[Senate Hearing 106-964]
[From the U.S. Government Publishing Office]



.                                                       S. Hrg. 106-964
               EPA'S PROPOSED REGULATIONS FOR DIESEL FUEL

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

                                HEARING

                               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

                             SECOND SESSION

                               __________

                           SEPTEMBER 21, 2000

                               __________


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               COMMITTEE ON ENVIRONMENT AND PUBLIC WORKS

                       ONE HUNDRED SIXTH CONGRESS
                             second session

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

                           SEPTEMBER 21, 2000

                           OPENING STATEMENTS

Inhofe, Hon. James M., U.S. Senator from the State of Oklahoma...     1

                               WITNESSES

Kassel, Richard A., Senior Attorney, Natural Resources Defense 
  Council........................................................     5
    Prepared statement...........................................    25
Rogers, Paul, Chief Operating Officer, Voss Companies, Inc.......     7
    Prepared statement...........................................    24
Vujovich, Christina, Vice President, Environmental Policy and 
  Product Strategy, Cummins, Inc.................................     9
    Prepared statement...........................................    33
Williams, Ronald, President, Gary Williams Energy Corporation....     3
    Prepared statement...........................................    20

                          ADDITIONAL MATERIAL

Statement, International Truck and Engine Corporation............    35

                                 (iii)

  







               EPA'S PROPOSED REGULATIONS FOR DIESEL FUEL

                              ----------                              


                      THURSDAY, SEPTEMBER 21, 2000

                                       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 10:18 a.m. in 
room 406, Senate Dirksen Building, Hon. James M. Inhofe 
(chairman of the subcommittee) presiding.
    Present: Senator Inhofe.

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

    Senator Inhofe. I will ask that our subcommittee meeting 
come to order. We have some new deadlines to comply with, 
because of the action that the Democrats took on the floor. So 
we will not be able to continue this for a very long period of 
time.
    This would not be a very long hearing, anyway. We have four 
witnesses. As you all know, this is the second sulfur and 
diesel hearing that we have had.
    Our first hearing on this issue was June 15, where we 
concentrated specifically on the sulfur issue. Today, we will 
continue to look at the issue, but also examine the broader 
issue of the diesel engine side of the regulation and, I think, 
the supply side. I do not believe we got into that, to the 
extent that we wanted to do it.
    When we held our last hearing, gas prices were at a record 
high, since the Gulf War. President Clinton predicted that the 
prices would drop by this Fall. It is now September, and the 
prices per barrel are even higher. Last week, it hit $35. I was 
told yesterday, it is $37. So he was wrong at that time, and it 
has gotten completely out of hand now.
    I previously criticized this Administration, but I hasten 
to say, I also criticized the last Administration, the Bush 
Administration, and the Carter Administration, because in all 
those Administrations, I tried to encourage them to have a 
national energy policy, and they elected not to do it.
    We are going to have to have it. I believe, certainly, if 
``George W'' is elected, that we will. I have personally talked 
to him about that.
    Now it appears that the EPA's plans to finalize this 
regulation are only an attempt to make political headlines and 
to appease special interest groups in an election year, instead 
of crafting a workable solution for diesel pollution.
    They know full well that future Administrations will be 
forced to change the regulations, because this proposed 
regulation, if enacted, would so severely limit the supply of 
diesel fuel, that it would cause price hikes and shortages, 
leading to disruptions in delivery of products and goods across 
the country.
    Based on the testimony from the last hearing and 
discussions I have had with numerous groups, let me explain 
just a few of the major problems with this proposal.
    First, the EPA will require the implementation of the 
sulfur diesel rule at the same time as the sulfur gasoline 
rule. This would, I believe, impose great capital problems, 
investment problems, on the refining industry. It could, at the 
same time, have an adverse effect on the supply and create 
shortages.
    Second, the technology review will be necessary. It is 
unsure whether or not the new load diesel engines will work; 
meaning that the low sulfur fuel would not be necessary. Most 
refiners will probably wait for the technology review before 
expending resources on the desulfurization technique. This 
means if the technology works, we may not have the low sulfur 
fuel available yet, creating additional shortages.
    Third, for many refiners who operate on the coast, and I am 
talking about the East Coast and the West Coast and the Gulf 
Coast, those refineries are going to have problems created for 
them. They could make the decision to go ahead and continue to 
refine the products, under the current laws and rules, and just 
go to the export markets, to other countries, where they do not 
have these requirements. Now that would have another 
devastating effect on the supply.
    It is my understanding that we are pretty close to 100 
percent refining capacity, right now. I think if that should 
happen, then for some of the smaller ones, we will have a 
witness talking about some of the problems that are created for 
smaller refineries.
    If some of them should have to close, or if they are forced 
to export their products to other countries, then that would 
cause a shortage, and certainly cause price spikes. You will 
see, this is the chart we used in the last hearing on June 
15th. You can see all the factors that come into play.
     After today's hearings, I am going to be sending a list of 
concerns to the EPA regarding this issue. If they do not 
address these concerns in the final rule, I will use the 
congressional Review Act, early next year, to veto this 
regulation.
    Now the congressional Review Act is one of our ideas that 
if a bureaucracy goes out and passes regulations that are just 
totally unlivable, and are wrong and against the intend of the 
appropriate committees, then the committee of jurisdiction can 
have virtual veto power, merely by holding a committee meeting 
and stopping that regulation, and then taking it at the same 
time to the floor of the House and to the Senate. So it could 
all happen in 1 day.
    I am just not making that as an idle threat. I am just 
saying that we have to have certain problems resolved and 
addressed by the EPA. So I will serve notice that I will use 
that provision, that Act, if it becomes necessary. I hope it 
does not get to that.
    Now I would like to have our four witnesses come to the 
table. I would have to ask, is it Ms. Vujovich?
    Ms. Vujovich. It is Vujovich.
    Senator Inhofe. Vujovich? Well, I met you the other day in 
the hall there, but I do not think I got the proper 
pronunciation.
    Very good, the way we are divided up today, we have Mr. 
Ronald Williams, president of Gary Williams Energy Corporation; 
Mr. Paul Rogers, chief operating officer of Voss Companies, 
Inc., on behalf of the National Association of Truck Stop 
Operators; Mr. Richard Kassel, senior attorney for the National 
Resources Defense Council; and Ms. Christina Vujovich, vice 
president of environmental policy and product strategy for 
Cummins, Inc.
    While the panel is taking their chairs, I am going to ask 
you to limit your opening statements, because of this new 
problem that we are confronted with, to 5 minutes. We will play 
the ``stop, change, go'' sign with the lights. My granddaughter 
likes that. So if you would comply with that, we would 
appreciate it very much.
    We will start with Mr. Williams.

 STATEMENT OF RONALD WILLIAMS, PRESIDENT, GARY WILLIAMS ENERGY 
                          CORPORATION

    Mr. Williams. Good morning, Mr. Chairman.
    Senator Inhofe. Good morning.
    Mr. Williams. I am the CEO and an owner of Gary Williams 
Energy Corporation, a Denver-based refining and marketing 
company. Our principal asset is a 50,000-barrel-per-day 
refinery located in Wynnewood, OK. We have 275 employees in our 
company and, therefore, qualify as a small business refiner.
    While our industry supports the clean air benefits of lower 
sulfur fuels, we believe the EPA's haste to force the use of 
unproven engine technology is driving overly stringent and 
unreasonable fuel standards.
    We believe prematurely setting a 15-part-per-million cap on 
highway diesel fuel will result in significant fuels shortages 
and skyrocketing prices.
    Industry experts estimate prices in some regions of the 
country will triple over current levels. This rule will hurt 
all those who rely on highway diesel fuel--truckers, 
distributors of goods and services and, ultimately, consumers, 
jobs, and our economy.
    The 15 part per million diesel cap is unreasonably low and 
is really not supported by credible cost benefit analyses. Our 
own Department of Energy projects the industry will have to 
spend $8 billion in refinery capital improvements to comply 
with this proposed rule; a number which is three times what the 
EPA has publicly estimated.
    Senator Inhofe. Is that the whole industry?
    Mr. Williams. Yes.
    Senator Inhofe. What is your figure?
    Mr. Williams. Our figure for our refinery, for diesel fuel 
alone, is about $48 million.
    Senator Inhofe. That is the sulfur and diesel. How about in 
sulfur and gas?
    Mr. Williams. Gasoline and benzine, together with diesel 
fuel, would total approximately $90 million.
    Senator Inhofe. Thank you.
    Mr. Williams. Obviously, with this kind of a capital 
investment for all sizes of refineries, our fear and, I think, 
the country's fear, should be that many will shift out of the 
highway diesel market, and dump their high sulfur product in 
the off-road market. We are concerned this will allow us to not 
meet the highway diesel demand, and we will have a severe 
shortage.
    Our estimates in the industry are that if this rule is 
passed on diesel alone, we will have anywhere from a 10 to 30 
percentage shortage over the projected diesel highway demand.
    Right now, our refineries, as you mentioned earlier, are 
operating at nearly full capacity. They are running about 95 
percent, which has historically not been something the industry 
can sustain on an ongoing basis, without severe upsets.
    The industry has asked the EPA to take three critical 
steps. One is to conduct a thorough technological review of 
engine and emission systems, as well as refinery 
desulfurization technology, prior to finalizing this rule. Two 
is to set reasonable and cost effective standards for vehicles 
and fuels. Three is to set a diesel sulfur implementation date 
that does not overlap the gasoline sulfur requirements.
    We do not think the EPA will respond to these urgent 
recommendations without congressional intervention.
    As I earlier said, small refiners such as ours share the 
same concerns as the majors, but our problems are 
proportionately greater, merely by the fact that we are 
smaller.
    As you asked and I responded, our cost to comply with the 
diesel desulfurization rule will be about $48 million. In 
addition, it will increase our annual operating expenses in the 
refinery by about $6 million to $7 million. That number is 
equal to the historic annual net income of that facility.
    As has been the case with past environmental investments, 
we are unlike to recoup these in incremental capital and 
operating costs in the future.
    When we combine these with the money that we will have to 
spend in our facility to take the sulfur out of gasoline, and 
to deal with the benzine rules, we will be looking at about $90 
million of expenditures, over a 5-year period, beginning in 
2003. That will be very difficult, if not impossible, to obtain 
financing for that.
    It is clear that the major oil companies' size, 
diversification, and integration create a competitive advantage 
over the small refiners. However, the small refining segment of 
the industry has played an historical, essential rule; that of 
providing pricing competition.
    Often, the small independent provides the lowest wholesale 
price in the market for gasoline and diesel fuel. Also, small 
refiners fill important niche markets, such as providing 
military jet fuel.
    Nationally, the small refiners only comprise about 4 
percent of the diesel market, but they provide 20 percent of 
the military jet fuel, which we believe is an important 
strategic issue for our country.
    We are concerned that with this proposed rule that 
heretofore highway diesel fuel will become ``non-spec.'' It 
will not be further processed, and will be dumped into the off-
road market. If that is the case, we will have, as I indicated 
earlier, severe shortages of highway diesel.
    That will also create greater competition for the small 
refiners, because historically, we have been the ones to 
provide the off-road diesel fuel for our country. We will have 
increased competition from the major refiners.
    We do believe, as an industry, especially the small 
refiners, that if these rules are adopted by the EPA, that 
anti-dumping provisions of high sulfur diesel should take 
effect, if nothing else, to preserve the ratio between on-road 
and off-road diesels, so as to mitigate any on-road diesel 
shortages.
    We also, as a small refining industry, believe that it is 
imperative that, at this time, Congress is going to need to 
consider some kind of tax incentives in order for these 
expenditures to take place, if the rules go forward.
    Thank you for the opportunity to speak. I will answer any 
questions that you may have.
    Senator Inhofe. Thank you, Mr. Williams.
    Mr. Kassel?

   STATEMENT OF RICHARD A. KASSEL, SENIOR ATTORNEY, NATURAL 
                   RESOURCES DEFENSE COUNCIL

    Mr. Kassel. Thank you, Mr. Chairman. My name is Richard 
Kassel. I am a senior attorney with the Natural Resources 
Defense Council, a national non-profit environmental advocacy 
organization, with over 400,000 members.
    NRDC strongly supports EPA's proposal, because it will be 
the equivalent of removing the pollution from 13 million of 
today's trucks from the air. It will result in the elimination 
of over three million tons a year of smog-forming gases, and 
over 100,000 tons per year of asthma attack-inducing 
particulate matter.
    Why is it so important to clean up the nation's dirty 
diesels? I get asked that question all the time. Diesel's 
particulate matter has been linked to increased asthma attacks 
and hospitalizations, bronchitis, cancer, endocrine disruption, 
emphysema, and even premature death.
    Diesel's nitrogen oxides are a contributor to ground level 
ozone or smog formation, acid rain, and nutrient pollution in 
our waterways. More than 40 toxic chemicals are typically found 
in diesel exhaust.
    The key to this proposal, of course, is sulfur. Just as 
lead was a barrier to cleaner cars, and lead and gasoline was a 
barrier to clear cars two decades ago, sulfur in today's diesel 
fuel is a barrier to cleaner trucks and buses.
    So we strongly support EPA's proposal for many reasons. 
First, only the near elimination of sulfur, which we believe is 
a cap of 15 parts per million or less, will create a fuel 
supply that is clean enough to support the most promising 
emission controls.
    Second, we believe only a national approach will work, 
given the mobility of the vehicles, themselves. Truckers 
deserve to know that wherever they drive, they will be able to 
get the low sulfur diesel fuel.
    With a national fuel supply, mislabeling, misfueling, and 
fuel supply contamination concerns would be eliminated which, 
of course, would respond to some of the concerns, particularly 
of the retail fuel sellers.
    By including interim dates for refineries and for terminal 
suppliers, we believe EPA has taken into account some of the 
supply chain issues that have been raised by the subcommittee, 
and is providing a clear and a useful road map to implementing 
this rule in a way that will avoid market disruptions.
    Third, we need the rule in mid-2006. The timing is right to 
get the fuel into the supply in time for those model year 2007 
engines, and to help States that will be attempting to meet, 
attain, and maintain their Clean Air Act obligations for ozone 
and particulate matter.
    In contrast to EPA's proposal, the oil industry has 
suggested 50 parts per million as a cap. We believe that would 
render the proposed particulate and NOx targets unachievable. 
Under the oil industry proposal, particulate traps will clog, 
and failure will become a serious problem.
    Likewise, plans to develop the most promising NOx controls, 
which are currently something called a NOx absorber, will shift 
from NOx absorbers to less effective selective catalytic 
reduction, or SCR. Not only is SCR less effective, but it will 
require the development of a national urea infrastructure 
system, that would cost billions of dollars to install and 
operate and maintain.
    Regarding the oil industry, I would just like to respond to 
some of the industry concerns. The first, of course, is the 
cost; that the industry cannot afford the cost of updating its 
refineries.
    America's largest oil companies reported nearly $12 billion 
in profits in just the first quarter of this year, and the Wall 
Street Journal reported that those profits will be higher in 
this quarter.
    We believe that the cost of this program is a reasonable 
cost of continuing what is obviously an extremely profitable 
business, especially because of the environmental benefits.
    Second is the burden on the American consumer. BP, the 
nation's largest seller of diesel fuel, has already announced 
that it will sell 15 PPMs, sulfur diesel fuel, in California 
next year at an incremental cost of roughly a nickel a gallon, 
without the economy of scale benefits of a national fuel.
    Tosco has announced that it will do the same in 2003, at a 
better return on capital for its investors than its current 
high sulfur fuel.
    This is a very far cry from the doomsday predictions of the 
American Petroleum Institute. I think it is important to note, 
there are many examples of environmental regulations, over the 
past three decades, where regulated industries have said that 
it cannot be done, and if it can be done, it will cost too 
much.
    Once the policy decision is made, the companies and the 
industries find a way to produce the product at a reasonable 
cost. We are already seeing this in the oil industry, with the 
examples of BP and Tosco.
    Last, comments from some other opponents have asked you to 
slow down the process, to not act this year, because the 
technology is not ready. I refer you to the testimony in the 
EPA hearings by the Manufacturers of Emissions Controls 
Association, or MECA.
    MECA represents the companies that will develop and 
commercialize these technologies. MECA supports the proposal, 
and has said that they believe that its members will be able to 
meet the requirements in a timely and cost effective manner.
    There is even evidence in the record that Cummins is 
already hard at work on NOx absorbers and other technologies, 
and that their presumptive emission targets for its R&D program 
are already as low as EPA's targets; that it believes that NOx 
absorbers are viable, based on in-house data; and that it 
believes that a sulfur level of 50 parts per million would be 
deleterious to NOx control systems.
    The bottom line, in conclusion, is this. The diesel 
industry seems to hate when environmentalists call diesels 
``dirty diesels.'' But it is fighting every step EPA takes 
toward cleaner diesels.
    Cleaner diesels may be possible, but only by adopting EPA's 
proposal by bringing sulfur levels down to a level that allows 
the most promising technologies to succeed, and by meeting its 
goals and the timetables of that proposal.
    Every year of delay on industry's part, there are more 
avoidable asthma emergencies and more avoidable cancers. We 
need this rule. We need it finalized this year, so the 
companies can get to work, so they can lock in their R&D 
budgets, and they can lock in their capital plans for the 
coming decade.
    Thank you.
    Senator Inhofe. Thank you, Mr. Kassel.
    Mr. Rogers?

