CALIFORNIA AIR RESOURCES BOARD
State Building
Auditorium, Room 1138
107 South Broadway
Los Angeles, CA
April 26, 1985
8:30 a.m.
AGENDA
Page
85-6-1 Consideration of a Petition of Giant Truck Stops 001
and Stix Oil Company to Amend Title 13, California
Administrative Code, Section 2252(d) to Modify
the Sulfur Content of Diesel Fuel Regulations
(Petitioner has Requested Item be Continued).
85-6-2 Public Hearing to Consider Amendments to 003
Regulation Limiting the Sulfur Content of Motor
Vehicle Diesel Fuel in the South Coast Air Basin
and Ventura County and Limiting the Sulfur Content
of Unleaded Gasoline.
Other Business
a. Closed Session
1. Personnel (as authorized by State Agency Open Meeting
Act, Govt. Code Sec. 11126(a).)
2. Litigation (Pursuant to the attorney-client privilege,
Evidence Code Sec. 950-962, and Govt. Code Sec.
11126(q).)
b. Research Proposals
c. Delegations to Executive Officer
ITEM NO.: 85-6-2
Public Hearing to Consider Amendments to Regulation Limiting the
Sulfur Content of Motor Vehicle Diesel Fuel in the South Coast
Air Basin and Ventura County and Limiting the Sulfur Content of
Unleaded Gasoline.
RECOMMENDATION
The staff recommends that the Board adopt the proposed
amendments, with the small refiner exemption option in the
proposal the Board selects as most appropriate following public
testimony and discussion.
DISCUSSION
On July 30, 1981, the Board adopted a regulation that limits the
sulfur content of motor vehicle diesel fuel to 500 parts per
million (ppm) in the South Coast Air Basin and Ventura County.
The regulation, which became effective on January 1, 1985,
includes a provision that exempts a specified volume of small
refiners' diesel fuel from the sulfur content requirement. The
specified volume is equal to 120 percent of a refiner's baseline
volume, that is, the highest annual volume of diesel fuel
produced in the calendar years 1978, 1979, or 1980.
Shortly after the staff began implementing this regulation,
especially the processing of small refiners' applications for
exemptions, the staff realized that certain provisions of the
regulation were in need of clarification. Also, in processing
the small refiners' applications for exemptions, it became
apparent that the small refiners' exempt motor vehicle diesel
fuel volumes were nearly double the volumes expected when the
regulation was adopted in 1981. One reason for this is the
greater volumes of motor vehicle diesel fuel produced by some
small refiners in 1978 or 1980 than in 1979, the year used by the
staff in 1981 to estimate the exempt volume. (The staff did not
have data for 1978 and 1980 at the time the regulations was
adopted.) Another reason is that two refineries that were owned
by large refiners were subsequently purchased by small refiners
determined to be eligible for exemptions. In addition, the
sulfur content of motor vehicle diesel fuel produced by small
refiners has risen since the regulation was adopted. Thus, the
greater exempt volume and the greater sulfur content result in a
situation in which the potential sulfur dioxide emissions from
exempt motor vehicle diesel fuel in 1985 are more than three
times the quantity of sulfur dioxide emissions expected in 1981.
In October 1984, the staff presented to the Board the results of
the staff's study of diesel fuel modification as an emissions
control strategy. The study showed that, for fine particulate
matter (PM10) reduction, the cost-effectiveness of eliminating
the small refiners' exemption in the motor vehicle diesel fuel
regulation was much lower than the cost-effectiveness of other
motor vehicle diesel fuel modifications. At that meeting, the
Board directed the staff to investigate further the impacts of
limiting or eliminating the small refiner exemption and to
present a proposal to the Board in 1985.
