States, Health-health
    analysis computes the unintended risk increase attributable to the
    decline in spending on other risk reduction efforts that results when
    resources are shifted to comply with a regulation aimed at specific
    risks. Regulations have these unintended risk-increasing effects
    because families and other entities spend less on such items as health
    care, nutritious diets, and home and auto safety devices when their
    incomes decline.\58\
    ---------------------------------------------------------------------------
        \57\ American Thoracic Society, 1996 Conference Articles.
        \58\ Regulatory Program of the United States Government, April 1,
    1992-March 31, 1993. p. 19.
    ---------------------------------------------------------------------------
        Recent empirical studies reveal that every $15 million in
    regulatory costs results in one additional statistical death.\59\ That
    suggests that, if one accepts EPA's cost estimate, this proposal would
    result in 233 more fatalities each year.
    ---------------------------------------------------------------------------
        \59\ Lutter, Morrall and Viscusi, ``The Cost per Life Saved Cutoff
    for Safety-Enhancing Regulations,'' Journal of Economic Literature,
    forthcoming.
    ---------------------------------------------------------------------------
    C. EPA's benefit estimates are overstated
        Perhaps the most striking observation about EPA's benefit estimate
    is that, though the proposed Tier 2 requirements are driven by the need
    to attain the ozone NAAQS, monetary benefits attributed to PM
    reductions comprise the vast majority of the total benefits. Section 1
    below describes how these PM benefits are overstated. The benefits of
    reducing NOx and NMHC emissions, which include the health
    and welfare gains associated with lower ozone concentrations, improved
    visibility, and reduced acid rain, comprise between $0.5 billion and
    $3.6 billion per year, or only 17 or 18 percent of the total benefits.
    Yet even these are overstated, as described below.
                1. Problems with estimates of PM benefits
        EPA uses the same approach to quantify and value mortality due to
    particulate matter as it used in the PM NAAQS Regulatory Impact
    Analysis and its Section 812 efforts. These approaches have been
    extensively reviewed, and criticized for the extent to which they
    vastly overstate benefits. (The Section 812 study estimates $16.6
    trillion in annual benefits from PM mortality alone). The lack of a
    biological mechanism linking PM exposure to premature mortality and
    possible confounding factors in PM epidemiological studies are two main
    criticisms lodged against these estimates.\60\ The quantification and
    valuation of mortality effects are also based on numerous questionable
    assumptions. Lutter shows that simply substituting plausible
    alternative assumptions for four of EPA's assumptions reduces the
    Section 812 study's estimated benefits of PM mortality from $16.6
    trillion to $1.1 trillion.\61\
    ---------------------------------------------------------------------------
        \60\ See, for example, RSP 1997-1.
        \61\ Randall Lutter, ``An Analysis of the Use of EPA's Clean Air
    Benefit Estimates in OMB's Draft Report on The Costs and Benefits of
    Regulation,'' AEI-Brookings Joint Center for Regulatory Studies,
    Regulatory Analysis 98-2, October 1998.
    ---------------------------------------------------------------------------
        Based on these analyses, it appears that even the low end of the PM
    mortality effects ($2.3 billion per year) used in the Tier 2 rule is
    significantly overstated. Substituting alternative plausible
    assumptions for just three of EPA's assumptions reduces these benefits
    to $413 million as follows:
         Valuing lost statistical life-years at $100,000 each, as
    done by Lutter based on Garber and Phelps, reduces Tier 2 PM mortality
    benefits from $2.3 billion to $815 million.\62\
    ---------------------------------------------------------------------------
        \62\ This based on EPA's estimate that the average exposure to
    particulate matter would shorten a statistical life by 9.8 years.
    ---------------------------------------------------------------------------
         Assuming an 8 year lag rather than a zero lag between
    exposure and mortality, (a mid-point suggested as by EPA's Science
    Advisory Board on June 30, 1999) reduces benefits from $815 million to
    $551 million.\63\
    ---------------------------------------------------------------------------
        \63\ A real discount rate of 5 percent implies a factor of about
    two-thirds over 8 years.
    ---------------------------------------------------------------------------
         Assuming the observed association between PM and mortality
    reflects causal relationships with only a 75 percent probability, the
    expected value of this mortality benefits declines from $551 million to
    $413 million per year.\64\ These calculations are tabulated in Table 7,
    below.
    ---------------------------------------------------------------------------
        \64\Lutter, op. cit.
    ---------------------------------------------------------------------------
        The Regulatory Impact Analysis also estimates large benefits due to
    a decline in PM-induced chronic bronchitis. Yet these estimates also
    assume no lag between exposure to PM and the onset of illness, while
    others argue that an 8-year lag is a more appropriate assumption.\65\
    Also, the high end of EPA's estimate relies on a contingent valuation
    survey that was critiqued during interagency review. An undated memo
    from Art Fraas to Ron Evans and Bill Harnett reveals that the
    contingent valuation studies EPA relies on for estimating willingness-
    to-pay to avoid chronic bronchitis (a) were not designed for that
    purpose, and (b) do not meet the conditions government's panel of
    distinguished economists set out for a reliable contingent valuation
    survey. For our adjustments in Table 7 below, we rely on EPA's low end
    estimate and adjust that to reflect a 8 year lag and a 75 percent
    probability that the observed association reflects a causal
    relationship, to derive an expected value of chronic bronchitis
    benefits of $190 million.