    STATEMENT OF PAUL ROGERS, CHIEF OPERATING OFFICER, VOSS 
                        COMPANIES, INC.

    Mr. Rogers. Good morning, Mr. Chairman. My name is Paul 
Rogers. I am the chief operating officer of Voss Companies, a 
small family owned business in Cuba, Missouri.
    The Voss Companies owns and operates three travel plazas 
and truck stops in the Midwest, along with a small chain of 
convenience stores. We employ approximately 275 people 
throughout our operation, and sell approximately 45 million 
gallons of diesel fuel at the retail level each year.
    Personally, I have over 26 years of experience in the truck 
stop industry. I appear before the subcommittee today on behalf 
of NATSO, the national trade association representing the 
travel plaza and truck stop industry. NATSO represents over 400 
companies, which operate approximately 1,200 travel plazas and 
truck stop locations nationwide.
    As the primary retailer of highway diesel fuel, the truck 
stop industry is, of course, a vital link in the transportation 
of goods and services throughout our country. The vast majority 
of our nation's products are delivered by diesel-powered 
vehicles; everything from the clothes we wear to the food we 
eat. So the old adage, ``If you have got it, a truck brought 
it'' is absolutely correct.
    Our nation's travel plazas and truck stops are a critical 
link in the movement of these goods in providing the fuel 
needed to keep these trucks and our economy running smoothly.
    While the travel plaza and truck stop industry supports 
efforts to reduce emissions, NATSO has serious concerns and 
objections to the EPA's proposed diesel sulfur regulations, and 
the effect it will have on our nation's energy supply and 
delivery system.
    EPA's rule could reduce overall supplies of diesel fuel, 
lead to significant spot outages, and significantly increase 
the cost of diesel fuel and other distillants. NATSO is very 
concerned that this drastic 97 percent reduction in the sulfur 
content of highway diesel fuel would seriously disrupt the 
nation's industries ability to consistently and reliably 
acquire highway diesel fuel for sale for our nation's vehicles.
    The investment which refiners will need to make in order to 
reduce sulfur levels by 97 percent may force many of these 
refiners to opt-out of the highway diesel market and, instead, 
focus on other market segments for product production.
    Further, some refineries may cease operations altogether. 
With our nation's current fuel supply strained as it is, the 
loss of an additional diesel production supply would be 
devastating.
    I would point out, in the St. Louis market alone this 
summer, the EPA had to drop its regulations on RFG three times, 
because the market could not supply and did not have the 
ability to supply the product into the market.
    Additionally, due to its intricate structure, it does not 
appear that our nation's diesel fuel distribution system can 
maintain ultra-low sulfur highway diesel fuel supplies in all 
areas of the country on a reliable basis. This is a very 
serious problem, which could lead to fuel cross-contamination, 
spot outages of highway diesel fuel, and severe price hikes.
    Furthermore, under EPA's proposed 97 percent reduction in 
sulfur levels, domestic highway diesel fuel will have a lower 
sulfur level than highway diesel fuel produced in most other 
nations. This would essentially prohibit the influx of foreign 
supplies of diesel fuel, which could otherwise be used to ease 
those shortages, and help with domestic production and supply.
    Ultimately, under EPA's proposal, less diesel fuel will be 
produced and supplied, driving up prices and cost, endangering 
the integrity of our nation's energy supply and delivery 
system.
    The EPA, in a misguided attempt to address the problems 
which result from the extreme sulfur reduction proposal, has 
sought comment on various phase-in schemes, which would result 
in the temporary manufacture, sale, and use of two separate 
grades of highway diesel fuel.
    These scenarios would allow the current 500 parts per 
million highway diesel to continue to be produced, alongside 
the new ultra-low sulfur diesel for a period of years, until it 
is eventually phased out in favor of the new lower sulfur fuel.
    NATSO is strongly opposed to these phase-in schemes, as 
they would provide a devastating effect to the diesel fuel 
distribution system, including travel plazas and truck stops, 
which have the net effect of further reducing supply.
    One of the things that is very critical to note, Mr. 
Chairman, is that the entire diesel fuel delivery system in our 
country, from refinery to retail, is currently handling a 
single grade of highway diesel fuel.
    Because the travel plazas and the truck stop industries are 
also configured to carry only a single grade, the introduction 
of a separate grade would force the truck stop travel plaza 
industry, and many thousands of retailers, to make tremendous 
capital investment to carry both products at retail.
    Significant expenditures at a minimal excess of $100,000 
per location, in many cases, would need to be made to ensure 
that these separate grades of diesel are properly segregated to 
prevent their cross-contamination and overt misfueling at the 
pump.
    This would result in the need for new storage tanks, the 
re-piping and re-manifolding of tank lines, new pumps, 
monitors, significant compliance expenses. In many cases, the 
permits for such a mandate would be unattainable.
    What really concerns our industry is the cost, which would 
be borne by an industry which largely consists of small, 
independent owner-operator folks, not big, huge corporations 
with billions of dollars of profit. They are still recovering 
financially from the 1998 upgrades that were forced upon them 
by EPA to upgrade our fuel systems.
    NATSO urges the subcommittee to express to EPA your 
opposition to these phase-in schemes, which would result in the 
temporary manufacture, sale, or use of two separate grades of 
diesel fuel. This phase-in would place at risk the integrity of 
our nation's diesel fuel supply, raise costs throughout the 
distribution chain, and reduce the overall supply.
    In such a short period of time, most businesses would not 
have the opportunity to take the proper valuation on the 
expense that they put into it.
    NATSO does support efforts to improve our nation's air 
quality, without placing our energy supply and delivery system 
at risk. The petroleum industry has stated its support for a 90 
percent reduction in the sulfur level, from 500 parts to 50 
parts. Such a reduction, if it occurs without a two-fuel phase-
in scheme, and with significant lead-in time for refiners and 
the emission control manufacturers, would achieve significant 
reductions in emissions, while maintaining the integrity of our 
nation's diesel fuel supply.
    Sir, on behalf NATSO, I thank you for letting me speak. If 
there are any questions, I would be glad to answer them.
    Senator Inhofe. Thank you, Mr. Rogers.
    Ms. Vujovich?

STATEMENT OF CHRISTINA VUJOVICH, VICE PRESIDENT, ENVIRONMENTAL 
           POLICY AND PRODUCT STRATEGY, CUMMINS, INC.

