Copyright 1999 Federal Document Clearing House, Inc.
Federal Document Clearing House Congressional Testimony
May 18, 1999
SECTION: CAPITOL HILL HEARING TESTIMONY
LENGTH: 3099 words
HEADLINE:
TESTIMONY May 18, 1999 NETTIE H. MYERS SENATE ENVIRONMENT AND
PUBLIC WORKS EPA'S PROPOSED SULPHUR STANDARD
BODY:
TESTIMONY BEFORE THE COMMITTEE ON ENVIRONMENT
and PUBLIC WORKS SUBCOMMITTEE ON CLEAN AIR, WETLANDS, PRIVATE PROPERTY AND
NUCLEAR SAFETY Tuesday, May 18, 1999 Washington, D.C. Gasoline
Sulfur Standards Nettie H. Myers Secretary South Dakota Department of
Environment and Natural Resources In the Center of the Nation by Dan O'Brien
Coming from either direction the land changes before you have a chance to get
ready for it. Traveling eastward, you see the grasslands for the first time from
several thousand feet up in the Rocky Mountains. You come around a turn intent
on the ruggedness of the mountains, and suddenly the pine trees, rocks, and
fast-running water are gone. Below you, though still fifty miles off, is the
flattest, smoothest, most treeless stretch of land imaginable. And if you're
traveling west, you've just gotten used to the fertile, black soils of Indiana,
Illinois, and Iowa, just come to expect the neatly painted, prosperous farm
buildings surrounded by cultivated groves of trees, when you come to the
Missouri River, and it all goes to hell. Suddenly the order is gone, the
prosperity scattered. When you get the feeling that the whole world can see you
but no one is watching, you have come to the grasslands of North America.
Chairman Inhofe and members of the Subcommittee: My name is Nettie Myers. I am
the Secretary of the South Dakota Department of Environment and Natural
Resources. My department enforces all clean air laws and rules in South Dakota
including those under the federal Clean Air Act through delegation from the
United States Environmental Protection Agency. I am here to testify on behalf of
my state in opposition to any uniformly low, nationwide gasoline
sulfur standard as proposed by EPA on May 1. South Dakota believes a
rule based on regional economics and air quality needs is the only sensible way
to resolve vehicle emissions and fuel quality issues. Letters signed by
governors and officials of at least eight other states and attached to this
statement are evidence that South Dakota does not stand alone in this regard.
There are four reasons for this fundamental opposition. First, for states like
South Dakota, located in America's heartland, no measurable public health
benefit will be gained from regulating gasoline sulfur to a
uniformly low national standard. Second, current gasoline
sulfur levels in my state do not threaten public health or ambient air
quality in any downwind states. Third, application of the proposed
gasoline sulfur standard in South Dakota and neighboring states
poses a serious and unwarranted threat to our consumer gasoline
prices by harming refineries supplying our fuels. Fourth, there is a way,
through vehicle maintenance, that is less expensive than EPA's proposal and more
closely tailored to the need for clean air than imposing on South Dakotans and
residents of nearby states the significant costs of curing air pollution in
other regions of the country. South Dakotans and their neighbors do not
contribute to this problem and will not benefit from the proposed solution. Do
not make them pay with higher gasoline prices. BACKGROUND South
Dakota has no refineries and is dependent on other states for
gasoline and other fuels. Western South Dakota, the location of
Ellsworth Air Force Base and an area very dependent on tourism, is supplied by
refineries in Petroleum Administration for Defense District IV (PADD IV) to the
west. Eastern South Dakota is supplied by pipeline from refineries in PADDs II
and III. South Dakota's economy is heavily dependent on agriculture, perhaps
more so than any other state, and agriculture is seriously depressed as farm
prices are at perhaps their lowest levels in decades. The last thing our farmers
need is an EPA- induced increase in the cost of business that returns no
measurable public health benefit to them or any one else. In 1996, South Dakota
ranked 35th among the states in per capita income. Four of our western PADD IV
neighbor states ranked 36th, 44th, 46th and 47th. Colorado, at 14th, is the only
PADD IV state ranked in the top half. Our neighbors to the north and south,
North Dakota and Nebraska, who also receive fuel from PADD IV ranked 25th and
39th. Any cost increase in our region, without commensurate benefit, is
unwarranted and will impose an economic hardship on our residents. NO PUBLIC
HEALTH BENEFIT Attachment 2 is a chart displaying the relative traffic density
of the states in 1997 as measured by vehicle miles traveled per square mile.