    ---------------------------------------------------------------------------
        \65\ See SAB 6/30 and Lutter 1998, who argues that a 15-year lag is
    appropriate.
    ---------------------------------------------------------------------------
                2. Problems with estimates of Ozone benefits
        Ozone benefits, which range from $49 million to $2.6 billion, are
    very small in relation to costs. The high end of the range is dominated
    by an estimated $2.3 billion in benefits from reduced mortality.
    However, despite the availability of 28 studies that examine the
    relationship between ozone and human mortality, EPA relies on only 4
    recent studies for these mortality effects. These 4 studies have not
    been reviewed by EPA's Clean Air Science Advisory Committee (CASAC) nor
    its Science Advisory Board (SAB), but these panels have previously
    determined that other studies linking ozone and premature mortality
    were not conclusive. Furthermore, these four studies are short-term
    mortality studies, rather than long-term studies of chronic effects.
    EPA's science panels have advised, and EPA recognizes, that short-term
    study mortality estimates may be misleading because they may reflect
    terminally ill individuals who die a few days or weeks earlier than
    they otherwise would.\66\
    ---------------------------------------------------------------------------
        \66\ RIA VII.C.3.a.
    ---------------------------------------------------------------------------
        The Regulatory Impact Analysis also suggests large benefits from
    improved visibility. EPA admits that ``all of the average regional
    changes in visibility are substantially less than one deciview,'' which
    is the smallest change that is perceptible to the eye, ``and thus less
    than perceptible.'' \67\ Yet, based on two contingent valuation surveys
    of individuals' willingness to pay to preserve visibility in
    residential and national park areas, the Regulatory Impact Analysis
    attributes between $330 million and $701 million to these imperceptible
    changes.
    ---------------------------------------------------------------------------
        \67\ RIA VII.C.4.d. In fact, a technical support document (Abt
    Associates April 1999, op. cit. Exhibit A-12) reveals that the majority
    of improvements are less than 0.2 deciviews, and that half the nation
    (largely the west) would experience no improvement in visibility.
    ---------------------------------------------------------------------------
        Interagency memoranda reveal that neither of the 2 studies on which
    EPA relied for its visibility benefits meet the government panel's
    conditions for a reliable contingent valuation survey.\68\ For example,
    forty percent of those who participated in the national park visibility
    survey offered the same willingness-to-pay value for each of three
    substantially different changes in visibility scenarios, suggesting
    they either did not understand the scenarios, or they were willing to
    pay zero for incremental improvements in visibility that were much
    larger than those expected from the Tier 2 proposal. Due to the serious
    problems with these studies, the Office of Management and Budget
    recommended that EPA only include a qualitative description of
    visibility benefits. Table 7 below reflects no quantitative valuation
    of visibility effects.
    ---------------------------------------------------------------------------
        \68\ See memoranda from Art Fraas to Ron Evans and Bill Harnett
    (undated) and from Rich Theroux to Brian Hubbel (3/31/99).
    ---------------------------------------------------------------------------
        As Table 7 illustrates, these adjustments to EPA's lower bound
    benefits estimate suggest that a more reasonable estimate of the total
    benefits of the proposal is $840 million; about 25 percent of EPA's
    estimate.

                     Table 7.--Adjusted Estimate of the Lower-Bound Benefits of the Tier 2 Proposal
    ----------------------------------------------------------------------------------------------------------------
                                                                       RSP estimates adjusted for:
                                                   -----------------------------------------------------------------
                                        EPA lower     $100,000   Lag between
                                          bound*     per life-     exposure    75% casual    Visibility
                                                        year      and effect  relationship
    ----------------------------------------------------------------------------------------------------------------
    PM Mortality (long-term exposure        $2,275         $815         $551          $306           NA  ...........
     30+)............................
    Chronic bronchitis (PM)..........          281           NA          190           105           NA  ...........
    Other PM.........................          180           NA           NA            NA           NA  ...........
    Ozone............................           49           NA           NA            NA           NA  ...........
    Visibility.......................          330           NA           NA            NA            0  ...........
    Nitrogen Deposition..............          200           NA           NA            NA           NA  ...........
                                      -------------
      EPA Lower Bound................       $3,315  ...........  ...........  ............  ...........  ...........
                                                                                                        ------------
      RSP Adjusted Estimate..........  ...........  ...........  ...........  ............  ...........         $985
    ----------------------------------------------------------------------------------------------------------------
    *RIA Table VII-6

    D. EPA's focus on a snapshot of compliance costs does not fully capture
            social costs.
