CRS Report: RS20459 - Diesel Fuel and Engines: An Overview of New Emissions Regulations

Summary

Because of their air quality concerns associated with motor vehicle emissions, light-duty and heavy-duty vehicle emission standards will be tightened starting in model year (MY) 2004, and heavy-duty trucks will face even more stringent standards starting in MY2007. These standards could affect the costs and availability of diesel-fueled vehicles because of the necessary emission control improvements may be costly, and diesel engines tend to have higher emissions of certain pollutants. While EPA foresees low per-engine and per-vehicle costs, other stakeholders fear that the necessary technology will not be available by MY2007, or that it will be prohibitively expensive.

The new standards will require the use of more effective emissions-control devices, but these devices would be corrupted by the amount of sulfur presently in motor fuels. Therefore, EPA is lowering the allowable sulfur level in gasoline, and has proposed similar measures for diesel fuel. Lower sulfur levels could lead to higher prices for diesel fuel, which would affect the trucking industry, and therefore, consumer goods in general. The extent of the price increase has been a major topic of study and debate recently. Concerns have also been raised about fuel availability and price spikes, especially during the introduction of the new fuel.

Although no legislation has been introduced in the 106^th Congress regarding diesel-fueled vehicle emissions, the new and pending regulations may be issues for consideration in congressional oversight of EPA’s implementation of the Clean Air Act. This report will be updated as events warrant.

On June 2, 2000, the Environmental Protection Agency (EPA) proposed tighter rules for emissions from heavy duty trucks and buses starting in model year (MY) 2007. In addition, EPA has proposed a reduction of 97% in the allowable sulfur level of diesel fuel to ensure that the emission control technologies necessary to meet the tighter standards will operate effectively.

EPA has moved to regulate diesel engine and vehicle emissions more stringently due to concerns over the health effects of certain components of diesel exhaust, especially fine particulate matter and nitrogen oxides. The Agency has also recently promulgated standards to control emissions from diesel locomotives, light-duty diesel vehicles, and marine diesel engines, and expects to propose standards for diesel engines and fuel used in off-road vehicles (e.g. farm and construction equipment) next year.

The regulation of diesel fuel and engines has become a major environmental policy issue in the United States. On one hand, the better fuel economy of diesel engines leads to lower emissions of carbon dioxide.1 Furthermore, since diesel fuel burns more completely, diesel engines tend to have lower hydrocarbon and carbon monoxide emissions.2 On the other hand, diesel fuel tends to lead to higher emissions of particulate matter (PM), a potential carcinogen, and nitrogen oxides (NO_x, an ozone precursor.

Particulate matter emissions from diesel vehicles are a key concern because of the potential health effects, including asthma and reduced lung function. One of the major components of diesel PM exhaust is fine PM (PM_2.5),3 which has been associated with serious health problems, such as lung cancer and heart disease.4 Because of the reported health effects of diesel PM, the California Air Resources Board declared diesel PM a toxic air contaminant, and a possible carcinogen.5 EPA is currently investigating the health effects of diesel exhaust, including its cancer-causing potential;6 the Agency's draft health assessment, still undergoing review, concludes that diesel emissions are a likely human carcinogen.7 Currently, 76 metropolitan areas with a combined population of 29.8 million have not yet attained the current National Ambient Air Quality Standard (NAAQS) for PM. Under stricter standards promulgated by the Agency in 1997 but not yet implemented, many additional areas would be added to the list.

Nitrogen oxide emissions are also a key concern because NO_x is a precursor of ozone, which can cause respiratory problems and aggravate existing conditions. Currently, 31 metropolitan areas with a combined population of 90.8 million have not yet attained the NAAQS ozone standard. Furthermore, while overall NO, emissions have decreased slightly over the past ten years, emissions from on-road vehicles have increased slightly.8

Diesel vehicles and engines currently face less stringent emission standards than gasoline engines. The most significant reason is that passenger vehicles (using gasoline engines) were seen as the greatest contributor to mobile source pollution and were targeted first. As emissions from gasoline engines have improved, and the share of emissions from diesel engines has increased, more attention has been paid to improving the emissions from diesels.9

On February 10, 2000, EPA promulgated new rules regulating emissions from passenger cars and light trucks.10 Under the "Tier 2" standards, which will be phased in between MY2004 and MY2009, all light-duty passenger vehicles will be held to the same emissions standards, regardless of vehicle type or fuel type.11 Under the current standard, diesel vehicles may emit higher levels of NO, than gasoline vehicles. Even though few light vehicles are diesel-fueled, EPA was concerned that less stringent standards for diesel vehicles would lead to an increase in their use.