    Ms. Vujovich. Good morning, Mr. Chairman. For the record, 
my name is Christina Vujovich. I am the Vice President for 
Environmental Policy and Product Strategy for Cummins Engine 
Company.
    I appreciate the opportunity today to speak to you in 
regard to EPA's heavy duty engine emission standards for 2007 
and the diesel sulfur proposal. Obviously, my comments will be 
more directed toward the emission piece of this rulemaking.
    Cummins is the only independent diesel engine manufacturer 
in the United States today, and we are the largest producer of 
commercial engines over 200 horsepower.
    Contrary to the inference made by Mr. Kassel, I would like 
to say that Cummins does share the goal of improving our air 
quality, and we really support EPA's authority to regulate 
emissions from heavy duty diesel engines. As a company, we are 
absolutely committed to pursuing the technologies that benefit 
the environment; evidence the information, again, referenced 
from our written submission to EPA.
    These technologies, however, must also provide superior 
performance for our customers, including fuel economy. 
Otherwise, our customers will not purchase the products.
    This is why we have very serious concerns about the rush to 
finalize these rules by the end of the year. The schedule that 
EPA has established for finalizing these rules does not allow 
us the time for the work that we believe is necessary to assess 
the technical feasibility and the commercial viability of the 
technologies required to meet the standards.
    So we are urging EPA to provide an additional 18 to 24 
months before they promulgate the final rule, so that the 
stakeholders can assess these issues, which we believe are 
extremely critical to the success of the ultimate rule.
    To proceed otherwise would result in a rule that is 
unworkable and that undermines the important goal of reducing 
emissions and improving air quality. EPA can do this and still 
have time for a rule that is applicable for 2007.
    Mr. Chairman, I would like to make an important distinction 
here. As a company, we are not asking EPA to delay the 
implementation date of this rule. We are merely asking EPA to 
take the time, before it promulgates the final rules, so that 
technology can be better assessed and understand the viability 
of the technology.
    For more than 20 years, my work at Cummins has revolved 
around the environment. That is very challenging work, because 
we provide a technology essential to moving the nation's 
economy, but it is also a technology that has environmental 
implications. We are the first to recognize that.
    That is why at Cummins, we have a corporate mission 
statement, which dictates that everything we do leads to 
cleaner, healthier, and safety environment. Our engineering and 
development budget each year is about 4 percent of our annual 
sales. Well over half of that goes to emissions development.
    The work done at our transient emissions labs in the 
Cummins Tech Center in Columbus, Indiana is world class, and 
our engineers are regularly called on to advise government 
experts worldwide, which we are pleased to do.
    When EPA needs to train its technical staff in the 
fundamentals of internal combustion for diesel engines, it 
turns to Cummins. Indeed, EPA researched the very rule we are 
here to discuss on a Cummins six-liter engine.
    Now you might ask, why is all of this important? While many 
of you may know us and are familiar with this company, those of 
you who are not do not know that it simply is not our nature to 
say no.
    However, today, we are compelled in this instance to speak 
out strongly and ask, why do we have to rush to this 
rulemaking? Do not jeopardize the success of this rule in order 
to meet an arbitrary deadline.
    This rulemaking represents some significant firsts for our 
industry. This rule, for the first time, recognizes that fuel 
and engine technology must work together to achieve emissions 
reductions. For this, we applaud EPA, because the ultra-low NOx 
standards and the ultra-low particulate standards, which we are 
all interested in achieving, cannot be met without significant 
reduction in diesel fuel sulfur.
    For the first time, these proposed regulations cannot be 
achieved through in-cylinder and engine subsystem control 
technologies. That means, as an engine producer, we have to 
look for after-treatment suppliers to do this work for us.
    In order to achieve the proposed regulations, we will have 
to rely on technologies that we neither make or install on the 
engine, when we ship it from our factories.
    Second, these technologies do not exist in a commercial way 
today; nor, do they exist in a manner that we can predict, with 
confidence their capability of achieving these emission 
reductions over 435,000 miles, which is the useful life of 
heavy duty engines.
    The diagram to my left shows our current best estimate of 
the system of after-treatment devices necessary for compliance 
to the 2007 rules. As you can see, there are four sequential 
catalytic activities that we expect the exhaust gases to have 
to go through.
    We can only guess as to what the impact the envisioned 
system of after-treatment technologies will have on our engine 
performance and fuel economy, because many of these 
technologies are still in their very early stages of 
development. We know that, because we do a considerable amount 
of work on our own in our labs.
    But today, we do not know whether or how a commercially 
viable product can be made to meet these proposed standards. 
Yet, we are being asked to agree to this rule before the end of 
the year, and in so doing, agree that we will certify the 
emissions capability of our engines, including the yet-to-be-
developed after-treatment systems that we neither make or 
install, over the 435,000 mile useful life of heavy duty 
engines.
    There is no doubt that the after-treatment technology shows 
potential. We believe that an additional 18 to 24 months will 
put us in a better position to evaluate the issues critical to 
the success of this rule.
    Cost is very significant for our industry, as well as the 
petroleum industry. Individual component estimates today 
indicate costs for our products will be four to five times 
greater than that which EPA has predicted.
    For truckers who already operate on extremely small 
margins, most of the time in the 2 percent range, this is not a 
commercially viable option.
    The net result will be that diesel engine customers, who 
would normally replace their engines in the 2007 or 2010 
timeframe, will likely re-build older engines, rather than 
replace newer ones.
    That is not good for anyone. Because the only way you get 
cleaner engines into the marketplace is if someone buys them. 
The potential of this impact of such action is significant, and 
really has not been adequately addressed yet.
    At Cummins, we have an 80 year history of delivering on 
what we promise. Cummins wants to participate in a successful 
rulemaking and a successful low emissions product development 
effort.
    Our question today to the EPA and to the people in this 
room is whether it is more important to rush to finalize a rule 
which, on paper, promises significant emissions reductions; or 
whether it is better to take the time to develop a rule that in 
reality will deliver real emissions progress.
    Thank you, Mr. Chairman. I will be happy to answer any 
questions.
    Senator Inhofe. Thank you, Ms. Vujovich.
    I guess the first thing I should ask you is, do you have a 
response to Mr. Kassel's characterization of dirty diesels?
    Ms. Vujovich. Yes, sir, I do. I think it is important to 
note that the diesels of today and diesels of the future are 
not what I would characterize at all as dirty diesels.
    The diesel emissions control technology, over the last 15 
to 20 years, has reduced diesel exhaust emissions nearly 90 
percent. With this rulemaking, it will be 90 percent from the 
2004 levels that we are expected to achieve. Perhaps Mr. 
Kassel's characterization is more relevant for the older 
diesels that are still in the fleets.
    Senator Inhofe. You know, while this chart is still fresh 
in our minds, I want to make sure I understand it. You are 
saying that with the application or installation of all of 
these four technologies, whatever they are called, you are 
required them to still have a 435,000 mile engine life?
    Ms. Vujovich. Yes, sir, in the 2004 rulemaking of EPA, the 
heavy, heavy duty engines, as defined by EPA, and EPA has three 
classes of heavy duty engines: light heavy, medium heavy, and 
heavy, heavy, it is the heavy, heavy duty engines that went 
from a useful life of 290,000 to 435,000. We are required to 
certify that the emissions from those engines meet EPA's 
requirements for 435,000.
    Senator Inhofe. And if they do not?
    Ms. Vujovich. If they do not, and EPA is assessing our 
products in use, or if we understand that our products do not 
comply, there is either a voluntary recall, or EPA can impose a 
recall on our products.
    Senator Inhofe. Mr. Williams, it is my understand that the 
highway diesel sulfur proposal overlaps with the gasoline 
sulfur schedule. Are there any economies of scale for having 
both of these at the same time? What is the impact by having 
both of these going in at the same time, as far as you are 
concerned?
    Mr. Williams. There really are no economies of scale, Mr. 
Chairman. They treat two different streams. One is for diesel, 
obviously, and one is for gasoline. The units that have to be 
installed for each stream are specialized. So there is no 
economy of scale of getting two for one.
    The timing of it is such that we are not only forced to 
deal with two, but we are forced to deal with two streams at 
the same time, and incurring charges, as I indicated earlier. 
But there is no common usage of any of the capital expenditures 
that would be required.
    Senator Inhofe. So not only, if I understand your answer 
correctly, is there not an economy of scale, but if you had to 
comply at a different time, it would be easier. I mean, it 
would be more expensive doing it at the same time, as opposed 
to less expensive. I heard the argument.
    Mr. Williams. That is exactly right. I made that comment in 
my presentation, that it needs to be sequential, and not 
simultaneous.
    Senator Inhofe. I am also concerned about availability. I 
hope you all have a chance to address this. I am concerned that 
the EPA has not really adequately considered the effect of this 
rule on the availability of diesel. When they consider the 
cost, they sometimes say, five cents a gallon.
    However, with refining capacity nearly at 100 percent right 
now, I would question that. You know, we talked about some of 
the coastal refineries choosing to go ahead and not apply this, 
and go to markets where it is not required, which I think is 
something that could happen; and also, some just going out of 
business.
    So what is your concern about this effect on the ultimate 
supply?
    Mr. Williams. Well, undoubtedly, many refiners, both large 
and small, will choose not to make the full financial 
investment to upgrade their total stream of diesel. So the 
result of that will be that there will be more off-road or high 
sulfur diesel in the marketplace, and there will be less low 
sulfur diesel in the marketplace.
    That will put the strain on the highway diesel fuel system. 
There will be a shortage, undoubtedly. I mean, I have talked to 
my peers in the industry. I have talked to all of the experts, 
in terms of the independent studies that have been done. We get 
the same answer.
    Refiners are going to look at this on a case-by-case basis. 
Different companies will do different things. But they all 
unanimously agree that there will be a shortage of highway 
diesel.
    Senator Inhofe. Mr. Rogers, the same question, do you have 
a concern about the supply of diesel, and what do you think in 
terms of price spikes that you might be faced with?
    Mr. Rogers. Thank you for asking that question, Senator. 
The concern I really have is if we go back to just this past 
summer, as I stated in my testimony, in the St. Louis market, 
which I have some operations that operate in the St. Louis 
market, and I have some that operate outside of the RFG zone in 
St. Louis, when the RFG could not be supplied, because there 
were not enough tanks and not enough manufacturing capacity in 
the refineries, there were price differentials as much as 25 
cents per gallon, from RFG to regular unleaded gas, just this 
summer alone.
    Three times, the EPA did away with its rule to give some 
relief to the St. Louis market because of the high price and 
spikes of gasoline factors.
    Now we see the same thing in diesel fuel, as there are no 
more tanks. There has been 25 years since any modern refinery 
has been built. More and more, the majors are getting out of 
the refinery business.
    We have got to have more tanks. If we bring in more 
supplies of diesel, we have got to have more refining capacity. 
It is just not there out there in the market today to do it, 
and it will cause severe price hikes.
    Senator Inhofe. I am going from memory now, but I think it 
was from the last hearing that we had, that since 1990, we have 
gone down in numbers of refineries from like 200 and some to 
158.
    Mr. Rogers. That is correct.
    Senator Inhofe. So it is moving in that direction.
    Mr. Kassel, in your statements and your enthusiasm for this 
rule, would you think that they should have gone even further 
than they went, in proposing this rule?
    Mr. Kassel. Well, there are some technical issues, which I 
have addressed in my written statement today. There are ways 
that we could make it even tighter.
    I think there are arguments, for example, for implementing 
the NOx standard all at once, in 2007, rather than stretching 
it out over 4 years of time. I think there are very important 
arguments for developing a very strong in-use compliance 
program, which I address in my written testimony.
    There is a lot of debate about whether the new diesels are 
clear or dirty, or clean enough or not quite as dirty, as we 
say, and what not. Those are healthy debates.
    One of the most important issues in that debate is the 
issue of in-use submissions. Engines are certified at a certain 
emission level, when they are new. The theory is that based on 
a certification level, that engine will produce a certain 
amount of emissions over its 435,000 mile life.
    What we see from the limited in-use emissions data that is 
out there is that in the real world, that does not happen, for 
a variety of reasons that have to do with the way the engines 
are designed.
    Senator Inhofe. OK, well, let me ask it in a different way. 
Would you want to go further than the EPA is going with this 
rule, if you knew for a fact that it would create shortages and 
price spikes?
    Mr. Kassel. Well, I would like to address the shortages and 
price spike issue.
    Senator Inhofe. First, answer the question that I have 
asked.
    Mr. Kassel. The answer is, I think that EPA's proposal is 
fantastic, as is.
    Senator Inhofe. No, just answer the question, would you 
want to go further than the current proposal, if you knew for a 
fact that it would result in shortages and price spikes? That 
is a yes or no question.
    Mr. Kassel. No, no.
    Senator Inhofe. All right, and the second part of the 
question would be, if we were to determine that the current 
rule will cause price spikes and shortages, would you change 
your position in supporting it?
    Mr. Kassel. I think it is very hard to know whether there 
will be price spikes. I would like to just touch on that for a 
sentence or two.
    Senator Inhofe. Well, OK.
    Mr. Kassel. There are many, many examples in the 
environmental history over the last three decades, where before 
a policy was implemented, industries were concerned about 
supply, availability, prices, feasibility, and so on. That is 
appropriate, in the advocacy arena.
    At this point, EPA, this subcommittee, Congress, is trying 
to decide what is the right policy for the nation's diesel fuel 
and diesel engines. I think that the give and take is 
absolutely appropriate. I think that it is natural in that 
context for an environmental group, such as ours, to advocate 
for the best environmental protection.
    It is also logical for fuel suppliers, engine companies, 
affected industries to say, what is the worst case scenario; 
what is the absolute worst case scenario? I think what we have 
here and what we have seen, time and time again, is the worst 
case scenario is being laid out.
    Senator Inhofe. But I would have to ask the further 
question then, since there is such a rush to do this in this 
short timeframe, and there is not time to determine, or at 
least I do not think there is, what effect it is going to have 
as far as price spikes or shortages, which are about the same 
thing, then it would seem to me, you have to use the worst case 
scenario, unless you have time to develop a more accurate 
scenario.
    It may be a worst case scenario, but it stands to reason, 
that if it is a supply and demand situation, sure, we can say 
that it is only a nickel a gallon, if it is the cost of 
changing your equipment and marketing.
    But if it has the deteriorating effect on the supply, right 
now, people are pretty sensitive to that. That is the reason 
for the question, and I wanted to frame it that way.
    Mr. Kassel. Right, well, I think this summer, we all 
learned a very important lesson about how markets respond to 
fuel changes. I think that the lesson, there are several parts 
of it.
    First, I think that what we learned from the Midwest is 
that it was a market failure, and not necessarily a policy 
failure. Second, price spikes are multi-faceted. There are many 
factors that went into the changes in pump prices over the last 
year, and RFG is only one faucet of that.
    Senator Inhofe. OK.
    Mr. Kassel. If I could just finish with that. I think the 
answer really is a national approach. Part of the problem with 
what we saw with RFG is that there are different fuels in 
different places.
    We have heard today testimony that that is a real fear; 
having multiple fuels in a fuel supply chain that is designed 
for only one fuel. That is why we think the answer is not to 
stretch out the implementation, not to do a phase-in; but 
rather, to say, as of a date certain, diesel that comes into 
the refineries from import, or that is refined at the 
refineries would be low sulfur and so on.
    Senator Inhofe. I would say this, as the chairman of this 
committee, my concern has been, with this Administration, the 
rush to getting into these things, the lack of sound science.
    I have said several times that if we have a change in 
Administration, what I want do with this is to have the same 
goals, in terms of clean air, clean water, and it applies 
across the board. But I also want to have a cost benefit 
analysis, determine what it is going to cost, and use sound 
science.
    You know, during the ambient air thing, the CASAC, the 
Clean Air Scientific Advisory Committee, there were 21 
scientists. Only two agreed that those changes should be made 
at that time.
    All I am asking for is the time to make these 
determinations, so we do not wake up with the spikes, and then 
all of a sudden say, hey, Inhofe, you were Chair on that 
committee that did not do what they could to be deliberate 
enough to get this done.
    Let me ask you, Ms. Vujovich, we hear a lot about the 
problems imposed on the oil industry and the refining industry 
on the over-regulations. From an engine manufacturing 
perspective, what kind of effect does this have on you?
    Ms. Vujovich. Well, Mr. Chairman, as you know, we are a 
regulated industry, and have been for quite some time. As you 
probably recall through the Clean Air Act, in the 1990 
amendments, there are provisions that require a period of 
stability for our standards and a period of lead time. There is 
a period of 4 years of lead time and 3 years of stability.
    So we have become a regulated industry that expects every 
three to 4 years to see some sort of environmental control. 
That is what we are confronted with today. We have standards 
that will be changed across the industry, between 2002 and 
2004, and then this set of regulations proposed for 2007. As 
with most regulated industry, they become more and more 
difficult and challenging to meet.
    So I would say, we do feel very regulated. We feel that the 
challenges are becoming more and more significant, and more and 
more costly. But it true that we would anticipate that, given 
the language in the statute.
    Senator Inhofe. Thank you.
    Mr. Rogers, in your testimony, I think you said that the 
compliance with this rule would cost, what, $100,000 for each 
service station?
    Mr. Rogers. When you take the cost of adding extra tanks, 
more pumps, monitoring systems, piping, all the detection 
system that were required in 1998, any upgrades, of course, 
have to meet those standards, or new installations have to meet 
those standards.
    A truck stop cannot put in one dispenser. Trucking 
companies will now allow their trucks to sit in line for that 
length of time. The majority of truck stops have anywhere 
between eight to 16 or eighteen, up to 20 dispensers per 
location. You know, dispensers cost $10,000 or more each, plus 
all the supporting equipment that has to go with that. So you 
would have a great expense.
    Now most people had to upgrade in 1998, and they are still 
trying to pay that off. They had to mortgage the house to meet 
these standards to stay in business, and they are still trying 
to pay those off.
    Contrary to what Mr. Kassel says, the major oil companies 
are not operating these travel plazas and truck stops. They are 
mostly operated by small companies or small family 
organizations, that have mortgaged everything to stay in 
business after the 1998 change.
    Senator Inhofe. Well, Mr. Kassel did characterize these 
costs as being extremely reasonable. Do you have a response to 
that?
    Mr. Rogers. Sir, I would like for him to pay our mortgage, 
and tell me it is extremely reasonable. It certainly is very 
costly. It is very expensive.
    Yet, certainly, we are willing to make those necessary 
investments, because we also support every phase of that clean 
air point, but we have got to do it at a cost that we can 
continue to employ people and continue to operate a business.
    Senator Inhofe. Mr. Williams, you know, Mr. Kassel talked 
about the exorbitant profits of, I believe, the 11 largest oil 
refiners.
    Mr. Williams. Yes.
    Senator Inhofe. How do you, as a small refiner, compare to 
these?
    Mr. Williams. Well, I think he referred to the first 
quarter of this year. We and, I believe, all small refiners 
lost money in the first quarter of this year.
    Senator Inhofe. You lost money on your financial statement 
in the first quarter?
    Mr. Williams. Right, that is correct. I think most refiners 
did. In fact, the refining operations of the major oil 
companies lost money in the first quarter.
    The reason the majors had good profitability in the first 
quarter of the year was because of the price of oil escalating. 
Keep in mind that the high price of oil means that you have a 
high raw material cost going into the refining business.
    So those that have to buy that crude oil suffer the 
consequences of that, because there is no correlation between 
crude cost and product pricing at the tailgate of a refinery. 
It is all set by the market, and it is the law of supply and 
demand.
    Senator Inhofe. Mr. Kassel, do you have any response to 
this?
    Mr. Kassel. Sure, I do. First of all, I just want to 
clarify that when I was talking about the reasonable costs that 
we think would be borne by the refineries, we are looking at 
that in terms of a comparison.
    Senator Inhofe. So you were not talking about regional 
costs that would be borne by the institutions represented by 
Mr. Rogers?
    Mr. Kassel. Right, that point was about the refinery issue.
    Senator Inhofe. Do you think those costs are reasonable? 
That was not addressed in your statement.
    Mr. Kassel. Well, it actually was briefly addressed. What I 
was trying to do, and it is outlined further in my written 
statement, is to try to answer or solve the problems that are 
posed by a multiple fueling situation; the problems of 
misfueling, the problems of fuel supply contamination.
    Those are very real problems that the retail sellers and 
that the other distributors of diesel fuel would have to 
account for and pay for, if we went into a situation where we 
had multiple grades of diesel fuel.
    I think every business has its own version of what is a 
reasonable cost for that year, for that quarter, or for that 
decade. But in thinking through a sound policy, what I have 
tried to do is answer the questions that are raised by the 
affected industries.
    One of those is a real fear of fuel supply contamination; a 
real fear of having to invest in multiple fueling with pumps at 
each station. There is no reason for that, because a national 
program with a national fuel would obviate the need for those 
types of expenses.
    That goes back to how we look at it, before a policy 