        EPA's estimated $3.5 billion annual cost for the proposal reflects
    an approximation of the steady-state cost that would likely prevail in
    2015 and beyond. These long-term costs assume that capital costs of the
    new technologies required to meet the vehicle and fuel standards have
    been fully recovered, and that a manufacturing learning curve reduces
    annual costs below those expected in the near term.
        This snapshot of costs is not as meaningful as a net present value,
    nor does it reflect true annual costs, and it is particularly
    misleading when used in benefit-cost comparisons. The long run benefits
    to which EPA compares these long-term costs are at their predicted peak
    (reflecting a nationwide fleet of vehicles and trucks composed entirely
    of low-emission vehicles running on low-sulfur fuel) yet the costs are
    at their lowest point.
        The estimate of cost reflects only the direct compliance costs of
    the proposed standards, or the estimated costs of the technologies EPA
    expects would be applied to meet them. As such, they understate the
    true social cost of the proposal. Hazilla and Kopp have shown that
    social costs can be one-and-a-half times compliance costs.\69\
    ---------------------------------------------------------------------------
        \69\ Hazilla and Kopp, ``Social Cost of Environmental Quality
    Regulations: A General Equilibrium Analysis,'' Journal of Political
    Economy, Vol. 98, No. 4.
    ---------------------------------------------------------------------------
        For vehicles, EPA does not estimate costs for the interim standards
    that apply to the heavier light duty trucks. The assumption that a
    manufacturing learning curve will reduce variable costs by 20 percent
    for each doubling of cumulative production, and that continuing
    research and development will also lower costs may be optimistic,
    particularly since EPA attributes no cost to continuing research and
    development efforts. The assumption that fixed costs will be recovered
    in first 5 years is also unrealistic. Further, EPA does not recognize
    any potential for increased operating costs with the new technologies.
        Nationwide costs for both vehicle and fuel standards hide
    variations across the country, however, EPA data reveal that the costs
    of the proposal vary significantly from region to region. For example,
    the average cost per-gallon for the Rocky Mountain region is almost
    twice the national average. Even these regional average costs may not
    reflect the costs within different parts of the region because they
    combine costs associated with different refinery technologies and crude
    oils and, therefore, obscure important cost differences among
    individual refineries.\70\ The cost of achieving the 80 ppm cap may be
    particularly high for some regions. As mentioned above, EPA assigns no
    cost to the cap on sulfur content, yet it estimates that the cap would
    preclude 5 percent of production (on average across the nation). EPA
    should estimate the costs of changing refinery operations, including
    consideration of the costs associated with the 5 percent of batches
    that exceed the proposed cap of 80 ppm, and reveal how those costs are
    distributed across the country.
    ---------------------------------------------------------------------------
        \70\ RIA p. V-59.
    ---------------------------------------------------------------------------
        EPA finds capital costs of $1.5 billion per year associated with
    removing sulfur from gasoline are ``reasonable'' because the major
    energy producing companies already spend $1 to $2 billion per year in
    capital costs for environmental controls, comprising one-third of their
    annual capital expenditures.\71\ It offers no further justification for
    why expecting these companies to spend two-thirds of their annual
    capital expenditures on environmental controls (a non-productive
    investment) should be presumed to be reasonable.
    ---------------------------------------------------------------------------
        \71\ RIA p. V-50.
    ---------------------------------------------------------------------------
        As noted above, EPA's current estimates of the desulfurization
    costs necessary to meet the Tier 2 proposal are much lower than the
    costs that were presented 1 year ago in the Staff Paper on Gasoline
    Sulfur Issues. The difference is due to unrealistic assumptions about
    the availability and cost of new technologies currently in pilot stage.
                    iv. rsp conclusions and recommendations
    A. EPA has not adequately justified its proposal.
        EPA should not proceed with stringent vehicle and gasoline
    standards without adequate assurance that these standards are (1)
    necessary, (2) feasible, and (3) cost-effective, as required by the
    Clean Air Act. While the Act forbids EPA to promulgate mandatory
    standards more stringent than Tier 1 until the 2004 model year, nothing
    in the statute requires EPA to rush to a determination on the need for
    more stringent standards commencing in 2004.\72\
    ---------------------------------------------------------------------------
        \72\ Section 202(b)(1)(C).
    ---------------------------------------------------------------------------
        More specifically, EPA does not adequately support the selected
    standards for vehicle emissions or sulfur content. EPA's lack of
    support for a sulfur standard of 30 ppm compared to 20 or 80 ppm, or
    for a NOx emission standard of 0.07 g/mi. vs. 0.06 or 0.20
    g/mi., reflects the same flaws that led the District Court to rule on
    the recent ozone and PM NAAQS, that EPA had interpreted sections of the
    CAAA ``so loosely as to render them unconstitutional delegations of
    legislative power.''