The fuel-neutral rule concerns some engine manufacturers who think that making diesel vehicles that meet the new standards will lead to higher consumer costs. EPA predicts that the new regulations will cost less than $100 per vehicle for most passenger cars, less than $200 for most light trucks, and approximately $350 for larger passenger trucks, with no increases in the cost of vehicle care and maintenance.12 In the public comment period, it was argued that EPA did not look at diesel-fueled light-duty vehicles specifically, and that per vehicle costs for diesels could be as high as $1,000.13 In response, EPA contends that while diesel costs were not specifically addressed, additional costs will be negligible compared to gasoline vehicles.

In addition to the Tier 2 rules, EPA has promulgated tighter emissions standards for heavy-duty vehicles. In October 1999, EPA reaffirmed the technological feasibility, cost- effectiveness, and appropriateness of the MY2004 heavy-duty engine emissions standards which the agency promulgated in 1997.14 These new standards will cut NO, emissions from heavy-duty highway engines by approximately 50% from the MY 1998 and later standards. Responding to concerns that engine manufacturers were building engines that emitted higher amounts of pollution on the road than during testing, EPA has also proposed more accurate emissions testing procedures arid standards to guarantee that actual emissions are reduced to the levels that the new standards require. Furthermore, all heavy-duty vehicles under 14,000 pounds gross vehicle weight would be required to have on-board diagnostic equipment to monitor the performance of emissions control devices.15 However, since EPA did not finalize the rule by the end of 1999, it is likely that the implementation of the new standards (all those not finalized in the 1997 rule) could be delayed to MY2005 or later. This is because the Clean Air Act requires EPA to give companies a minimum amount of lead time before changing established rules.16

In addition to the MY2004 standards, in June 2000 EPA proposed further heavy-duty engine standards that would take effect in MY2007. These standards would reduce NO, emissions by approximately 90% below the MY2004 levels, and PM by 80 to 90%.17 The technology necessary to meet the PM standard has been demonstrated on the road and is available, but the NO, reduction technology has not been demonstrated outside the lab. Engine manufacturers and users of heavy-duty vehicles are concerned that the NOx technology may not be available by MY2007, or that the various components for PM and NO, control may not function as a complete system. Further, if the technology is available, they are concerned about its potential cost. EPA predicts that new vehicle costs could increase by $1000 for a lighter heavy-duty truck to $1600 for the heaviest trucks in the long term, and that life cycle operating costs (including increased fuel cost) could increase by as little as $400 (light heavy-duty truck) to much as $4000 (urban bus). Engine manufacturers argue that with so many uncertainties, engine costs could be much higher.18

As was previously stated, a key concern surrounding the new vehicle and engine regulations and proposals is the fact that new standards will necessitate lower levels of sulfur in diesel fuel. This is because sulfur can corrupt emissions control devices, and the newest technologies for emissions control are especially sensitive to sulfur. Supporters of tightened standards argue that in addition to allowing the use of advanced technology in new vehicles, lower sulfur levels would lead to decreased emissions from existing vehicles, as well.19

Currently, highway diesel fuel is regulated at a maximum of 500 parts per million (ppm) sulfur, and averages around 300 ppm. EPA has proposed a reduction to 15 ppm to allow for the use of advanced emissions controls. EPA chose the level of 15 ppm because, EPA officials argue, any higher level would jeopardize the efficiency and reliability of emission control systems, and any lower level would derive little benefit compared to the added expense.20 Refiners have criticized this standard as too costly and likely to lead to supply disruptions and market instability.21 Instead, they propose a standard of 50 ppm, the same as that being adopted in 2005 by Japan and the European Union (EU).22

EPA predicts that the new fuel will cost approximately 4.4 cents per gallon to produce. An Oak Ridge National Laboratory (ORNL) study puts the figure at 4.3 to 5.9 cents per gallon to convert the least expensive 50% of domestic refining capacity, but projects that the last 25% would cost between 7.5 and 9.9 cents per gallon.23 However, this study notes that rather than domestic refiners converting difficult fuel streams to low sulfur diesel, it may be cheaper to have foreign refiners convert some streams and export these to the United States.

In addition to higher refining costs, there are likely to be higher distribution costs associated with the fuel. EPA predicts that additional distribution costs will be approximately 0.2 cents per gallon, while a study by Turner, Mason & Company for the American Petroleum Institute (API) puts the figure at approximately 0.9 cents per gallon.24 EPA predicts that decreased vehicle maintenance costs associated with the new fuel could bring the overall consumer cost of the fuel to as low as 3 to 4 cents per gallon.