South Dakota and the PADD IV states have some of the lowest traffic densities in
the country. It stands to reason, therefore, that vehicle emissions in South
Dakota are among the most dispersed and dilute in the country and that the
benefits of requiring our gasoline supplies to meet a uniformly
low national sulfur standard are dubious. Data provided by EPA
in its Regulatory Impact Analysis do not display the impacts or benefits for
each state. The best data otherwise available, however, bear out this
hypothesis. Last year, the American Automobile Manufacturers Association (AAMA)
had posted on its Web site a 1997 AAMA study on the impacts of gasoline
sulfur on Tier 0, Tier 1 and LEV/ULEV vehicles. Extending the results
of this study to South Dakota's 1997 vehicle miles traveled yields the following
projections. First, simply changing from Tier 0 vehicles to LEV/ULEVs will
reduce South Dakota's annual vehicle NOx emissions by 3,064 tons. Second, taking
the next step and reducing gasoline sulfur content from 330 ppm
to 40 ppm may provide an additional 843 tons of annual NOx reductions. Standing
alone, these reductions of NOx are minimal compared to other states. When spread
out over South Dakota's 75,898 square miles they probably challenge the limits
of detection. This exercise also suggests that about 78% of the benefits of the
proposed rule, i.e. - 3,064 tons out of 3,064 + 843 tons, can be achieved
through vehicle improvements alone without reducing gasoline
sulfur. This compares favorably with EPA's analysis that in 2020 the
American Petroleum Institute/National Petrochemical & Refiners Association
regional standard proposal will provide 78% of the NOx reductions of the
proposed rule. It appears that when more than half of today's vehicle fleet is
of Tier 0 technology the lowest hanging fruit can be harvested by encouraging
turnover of America's automobile fleet rather than increasing the price of
gasoline through sulfur reduction. The EPA
gasoline sulfur proposal has little to offer South Dakota and
much to take from us. Furthermore, at least one study on which EPA has relied is
probably not applicable to South Dakota. In adopting the new ambient air quality
standards for ozone, EPA pointed to a study of hospital admissions for
respiratory conditions in New York City and other cities in New York State. It
was concluded that respiratory hospital admissions increased with levels of haze
air pollution, particularly ozone. In one year of that study, 1988, the average
hourly ozone concentration encountered in New York City was 69 ppb. The maximum
hourly level was 209 ppb. Until the recent ambient air quality standards were
adopted, South Dakota had no reason even to monitor ozone. What few data we do
have show hourly averages in the range of 40 ppb and a maximum hourly level of
80 ppb. Wyoming recently established an ozone monitoring location. The June,
1998 through February, 1999 data from that site show averages of hourly
concentrations in the range of 26 to 50 ppb and a maximum hourly concentration
of 81 ppb. Vehicle emissions in South Dakota are likely to improve from fleet
turnover alone. With already good ozone levels of about half those encountered
in the New York study, it is difficult to credibly predict any measurable public
health benefit associated with the further step of lowering gasoline
sulfur. NO DOWNWIND HARM Attachment 5 is a June 6, 1996 letter I
received from the Ozone Transport Assessment Group (OTAG). That group was formed
to analyze and model the transport of ozone from other states into
non-attainment areas. That letter states Based on our preliminary assessment of
emissions and air quality data, it is our conclusion that states like Nebraska,
North Dakota, and South Dakota will not need to install additional controls.