        The focus of the proposal is on reducing ozone precursors,
    particularly NOx and NMHC, yet EPA's estimated costs of the
    proposal far outweigh the benefits it estimates from improvements in
    ozone quality. Rather, the quantified benefits of the proposal are
    dominated by PM effects, even though gasoline-powered vehicle
    emissions, particularly NOx and NMHC emissions, have little
    effect on PM.
                1. Stringent new standards are not needed to meet the ozone
                        NAAQS.
        EPA relies on expected widespread nonattainment with the 1997 (.08
    ppm) NAAQS to justify the ``need'' for the proposed vehicle and
    gasoline standards. However, the recent court decision diminishes EPA's
    argument that the stringent national standards are ``needed,'' as
    nonattainment with the preexisting (.12 ppm) NAAQS is much less
    widespread, and less significant than nonattainment with the remanded
    NAAQS. Figure 1 of these comments reproduces a map from EPA's air
    quality analysis, which illustrates that, with the exception of
    California, which is not covered by this rulemaking, expected
    nonattainment with the .12 ppm NAAQS for ozone is limited to a few
    localized areas.\73\ Furthermore, EPA's April 1999 air quality analysis
    reveals that the proposal will not improve air quality significantly in
    those nonattainment areas, and will actually increase ozone
    concentrations in many parts of the country.\74\ (See Figure 2.)
    ---------------------------------------------------------------------------
        \73\ Abt Associates, ``Tier II Proposed Rule: Air Quality
    Estimation, Selected Health and Welfare Benefits, and Benefit Analysis
    Results,'' April 1999. Air Docket A-97-10, document No. II-A-28.
    Exhibit A-14.
        \74\ Abt Associates, op. cit. Exhibit A-15 and A-17.
    ---------------------------------------------------------------------------
                2. EPA has not demonstrated the technological feasibility
                        of its vehicle and sulfur controls
        The Clean Air Act Amendments direct EPA to determine whether more
    stringent standards are appropriate based on ``the availability of
    technology (including the costs thereof)'' and considering ``the lead
    time and safety and energy impacts of meeting more stringent emission
    standards.'' \75\ However, EPA has embraced its statutory mandate
    selectively. The analysis focuses on EPA's expectations regarding the
    availability of technologies, and does not adequately address cost,
    safety or energy impacts, as required by the CAAA. In particular, there
    appear to be real tradeoffs between fuel efficiency and NOx
    emissions. Thus, EPA's proposal, with its stringent emission limits and
    short lead time, is likely to preclude promising fuel-efficient
    technologies (such as gasoline direct-injection (GDI) engines sold in
    Japan and Europe) from competing in the U.S. market. Diesel vehicles
    and trucks also hold promise for increasing fuel-efficiency, but they
    are less likely to be able to comply with the proposed standards
    without expensive after-treatment devices. An April 1999 report of the
    National Research Council expressed concerns that the standards ``could
    jeopardize research efforts of the public-private program to create a
    highly fuel-efficient, affordable car.'' \76\ Furthermore, neither the
    preamble nor the Tier 2 study submitted to Congress discusses whether
    the new technologies pose any safety concerns.
    ---------------------------------------------------------------------------
        \75\ Clean Air Act Subsection 202(i)(2)(i).
        \76\ NRC press release issued April 29, 1999, citing report title,
    ``Review of the Research Program of the Partnership for a New
    Generation of Vehicles.'' 1999.
    ---------------------------------------------------------------------------
        EPA bases its determination that the gasoline-sulfur component of
    the proposal is technologically feasible by drawing analogies to the
    California experience, and on the presumed availability of new
    desulfurization technologies that have not be commercially tested.
    According to EPA's analysis, these new technologies will offer a 3- to
    4-fold reduction in cost compared to current technology, but that
    assumes a perfectly elastic supply of these new units--enough to supply
    all refiners by 2003 at low costs. These are very unrealistic
    assumptions for technologies that are not commercially proven and have
    yet to be installed and operated at a refinery. EPA's conclusion that
    its sulfur standards are technologically feasible also depends heavily
    on the projected availability of excess credits, however, these
    projections are subject to numerous assumptions that EPA recognizes may
    not hold true.
        EPA intends for this proposal to be ``fuel-neutral'' (i.e., one
    uniform standard would apply to all vehicles, regardless of the type of
    fuel used) yet it has not proposed fuel standards for diesel fuel. This
    creates considerable uncertainty for both petroleum refiners and
    automotive manufacturers. At this time, the technological feasibility
    of the proposed fuel-neutral principle has not been established.
                3. The per-ton costs of components of EPA's proposal are
                        high relative to viable alternatives
        EPA estimates that its proposed emission/gasoline standards will
    cost, on average, $2,134 per ton of combined NOx plus NMHC
    removed in the near term and $1,748 per ton in the long term, which it
    finds are in the range of previously implemented mobile source
    programs, including the voluntary NLEV program and Tier 1 vehicle
    controls.