An issue related to increased production and distribution cost is the potential for supply disruptions and price spikes. While EPA believes that disruptions are unlikely, others disagree. The National Petroleum Council argues that there is a significant risk of supply disruptions if low-sulfur diesel is required before 2007, since the introduction would overlap with the introduction of low-sulfur gasoline.25 Furthermore, according to a report by Charles River Associates for API, reductions in domestic production capacity brought on by higher costs could lead to price spikes of 15 to 50 cents per gallon until such time as new production capacity can expand and/or imports can increase.26

EPA conducted four public hearings on the proposed rules in June, and accepted public comment until August 14, 2000. The Agency is currently reviewing comments it received and plans to promulgate a final rule on both diesel sulfur and heavy-duty trucks by the end of 2000.

The new diesel regulations will likely promote long-term improvements in air quality and public health. At issue will be the cost of meeting these new standards, and the consequences for refiners, truckers, automotive manufacturers, and consumers. The timing of the new regulations, as well as the maximum allowable sulfur level, will likely play a key role in determining the final costs of new diesel engines and fuels. Depending on these final costs, the new regulations could have major effects on the engine and vehicle manufacturing industries, the trucking industry, and the diesel fuel industry.

While no legislation has been introduced in the 106^th Congress concerning diesel highway vehicles, several committee hearings have been held on the Tier 2 emissions regulations and the heavy-duty truck and diesel sulfur proposals,27 in connection with congressional oversight of EPA and its implementation of the Clean Air Act. Such oversight activities may continue as the regulatory process moves forward.

4 Manufacturers of Emission Controls Association, Emission Control Retrofit of Diesel-Fueled Vehicles. Washington, D.C. August 1999.

5 State of California, Air Resources Board, Resolution 98-35. August 27, 1998. The validity of this study has been criticized by engine manufacturers. See Engine Manufacturers Association, Engine Manufacturers Challenge California Report on Diesel Exhaust. April 23, 1998.

6 EPA has also attempted to regulate PM_2.5 through revised National Ambient Air Quality Standards (NAAQS), but these standards were remanded to EPA for further consideration by a U.S. Court of Appeals in May 1999. For more information, see CRS Report RS20228, The D. C. Circuit Remands the Ozone and Particulate Matter Clean-Air Standards: American Trucking Associations v. EPA.

9 Several states have been active in creating new policies that would tighten highway and nonroad diesel emissions, especially in the Northeast, Southwest, and West Coast.

11 For an analysis of the Tier 2 standards, see CRS Report RL30298, Air Quality and Motor Vehicles: An Analysis of Current and Proposed Emission Standards.

12 Environmental Piotection Agency,Tier2/Gasoline Sulfur Final Rulemaking: Regulatory impact Analysis - Review Draft. December 22, 1999.

13 Environmental Protection Agency, Tier 2 Motor Vehicle Standards and Gasoline Sulfur Control Requirements: Response to Comments.

14 Environmental Protection Agency, Control of Emissions of Air pollution From Highway Heavy- Duty Engines; Final Rule. 62 FR 54693-54730.

15 Environmental Protection Agency, Control of Emissions of Air Pollution From 2004 and Later Model Year Heavy-Duty Engines and Vehicles: Revision of Light-Duty Truck Definition; Proposed Rule. 64 FR 58471-58566.

16 James Kennedy, "Engine Makers See Delay in EPA Rule, Suggest Negotiation of MY2004 Measure," Bureau of National Affairs Daily Environment Report. November 8, 1999. p.AA-I.

17 Environmental Protection Agency, Office of Mobile Sources, Proposed Strategy to Reduce Emissions from Heavy Duty Vehicles. Regulatory Announcement EPA420-F-99-034.

19 Environmental Protection Agency, Diesel Fuel Quality; Advance Notice of Proposed Rulemaking.. 64 Federal Register 26142-26158.

21 American Petroleum Institute, API Comments on the 2007 Heavy-Duty Engine/Diesel Sulfur Proposed Rule, August 14, 2000.

23 EnSys Energy & Systems for Oak Ridge National Laboratory, Modeling Impacts of Reformulated Diesel Fuel: Interim Report, August 14, 2000. p. 16.

24 Turner, Mason & Company, Revised Supplement to Report - Costs/Impacts of Distributing Potential Ultra Low Sulfur Diesel, August 8, 2000. Table 2.

25 National Petroleum Council, U.S. Petroleum Refining - Executive Summary, June 20, 2000. p.24.

26 Charles River Associates, Inc., An Assessment of the Potential Impacts of Proposed Environmental Regulations on U.S. Refinery Supply of Diesel Fuel, August 2000. p. 3.

27 These include hearings by the Senate Committee on Environment and Public Works on June 15 and September 21, 2000 on heavy-duty engines and diesel sulfur and on May 18 and 20, 1999 on Tier 2.

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