The Potential Role of Clean Fuels

Update on Federal and State Fuel Issues

for the

NOACA Air Quality Workshop

by

Bob Leidich

BP America Inc.

March 22, 2005

Cleveland, Ohio

Overview Federal Fuel Issues

- Tier II Gasoline Sulfur Rule - Highway and Non-Road Diesel Rules

- Key Fuel Provisions of Energy Bill

State Fuel Issues - State MTBE Bans - Current Gasoline Types

Impact of New Ozone National Ambient Air Quality Standard

Comparison of Federal RFG, 7.8 and 7.0 RVP clean fuel options

Tier 2 Gasoline Sulfur Rule

Refinery & Importer Gasoline Sulfur Standards

YearJanuary 1,

2004January 1,

2005January 1,

2006

Refinery Average, ppm 30 30

Corporate Pool Average, ppm

120 90Not

Applicable

Per Gallon Cap, ppm 300 300 80

U.S. Gasoline Sulfur Level

400

300

200

100

0

Conventional Phase II RFG

Average Sulfur Level, ppm

2000 2006

350

150

30

CARB

30 3015

Highway Diesel Rule

Beginning June 1, 2006, minimum 80% highway diesel production at 15 ppm maximum sulfur, and balance at 500 ppm maximum sulfur

Key dates: June 1, 2006 at refinery July 15, 2006 at terminals September 1, 2006 at retail

Beginning January 1, 2010, 100% highway diesel production at 15 ppm maximum sulfur

Non-Road Diesel Rule

Beginning June 1, 2007, agriculture, construction, locomotive and marine (NRLM) diesel fuel at 500 ppm max sulfur and min 40 cetane index or max 35 volume percent aromatic content

Beginning June 1, 2010, agriculture and construction diesel fuel at 15 ppm max sulfur

Beginning June 1, 2012, locomotive and marine diesel fuel at 15 ppm max sulfur

U.S. Diesel Fuel Sulfur Level

400

300

200

100

Highway Non-Road Part 89

Maximum or (Average) Sulfur Level, ppm

2012

Locomotive & Marine

20102007200620040

500

2350

151515 15

500500

(330)

(2350)

500

(2350) (2350) (2350)

15 15 15

Key Fuel Provisions of a Comprehensive Energy Bill

Renewable Fuels Standard is established requiring 5 billion gallons by 2012; includes credit banking and trading and no per gallon minimum

Two percent RFG oxygen requirement is repealed

Provisions for defective product liability protection included for both ethers and ethanol (prohibits lawsuits that say MTBE is a defective product)

National phase-out of MTBE with minimum 4 years lead time after enactment of legislation

States with MTBE Restrictions

1/1/04 0.5%

1/1/044/30/02

1/1/04 0.5%

6/1/03

7/1/050.5%

7/24/040.5%

7/24/040.5%

1/1/060.5%

7/1/050.5%

7/1/000.5%

7/1/000.33%

7/1/000.5%

7/13/001.0%

7/1/040.5%

12/31/030.6%

Dates represent effective date of MTBE ban

Percentages represent diminus levels

8/1/040.5%

Updated 8/4/04

Passed Legislation Ban Being Considered

1/1/07 0.5%

1/01/050.3%

1/1/07

Summer Gasoline Requirements in 2002

Pacific Ocean

Gas Spec LegendConventional

7.0 RVP, 150 ppm S

Southern RFG

7.8 RVP

Northern RFG

Northern RFG w/Ethanol

Oxy Fuel/Ethanol Mandate

CA CBG

7.0 RVP

Federal/CA RFG

7.2 RVP

California CBG 4.5%

Fed/California RFG 7.5%

Fed RFG South 9.5%

Fed RFG North w/EtOH 3.2%

Fed RFG North 7.8%

7.8 RVP CG 13.3%

9.0 RVP CG 49%

Minnesota EtOH Blend 2%

7.2 RVP CG 0.2%

7.0 RVP CG 1%

7.0 RVP, 150 ppm S 2%

Summer Gasoline Types and Market Share

Source: U.S. EPA Study of Unique Gasoline Fuel Blends, October 23, 2001

Classification of 8-Hour Ozone Nonattainment Areas

Updated: 10/5/04

Attainment

Basic - June 2009

Marginal - June 2007

Moderate - June 2010

Serious - June 2013

Severe - June 2021

Unclassifiable

Basic - Dec 2007

Moderate - Dec 2007

** **

**

* County has multiple classifications – severest classification is noted

177

106

86

6254

0

20

40

60

80

100

120

140

160

180

2002 2007 2010 2015 2020

VO

C E

mis

sio

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nve

nto

ry,

To

ns

Per

Su

mm

er D

ay

Impact of Federal Regulations on On-Road and Off-Road VOC Emissions for Southeast Michigan

Source: Air Improvement Resource Inc. Final Report, 2/23/05 for SEMCOG, Auto Alliance and API

115

93

106

86

100

82

0

50

100

150

9.0 RVP 7.8 RVP 7.0 RVP

2007

2010

VO

C E

mis

sio

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nto

ry,

To

ns

Per

Su

mm

er D

ayImpact of Different RVPs on VOC Inventories in Southeast Michigan


10.19.4

14.2

12.9

10

7.5

0

2

4

6

8

10

12

14

16

RFGw/Ethanol

RFG w/oEthanol

7.0 RVP w/oEthanol

Complex Model

Predictive Model

VO

C B

enef

it,

To

ns

Per

Su

mm

er D

ay

Net VOC Benefits in 2007 for Southeast Michigan Area


463

279

211

114

71

0

50

100

150

200

250

300

350

400

450

500

2002 2007 2010 2015 2020

NO

x E

mis

sio

n I

nve

nto

ry,

To

ns

Per

Su

mm

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ay

Impact of Federal Regulations on On-Road and Off-Road NOx Emissions for Southeast Michigan


2.7

-3.2

3.6

5.4

0.6

1.5

-4

-3

-2

-1

0

1

2

3

4

5

6

RFGw/Ethanol

RFG w/oEthanol

7.0 RVP w/oEthanol

Complex Model

Predictive Model

Exh

aust

NO

x B

enef

it,

To

ns

Per

Su

mm

er D

ay

Net NOx Benefits in 2007 for Southeast Michigan Area


Fuel Implementation Issues

Federal RFG 7.0 RVP

Timing, Years from 4 Years 1 - 3 YearsDate of Final Regulation

Refining Issues “Major” Capital “Moderate” Capital

Implementation Issues Basic Nonattainment State Compliance andAreas Cannot Opt-In Enforcement Programto RFG Required

Supply Issues “Significant” Impact “Moderate” Impact

Midwest Notional Refinery Average 1.7 – 6.2 0.6 – 3.0Incremental Cost, Cents Per Gallon (Preliminary) (Preliminary)

Summary

Federal regulations are providing significant reductions in VOC and NOx emissions

New 8-Hour Ozone Standard may require a clean fuel option in some Ohio nonattainment counties

Federal RFG, 7.8 and 7.0 RVP provide significant VOC emission reductions and minimal, if any NOx emission reductions

Low RVP options likely to be more cost effective than RFG and have less severe implementation issues

The Potential Role of Clean Fuels

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