decision is made, and there is a lot of uncertainty as there is 
today; and after a policy decision is made, when businesses can 
properly account for what their capital expenditures will be. 
That is why we hope to finish the rule this year.
    Senator Inhofe. OK, we are having a problem now because of 
the action of the Democrats on the floor. So I am just going to 
ask one more question. Let us start with you, and just get a 
response to it.
    If the rule is finalized, and I am talking about finalizing 
it at the end of the year, it would become effective in 2007. 
Because of all of these problems that we have here, I would 
like to have each one of you respond as to what would be wrong 
with delaying the finalization of this until some of these 
questions are answered, since it is not going to be going in 
effect until 2007, anyway.
    Mr. Kassel, you may start first.
    Mr. Kassel. This proposal will require changes in every 
step of the fuel industry, the engine industry, the after-
treatment industry.
    Senator Inhofe. Maybe I need to rephrase that. In your 
response also, apparently, in 2003, there will be a technology 
review, which could change some of these things that they are 
starting to do, in order to comply with what they think is 
going to be required by 2007.
    Go ahead. I am sorry.
    Mr. Kassel. Technologies have been used in the past by EPA 
to address some of these questions as they go forward. EPA just 
finished one in July. Technology review would be far preferable 
to delay.
    Our concern is that this is a complicated program. We would 
hope that companies that are affected will have the maximum 
amount of time and the maximum amount of certainty on which to 
base their R&D programs, their capital expenditures, and so on. 
Every year that we delay, it means extra asthma and extra 
cancer. Those are avoidable, and that is our concern.
    But it also means uncertainty for the companies that will 
be affected. It means they would be playing catch-up later. We 
would like to avoid that.
    Senator Inhofe. We need time for the others.
    Mr. Williams, do you have any response to that?
    Mr. Williams. Yes, it is impossible to plan significant 
investments of this type, when you are undergoing technological 
review at the same time.
    We are all going to have one shot at doing this, whatever 
the rule ends up being. To be forced, early on, to plan your 
capital investment contract and build, et cetera, at the time 
when you are undergoing technological review is going to be 
impossible.
    There is going to be a big run on construction in this 
industry in the next 4 years. It is going to be very difficult 
to find contractors, get engineering, and all of that done with 
rash of investment that is going to have to be made.
    If we are going to undergo technological review, which we 
need to and we are planning to, we definitely need to have a 
delay, in order to make sure we do it right the first time.
    Senator Inhofe. In other words, change it so you would have 
that technology review before having to start into the expense 
of making your changes?
    Mr. Williams. Exactly, because you cannot afford to get it 
wrong.
    Senator Inhofe. Mr. Rogers?
    Mr. Rogers. Mr. Chairman, I still have questions as to why 
they rushed. We all know that we need to make further 
improvements and change the spectrum of what we are getting in 
sulfur.
    The industry has stated they can readily take it to 50 
parts per million from 500, which is a 90 percent reduction 
which, as stated before, was a 90 percent reduction from where 
it was prior.
    We do not know what the effects of that are going to be on 
the asthma and so forth by reducing it that far. You are 
talking about a 7 percent factor difference between the 90 and 
97.
    Our concern is that the amount of investment that has got 
to be made by the refining industry is so drastic, to bring in 
that other 7 percent, as you said, we do not know what the 
technology is going to be and where it is going to be in that 
sector.
    So our concern goes back again to we certainly have 
concerns about the imposition of this rule immediately by the 
end of the year. We do not think it is going to set it enough. 
We certainly have concerns that the EPA is rushing to get this 
done.
    Senator Inhofe. Thank you, Mr. Rogers.
    Ms. Vujovich, you have a different type of compliance 
requirements. What is your thinking on this?
    Ms. Vujovich. Well, as you have mentioned and others have 
mentioned, there is an awful lot of uncertainly still 
surrounding this rulemaking. There is no doubt that there will 
be huge changes in the industry, whether it is the petroleum 
industry or the engine industry.
    We, as an engine industry, understand that the next level 
of emissions control will require after-treatment systems. So 
there is no doubt in our mind that the next level of control 
will require after-treatment systems.
    I want to dismiss anyone's notion that the industry will 
not be working on these things, absent a rule in place. By Mr. 
Kassel's own testimony, he referred to the work that is going 
on in Cummins' labs today, with development targets at least at 
the levels that EPA is proposing in the rulemaking.
    So without a rulemaking, our individual shops have 
development targets at ultra-low levels. As an industry, we are 
ready to continue the development work, and understand the 
costs and understand the complexity in making sure that we can 
commit to 435,000 miles of emissions control, without a rule in 
place, but understanding that there is a technology that needs 
to be developed. We will subject ourselves to a review of that, 
as time goes on.
    Senator Inhofe. Thank you very much.
    Ms. Vujovich. Thank you, Mr. Chairman.
    Senator Inhofe. One of the concerns that I have is, as an 
elected person, I face problems that bureaucrats do not face. 
That is, the price of gasoline, the price of fuels. They are 
going to be going up.
    So I am going to make an observation so that later on, I 
can come back and read this out of the record as having said 
this on this date.
    This week, the price of oil reached $37 a barrel. This is 
totally unprecedented, certainly, since the Gulf War. Even the 
Clinton Administration has predicted that home oil prices would 
raise by 30 percent this winter over last winter. I think it is 
going to be more that. I have heard estimates as high as 
doubling the price over last year.
    Crude oil stockpiles are at the lowest they have been since 
1976. When President Clinton met with the Saudi Crown Prince 
Abdulla at the United Nations summit to request the Saudis to 
produce more oil, he stated that the high gas prices could 
trigger a recession. This is the President saying this.
    One of the hidden causes of high oil prices are the 
numerous environmental regulations. For example, on June 5th, a 
Department of Energy memo revealed that the Clinton/Gore 
Administration knew that the environmental regulations were a 
major reason that gas prices jumped to record levels this 
summer, even though what you hear from Clinton and Gore and 
Carol Browner is that it is all the fault of big oil companies.
    For those of you who doubt where the President and Vice 
President are on this issue, I will quote from Al Gore's book, 
Earth in the Balance: ``Increasing taxes on fossil fuels is one 
of the logical first steps in changing our policies in a manner 
consistent with a more responsible approach to the 
environment.''
    The view of the Clinton/Gore Administration is, if you 
cannot increase taxes enough, then increase environmental costs 
instead.
    I will repeat this one more time. We have some real 
legitimate concerns that we want to be addressed, that I do not 
know whether they can be addressed in that short period of time 
by the EPA. But we are going to send those to the EPA.
    In the event they are not, then as soon as we get back in 
session, in the next session, I will invoke the Congressional 
Review Act, in order to keep this from being imposed on the 
American people.
    Thank you very much. I am sorry we had to rush this, but it 
was something that we could not help. We are adjourned.
    [Whereupon, at 11:25 a.m., the subcommittee was adjourned, 
to reconvene at the call of the Chair.]
    [Additional statements submitted for the record follow:]
   Statement of Ronald W. Williams, President, Gary-Williams Energy 
                              Corporation
Introduction
    Good morning, Mr. Chairman and members of the committee.
    My name is Ron Williams. I am President, Chief Executive Officer 
and an owner of Gary-Williams Energy Corporation, a Denver-based 
refining and marketing company. Our primary asset is a 50,000 BPD crude 
oil refinery in Wynnewood, Oklahoma. Companywide, we have about 275 
employees and fall within the definition of small business refiner used 
for the Heavy Duty Engine and Vehicle Standards and Highway Diesel Fuel 
Sulfur Control Requirements proposed by the Environmental Protection 
Agency in May of this year.
    I have been asked to speak today on behalf of the oil and gas 
industry as a whole. We are members of both the National Petrochemical 
and Refiners Association (NPRA) and the American Petroleum Institute 
(API). NPRA represents virtually all of the US refining industry; API 
represents all sectors of the petroleum industry: exploration and 
production, transportation, refining and marketing. In addition, we 
served as a representative of an ad hoc coalition of some 15 small 
refiners producing diesel fuel during the SBREFA (Small Business 
Regulatory Enforcement Fairness Act) panel investigation into the 
impact of EPA's proposed rule on small business refiners.
General Industry Concerns
    NPRA and API have previously testified before this committee and 
have devoted extensive resources to try to work with EPA and to analyze 
technical issues on this proposed ruling. The industry as a whole 
firmly supports the clean air benefits of lower sulfur fuels. At the 
same time, however, the industry believes that the costs and benefits 
of these regulatory requirements must be carefully weighed in the 
context of their impact on energy supplies and the ultimate burden on 
consumers and the national economy. In short, we fear that EPA's haste 
to promote very sensitive engine technology is prematurely driving 
stringent and unreasonable fuel standards. We believe that a 15 ppm cap 
on diesel sulfur (effective in April 2006) will mean a sharp reduction 
of highway diesel fuel supplies, higher fuel prices and significant 
market volatility. In addition to those in the fuel industry, the rule 
will hurt all those who rely on highway diesel fuels, including 
truckers and distributors of goods and services. Diesel-fueled trucks 
and buses are the backbone of commerce in this country. The ultimate 
harm will be to consumers, jobs and the economy.
    Among the key concerns shared by most of the refining industry are:
    1. The 15 ppm diesel sulfur cap proposed by EPA is unreasonably 
stringent. To produce product consistently to that standard (allowing 
for inevitable operational disruptions), a refinery must in fact set 
itself a much lower cap. At least two things will happen: first, 
refiners choosing to produce for the highway market will incur 
significant capital and operating costs and consumers will experience 
about a 5 percent fuel economy loss; second, other refiners will be 
forced to limit or forgo participation in the highway diesel market. As 
a result, additional diesel volumes will be necessary just to match 
current demand.
    2. The US fuel refining and distribution systems will not be able 
to expand to meet anticipated future demand. Refineries are now 
operating at over 95 percent of rated capacity which is approximately 
full sustainable capacity and this rule will shrink existing capacity. 
Forecasts (by the Energy Information Administration) are that US diesel 
demand will increase by 6.5 percent between now and 2007, gasoline 
demand will grow by 1.9 percent per year and jet fuel demand will rise 
by 3.2 percent per year. (Note: jet fuel is made mainly from high 
quality, light distillates and ``competes'' with diesel for blending 
components.)
    3. Distribution problems will further reduce available supplies of 
ultralow sulfur diesel fuel and restrict the industry's ability to 
respond to any unexpected supply shortfalls. Potential for 
contamination in pipelines, barges, tankers, etc. will constrain 
shipment schedules and require more extensive interface cuts. EPA 
itself has suggested that some 2 percent of highway diesel may be 
downgraded to off-road fuel because of a required increase in pipeline 
transmix.
    4. Importing additional diesel supplies to meet demand will be 
restricted because foreign producers will be unlikely to meet our more 
stringent sulfur standards.
    5. Costs to meet a 15 ppm standard will be significantly greater 
than EPA projects. According to EPA, costs for diesel fuel under the 
new standard would be approximately three to four cents per gallon 
higher. API, however, projects incremental costs of 12 cents per gallon 
for diesel manufacturing ($8 billion in refinery capital investments) 
and an additional two cents per gallon for distribution expenses. API 
estimates that the capital costs to reach a 50 ppm standard (a 90 
percent reduction in sulfur levels from today's standards) would be six 
cents per gallon higher than EPA forecasts but about half the outlay 
for the 15 ppm level.
    6. Unable to make the huge investments required for a 15 ppm diesel 
cap and facing additional massive expenditures to meet almost 
simultaneous new regulations on gasoline sulfur, oxygenates and air 
toxics, some larger refineries will move out of the highway diesel 
market. Some smaller refineries will be forced to go out of business 
all together. The off-road market will be flooded with higher sulfur 
diesel. API has estimated that the shift away from on-road diesel could 
be in the 20 to 30 percent range. More production loss may result from 
refinery closures. Faced with the high cost of regulation and low rates 
of return, more than 25 U.S. refineries have already closed in the last 
10 years.
    7. The industry is in agreement that major supply shortfalls should 
be anticipated. Estimates range from 10 to 30 percent of projected 
demand. A just-released Charles River Associates (CRA) study suggests a 
nationwide average shortfall of more than 12 percent with particularly 
acute supply shortages at the regional level. On road diesel supply is 
projected to decline by 18 percent in Petroleum Administration for 
Defense Districts (PADDs) I, II (where our Wynnewood refinery is 
located) and III and by 37 percent in PADD IV, relative to the DOE 
baseline forecast of market demand in 2007. CRA estimates potential 
price increases in PADDs I-III of $0.54 to $0.80/gallon and potential 
price spikes of $1.56 to $2.28/gallon in PADD IV should an insufficient 
volume of imports be available to cover the loss of domestic 
production.
    8. The effective date of the proposed diesel rule overlaps the 
period when refiners will be making major refinery modifications needed 
to meet new Tier 2 gasoline sulfur requirements. In addition to the 
major cost burdens imposed, almost simultaneous implementation of the 
standards will exceed the capacity of available engineering and 
construction resources.
Industry Recommendations
    The refining industry has specifically urged EPA to take three 
critical steps:
      Conduct a thorough technology review (for engine and 
emission systems as well as refinery desulfurization technology) before 
finalizing the rule;
      Set reasonable and cost-effective standards for vehicles 
and fuels;
      Set an effective diesel sulfur implementation date that 
does not overlap the Tier 2 gasoline requirements.
    The industry has no reason to believe that the Agency will respond 
to these urgent recommendations without congressional intervention.
Small Refiners' Dilemma
    Small business refiners share the same concerns as the majors with 
this rulemaking, but our problems are much greater. There are fewer 
than 25 small refiners meeting the EPA definition (fewer than 1,500 
employees and total capacity not exceeding 155,000 BPD).
    There are also numerous small refineries owned by larger companies 
with significant crude oil production and/or significant retail outlets 
which they also own or control. In some cases the owners are in 
partnership with foreign producers such as Saudi Arabia and Venezuela. 
In addition, they own other much larger refineries.
    The benefits that these major companies enjoy from their sheer 
size, diversification and integration are many:
       Easy access to both debt and equity capital;
       Lower cost of capital;
       Significant overhead savings and buying power with 
multiple refineries (e.g. utilities, operating supplied, engineering 
services, etc.);
       Ability for one segment of their business to subsidize 
or ``carry'' another segment; and
       Enormous ``staying power''.
    For most of these major companies, their refineries are viewed as 
part of an integrated system. For example, several foreign producers 
have invested in US refineries to increase their market share of crude 
oil imports. Historically, profits from the major oil companies' crude 
oil production and retail marketing have subsidized the dismal rates of 
return on their refining assets. Many of the larger companies have 
publicly announced their desire to achieve a ``balance'' between the 
amount of refining capacity they own and retail distribution outlets 
they own or control. It is clear that the major oil companies' size, 
diversification and integration create a formidable, competitive 
advantage over the small refiners.
    In short, small refiners are less able to raise the necessary 
capital and to endure the related increased operating costs which 
desulfurization investments will require; we face proportionately 
higher costs because we do not enjoy the same economies of scale; we 
cannot compete for limited construction and engineering resources. Many 
of us are also faced with meeting stringent Tier 2 gasoline standards 
in approximately the same timeframe.
    In our case, for example, we estimate that Wynnewood refinery's 
capital costs to reach 15 ppm diesel sulfur will total approximately 
$48.5 million. In addition, our annual operating and maintenance costs 
will increase $6 to $7 million, an amount equal to our historic annual 
net income. Clearly there would have to be a significant increase in 
profit margins, which has not been the case with past environmental 
investments.
    If we must comply with the Tier 2, Diesel and Air Toxics rules as 
issued or proposed, according to our best estimates, GWEC must finance 
capital expenditures totaling $87 million in a 5-year period between 
2003 and 2007. Not included in this total is an additional almost $3 
million capital expenditure which will be required by the fall of 2003 
under MACT standards expected to be released in the next few months.
Importance of Small Refiners in a Vibrant National Oil and Gas Industry
    Small business refiners believe this regulation will irreparably 
damage the competitive fabric of our industry and result in 
unnecessarily higher prices for diesel fuel consumers. Several will go 
out of business. In our case, the impact of this proposal is 
devastating and, if not amended, will ultimately cause us to shut down 
our refinery.
    What then would result? The rapid and pervasive trend toward 
megamergers in the industry will continue unchecked. There will be 
fewer if any small independents able to provide competitive products 
and to challenge the majors' price increases. Historically, small 
refiners have not only often been the lifeblood of the small 
communities in which they operate, they have served an essential 
function in providing pricing competition which requires the larger 
integrated companies to better meet the needs of the consuming public. 
Often the small independent provides the lowest wholesale price in the 
market for gasoline and diesel.
    Also small refiners serve an essential national security function. 
In 1998/99, for example, small refiners (representing only about 4 
percent of the diesel refining capacity in this country) provided 
almost 20 percent of the military jet fuel used by U.S. Military bases. 
Small refiners with defense contracts supplied almost 500 million 
gallons of jet fuel.
Extensive Effort Has Not Produced Comprehensive Small Refiner Solutions
    Small refiners have worked diligently with the SBREFA panel and 
with EPA directly to outline the complex range of problems and 
circumstances facing the small refiner group and to underline as 
strongly as possible that there is no one solution that will enable all 
small refiners to survive. Wynnewood Refining Company, for example, is 
one of only a few small refiners without a distillate desulfurization 
unit. Because of the strong local agricultural, ranch and oil field 
markets, the additional desulfurization capacity has not previously 
been necessary.
    Our many discussions with EPA staff, give us no reason to believe 
that the final rule will include adequate accommodation for the 
majority of small refiners. The apparent sensitivity of diesel engine 
technology now contemplated and the Agency's headlong rush to impose a 
rule immediately mean that there will be no opportunity for additional 
research and no incentive for the development of alternative 
technologies that might be equally as effective with slightly higher 
sulfur fuel.
Preservation of the Small Refiner Segment
    Small refiners concur with the industry position summarized above. 
Like the industry as a whole, small business refiners are united in our 
belief that the costs, technical difficulties and tight timeframes 
imposed under the proposed diesel rule will push the US refining 
industry to limit production of ultralow sulfur highway diesel, cause 
supply shortages and price increases and flood the off-road market with 
higher sulfur product. This shift away from the on-road market will be 
substantial as many refiners decide to drop their Light Cycle Oil (LCO) 
into the off-road market rather than make the large capital investments 
required to process the entire stream to a 15 ppm cap. The related glut 
in the off-road market will reduce the price of off-road diesel and put 
many small refiners who rely on that market, like Wynnewood Refining 
Company, out of business.
    As the industry has pointed out, the rational and preferred 
solution is to delay issuing the rule. If the Agency were to withdraw 
the rule to allow for more time to complete the research and thoughtful 
analysis needed, a more thorough investigation of highway diesel supply 
questions and antidumping provisions could be undertaken and 
subsequently public comment could be invited.
    If, however, EPA proceeds with the rulemaking, small refiners urge 
EPA to adopt anti-dumping provisions in its final rule, to preserve the 
small refiner segment and to mitigate the very real probability that 
the supply of highway diesel will be reduced. One suggestion is to 
limit sales of high sulfur diesel into the off-road market to a 
refiner's current volume or some appropriate baseline. Additional sales 
into the off-road market would be allowed, but the sulfur standard for 
incremental volumes would be whatever cap is adopted. Small business 
refiners, who produce only about 4 percent of the nation's diesel and 
who market almost exclusively in attainment areas, would be exempt from 
this provision. This sort of anti-dumping provision would provide 
certainty that the on-road market would be first priority and therefore 
adequately supplied since there would be no economic incentive to dump 
incremental diesel into the off-road market. Such a provision would 
have no material environmental impact. In fact, because LCO is at the 
high end of allowable off-road sulfur levels, without an antidumping 
provision, off-road pollutants would probably increase.
Access to Capital
    Whatever provisions EPA adopts for small business refiners will not 
be sufficient to keep all of us in business. We must have help to 
finance these incredibly costly regulations. We ask that Congress and 
the Administration fully realize the ramifications of this rule to the 
small refiner. The extraordinary costs involved will result in small 
refinery shutdowns, and less competition in the market place. If EPA is 
allowed to proceed, we ask that Congress and the Administration 
consider providing tax credits, loan guarantees and other provisions to 
assist small business refiners.
    For example, among the types of assistance that should be 
considered:
       $0.05/gallon excise tax credit or an income tax credit 
for small refiners to defray costs of an investment in desulfurization 
technology; and
       Increase in SBA maximum loan guarantee on pollution 
control loans from $1 million to $10 million or higher.
Conclusion
    In conclusion, the refining industry, including the endangered 
small business refiners, believe that this rule must be subject to much 
more extensive review than the Agency's current timetable will allow. 
Without some delay to allow the complex analyses of engine technology, 
desulfurization technologies and costs and supply disruption 