        This focus on average cost-per-ton masks important information,
    such as the relative merits of the sulfur component vs. the vehicle
    component of the proposal, and the relative cost of the vehicle
    emission standard for different vehicle types. Our tables 3 through 6
    illustrate the variance in cost-per-ton for different components of the
    proposal. For example, using EPA's estimates of cost and emission
    reductions, the average per-ton costs of meeting the sulfur standard in
    the Rocky Mountain states could be over $9,000.
        Furthermore, the use of tons of pollutants in the denominator of
    EPA's cost-effectiveness calculation is inappropriate, because tons of
    NOx and NMHC removed is not a good proxy for the risk of
    concern (health risks from human exposure to high ozone concentrations
    in non-attainment areas during peak ozone periods). This is
    particularly important considering the large cost differences among
    regions of the country. Clearly, reducing NOx and NMHC
    emissions in western regions of the country will have trivial impacts,
    at best, on attainment with the ozone NAAQS. (See EPA's predicted
    impacts in Figure 2.) Yet, according to EPA's estimates, residents of
    western states will pay much higher prices for the controls EPA has
    proposed to reduce NOx and NMHC than eastern states. If EPA
    defined effectiveness, not as tons of pollutant removed, but in terms
    of incremental improvements in attainment with the ozone air quality
    standard, the denominator of the cost-effectiveness calculation for
    attainment areas would have to be zero. This implies that, for the
    western states discussed above, the proposed national standards would
    have costs per unit of clean air that are undefined, approaching
    infinity.
        EPA compares the average cost-per-ton figures with the cost-per-ton
    of a few existing programs, but not against available alternatives to
    the Tier 2 standards, as directed by the CAAA. A comparison of the
    incremental cost-per-ton of the different elements of EPA's proposal
    suggests that targeted approaches can more effectively achieve ambient
    air standards. In Section C, below, we recommend some key alternatives
    that would be significantly more cost-effective than the proposed
    approach.
    B. EPA's proposal would not improve the health and welfare of American
            citizens
        An objective analysis of the benefits and costs of a proposal
    should guide decisionmakers to policy choices that improve public
    health and welfare. However, EPA's estimated benefits for the Tier 2
    proposal is dominated by questionable benefits attributable to small
    changes in PM concentrations, and fraught with unrealistic assumptions.
    In fact, the proposal would likely offer little in the way of public
    health and welfare benefits, and could actually make public health
    worse.
                1. The proposal would result in small air quality
                        improvements
        EPA predicts very small improvements in seasonal ozone values as a
    result of the implementation of this proposal. The population-weighted
    average change in air quality is expected to be -.0004 ppm or an
    improvement of only 1.3 percent.\77\ EPA's analysis also indicates that
    the proposal could result in an increase in ozone concentrations in
    some areas of as much as .0016 ppm (2.6 percent). Moreover, EPA notes
    that urban areas will have smaller reductions in ozone than less
    populated areas, revealing that the majority of even these small
    reductions will contribute less to improvements in ozone levels in the
    heavily populated urban areas where ozone is believed to pose health
    risks than to less populated parts of the country where ozone
    concentrations do not pose health threats.\78\ EPA estimates that
    changes in PM air quality are also ``generally very small.''
    ---------------------------------------------------------------------------
        \77\ RIA VII.B.1.f.
        \78\ Ibid.
    ---------------------------------------------------------------------------
                2. The health benefits are likely to be small
        As we highlighted in our 1997 comments on the proposed revision to
    the ozone NAAQS, reductions in ambient ozone concentrations (the
    objective of this proposal) would, at best, result in small changes in
    the health of a small number of sensitive individuals.\79\ As
    scientists on EPA's Science Advisory Board confirmed in Senate hearings
    on that rule, the vast majority of the population will observe no
    effect in their health or well-being from reductions in ambient ozone
    concentrations that are more than ten times greater than reductions
    expected from the Tier 2 proposal.\80\
    ---------------------------------------------------------------------------
        \79\ RSP 1997-2. As discussed in our comment, the uncertain
    scientific evidence suggests that the 8-hour standard would provide
    benefits in the form of transient, reversible, and largely asymptomatic
    respiratory effects. In its comments to EPA dated 12/13/96, the
    President's Council of Economic Advisors concluded: ``Reductions in
    adverse health effects, even for `sensitive' populations, are small.''
        \80\ See Dr. Lippman's response to questions by Senator Allard on
    February 5, 1997. Compliance with the remanded ozone standard, which
    Dr. Lippman and Senator Allard were discussing, would have resulted in
    ozone reductions of approximately 0.01 ppm, compared to spatial average
    reducations of 0.0008 predicted for Tier 2 in RIA Chapter VII.
    ---------------------------------------------------------------------------
                3. Compliance with the proposal could make public health
                        worse.