The staff has developed a proposal which includes several options
for limiting the small refiner exemption and which includes the
option of eliminating the exemption. The current exempt volume
is 120 percent of a small refiner's baseline volume. The
regulatory options presented in the staff's proposal to limit the
exemption are reductions in the exempt volume to 36, 44, and 64
percent of the baseline volume. These options represent,
respectively, the same potential maximum sulfur dioxide emissions
(14 tons per day (TPD)) from exempt motor vehicle diesel fuel as
expected in 1981; the same potential maximum share of the market
(25%) as the small refiners were expected to have in 1981; and
the same total exempt volume of diesel fuel (16,800 barrels per
day) that the same small refiners were expected to have in 1981.
Amendments to the existing regulation are also proposed to
clarify and refine the regulation. The proposed changes make
clear which entities are eligible for an exemption, what fuel is
eligible to be included in the baseline volume, and how batches
of low sulfur fuel produced by a small refiner are to be
considered in calculating the annual volume of exempt fuel
produced. The proposed amendments also refine the language
regarding reporting and record keeping requirements, definitions,
sanctions for violations and variances. Amendments to the
unleaded gasoline sections of the regulation are also proposed.
Those proposed amendments involve making explicit the liability
of those who supply gasoline to retailers and provide for
flexibility in testing for sulfur content. The proposed changes
also update the unleaded gasoline test methods for lead and
sulfur content.
Small refiners have proposed a pool concept as an alternative to
the reduction of the percent of baseline proposals. The present
proposal does not include this alternative. The staff is working
with small refiners to develop regulatory language for such a
concept.
The reduction or elimination of the small refiner exemption would
result in costs to the affected small refiners. The magnitude of
the cost impacts would depend on the response of individual small
refiners to the elimination or reduction of the exemption. The
staff estimated the cost to small refiners of installing
hydrodesulfruization facilities to reduce the sulfur content of
all of the maximum exempt volume of motor vehicle diesel fuel to
500 ppm. The capital investment required is estimated to be $137
million to $163 million, and the annualized cost is estimated to
be $60 million to $65 million. The estimated weighted average
unit cost is 12.4 to 13.8 cents per gallon of motor vehicle
diesel fuel. Limited responses by small refiners to a staff
survey on costs resulted in desulfurization cost estimates
ranging from 11.4 cents per gallon to 43 cents per gallon. The
South Coast Air Quality Management District staff prepared a cost
estimate indicating a weighted average cost for small refiners to
produce 500 ppm sulfur content motor vehicle diesel fuel of about
6.6 cents per gallon.
If exemptions for small refiners were reduced or eliminated, most
small refiners would likely try to find alternative markets for
fuel that would have been sold as motor vehicle diesel fuel in
the South Coast Air Basin and Ventura County (control area), or
markets outside of the control area for motor vehicle fuel. Two
small refiners reported lost opportunity costs for such a
strategy, that is, the cost incurred by selling to an alternative
market rather than the preferred motor vehicle diesel fuel
market. These same sort of costs would be incurred by selling to
motor vehicle diesel fuel markets outside of the control area.
One refiner reported that a loss of 7 to 8 cents per gallon would
be incurred and another reported that a loss of 5 to 13 cents per
gallon of diesel fuel would be incurred. Because motor vehicle
diesel fuel is not the only product produced by small refiners,
reduction or elimination of the exemption does not necessarily
mean that they will have to shut down total production.
The staff estimates that the maximum potential sulfur dioxide
emissions reductions from implementing the proposed
reduction/elimination options range from about 20 tons per day
for reducing the exempt volume to 64 percent of the baseline
volume to over 42 tons per day for the elimination option. The
intermediate reduction options of 36 percent and 44 percent of
the baseline volumes have emissions reductions impacts within
that range. The range of potential emissions reductions would
result in reductions of ambient sulfate concentrations of 10 to
21 percent and reductions of ambient PM10 concentrations of 6 to
13 micrograms per cubic meter. These estimates are based on the
assumption that: (1) the small refiners produce and sell all of
the volume allowed under the exemptions; and (2) the exempt fuel
would have the maximum allowable sulfur content.
The cost-effectiveness of small refiners desulfurizing all of
their motor vehicle diesel fuel would be about $2.00 per pound of
sulfur dioxide emissions reduced and about $1.70 per pound of
PM10 reduced.