probability, this country can expect to see price spikes, fuel 
shortages and consumer outrage that may make recent protests in the 
midwest and Europe look mild in comparison.
    Thank you for the opportunity to express these views.
                               __________
Statement of Paul Rogers, Chief Operating Officer, Voss Companies, Inc. 
on Behalf of NATSO, Representing America's Travel Plazas and Truckstops
    Good Morning Mr. Chairman and members of the subcommittee. My name 
is Paul Rogers, and I am the Chief Operating Officer for Voss 
Companies, a small family owned company based in Cuba, Missouri. Thank 
you Mr. Chairman for inviting me to testify today on the Environmental 
Protection Agency's Proposed Regulations which would reduce the sulfur 
content of highway diesel fuel.
    Voss Companies owns and operates 3 truckstops in the Midwest, along 
with a small chain of convenient stores. We employ 275 people 
throughout our operation, and sell approximately 45 million gallons of 
diesel fuel at retail every year.
    With over 26 years of personal experience in the truckstop 
industry, I appear before the subcommittee today on behalf of NATSO, 
the national trade association representing the travel plaza and 
truckstop industry. NATSO represents nearly 400 companies, which 
operate approximately 1,200 travel plaza and truckstop locations 
nationwide.
    As the primary retailer of highway diesel fuel, the truckstop 
industry is a vital link in the transportation of goods and services 
throughout our country. The vast majority of our nation's products are 
delivered by diesel powered vehicles; everything from the clothes we 
wear to the food we eat. Our nation's travel plazas and truckstops are 
a critical link in the movement of these goods, providing the fuel 
needed to keep these trucks, and our economy, running smoothly.
    In an effort to improve air quality, EPA has proposed that the 
sulfur content of all highway diesel fuel sold to consumers be reduced 
from its current level of 500 parts per million to just 15 parts per 
million beginning in 2006.
    While the travel plaza and truckstop industry supports efforts to 
reduce emissions, NATSO has serious concerns and objections with EPA's 
proposed diesel sulfur regulation and the effect it will have on our 
nation's energy supply and delivery system. As proposed, EPA's rule 
will reduce overall supplies of diesel fuel, lead to significant spot 
outages, and significantly increase the cost of diesel fuel and other 
distillates.
    NATSO is very concerned that this drastic 97 percent reduction in 
the sulfur content of highway diesel fuel will seriously disrupt the 
truckstop industry's ability to consistently and reliably acquire 
highway diesel fuel for sale in our nation's vehicles.
    The investment which refiners will need to make in order to reduce 
sulfur levels by 97 percent may force many refiners to opt out of the 
highway diesel market and instead focus on other market segments for 
product production. Further, some refineries may cease operations 
altogether. With our nation's current fuel supply strained as it is, 
the loss of any additional diesel production and supply would be 
devastating.
    Additionally, due to its integrated structure, it does not appear 
that our nation's diesel fuel distribution system could maintain ultra-
low sulfur highway diesel fuel supplies in all areas of the country on 
a reliable basis. This serious problem could lead to fuel cross-
contamination, spot outages of highway diesel fuel, and severe price 
spikes.
    Furthermore, under EPA's proposed 97 percent reduction in sulfur 
levels, domestic highway diesel fuel will have a lower sulfur level 
than highway diesel fuel produced in most other nations. This would 
essentially prohibit the influx of foreign supplies of diesel fuel 
which could otherwise be used to ease shortages in domestic production 
and supply.
    Ultimately, under EPA's proposal, less diesel fuel will be produced 
and supplied, driving up prices and costs, and endangering the 
integrity of our nation's energy supply and delivery system.
    Truckstop operators--a critical link in the movement of goods and 
services throughout our nation--must be able to reliably acquire diesel 
fuel for re-sale to not only remain a viable and important part of our 
nation's fuel delivery system, but to ensure that adequate supplies of 
diesel fuel are available to power our country's vehicles.
    EPA, in a misguided attempt to address the problems which would 
result from the extreme sulfur reductions proposed, has sought comment 
on various phase-in schemes which would result in the temporary 
manufacture, sale, and use of two separate grades of highway diesel 
fuel. These scenarios would allow the current 500 parts per million 
highway diesel to continue to be produced alongside the new ultra-low 
sulfur diesel for a period of years until it is eventually phased out 
in favor of the new ultra-low sulfur fuel.
    NATSO is strongly opposed to these phase-in schemes, as they would 
prove devastating to the entire diesel fuel distribution system, 
including travel plazas and truckstops, while having the net effect of 
further reducing the supply of diesel fuel available at retail.
    It is critical to note that the entire diesel fuel delivery system, 
from refinery to retail, is currently handling a single grade of 
highway diesel fuel. Because the travel plaza and truckstop industry is 
also configured to carry a single grade of highway diesel, the 
introduction of a second separate grade would force the truckstop 
industry to make tremendous capital investment to carry both products 
at retail.
    Significant expenditures, over $100,000 per location in many cases, 
would need to be made to ensure that these separate grades of diesel 
are properly segregated to prevent their cross-contamination, and to 
avert misfueling at the pump. This would result in the need for new 
storage tanks, the re-piping and re-manifolding of tank lines, new 
pumps and monitors, and other significant compliance expense. In many 
cases, the permits for such a mandate would be unattainable.
    Furthermore, these costs, which would be borne by an industry which 
largely consists of small independent owner/operators who are still 
recovering financially from the 1998 underground storage tank upgrades, 
would prove to be unrecoverable due to the temporary nature of the two 
fuel system.
    The introduction of a second grade of highway diesel could 
therefore force many truckstop operators out of business, and have the 
additional effect of further reducing diesel fuel supply.
    NATSO urges the subcommittee to express to EPA your opposition to 
these phase-in schemes which would result in the temporary manufacture, 
sale, and use of two separate grades of highway diesel fuel. These 
phase-ins will place at risk the integrity of our nation's diesel 
fueling infrastructure, raise costs throughout the distribution chain, 
and reduce overall supplies of highway diesel fuel.
    NATSO does support efforts to improve our nation's air quality 
without placing our energy supply and delivery system at risk. The 
petroleum industry has stated its support for a 90 percent reduction in 
sulfur levels from 500 parts per million to 50 parts per million. Such 
a reduction, if it occurs without a two-fuel phase-in scheme and with 
sufficient lead-time for refiners and emission control manufacturers, 
would achieve significant reductions in emissions, while maintaining 
the integrity of our nation's diesel fueling infrastructure.
    On behalf of NATSO and the truckstop industry, I again thank the 
subcommittee for holding this important hearing. I would be happy to 
answer any questions from the subcommittee.
                               __________
Statement of Richard Kassel, Senior Attorney Natural Resources Defense 
                             Council (NRDC)
highway diesel fuel sulfur control requirements--epa docket no. a-99-06 
                                  \1\
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    \1\65 Federal Register 35430 (June 2, 2000) (the ``Proposal''). 
Abbreviations not defined herein shal have meaning attributed to them 
in the Proposal.
---------------------------------------------------------------------------
I. Introduction
    Thank you for the opportunity to testify today on EPA's diesel fuel 
and emissions proposal. At NRDC,\2\ we believe strongly that EPA's 
diesel proposal offers a once-in-a-generation opportunity to 
significantly cleanup one of America's most enduring pollution 
problems. Given the critical importance of the diesel trucking industry 
to our nation's economic health, it is essential that EPA act as 
quickly as possible to ensure the nation that its trucks and other 
diesel vehicles are as clean as possible.
---------------------------------------------------------------------------
    \2\The Natural Resources Defense Council (NRDC) is a national, non-
profit environmental advocacy organization. Founded in 1970, NRDC has 
over 400,000 members nationwide, and offices in Washington, DC, New 
York City, Los Angeles, and San Fransisco.
---------------------------------------------------------------------------
    NRDC has been working to clean up diesel emissions since the mid-
1970's at about the same time as we were spear-heading the campaign to 
remove lead from gasoline. The connection between our lead campaign and 
EPA's current proposal is an important one: Just as lead in gasoline 
was the barrier to cleaner cars in the 1970's, sulfur in diesel is the 
barrier to cleaner trucks and buses in this decade.
    NRDC strongly supports EPA's proposal for a very simple reason 
EPA's proposal means cleaner air and better health for all Americans. 
By mid-2006, 97 percent of the sulfur in diesel fuel would be 
eliminated, and starting with the 2007 model year, asthma attack-
inducing soot particles would be slashed by 90 percent. By the end of 
the decade, tailpipe emissions of smog-forming nitrogen oxides (NOx) 
would be cut by 95 percent. These emission reductions will be the 
equivalent of removing the pollution from 13 million of today's trucks 
from the roads,\3\ and will result in the elimination of 2.8 million 
tons/year of NOx, 305,000 tons/year of non-methane hydrocarbons, and 
110,000 tons/year of particulates.\4\ This will bring critical relief 
to the more than 120 million Americans live in areas that don't meet 
EPA's health standards for ozone and/or particulate matter.
---------------------------------------------------------------------------
    \3\Statement of EPA Administrator Carol M. Browner, May 17, 2000.
    \4\65 Federal Register 35430 (June 2, 2000).
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    The key to the success of EPA's Proposal is the desulfurization of 
today's high-sulfur diesel fuel: Just as a small amount of lead in 
gasoline disables automobile catalytic converters, even a small amount 
of diesel sulfur will disable the most promising emission controls for 
nitrogen oxides and will make the soot controls less effective. In 
other words, a smaller, compromised sulfur cut (as suggested by oil 
interests) would render the EPA's proposed PM and NOx targets 
unachievable, but EPA's proposed 97 percent sulfur cut would make the 
air cleaner in every State of the nation.
    Undoubtedly, the oil industry and its allies will continue their 
fight until the end of the year, hoping to push this Proposal into the 
next Administration. They are fighting against cleaner air and improved 
public health--even though the oil industry earns more profits in a 
single quarter of a single year than its own estimated costs of 
compliance for the entire 10-year roll-out of the Proposal, and even 
though the past three decades of environmental regulations are filled 
with examples of air pollution regulations that did not cost nearly as 
much as industry advocates had previously estimated.
    EPA and the administration should continue to hold firm because it 
is on the verge of a historic environmental victory. When it happens, 
removing sulfur from diesel fuel will be the biggest vehicle news since 
the removal of lead from gasoline. By cleaning up every truck and bus 
in the nation, this should mean longer, healthier lives for asthmatics, 
and many other Americans, who currently hold their breath when a diesel 
truck or bus blows by and who fear the summer's first ozone alerts far 
more than they should.
    However, NRDC believes strongly that the Proposal--and EPA's 
overall program to reduce diesel emissions--can be improved in the 
following ways: (a) remove the 4-year phase-in of the NOx standard, 
thereby implementing this standard fully in 2007; (b) improve the in-
use compliance and enforcement program, to ensure that engine and 
vehicle certification emissions more accurately reflect in-use, real-
world emissions levels (c) ensure that the NTE limits and other 
compliance mechanisms of the 1999 Consent Decrees do not expire in 
2004; and (d) add a series of incentives for the increased use of 
advanced technology and alternative fuel vehicles in urban fleets, 
especially transit buses, sanitation trucks and delivery vehicles.
II. The Health Threat of Diesel Emissions
    The reasons for our concern about diesel emissions are clear. In 
our view, diesel's excessive quantities of particulate matter (PM), NOx 
and toxic emissions are probably the most serious air pollution threat 
facing many Americans, particularly in many urban areas.
    More than fifty studies show links between particulate matter 
generally and a wide range of health impacts, including increased 
asthma attacks and emergencies, endocrine disruption,\5\ numerous 
cardiopulmonary ailments, cancer and premature death.\6\ Nitrogen 
oxides contribute to ground-level ozone formation, acid deposition, 
nutrient pollution of waterways, and secondary (i.e., atmospheric) 
formation of particulate matter.
---------------------------------------------------------------------------
    \5\Endocrine/Estrogen Letter, June 2, 2000, p. 6. Researchers at 
the Science University of Tokyo found testicular abnormalities in male 
mice that inhaled diesel exhaust.
    \6\NRDC, Exhausted by Diesel, Third edition, May 1999, pp. 5, 8.
---------------------------------------------------------------------------
    While numerous studies have concluded that the particulate matter 
and nitrogen oxide emissions in diesel exhaust are harmful to human 
health, NRDC is increasingly concerned about the growing evidence that 
diesel particulates are associated with increased cancer risk. Diesel 
exhaust has long been considered to be at least a probable human 
carcinogen by the National Institute of Occupational Safety and Health 
(NIOSH) and the World Health Organization's International Agency for 
Research on Cancer (IARC).
    In the past 2 years, three actions by various government bodies 
moved the nation further along this path: In July, EPA staff reiterated 
its prior conclusion that diesel exhaust is a likely human carcinogen, 
based on compelling epidemiological studies.\7\ We expect the Clean Air 
Scientific Advisory Committee to finalize its work on this document at 
its October meeting. In August 1998, the California Air Resources Board 
(CARB) formally declared diesel particulate exhaust to be a toxic air 
contaminant.\8\ And in December 1998, the National Toxicology Program 
advisory board recommended that diesel exhaust particulates be listed 
as ``reasonably anticipated to be a human carcinogen'' in the ninth 
edition of the congressionally mandated Report on Carcinogens.\9\
---------------------------------------------------------------------------
    \7\U.S. EPA, Office of Research and Development, Health Assessment 
Document for Diesel Emissions, EPA/600/8-90/057E, July 2000, SAB Review 
Draft.
    \8\California Air Resources Board, Resolution 98-35 (listing of 
diesel particulate as a toxic air contaminant), adopted August 27, 
1998.
    \9\See 
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    Diesel's link to cancer results in thousands of avoidable cancers 
nationwide. The association of the nation's State, territorial and 
local air pollution officials estimates that current levels of diesel 
pollution result in over 125,000 potential lifetime cancers nationwide, 
based on their extrapolation of the MATES-II study.\10\
---------------------------------------------------------------------------
    \10\State and Territorial Air Pollution Program Administrators/
Association of Local Air Pollution Control Officials (STAPPA/ALAPCO), 
Cancer Risk from Diesel Particulate: National and Metropolitan Area 
Estimates for the United States March 2000. This report was based on 
calculations of cancer risk first published in South Coast Air Quality 
Management District, Multiple Air Toxics Exposure Study (MATES-II, 
Draft Final Report, November 1999.
---------------------------------------------------------------------------
    NRDC is also especially concerned about the growing incidence of 
asthma in our nation, as well as the association between diesel 
particulate matter and asthma attacks. A recent study estimated that 
asthma cases will double by 2020, hitting one out of every five 
American families.\11\ Nobody knows what causes asthma, but numerous 
studies have found associations between pollution (i.e., both ozone and 
particulate levels) and acute respiratory symptoms, including asthma 
attacks and hospitalizations.\12\
---------------------------------------------------------------------------
    \11\Pew Environmental Health Commission, Attack Asthma: Why America 
Needs a Public Health Defense System to Battle Environmental Threats, 
May 2000.
    \12\Regarding ozone associations, see, e.g., Gilmour, M.I., 
``Interaction of air pollutants and pulmonary allergic responses in 
experimental animals,'' Toxicology 1995 Dec 28; 105(2-3): 335-42; 
regarding PM associations, see, e.g., Nel, A.E., Diaz-Sanchez, D., Ng, 
D., Hiura, T., Saxon, A., ``Enhancement of allergic inflammation by the 
interaction of diesel exhaust particles and the immune system,'' J 
Allergy Clin Immunol 1998 Oct; 102 (4 Pt. 1): 539-54:
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III. NRDC Strongly Supports the Proposed National Sulfur Limit of 15 
        parts per million (ppm), Starting in mid-2006
    NRDC strongly supports EPA's proposed national sulfur cap of 15 ppm 
in mid-2006. In fact, NRDC has previously testified that EPA should 
adopt a national sulfur cap of 10 ppm.\13\ NRDC would strongly oppose 
any sulfur level above a cap of 15 ppm because such a sulfur level 
would disable NOx adsorbers\14\ and other promising NOx and PM 
controls, and would reduce the effectiveness of continuously 
regenerating PM traps and other promising emission controls.
---------------------------------------------------------------------------
    \13\See NRDC Comments on EPA Proposed Rule No. A-98-32, submitted 
at EPA's hearing in Philadelphia, PA on November 2, 1999.
    \14\NOx adsorbers are generally considered to be the most promising 
advanced NOx emission control technologies in development. They were 
originally developed for stationary sources and have been used in lean-
burning gasoline-fueled direct injection engines. Other than an ultra-
low sulfur diesel fuel, no further infrastructure changes are necessary 
with NOx adsorbers--a distinct advantage over SCR, discussed further 
below.
---------------------------------------------------------------------------
    Our opposition to higher sulfur caps derives from the simple truth, 
noted above: Just as a small amount of lead in gasoline disables 
automobile catalytic converters, even a small amount of diesel sulfur 
will inhibit or disable the most promising NOx emission controls and 
will make PM controls less effective.\15\ Because sulfur-sensitive 
emission controls will be affected more by their interaction with peaks 
of sulfur than by average sulfur levels, NRDC believes that EPA should 
focus its sulfur limits on caps, rather than averages.\16\
---------------------------------------------------------------------------
    \15\NRDC notes that sulfur controls for engine lubricating oils may 
also be necessary, to ensure that advanced PM and NOx controls are not 
compromised by sulfur elsewhere in the system. Today's lubricating oils 
have sulfur levels up to 8,000 ppm, which is estimated to be equivalent 
to 2-7 ppm diesel fuel sulfur. If the final rule includes the closing 
of all crankcases, a less-than-2 ppm diesel fuel sulfur contribution 
can be maintained. 65 Fed. Reg. at 35477.
    \16\However, NRDC does not object to an additional limit on the 
average level of sulfur, so long as the cap of 1 S ppm is not 
increased.
---------------------------------------------------------------------------
    NRDC believes that a paradigm shift is required to sufficiently 
cleanup diesel emissions. Such a paradigm shift involves a ``systems'' 
approach to reducing diesel emissions evaluating fuel, engine and 
aftertreatment technologies together as a unified system to maximize 
the potential emission reductions from the entire ``system.'' Reducing 
sulfur levels is the key to enabling a systems approach to reducing 
diesel emissions. Such an approach was critical to the success of last 
year's Tier 2 emissions and gasoline sulfur standards, and it is 
appropriately the principle behind today's Proposal.
    In sum, implementing the new 15 ppm sulfur cap nationally by mid-
2006 makes sense for at least four reasons:
    First, only the near-elimination of sulfur (i.e., capped at 15 ppm) 
will create a fuel supply that is clean enough to adequately support 
the most promising PM and NOx emission controls like continuously 
regenerating PM traps and NOx adsorbers.
    Second, a national approach to low-sulfur diesel is critical, given 
the mobility of the vehicles themselves. Because the presence of sulfur 
could disable NOx adsorbers and other emission controls, EPA must 
ensure vehicle operators that the on-road diesel fuel supply is as 
close to sulfur-free as possible, wherever the vehicle is 
operating.\17\ With a national fuel supply, mislabeling, misfueling and 
fuel supply contamination concerns are eliminated thereby responding to 
the concerns of the nation's diesel fuel sellers.
---------------------------------------------------------------------------
    \17\It is worth noting that, without a national low-sulfur diesel 
requirement, only centrally-fueled fleets will use sulfur-sensitive 
emission control strategies. Other fleets will not want to risk 
contaminating their engine systems with high-sulfur diesel fuel. 
Likewise, without a national low-sulfiu diesel requirement, diesel fuel 
sellers will be forced to operate two segregated fuel systems to avoid 
mixing fuels.
---------------------------------------------------------------------------
    Third, implementing the low-sulfur cap in mid-2006 ensures that the 
fuel supply of low-sulfur diesel will be adequate to service the first 
model year 2007 vehicles that are sold (typically, in the summer and 
fall preceding the calendar year). By requiring that all highway diesel 
fuel produced by refiners or imported meet the new sulfur standard by 
April 1, 2006, and that all highway diesel fuel at the terminal level 
meet the new sulfur standard by May 1, 2006, EPA is providing adequate 
lead time to ensure that all highway diesel fuel users are buying only 
the low-sulfur diesel fuel by June 1, 2006 and is providing a clear and 
useful road map to implementing the sulfur limits in a manner that 
avoids market disruptions that could occur if only a retail compliance 
date were provided.\18\
---------------------------------------------------------------------------
    \18\NRDC notes that several fuel suppliers (e.g., BP, Tosco) have 
already signaled their intention to sell low-sulfur diesel fuel in 
California and elsewhere prior to 2006. In New York, the nation's 
largest operator of diesel transit buses will be using 30 ppm sulfur 
fuel by 2001 and has committed to using 15 ppm sulfur fuel as soon as 
it is available. NRDC assumes that, with proper incentives, other 
fleets would be early adopters of ultra-low sulfur diesel fuel once it 
is available, especially those who seek to participate in EPA or state 
retrofit/rebuild programs.
---------------------------------------------------------------------------
    Fourth, a national low-sulfur diesel fuel will provide direct 
sulfate emissions reductions in pre-2007 diesel vehicles that do not 
have PM or NOx aftertreatment, helping reduce sulfate particulate 
matter, acid deposition (due to reduced sulfur dioxide emissions) and 
other harmful air pollution.
    Predictably, the oil companies that fought unleaded gasoline in the 
1970's and that would have to clean up their diesel fuels in order to 
help the nation's trucks and buses reach the new emission targets are 
crying foul. NRDC firmly rejects the oil's industry's suggestion of a 
90 percent sulfur cut (to 50 ppm) because it would render the EPA's 
proposed PM and NOx targets unachievable.
    Under the oil industry proposal of 50 ppm, PM traps are likely to 
suffer high failure rates, leaving oxidation catalysts that yield only 
a 20 percent PM reduction\19\ as the most likely PM after-treatment 
technology. While some PM traps (including the most promising 