        In some parts of the nation, EPA's models predict ozone air quality
    will get worse as a result of the proposed standards. EPA predicts that
    the process of removing sulfur from gasoline would increase carbon
    dioxide emissions by 6.9 million tons per year.
        EPA does not quantify important health tradeoffs, such as the
    increase in skin cancers, fatalities and cataracts that would result
    from an increased penetration of ultraviolet radiation as ozone levels
    decline. Furthermore, regulatory costs themselves affect public health.
    As we observed in our 1997 comment on the ozone NAAQS, the main health
    effect attributed to reductions in ozone concentrations is aggravated
    respiratory problems, particularly asthma. Yet recent studies suggest
    that poverty is a more important risk factor for asthma than air
    quality.\81\ The large costs of the Tier 2 rule, then, may well
    increase the very disease it is targeted at improving. Even without
    this direct link between poor living conditions and asthma, it is
    widely recognized that, as family incomes rise, health improves. Recent
    empirical studies reveal that every $15 million in regulatory costs
    results in one additional statistical death.\82\ That suggests that, if
    one accepts EPA's cost estimate, this proposal would result in 233 more
    fatalities each year.
    ---------------------------------------------------------------------------
        \81\ American Thoracic Society, 1996 Conference Articles.
        \82\ Lutter, Morrall and Viscusi, ``The Cost per Life Saved Cutoff
    for Safety-Enhancing Regulations, Journal of Economic Literature,
    forthcoming.
    ---------------------------------------------------------------------------
    C. Recommendations
                1. Allow states and regions to institute controls as
                        necessary to meet NAAQS and protect public health
                        and welfare
        The CAAA does not require EPA to rush to regulate, and neither
    need, technological feasibility, nor cost-effectiveness considerations
    compel EPA to do so. The proposal is driven by ozone, which is expected
    to pose health threats to certain individuals with pre-existing
    respiratory conditions in a few urban areas on certain summer days when
    atmospheric conditions combine to create elevated ozone levels. EPA's
    own analysis predicts that a national proposal would actually increase
    ozone levels in parts of the nation. Regional, or even state, programs
    could target any health concerns more cost-effectively, and avoid
    imposing unnecessary costs on all parts of the country throughout the
    entire year.
        Our results, using EPA data, reveal that consumers in certain
    regions of the country (particularly in the west) will pay as much as a
    ten times more per ton of NOx emissions removed than EPA's
    estimated national average. Furthermore, these very consumers will
    receive no benefit (and may actually experience an increase in ozone
    levels) as a result of these emission reductions. This clearly suggests
    that a regional, rather than a national, approach to the fuel standard
    is more appropriate.
        Given State and regional track records for instituting necessary
    controls (including reformulated gasoline and inspection and
    maintenance programs), EPA should leave decisions regarding the sulfur
    content of gasoline to individual states, perhaps with the cooperation
    of, or recommendations from, OTAG. If EPA feels compelled to issue
    Federal regulations governing gasoline sulfur content, it should
    seriously evaluate a petroleum industry proposal whereby low-sulfur
    gasoline would be provided only for the eastern half of the nation.
        California's low emission vehicle rules, and the NLEV program
    initiated by the OTAG states offer evidence that even vehicle standards
    do not need to be mandated at the Federal level.
                2. Examine the cost-effectiveness of individual components
                        of the proposal
        Rather than compare a national average cost-per-ton figure for all
    the elements of the proposal against the cost-per-ton of previously
    implemented actions, EPA should, at a minimum, examine the cost-per-ton
    of each component of its proposal against other components of the
    proposal and alternative approaches to achieving the NAAQS. Table 3 of
    this comment reveals that EPA expects the gasoline sulfur controls to
    be significantly more costly per ton of pollutant removed than vehicle
    controls, and that costs-per-ton for vehicle controls vary by vehicle
    class. Tables 4, 5 and 6 also show that the per-ton cost of sulfur
    controls varies significantly by region, as do the benefits of
    NOx emission reductions.
                3. Design averaging and trading programs to minimize cost
                        of achieving goals
        Harnessing market incentives, through the use of averaging, banking
    and trading programs, for example, is generally more cost-effective
    than traditional command and control approaches to pollution control.
    However, the proposed design of the Tier 2 trading programs suffers
    from serious flaws. As discussed in detail in RSP's comments on EPA's
    NOx Trading rule,\83\ and summarized in section II.C.3.a of
    these comments, tons of NOx reduced are not a good proxy for
    an action's effectiveness at meeting the NAAQS or achieving the desired
    health benefits.
    ---------------------------------------------------------------------------
        \83\ RSP 1998-1, ``Comments on the U.S. Environmental Protection
    Agency's Supplemental Notice for the Finding of Significant
    Contribution and Rulemaking for Certain States in the Ozone Transport
    Assessment Group Region for Purposes of Reducing Regional Transport of
    Ozone; proposed Rule,'' submitted June 25, 1998.