Presumably, this exemption from additional controls also applies to states
further west in PADD IV who were excluded from OTAG at the outset. 37 states
participated in OTAG, and the conclusion was that South Dakota was not
contributing to ozone levels downwind. This conclusion is true today and will be
true in the future. REFINERY CLOSURES ARE EXPENSIVE Attachment 6 is a graph
showing monthly average wholesale gasoline prices in three
cities supplied by PADD IV and corresponding prices in all of PADD III. The
three PADD IV cities are Billings, Montana; Casper, Wyoming; and Rapid City,
South Dakota. The significance of this chart is that it spans the August, 1991
closure of Amoco's PADD IV refinery in Casper. Amoco closed this refinery rather
than invest capital necessary to comply with current diesel
sulfur standards. The gray band across the chart shows the
relative gasoline price penalty paid in the PADD IV cities over
time. This penalty increased about the time Amoco's refinery closed. The average
penalty before closure was 6.4 per gallon. The average penalty since closure has
been 12.0 per gallon. In December of 1998, the difference was approaching 13 per
gallon, an increase of about 10 since June of 1987. For Rapid City, South Dakota
alone, this unnecessary increase in gasoline prices represents
an economic penalty to consumers of $10,000,000 per year! This does not include
any effect the Amoco closure has had on diesel fuel so necessary to farming.
When suppliers shut down, prices go up. We simply do not need another refinery
closure until EPA finds a way for its rules to repeal the basic laws of
economics. I am aware, Mr. Chairman, of a recent study performed by MathPro,
Inc. concluding that a 30 ppm gasoline sulfur standard will not
force refinery closures in PADD IV. The study is very disturbing. The study
concludes a national standard "would likely increase the market price of
gasoline in PADD 4". That conclusion is exactly what is wrong
with EPA's proposal and, yet, the study's casual tone infers that this certainty
should be welcomed with open arms. Higher prices are not welcome in any case,
and we certainly should not accept them without counterbalancing public health
benefits. Refiners I have spoken with have commented that reading the study
reveals at least three points casting doubt on MathPro's reasoning that PADD IV
average refining margins are high enough to guard against any refinery closure.
First, the refining margins calculated in the study were not based on any data
from real PADD IV refineries. In fact, much of the data in the study was not
even specific to PADD IV. Although the study's margin determination methodology
may be the best available, the results are still only estimations, perhaps gross
estimations, at best. Second, MathPro based its conclusion regarding the
survivability of PADD IV refiners on a roughly estimated "average" margin. It is
not, however, the "average" refiner that is likely to close down. Refiners with
below average margins are most likely to close, and they do exist in PADD IV.
The MathPro study itself cites the example of one publicly traded PADD IV
refiner whose cash operating margins were roughly two-thirds those estimated in
the study. Another refiner I have contacted had cash operating margins during
the study period about one-half to two-thirds the margins in the MathPro report.
If these refineries close, the loss of their production will affect consumer
prices just as dramatically as the closure of an average or wealthy refinery. In
California, five small refiners stopped producing gasoline
after 30 ppm gasoline sulfur standards were adopted in spite of
a two year compliance extension. The extreme price increases accompanying the
Bay Area Tosco refinery closure further demonstrate the meaning of losing
gasoline supplies in a competitive market. MathPro's reliance
on "average" conditions does not accurately describe what is likely to happen.
Third, MathPro assumes that PADD IV refineries, using new and commercially
undemonstrated technology, will be able to remove sulfur at
costs lower than those estimated by both the refining industry and EPA. There
are no large refineries in PADD IV. It does not seem logical that small
refineries with limited capital resources will bet their futures on untried
solutions. I stress this portion of my statement as it is important to
understand that according to refiners in our area the costs of
sulfur removal, by and large, will not be passed on to the
public until a refinery closes. At that point, it will be too late for
corrective measures to bring prices into line. Unlike crude oil price increases
which affect all refiners equally in terms of cost per unit of production,
gasoline sulfur removal is capital intensive and will impact
each refiner differently depending on the refinery's existing equipment, the
quality of its crude oil and other factors. Gasoline sulfur
removal will motivate all refiners to increase product prices, but it seems
likely that a competitive market will halt price increases when the refiner with
the lowest sulfur removal costs receives an adequate return on
its investment and decides to increase market share rather than raise prices
further. At that point, other refiners in the same market will not recover their
remaining sulfur removal costs. If those unrecovered costs are
large enough, a refinery will close and prices will rise further. The graph,
Attachment 6, showing the effect of the Amoco refinery closure on prices in PADD
IV cities demonstrates this point dramatically. CHEAPER ALTERNATIVES In terms of
finding the least expensive means of improving air quality, the proposed rule
appears to turn logic on its ear. The rule threatens significant costs for
regions of the country which have no air quality problem. Furthermore, it forces
a multi billion dollar wholesale retooling of the nation's refineries by 2004
for the benefit of emissions control technology that will take decades to become
predominant in our automobile fleet. The median age of America's automobile
fleet is about 8 years and rising. This fact means that today one-half of the
fleet is still Tier 0 vehicles produced before 1994. One may presume that
perhaps twenty years will be required to turn 100% of the fleet into Tier 2
vehicles. In fact, EPA's Regulatory Impact Analysis predicts the entire fleet
will be Tier 2 vehicles by 2030 or in 26 years. In addition, EPA's proposed rule
phases in Tier 2 vehicle production over four or more years. These facts imply
that after the first year, about 1% to 2% of the fleet will be Tier 2 vehicles,
but all the gasoline must be low sulfur.