continuously regenerating traps) can operate at 50 ppm, trap clogging 
and failure is a serious problem at this level, due to the formation of 
sulfate PM. Fuel economy also suffers, as a result of increased 
regeneration needs. As a result, it would be difficult--if not 
impossible--for engine, aftertreatment and/or vehicle manufacturers 
and/or sellers to warrant such a trap for the full useful life of the 
vehicle, and fuel economy-sensitive vehicle users might not welcome the 
technology. Consequently, in the event that EPA adopts a 50 ppm sulfur 
cap, manufacturers and sellers would be likely to opt for the less 
effective oxidation catalyst, rendering the proposed 0.01 g/bhp-hr PM 
standard unachievable.
---------------------------------------------------------------------------
    \19\Statement by EPA Office of Transportation and Air Quality 
(OTAQ) Director Margo T. Oge, June 19, 2000, as reported in the 
transcript of the New York hearing on the Proposal, pp. 53, 55.
---------------------------------------------------------------------------
    Likewise, under the oil industry proposal, engine manufacturers and 
vehicle sellers would likely opt for selective catalytic reduction 
(SCR) as their preferred NOx after-treatment because it is less sulfur-
sensitive than NOx adsorbers and other NOx aftertreatment technologies 
that are in development. NOx adsorber efficiencies are dramatically 
reduced when sulfur contacts the NOx storage bed. Perhaps for this 
reason, the Manufacturers of Emission Controls Association has 
testified that industry efforts to develop an effective NOx adsorber 
would cease if EPA adopts a 50 ppm cap.\20\ While SCR seems capable of 
significant emission reductions, it also requires the development of a 
nationwide urea infrastructure that would cost billions of dollars to 
install, operate and maintain. As with oxidation catalysts, it seems 
unlikely that the proposed 0.2 g/bhp-hr NOx standard would be 
achievable with an SCR-only strategy.\21\
---------------------------------------------------------------------------
    \20\Testimony of Bruce Bertelson, June 19, 2000, as reported in the 
transcript of the New York hearing (hereafter, ``Bertelson 
testimony''), p. 56.
    \21\EPA OTAQ Director Oge noted that EPA estimated that a 50 ppm 
sulfur limit would yield NOx reductions of 20 percent, presumably 
because of the perceived limits of SCR technology. See footnote 10 
above.
---------------------------------------------------------------------------
    It is worth reiterating that the oil industry's 50 ppm sulfur limit 
would have a negative effect on the fuel economy of the nation's trucks 
and buses. For example, NOx adsorbers are expected to consume diesel 
fuel as they cleanse themselves of stored sulfates. As noted above, PM 
trap regeneration is inhibited by diesel fuel's sulfur leading to 
increased PM loading, increased exhaust backpressure, and decreased 
fuel economy.\22\ In other words, the higher the sulfur cap, the lower 
the fuel economy.
---------------------------------------------------------------------------
    \22\Memorandum from former EPA Official Michael P. Walsh to 
Interested Parties, May 17, 2000, p. 10.
---------------------------------------------------------------------------
    Because they can't win on the science, the oil industry and its 
allies are making three arguments: The companies can't afford it; 
American consumers won't stand for it; and delay. Each argument is 
addressed briefly in the following paragraphs.
    First, EPA estimates that its proposal will force the oil industry 
to spend, together, between $3 and $4 billion over the next six to 10 
years to update their refineries to produce low-sulfur diesel fuel. 
Given that America's largest oil companies reported nearly $12 billion 
in profits in just the first quarter of 2000 (see Appendix A), this 
investment in cleaner fuels seems to be an extremely reasonable cost of 
continuing an extremely profitable business.
    Second, some oil industry opponents of this Proposal have asserted 
that a 15 ppm sulfur fuel would create an undue cost on the American 
consumer. We disagree strongly. EPA has estimated that these rules 
could add up to four cents to the price of a gallon of diesel fuel over 
the course of the decade--hardly enough to derail the nation's strong 
economy. It is worth noting that BP--the nation's largest seller of 
diesel fuel--has reported that its 15 ppm sulfur fuel will be sold in 
California next year at an incremental cost of five cents/gallon, even 
without the economies-of-scale benefits of a nationwide fuel.\23\ 
Tosco--the nation's leading independent refiner and marketer of 
petroleum products--recently announced its commitment to upgrading its 
California and Washington refineries to enable it to sell 15 ppm sulfur 
fuel in 2003 at a better return on capital for its investors than its 
current, high-sulfur diesel fuel.\24\
---------------------------------------------------------------------------
    \23\http://www.ecdiesel.com/keypoints.html; BP Amoco, press 
release, June 15, 2000.
    \24\News article, ``Tosco Corporation Announces Investment Program 
To Produce Clean Fuels On The West Coast,'' August 3, 2000,
---------------------------------------------------------------------------
    A recent American Lung Association/Clean Air Trust/Environmental 
Defense poll found that 85 percent of the American public would be 
willing to pay the incremental costs anticipated by EPA, BP and 
Tosco.\25\ These costs seem especially reasonable once the benefits of 
eliminating 2.8 million tons/year of NOx, 305,000 tons/year of non-
methane hydrocarbons, and 110,000 tons/year of particulates are 
factored in.\26\
---------------------------------------------------------------------------
    \25\http://www.cleanupdiesel.org/bulletin.061600.html
    \26\65 Federal Register 35430 (June 2, 2000). NRDC also notes EPA's 
estimated incremental vehicle costs of this proposal: $1,000-1,600 per 
vehicle over the long run. Given that heavy-duty buses now cost over 
$300,000 and that heavy-duty trucks can cost over $200,000, we believe 
that this is a reasonable cost of compliance.
---------------------------------------------------------------------------
    Finally, Cummins and some other opponents of the Proposal are 
asking EPA to ``slow down'' the rulemaking process, i.e., that EPA 
should not rush to finalize these rules this year.\27\ These opponents 
claim that the PM and NOx technology has not been demonstrated, so EPA 
shouldn't act.
---------------------------------------------------------------------------
    \27\Statement of Cummins Engine Company, June 19, 2000.
---------------------------------------------------------------------------
    Already, the Manufacturers of Emission Controls Association (MECA) 
has testified in support of the proposed PM and NOx standards and has 
stated that it believes that its members will able to meet the 
requirements of this proposal in a cost-effective manner.\28\ Given 
that MECA members are quite likely to develop and commercialize the PM 
and NOx aftertreatment controls, MECA's position should be given great 
weight by EPA and this subcommittee. Further, it is worth noting that 
the past three decades of environmental regulation are filled with 
examples of regulations that were opposed by regulated entities who 
said it couldn't be done, only to thereafter prove that it could be 
done and usually at a lower cost than initially estimated.
---------------------------------------------------------------------------
    \28\See, e.g., Bertelson testimony, p. 48.
---------------------------------------------------------------------------
    Cummins' position is troubling for another reason. There is 
evidence in the rulemaking docket that suggests strongly that Cummins' 
presumptive emission targets are as low as EPA's proposed PM and NOx 
levels, and that it already believes that NOx adsorbers will work, that 
there are several approaches to sulfur management, and that a sulfur 
level of 50 ppm is deleterious to EGR systems.\29\
---------------------------------------------------------------------------
    \29\Presentation of John Wall, Cummins Vice President, to EPA and 
the White House Office of Management and Budget, May 1, 2000. EPA 
Docket No. A-99-06, Document No. 2E-25, pp. 1, 2, 4, 8, 12.
---------------------------------------------------------------------------
    The bottom line is this: Technologies that require low-sulfur 
diesel are being commercialized and used in Europe and elsewhere, and 
are providing the health benefits of reduced diesel emissions in those 
places. Americans deserve the health benefits of these technologies. 
Every year of delay on industry's part means more avoidable asthma 
emergencies and more avoidable cancers.
    It is worth noting that industry is not monolithic in its 
opposition to this Proposal. We note those industry associations and 
companies that have supported EPA's timetable and the move to ultra-low 
sulfur diesel (in some cases, supporting a move to a cap below 15 ppm), 
including the Engine Manufacturers Association, the Manufacturers of 
Emission Controls Association, the Alliance of Automobile 
Manufacturers, the California Trucking Association, International, 
TOSCO, BP, the Diesel Technology Forum, and others. We invite their 
peers to reconsider their positions of opposition to cleaner fuels, 
trucks and buses.
IV. NRDC Strongly Supports the Proposed Emission Standards for PM, NOx 
        and Other Emissions from Diesel Vehicles and Engines in 2007 
        But With No NOx Phase-In
    NRDC strongly supports EPA's proposed new standards for particulate 
matter and nitrogen oxides (0.01 grams-per-brake-horsepower-hour (g/
bhp-hr) for PM and 0.2 g/bhp-hr for NOx, respectively). However, NRDC 
has strongly urged EPA to eliminate the 4-year phase-in of the NOx 
standard. NRDC also supports and applauds EPA's other proposed 
emissions standards (e.g., non-methane hydrocarbons, formaldehyde, 
complete vehicle standards, gasoline standards), as well as EPA's 
decision to include turbocharged diesels in the existing crankcase 
emissions prohibition.\30\
---------------------------------------------------------------------------
    \30\NRDC notes that EPA should not take any actions in this rule-
making that would preclude further reductions from diesel engines and 
vehicles that may be necessary under EPA's mobile source air toxics 
program.
---------------------------------------------------------------------------
    We have urged EPA to eliminate the NOx phase-in, for the following 
reasons.
    First, by 2007, low-sulfur diesel fuel will be available 
nationwide, so there will be no fuel barrier to the national use of the 
most advanced PM and NOx controls. If the oil industry is required to 
complete its infrastructure and distribution investments by mid-2006 in 
order to provide fuel for model year 2007 vehicles and engines, it 
makes sense to require engine manufacturers and aftertreatment 
suppliers to work on the same timetable.
    Second, implementing all of the new standards at the same time will 
minimize the cost and burdens of compliance. This is especially true 
for the engine manufacturers and after-treatment companies that will be 
commercializing new equipment to meet the proposed PM, NOx and NMHC 
standards, as well as California's upcoming urban bus standards. With 
one national, industry-wide compliance date, these companies will not 
have to maintain multiple production and recordkeeping operations, nor 
will EPA have to investigate the sales records of every truck and bus 
seller in the nation.
    Third, other low-emission heavy-duty activities around the world--
from the California Air Resources Board's urban bus standards to 
various upcoming European national and European Community low-sulfur 
diesel requirements\31\--will have created momentum for the 
commercialization of advanced emission control technologies elsewhere 
that will be applied to meeting EPA's requirements.
---------------------------------------------------------------------------
    \31\Sweden's Class I diesel is capped at 10 ppm sulfur; tax 
incentives are quickly reducing the sulfur in the diesel fuel supplies 
of the United Kingdom and Germany to a cap of 10 ppm; and the European 
Community is considering moving to a 10 ppm cap in the 2007-2008 time 
frame:
---------------------------------------------------------------------------
    Fourth, States around the nation will be relying on the new NOx 
standards to meet ozone attainment and maintenance deadlines over the 
course of the decade. Public health imperatives in these States, 
combined with these States' legal obligation to meet their attainment 
and maintenance deadlines, require the implementation of the proposed 
NOx standard as expeditiously as practicable. It is not clear how 
States will be able to take SIP credits on a NOx standard that is 
implemented over a 4-year timeframe on a percent-of-sales basis. In 
contrast, a full phase-in of the NOx standard in 2007 would enable 
nonattainment areas to take full advantage of this Proposal's NOx 
standard in meeting their attainment and maintenance requirements.
V. In-Use Compliance, Testing Procedures and Enforcement
    Setting more stringent tailpipe standards alone will not be 
sufficient to assure Americans that diesels are getting cleaner, so 
NRDC has urged EPA to ensure the strongest possible in-use compliance 
and enforcement program for the nation's trucks and buses. Thanks to 
the diesel engine industry's decade-long practice of designing and 
building engines that meet EPA's certification standards while emitting 
far-greater emissions on the open road, Americans continue to breathe 
excess NOx emissions from the current truck fleet. These excess 
emissions will add a wide range of serious public health impacts and 
costs, including an estimated 2,500 premature deaths, 5,000 
hospitalizations and public health costs of 6-21 billion dollars over 
the lives of these vehicles. This widespread industry practice resulted 
in last year's consent decrees between the U.S. Government and seven 
major diesel engine manufacturers (collectively, the ``Consent 
Decrees'').\32\
---------------------------------------------------------------------------
    \32\Consent decrees filed in 1999 between the United States and 
each of Caterpillar Inc., Cummins Engine Company, Inc., Detroit Diesel 
Corporation, Mack Trucks, Inc. and Renault V.L, s.a., Navistar 
Internatianal Transportation Corp. and Volvo Truck Corporation.
---------------------------------------------------------------------------
    Even beyond the deplorable industry actions that led to the Consent 
Decrees, several recent studies confirm that emission levels rise 
significantly as a vehicle ages and its parts deteriorate. One recent 
study found that actual NOx and particulate matter emission levels from 
heavy-duty diesel vehicles ranging in age from model year 1994 and 
later were as high as 12.5 g/bhp-hr and 0.6 g/bhp-hr, respectively.\33\ 
This is surprisingly high, given that these same diesel vehicles had 
been certified at NOx and PM emission levels of 5.0 g/bhp-hr and 0.1 g/
bhp-hr, respectively, only a few years earlier.\34\ Even more telling, 
an analysis performed for this same study indicated that ``in-use PM 
and NOx emissions for [tested vehicles] may not reflect the emissions 
improvements expected based on stricter engine certification test 
standards put into effect since 1985.''\35\ In other words, because 
diesel vehicles deteriorate with age but are never re-tested to ensure 
that they continue to comply with certification emission standards, EPA 
may not be realizing the intended air quality benefits from 
increasingly stronger certification standards.
---------------------------------------------------------------------------
    \33\West Virginia University, Transportable Heavy Duty Vehicle 
Emissions Testing Laboratory, Exhaust Emissions Test Results Report of 
Raley's Distribution Center Tractors Sec. 3.4 (September 1997) 
(hereinafter the ``West Virginia Study''); Engine, Fuel, and Emissions 
Engineering, Inc., The Cleaner Choice: Natural Gas as a Substitute for 
Diesel (September 1999) (hereinafter ``The Cleaner Choice'') 
(converting West Virginia Study results from g/mi to g/bhp-hr). See 
also Colorado School of Mines, Chassis Dynamometer Study of Emissions 
from 21 In-Use Heavy-Duty Diesel Vehicles at 1, 9 (hereinafter the 
``Colorado Study''). The Colorado Study covered heavy-duty vehicles 
ranging in age from 1984-1995. As in the West Virginia study, the 
results were expressed in terms of g/mi. The Colorado Study results 
were similar to those of the West Virginia study; however, PM levels 
were found to be significantly higher.
    \34\Id.
    \35\Id. at 2, 14-15.
---------------------------------------------------------------------------
    NRDC notes approvingly that EPA recently finalized a rule (the 
``2004 Rule'') that will require diesel engines to meet the not-to-
exceed (NTE) limits in last year's Consent Decrees, new onboard 
diagnostics (OBD) requirements, a steady-state emissions test and other 
compliance and enforcement mechanisms (collectively, the ``compliance 
mechanisms''), beginning in 2007.\36\ However, NRDC is deeply concerned 
that the final 2004 Rule may leave a 3-year gap between the termination 
of the Consent Decrees in 2004 and the industry-wide implementation of 
the NTE limits and other compliance mechanisms in 2007 under the 2004 
Rule's implementation schedule. Thus, we have urged EPA to take steps 
to extend the Consent Decrees until the codification of the NTE limits 
and other compliance mechanisms are fully implemented in 2007.
---------------------------------------------------------------------------
    \36\EPA, Regulatory Announcement, Final Emission Standards for 2004 
and Later Model Year Highway Heavy-Duty Vehicles and Engines, July 
2000. See http://www.epa.gov/oms/regs/hd-hwy/2000frm/tn0026.pdf (the 
``2004 Rule'').
---------------------------------------------------------------------------
    Even though the 2004 Rule is now final, NRDC stresses the 
importance of these points because of the interaction between the 
Consent Decrees, the 2004 Rule and this 2007 Proposal. It has been 
widely reported that at least some of the engine companies wish to 
weaken the NTE limits and perhaps other compliance mechanisms. NRDC 
continues to urge EPA to maintain a rigorous commitment to these 
mechanisms because they are the public's best protection against the 
kind of emissions ``cheating'' practiced throughout the 1990's and 
because they will help assure the public that real world, in-use 
emissions are being reduced as a result of the Proposal's new emissions 
standards and other provisions. To the extent that competitive issues 
underlie the companies' request for relief from the Consent Decree's 
NTE limits and other compliance mechanisms, NRDC feels strongly that 
the only acceptable resolution of these competitive issues is an 
industry-wide adherence to the NTE limits and the other compliance 
mechanisms, rather than carve-outs and exceptions that favor one 
company over another especially if such carve-outs result in 
competitive advantages for companies that have failed to remove the 
auxiliary emission control devices that were at the heart of the defeat 
device problem.
    To summarize, NRDC strongly opposes any change to the NTE limits 
contained in the Consent Decrees, strongly opposes any weakening of the 
NTE limits or any of the compliance mechanisms in the 2004 Rule, and 
strongly urges EPA to apply the NTE limits and other compliance 
mechanisms to all heavy-duty engines and vehicles, regardless of the 
fuel used.\37\ Further, NRDC strongly encourages EPA to take all 
necessary steps to extend last year's Consent Decrees until the NTE 
limits and other compliance mechanisms are implemented on a codified, 
industry-wide basis in 2007, including a strict enforcement of EPA's 
defeat device policy and returning to court if necessary.
---------------------------------------------------------------------------
    \37\NRDC also encourages EPA to adopt supplemental Federal test 
procedures (SFTP) standards for heavy-duty vehicles that would further 
enable EPA to limit off-cycle emissions from these vehicles. One 
element of such a SFTP adoption would be to consider SFTP standards for 
emerging hybrid-electric vehicles.
---------------------------------------------------------------------------
    Even under the 2004 Rule, it appears that heavy-duty engines and 
vehicles may only be tested once--when they are new. Regular, in-use 
testing--which would demonstrate whether engines or vehicles are 
remaining at certified emissions levels throughout their useful life--
still will not be required under the 2004 Rule or this Proposal. NRDC 
continues to urge EPA to expand its in-use compliance and enforcement 
mechanisms to ensure that emissions from the nation's fleet of heavy-
duty vehicles and engines do not deteriorate as these vehicles and 
engines age.
    In closing, a more robust system of in-use emissions testing will 
become particularly important if and when emerging diesel 
technologies--including the PM traps, NOx adsorbers and other 
aftertreatment technologies envisioned by this Proposal--are 
certified.\38\ Some of these technologies are still being developed, 
and they will be tested and commercialized in upcoming years. However, 
their long-term performance and reliability is not proven yet. This 
point cannot be overstated--regular testing and an effective compliance 
and enforcement program is critical to ensuring the proper operation of 
these new technologies and their abilities to reduce harmful emissions 
over their full useful lives.
---------------------------------------------------------------------------
    \38\An analogy to automobile emission controls is apt here: as 
automobile emission control systems have grown mare sophisticated, 
emissions deterioration and a system of diagnosing malfunctions in 
these systems have become extremely important issues. There is no 
reason to suspect that the introduction of advanced emission control 
technologies to the heavy-duty vehicle market will be any different.
---------------------------------------------------------------------------
VI. Advanced Technology and Alternative-Fuel Vehicle Incentives
    As discussed above, emissions test data demonstrates a gap between 
certification and in-use emissions for heavy-duty diesel engines. This 
gap does not appear to exist for engines powered by alternative fuels, 
such as natural gas.\39\ For example, the staff of the California Air 
Resources Board (CARB) concludes that diesel transit buses currently 
have in-use particulate emissions of approximately 0.23 g/mi, over ten 
times the 0.02 g/mi for natural gas buses\40\--even though the diesel 
buses certify to PM levels only two to three times higher than their 
natural gas counterparts.
---------------------------------------------------------------------------
    \39\Based an data from the Alternative Fuels Data Center. 
www.afdc.doe.gov and Engine, Fuel, and Emissions Engineering, Inc. The 
Cleaner Choice: Natural Gas as a Substitute for Diesel, September 1999.
    \40\CARB. Proposed Regulation for a Public Transit Bus Fleet Rule 
and Emission Standards for New Urban Buses, Staff Report: Initial 
Statement of Reasons, December 1999.
---------------------------------------------------------------------------
    Zero-emission technologies, such as the fuel cell buses expected to 
be commercial by the time EPA's rule goes into effect, offer 
substantial, guaranteed air pollution benefits while also eliminating 
toxic emissions from the tailpipe, substantially cutting emissions of 
greenhouse gases over the total fuel cycle, and reducing reliance on 
foreign oil. Other advanced technologies, such as hybrid-electric 
vehicles, may also offer in-use emissions benefits if they are designed 
to reduce engine operating characteristics that lead to high emissions 
rates.
    These intrinsically cleaner options are currently being 
demonstrated throughout the country in applications such as medium duty 
delivery vehicles, school buses, transit buses and waste haulers, and 
wider applications are expected within the next few years. We have 
urged EPA to ensure that its rule does everything it can to encourage 
these technologies and fuels by (a) revising to its averaging, banking 
and trading (``ABT'') program (a program that permits engines that beat 
EPA's standards to generate marketable credits); (b) creating a 
separate, more stringent emissions standard for fleet vehicles 
(historically, transit buses have met more stringent emissions 
standards than other heavy duty vehicles, thereby providing greater 
health protection from diesel emissions in high-population urban 
centers); and/or (c) creating optional low-pollution standards 
(following California's lead, EPA should adopt optional low-pollution 
standards for diesel engines that would encourage the development of 
even lower-polluting engines, taking toxic and greenhouse gas emissions 
into account)
VII. Conclusion
    NRDC looks forward to working with the subcommittee and all 
interested parties toward the successful finalization of this Proposal 
by the end of this year.
                               appendix a