    ---------------------------------------------------------------------------
        RSP's comments on EPA's NOx Trading rule argued that a
    national trading mechanism could actually increase the ozone
    concentrations on peak days in nonattainment areas by allowing trading
    of emissions into those areas from other regions. The sulfur-trading
    program envisioned by this rule could have the same effect. A regional
    program would not only be much more cost-effective, it would actually
    be more protective of public health.
        If EPA proceeds with its sulfur program despite the regional
    inequities and health impacts it would impose, it should carefully
    examine the costs and emission reduction benefits of imposing a cap on
    sulfur content. A cap will constrain efficient behavior and hinder
    beneficial market incentives of a trading program.
        The proposed ``bin'' approach to the vehicle standard reduces
    manufacturers' flexibility, needlessly constrains the ratios of
    pollutants emitted, and encourages manufacturers to innovate to meet
    bin emission levels under EPA test conditions rather than to improve
    air quality. The bin approach and the requirement that manufacturers
    sell the mix of cars and trucks to meet a corporate average emission
    level could interfere with their pricing and marketing strategies and
    could also complicate their ability to comply with the corporate
    average fuel economy standards.
        The alternative ``family emission limit (FEL)'' approach adds
    flexibility and could increase incentives for cost-effective
    improvements in vehicle emissions performance. Unlike a bins approach,
    in which manufacturers incentives are limited to large step-wise
    improvements, an FEL approach offers incentives to achieve smaller,
    lower-cost emission improvements, as well as large improvements.
        The FEL approach appears to both be more cost-effective and offer
    more incentives for innovation than the bin approach. EPA should
    examine the difference in cost-effectiveness, by vehicle class, of the
    two approaches. At a minimum, EPA should add more bins to increase
    flexibility and efficiency.
                4. EPA should carefully consider a longer phase-in period
        Particularly for the heavier trucks, for which EPA is under no
    statutory obligation to issue Tier 2 standards, a longer phase-in
    period could greatly increase the likelihood that the standards will be
    technologically feasible, and cost-effective.
        EPA's prediction that achieving the sulfur standards will be
    technologically feasible and cost-effective by 2003 depends heavily on
    a few new desulfurization technologies that have not been commercially
    tested. During the comment period on this rulemaking, an additional
    potential technology has emerged. Extending the deadline would allow
    other innovative solutions to develop and offer a much more efficient
    transition to lower sulfur fuel.

      Appendix I  RSP Checklist.--EPA Tier 2 Vehicle Emission and Gasoline
                                Sulfur Standards
    ------------------------------------------------------------------------
                 Element                Agency Approach      RSP Comments
    ------------------------------------------------------------------------
    1. Has the agency identified a    EPA bases the
     significant market failure?.      proposal on a
                                       need for further
                                       reductions in
                                       certain
                                       pollutants in
                                       order to meet
                                       National Ambient
                                       Air Quality
                                       Standards (NAAQS)
                                       for ozone.
                                                          The agency has not
    2. Has the agency identified an   The agency
     appropriate Federal role?.        proposes national
                                       vehicle standards
                                       and national
                                       limits on the
                                       amount of sulfur
                                       in gasoline.
                                                          Ground level ozone
    3. Has the agency examined        EPA examines the
     alternative approaches?.          cost-
                                       effectiveness of
                                       the entire
                                       proposal and
                                       compares that to
                                       the cost-
                                       effectiveness of
                                       existing
                                       requirements.
                                                          EPA's aggregate
    4. Does the agency attempt to     EPA bases the
     maximize net benefits?.           proposal in part
                                       on cost-per-ton
                                       of pollutant
                                       removed. It also
                                       performs a
                                       benefit-cost
                                       analysis.
                                                          EPA defines
    5. Does the proposal have a       The determination
     strong scientific or technical    that the proposal
     basis?.                           is needed depends
                                       heavily on
                                       assumptions
                                       regarding
                                       available
                                       technology and
                                       costs. The
                                       benefit estimates
                                       are very
                                       sensitive to
                                       underlying
                                       assumptions.
                                                          EPA's conclusion
    6. Are distributional effects     EPA's average cost-
     clearly understood?.              per-ton measures
                                       masks the
                                       distributional
                                       effects of the
                                       proposal.
                                                          Our analysis of

    7. Are individual choices and     The proposal does
     property impacts understood?.     not address these
                                       issues..
                                                          The proposal will
    ------------------------------------------------------------------------

        Appendix 2.--Cost-per-Ton of Individual Components of Proposed
                               Tier 2 Regulation
        We calculated the incremental cost-effectiveness for different
    components of the rule using data provided in Tables V-12, V-45, and
    Appendix VI-A of EPA's Regulatory Impact Analysis (RIA). We calculated
    cost-per-ton of emissions reduced for near term costs, relying on 1st
    and 2nd year costs from table V-12, and ``near term'' costs from table
    V-45.