Regional standards are one way of deflecting this front-end imposition, on clean
air and economically fragile regions, of gasoline costs
designed for a small fraction of the vehicle fleet. The issue of reversing the
effects of sulfur on Tier 2 catalytic converters, however,
appears to be blocking the concept of regional standards. The concern is based
on the idea that vehicles traveling from low sulfur areas to
high sulfur areas under a regional program will return home
with ineffective catalytic converters. The reversibility debate revolves around
whether catalytic converter efficiency will be restored when low sulfur
gasoline is, once again, placed in the vehicle's tank. Vehicle
manufacturers argue the high sulfur effect is irreversible.
Refiners argue the opposite. EPA has come down on the side of the vehicle
manufacturers in this debate. This debate, however, is for naught. It is clear
that reversibility, or the lack thereof, need not be an issue. Rather than make
the entire nation cater to the needs of a small fraction of the vehicle fleet,
it is more sensible, particularly in the early years of the program, to require
owners to properly maintain their Tier 2 vehicles by replacing catalytic
converters as necessary. Areas with ozone attainment problems are required to
have inspection and maintenance programs, and Tier 2 sulfur-
damaged vehicles operating in those areas should be easy to identify. If this is
not possible politically, ask the vehicle manufacturers and the refiners to fund
jointly a program that replaces sulfur-damaged Tier 2 catalytic
converters. Both industries claim they can do no more to resolve this
sulfur issue. Refiners claim lower gasoline
sulfur is too expensive and that sulfur's effects are
reversible. The vehicle manufacturers claim sulfur tolerant
technology is not possible. If refiners are forced to pay for catalytic
converters because their gasoline has too much
sulfur, at some point lower gasoline sulfur
levels will become economical. If refiners are correct about reversibility, it
will cost them nothing. If vehicle manufacturers are forced to pay for catalytic
converters because their technology is not sulfur tolerant,
they will be prodded to develop technology that is sulfur
tolerant. While I have no studies or specific data evaluating this idea, vehicle
maintenance must be less expensive than nationwide gasoline
sulfur removal for the foreseeable future. In any case, substituting
proper vehicle maintenance for uniformly low and costly gasoline
sulfur standards places the costs of regulation both on those causing
the problem and on those who will benefit from the solution. Endangering
refineries in PADD IV imposes costs on motorists and farmers who neither cause
the problem nor benefit from the solution. CONCLUSION Mr. Chairman, I present
this testimony today to clarify for the Subcommittee the negative effect of
uniformly low gasoline sulfur standards on South Dakota and the
neighboring region. Although they cause no air quality problems in other states,
our citizens will pay significant costs and will receive no benefit under the
proposed rule. The closure of a refinery in PADD IV is more than possible, and
the economic harm from such an event will be unwarranted. In short, South
Dakotans do not have the air quality problems prompting this rule, they do not
need low sulfur gasoline, and they certainly do not want to pay
for it. Thank you for the opportunity to be here today. I will be happy to
answer any questions the Subcommittee might have.
LOAD-DATE: May 19, 1999