 
------------------------------------------------------------------------
                                              Company--First Qtr. 2000
           Big Oil's Big Profits                  Profits (rounded)
------------------------------------------------------------------------
ExxonMobil................................                 $3.35 billion
Royal Dutch/Shell.........................                  3.13 billion
BP Amoco..................................                  2.71 billion
Chevron...................................                  1.04 billion
Texaco....................................                   602 million
Conoco....................................                   391 million
Phillips..................................                   250 million
Marathon..................................                   199 million
Coastal...................................                   174 million
Sunoco....................................                    78 million
Tosco.....................................                    75 million
    Total.................................                $11.99 billion
------------------------------------------------------------------------
Source: Clean Air Trust

                               __________
                Statement of Tina Vujovich, Cummins Inc.
   epa's proposed regulations for diesel fuel and heavy-duty engines
    Good morning. My name is Christine Vujovich. I am the Vice 
President for Environmental Policy and Product Strategy for Cummins 
Inc. Thank you, Mr. Chairman and members of the subcommittee, for the 
opportunity to appear here today to discuss the EPA's heavy-duty engine 
and diesel sulfur proposal. This is of great importance to Cummins, as 
well as to society at large due to its significant environmental and 
economic implications.
    Cummins is the only independent diesel engine manufacturer in the 
United States and we are the world's largest producer of commercial 
engines over 200 horsepower. We share the goal of improving our air 
quality and we support the EPA's authority to regulate emissions from 
heavy-duty diesel engines. As a company, we are absolutely committed to 
pursuing technologies that benefit the environment. These technologies, 
however, must also provide the superior performance--including fuel 
economy--that our customers require.
    This is why we have serious concerns about the rush to finalize the 
proposed rule by year's end. The schedule established by EPA is 
politically driven and does not allow time for the work that is 
necessary to assess the technical feasibility and commercial viability 
of technologies required to meet these standards.
    We are urging EPA to provide an additional 18 to 24 months so that 
stakeholders can assess these issues, which are critical to the success 
of the ultimate rule. EPA can do this and still implement a rule for 
2007. To proceed otherwise, however, would result in a rule that is 
unworkable and that undermines the important goal of reducing emissions 
and improving air quality.
    For more than 20 years, my work at Cummins has revolved around the 
environment. It is a challenging job. We provide a technology essential 
to moving this nation's economy, but it is a technology that has 
environmental implications. That is why at Cummins we demand that 
everything we do lead to a cleaner, healthier and safer environment.
    Our engineering and development budget each year is about 4 percent 
of our annual sales, and well over half of that goes directly toward 
environmental issues. This is a significant investment, but one that 
produces significant results.
    I am proud to say that Cummins offers the largest portfolio of low 
emission and alternative fuel engines of any manufacturer. This 
includes building the first natural gas engine to be certified by the 
California Air Resources Board under its Low Emissions Transit Bus 
Standards and leading the industry in the provision of engines that are 
certified to meet EPA LEV and ULEV standards.
    The work done at the transient emissions laboratory at the Cummins 
Technology Center is world-class, and our engineers are regularly 
called on to advise government experts worldwide, which we are pleased 
to do.
    In the early 1980's, EPA developed its first transient test system 
based on the technology at Cummins' testing facility. When EPA needs to 
train its technical staff in the fundamentals of internal combustion, 
it turns to Cummins. Indeed, EPA researched the very rule we are here 
to discuss today on a Cummins six-liter engine.
    Why is all of this important? While many of you in this room are 
familiar with Cummins, those of you who aren't don't know that it 
simply isn't our nature to say ``NO.'' However, we are compelled in 
this instance to speak out loudly and to speak out strongly to say, 
``don't jeopardize the success of this rule in order to meet an 
arbitrary political deadline.''
    This rulemaking represents a lot of firsts.
    This rule for the first time recognizes that fuel and engine 
technology must work together to achieve emissions reductions. And, for 
this, we applaud EPA, because ultra-low NOx and ultra-low particulate 
standards cannot be met without a significant reduction in diesel fuel 
sulfur.
    These are the biggest percentage NOx and PM emission reductions of 
any proposed rulemaking. They come on top of already significant 
reductions.
    Most importantly, this is the first time that proposed reductions 
cannot be achieved through in-cylinder and engine sub-system control 
technologies. This is very significant for two reasons. First, in order 
to achieve the proposed reductions, engine manufacturers will have to 
rely on technologies that we neither make nor install. Second, these 
technologies do not exist today.
    Cummins' current best estimate of the system of aftertreatment 
devices necessary for compliance includes four components: a 
particulate trap, a sulfur trap, a NOx adsorber and an oxidation 
catalyst. These devices, however, are in varying stages of early 
development. Particulate traps are in limited production with more 
development required. Sulfur traps being developed, but are not 
developed yet. The NOx adsorber is currently in the lab, but is still 
years away from field-testing. And, finally the oxidation catalyst is 
in production, but on limited applications. (See attached diagram)
    We can neither evaluate the pieces individually nor as an 
integrated system with the potential to achieve the proposed 
reductions. Moreover, we can only guess as to what impact the 
envisioned system of aftertreatment technologies will have on engine 
performance, fuel economy and cost.