        For the numerator of our calculation, we relied on EPA's estimate
    of the per-vehicle cost of the vehicle component of the standard from
    Table V-12, and the per-vehicle cost of low sulfur gasoline from Table
    V-45. These tables provide both vehicle and fuel costs separately by
    class of vehicle (LDV, LDT1, LDT2, LDT3, LDT4).
        For the denominator, we turned to Appendix VI-A of the RIA. To
    estimate the emission reductions due to vehicle standards without the
    fuel standards, we calculated the difference in baseline (NLEV)
    emissions and Tier 2 emissions with high sulfur fuel for different
    scenarios that account for the presence or absence of an inspection and
    maintenance (I&M) program and reformulated gasoline:
        1. I&M, conventional fuel at 330 ppm
        2. I&M, RFG at 300 ppm
        3. I&M, RFG at 150 ppm
        4. No I&M, Conventional fuel at 330 ppm
        To estimate the incremental emission reductions attributable to the
    fuel standards, assuming vehicle controls are already in place, we
    calculated the difference between Tier 2 emissions with high sulfur
    fuel and Tier 2 emissions with low sulfur (30 ppm) fuel.
        We calculated the weighted average cost per ton for the Nation
    using EPA's weights for each of the four scenarios above (from Table V-
    3). The cost of the vehicle standards divided by the emissions reduced
    by the vehicle standard alone produces the nationwide costs-per-ton
    attributable to vehicle controls presented in Table 3 of our comment.
    The fuel cost-per-ton estimates presented in Table 3 reflect the per-
    vehicle fuel costs divided by the incremental emission reductions
    attributable to the fuel standards.\1\
    ---------------------------------------------------------------------------
        \1\One would expect, based on EPA's assertion that vehicle
    standards would be ineffective at reducing emissions unless vehicles
    are run on low-sulfur fuel, that our approach of calculating cost per
    vehicle emission reductions first, and then the incremental cost of
    sulfur content reductions, would overstate the cost per ton removed for
    the vehicle standard compared to the fuel standard. IF EPA's assertion
    were true, one would expect to see fewer tons of NOx reduced
    by initiating just one control (either vehicles only or fuel only) and
    greater relative reductions from initiating the second measure (because
    only with the addition of the second measure would we see the synergies
    from both combined). This is not what the emission data in Appendix VI-
    A reveal. For areas with I&M controls and conventional fuels, for
    example, EPA's data suggest that, with the exception of the heavy light
    duty trucks, the incremental emission reduction of instituting either
    fuel standards or vehicle standards once the other standard in place is
    less than the emission reduction achieved by either alone.
    ---------------------------------------------------------------------------
        To examine the difference in cost-effectiveness by region, we
    adjusted average per-vehicle fuel costs by the ratio of regional to
    average fuel costs in RIA Table V-34. Data on the population in each
    State subject to I&M controls and reformulated or conventional gasoline
    from Korotney memo to A-97-10 docket, II-B-07 allowed us to calculate
    per-ton costs for the states in the Rocky Mountain and Pacific
    Northwest and Southwest regions. Table 6 of our comment lists cost-per-
    ton for the individual states in these regions. Combining these State
    data (weighted by population) yielded the data in Tables 4 and 5 of our
    comment.

      Appendix 3.--Example of Light Duty Trucks, by Vehicle Classification
    ------------------------------------------------------------------------
                   Manufacturer                            Models
    ------------------------------------------------------------------------
                                      LDT1
    Chevrolet.................................  Tracker
    Ford......................................  Ranger
    Honda.....................................  CR-V (SUV)
    Isuzu.....................................  Amigo
    Jeep......................................  Cherokee Sport, Wrangler
    Mazda.....................................  B2500, B3000
    Subaru....................................  Forester
    Toyota....................................  RAV4
    ------------------------------------------------------------------------
                                      LDT2
    Chevrolet.................................  Blazer, Suburban, Tahoe
    Daimler Chrysler..........................  Caravan, Voyager
    Dodge.....................................  Durango
    GMC.......................................  Jimmy, Suburban, Yukon
    Ford......................................  Expedition, Explorer, F-150
    Ford, Mazda...............................  Ranger, B3000
    Jeep......................................  Grand Cherokee
    Nissan....................................  Frontier, Xterra, Pathfinder
    Toyota....................................  4Runner, Landcruiser
    Volvo.....................................  V70
    ------------------------------------------------------------------------
                                      LDT3
    Dodge.....................................  Ram Wagon 1500,
    Chevrolet.................................  C/K Crew Cab
    Ford......................................  F-150, F-350 (full-sized
                                                 pick-up trucks)
    ------------------------------------------------------------------------
                                      LDT4
    Chevrolet.................................  Express Cargo Van, Express
                                                 Passenger Van
    Dodge.....................................  Ram Conversion
    GMC.......................................  Savana Passenger Van
    Ford......................................  Expedition, F-250 (pick-up
                                                 truck), Navigator,
                                                 Econoline Van
    ------------------------------------------------------------------------