                               __________
        Statement of International Truck and Engine Corporation
    International Truck and Engine Corporation (``International'') 
appreciates the opportunity to submit a statement in connection with 
the subcommittee's September 21, 2000 hearing on the U.S. Environmental 
Protection Agency's (``EPA'' or ``Agency'') proposed model year 
(``MY'') 2007 heavy-duty engine and vehicle standards and highway 
diesel fuel sulfur control requirements. This proposal, which EPA 
published on June 2 of this year, would require substantial emission 
reductions by heavy-duty engines (``HDEs'') through a ``systems 
approach'' premised both on improved fuel quality and advances in 
engine technology.
    EPA's proposed emissions targets are very ambitious. However, our 
company is making sizable investments to develop engine and 
aftertreatment technologies that have the potential to achieve major 
strides in emissions performance for both light-duty and heavy-duty 
diesel-powered vehicles. These technologies are extremely sulfur-
sensitive and will only be effective with the availability of ultra-
clean diesel fuel. EPA's proposed sulfur limit of 15 parts per million 
(``ppm'') is the minimum level of sulfur reduction that can ``enable'' 
the commercial introduction of the emissions control technologies we 
are developing.
    With the assurance of ultra-clean fuel in 2006, our company is 
prepared to make every effort to meet EPA's challenging HDE emissions 
targets for the 2007-2010 timeframe. Since the particulate trap is 
ready for commercial introduction today, we are confident that, with 
ultra-low sulfur fuel, we can achieve EPA's 2007 emission standards for 
particulate matter (``PM''). While the feasibility of NOx adsorber 
technology is more uncertain, we believe that EPA's proposed Nitrogen 
Oxides (``NOx'') standards should be within reach assuming the 2007-
2010 phase-in period under EPA's final rule gives us adequate time to 
mature this technology with clean diesel fuel.
    International does not agree with all aspects of EPA's proposal. We 
have made detailed recommendations to EPA on how the rule can be 
improved. However, we support completing the rulemaking promptly on the 
basis of the extensive record developed by EPA. Postponing the rule is 
not needed for sound decisionmaking and would create uncertainties that 
delay investment in the next generation of fuel and engine 
technologies.
Who is International
    International, formerly known as Navistar International 
Transportation Corp., is a major North American manufacturer of medium 
and heavy-duty trucks and buses marketed under the ``International `` 
brandname. International is the world's largest manufacturer of mid-
range (160-300 hp) diesel engines. Our engines are more than 97 percent 
on-road certified. We supply these engines both to other International 
divisions and to other customers, including Ford Motor Company. 
International is Ford's exclusive supplier through the year 2012 of V-8 
diesel engines for heavy-duty pickups. These heavy-duty vehicles would 
be subject to EPA's proposed MY 2007 emission standards for HDEs. We 
are also planning to supply V-6 engines to Ford for sport utility 
vehicles subject to EPA's recently issued Tier 2 rule.
    Because our trucks and engines are 100 percent dieselized, we have 
long been a leader in diesel technology and were the first engine 
manufacturer to introduce several breakthroughs that are now common in 
the industry. We have also been a leader in environmental improvement 
and have pioneered many of the advances in emissions performance that 
diesel technology has recently achieved. We are investing hundreds of 
millions of dollars in the development of advanced engine and 
aftertreatment technology to improve engine performance and provide a 
cost-effective answer to clean air concerns for all the markets heavy-
duty and light-duty where our engines are sold.
    A major part of our technology program involves Green Diesel 
TechnologyTM, which utilizes the benefits of the catalyzed particulate 
filter (``CPF'') system and ultra-low sulfur fuel in combination with 
an exclusive International engine performance design to significantly 
lower the emissions and odor of diesel-powered buses and trucks. Last 
year, International conducted a demonstration of a CPF system on a 
school bus utilizing a heavy-duty diesel engine and run with a special 
ultra-clean blend of diesel fuel manufactured by BP Amoco. PM levels 
were reduced to below .01 g/bhp-hr a reduction well in excess of 90 
percent from current levels, as well as 50 percent lower than the best 
1998 certified compressed natural gas engine. Hydrocarbon emissions 
were also reduced below measurable levels (which eliminated the odor 
often associated with diesel engines).
    We are pleased to inform the subcommittee that International's 
Green Diesel Technology school bus will be offered in 2001 in areas of 
the country where 15 ppm sulfur fuel is available. BP Amoco will 
provide the 15 ppm sulfur fuel in California and possibly elsewhere, 
thus ensuring that greatly improved emissions performance on these 
vehicles is achieved in the very near future.
With Ultra-Low Fuel Sulfur Levels, EPA's Proposed MY 2007 HDE Emissions 
        Standards Represent Challenging But Reasonable Goals
    EPA has proposed 90 percent reductions from 2004 levels for both 
NOx and PM emissions by the 2010 timeframe. These would be the largest 
step reductions ever mandated for either NOx or PM emissions from HDEs 
in the United States. These emission targets present enormous technical 
challenges, but there is no credible dispute that the aftertreatment 
technologies required to bring them within reach will function 
efficiently and durably only with ultra-clean diesel fuel. We therefore 
commend EPA for taking steps in the rulemaking to address the 
critically important issue of diesel fuel quality. Progressive oil 
companies including BP Amoco already are making commercially available 
diesel fuel with sulfur levels of 15 ppm or lower. These oil companies 
have earned recognition and our applause for their efforts to bring 
clean diesel fuel to the marketplace well in advance of any regulatory 
requirement to do so.
    Focussing on PM control, extensive data indicates that ultra-low 
sulfur fuel is a prerequisite to the effectiveness and durability of 
CPF technology, which we believe is the only viable path for reducing 
PM emissions in 2007 to the near zero levels called for under EPA's 
proposal. CPF operation is inhibited by sulfur in diesel fuel, as is 
total PM control effectiveness due to the formation of sulfate PM. 
Relevant experience with CPF technology, however, shows that ultra-low 
sulfur levels assure that CPF technology will perform efficiently and 
durably. As stated above, International has demonstrated the 
effectiveness of CPF technology, combined with ultra-clean fuel, in 
reducing PM emissions to levels at or below those proposed by EPA. By 
the same token, field tests conducted with higher (50 ppm) sulfur 
levels were much less successful, showing an unacceptable CPF failure 
rate of 10 percent. In sum, there is no question that the availability 
of ultra-low sulfur fuel is a critical ``enabler'' for CPF technology's 
ability to control PM emissions reliably during vehicle use. Nor is 
there any question that, when used with low sulfur fuel, this 
technology will deliver the emission reductions proposed by EPA and is 
ready for commercial introduction today.
    NOx control presents greater challenges at this stage than reducing 
PM emissions. Here too, however, ultra-low sulfur fuel is essential for 
progress toward EPA's targets. The NOx adsorber is our technology of 
choice in meeting the MY 2007 NOx standards but its performance is 
extremely sensitive to sulfur poisoning. The Diesel Emissions Control 
Sulfur Effect program, which evaluated various sulfur-sensitive 
technologies and obtained data on high sulfate conversion levels at 
high speed and load conditions over a broad range of engine operating 
conditions, confirms this point. The test program's interim results 
indicate that, at sulfur fuel levels in excess of 15 ppm, NOx adsorber 
performance declines significantly after only 150 hours of testing. 
Diesel Emission Control Sulfur Effects Program, Phase I Interim Data 
Report No. 2: NOx Adsorber Catalysts, pp. 2, 23 (October 1999). By 
contrast, with diesel sulfur levels of 15 ppm and below, NOx adsorber 
technology promises to achieve a high level of emission reduction over 
a range of engine operating conditions. Accordingly, assuming our 
recommendations for improving the rule are adopted, International 
believes that EPA's NOx emission limits represent a challenging but 
reasonable goal that we should start working toward now using the 
technological resources and expertise of our industry, aftertreatment 
suppliers and the refining sector.
    We do not accept the argument that fuel and engine requirements 
should be delayed until control technologies needing ultra-clean fuel 
have fully matured. For example, some in the refining industry have 
suggested that, since commercial application of the NOx adsorber 
technology is now unproven, it is premature to reduce diesel sulfur 
content to 15 ppm in the belief that clean fuel is needed to enable NOx 
adsorber technology. From our perspective, this concern misses the 
point. NOx adsorber technology certainly needs maturation but we know 
from available data that its commercial deployment by MY 2007-10 is a 
realistic possibility assuming the corresponding availability of ultra-
low sulfur fuel. If fuel and engine requirements were delayed until the 
technology had been fully demonstrated, companies like International 
and their suppliers would not be motivated to make large investments in 
improved emissions performance and progress toward lower emissions 
would be stymied.
    Although recent debate has focussed on the technical uncertainties 
surrounding EPA's proposal, there are two critical points that are not 
in dispute: (i) aftertreatment technologies for PM and NOx require fuel 
sulfur levels of 15 ppm or less to function effectively; and (ii) if 
these technologies cannot be used because clean diesel fuel is not 
available, the remaining technology options can achieve at best a 30 
percent reduction in PM and NOx emissions. It is not our company's role 
to set national air quality goals. However, we can say with confidence 
that, if the public expects a 90 percent reduction in PM and NOx 
emissions as proposed by EPA, only a rule which maintains a dual focus 
on improved fuel quality and superior aftertreatment performance and 
sets aggressive targets for both will enable us to reach that goal.
Recommended Changes in the Rule
    Our willingness to accept EPA's rule, however, is conditioned on 
adoption of the recommendations for modifying EPA's proposal that we 
have presented in our comments to the Agency. Of greatest importance, 
while EPA's proposal to phase-in NOx controls between 2007 and 2010 is 
a step in the right direction, we are concerned that as framed it would 
call upon the NOx adsorber to achieve a 90 percent emission reduction 
immediately upon commercialization. Experience tells us that it will be 
critically important to have a meaningful transition period during 
which the adsorber can mature in-use. Therefore, International has 
proposed that EPA set an interim NOx + NMHC standard of 1.40 g/bhp-hr 
for all MY 2007-2009 HDEs, with a further drop to 0.30 in MY 2010. In 
our comments to EPA, we have demonstrated that the International 
proposal would offer significant environmental benefits over EPA's 
approach of phasing in the NOx requirements for 25 percent of the fleet 
each year between 2007 and 2010. It should be emphasized that our 
proposed interim NOx limits for the MY 2007-2009 period and the PM 
emission targets proposed by EPA for 2007 cannot be achieved unless 
ultra-low sulfur fuel, at or below the 15 ppm level, is available in 
2006.
    We have also raised concerns with the proposed Not-To-Exceed 
(``NTE'') requirements, which could not be met over the full range of 
engine operating and ambient conditions given the extremely stringent 
underlying emissions standards proposed for 2007 and beyond. Our 
comments further recommend that EPA remove restrictions it has proposed 
on the use of pre-2007 Averaging, Banking and Trading (``ABT'') credits 
as well as make a number of smaller technical revisions. We hope our 
proposed modifications are receiving careful consideration by the 
Agency as it develops a final rule.
EPA Should not Delay Issuance of a Final Rule
    Although we recognize the complexities and challenges presented by 
EPA's 2007 fuel and HDE proposal, our company is already committing 
hundreds of millions of dollars to development of advanced emission 
control technology that, with the availability of ultra-clean fuel, can 
``enable'' the commercial introduction of the CPF and NOx adsorber 
technologies. International believes that, to continue this progress, 
the engine industry, aftertreatment suppliers and refiners need the 
motivators provided by clear long-term performance goals for both 
engines and fuel.
    Extended study of the issues and rulemaking delays will create 
uncertainties and inevitably slow down the R&D programs that will lead 
to improved emissions performance. For example, without knowing what 
level of sulfur reduction will be required and when cleaner fuel will 
be available, our industry could not determine what emission control 
technologies to pursue and how great our investment in these 
technologies should be. The aftertreatment industry would likewise be 
unable to focus its R&D efforts on the most promising aftertreatment 
devices since it would be uncertain what level of sulfur reduction 
would be available to ``enable'' these devices to perform effectively. 
Accordingly, delaying this rule for another year or 18 months is 
unlikely to move us closer to answers but could reduce the lead-time 
which our engineers and production managers have to implement the new 
requirements.
    Extended study of the issues and rulemaking delays will create 
uncertainties and inevitably slow down the R&D programs that will lead 
to improved emissions performance. For example, without knowing what 
level of sulfur reduction will be required and when cleaner fuel will 
be available, our industry could not determine what emission control 
technologies to pursue and how great our investment in these 
technologies should be. The aftertreatment industry would likewise be 
unable to focus its R&D efforts on the most promising aftertreatment 
devices since it would be uncertain what level of sulfur reduction 
would be available to ``enable'' these devices to perform effectively. 
Accordingly, delaying this rule for another year or 18 months is 
unlikely to move us closer to answers but could reduce the lead-time 
which our engineers and production managers have to implement the new 
requirements.
Conclusion
    In sum, International believes that the rulemaking process for the 
proposed HDE rule has created a full record on the critical questions 
EPA must resolve and provides a sufficient foundation for 
decisionmaking. While we support certain non-fuel related changes in 
EPA's rule so that its requirements are more reasonable, prompt 
completion of the rulemaking is a high priority for our company so that 
we can move forward with our advanced technology program. Accordingly, 
International urges that any move to slow down completion of the 
rulemaking or ease the requirements for ultra-low sulfur fuel should be 
rejected.
  

                                
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