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May 20, 1999

Thank you, Mr. Chairman and Members of the Subcommittee, for the opportunity to appear here today to discuss the U.S. Environmental Protection Agency's (EPA) proposed Tier 2 standards for cars and light-duty trucks and the accompanying proposed low sulfur requirements for gasoline.

Our proposal follows from sweeping changes over the past couple of decades in how Americans move around. We've gone from under 100 million light vehicles in 1970 to 200 million last year. And we're driving farther -- from just over one trillion miles per year in 1970 to just over two trillion miles per year today. And as you probably know, there has been a dramatic shift in recent years toward sales of the larger light vehicles meeting emission standards 2 to 5 times less stringent than passenger cars. All indications are that these trends will continue indefinitely into the future, and they will have significant impacts on increasing emissions from motor vehicles.

Our proposal, over the next decade, will improve and maintain the nation's air quality by phasing in both cleaner vehicle technologies and cleaner burning gasoline using flexible, market driven mechanisms that are fair to industry with minimal consumer cost while preserving vehicle choice.


These issues were highlighted in the context of the Clean Air Act's requirement that we reassess light-duty standards. We were to report to Congress on three issues: whether there would be an air quality need for new tailpipe standards in the post-2004 time frame, whether such standards could be technologically feasible and whether they are cost-effective. Last year, we reported to Congress in the affirmative on all three issues. Let me say a few words about the specific evidence in this report.

Our projections identified large parts of the country, involving about one hundred thirty million residents, that would be at or near unhealthy levels of pollution in the middle of the next decade, even with all expected control programs in place. A large part of that problem will be ozone, which reduces the lung function of otherwise healthy people and increases hospital admissions for people with respiratory ailments like asthma and which, under longer exposures, permanent lung damage can occur. Particles are the other major part of the problem because they can penetrate deep into the lungs and are linked with premature death, increased hospital admissions, and changes in lung tissue. Other environmental problems related to pollution from motor vehicles, such as agricultural damage, impaired visibility, and nitrogen deposition in our nation's waterways, will also remain a concern to citizens across the nation.

The vehicles we are discussing today -- cars, minivans and full-size vans, pickups, and sport utility vehicles (SUVs) -- are big contributors to air quality problems. For example, they will be responsible for about 20% of ozone causing NOx emissions nationwide and approach 40% in some metropolitan areas like Atlanta in 2004. And since more vehicles are being purchased and more miles are being driven, total emissions from these vehicles will increase after 2010 eroding the progress made by local and state government in cleaning the air. This was a large part of the evidence we reported that led to our decision to propose new standards for this vehicle class.

In our Tier 2 Report to Congress, we also demonstrated that much lower vehicle emission standards were within reach of current emission control technologies; improvements in today's technology, not new breakthroughs, are what will be needed. In fact, many vehicles being sold today in California and the Northeastern U.S. are already employing technologies that can achieve lower emission levels when operated on low sulfur gasoline. In addition, as a technology demonstration at EPA's laboratory, we have made progress in significantly lowering emissions from a large pickup and a popular SUV by making calibration and catalyst changes to the emission control systems. In fact, we have been able to achieve the proposed standards on both of these vehicles. Since these large emission reductions would come at a fairly modest estimated cost, we reported that new standards beyond the National Low Emission Vehicle Program would be cost-effective. These findings on air quality need, feasibility, and cost-effectiveness formed the basis for our recent proposed rule.

We also determined that lower sulfur gasoline will be needed to allow these advanced emission control technologies to be effective in reducing emissions. There is widespread agreement that sulfur degrades emission control performance for all vehicles, reducing the effectiveness of the catalyst in converting pollutants such as hydrocarbons, carbon monoxide, nitrogen oxides, and particulate matter. Further, a combined industry research project by the Coordinating Research Council, a consortium of oil and auto companies, as well as other research, has found high levels of sulfur permanently damages vehicle emission controls. Unfortunately, this problem will get worse in the future because as emission levels are lowered, the more effective control systems are even more sensitive to sulfur. So gasoline sulfur levels must be reduced -- significantly -- to enable cleaner emission control technologies to work to their full potential.


Our proposal is the culmination of an extensive deliberative process during which we worked intensively with a wide range of stakeholders. Before completing the proposal, we met repeatedly at high levels with the vehicle manufacturing industry, the oil refining industry (including a special outreach process with small refiners), states, environmental organizations, and other parts of the federal government. We logged many hours at all management levels in meetings with individual companies and trade associations, state organizations, and others to understand the issues and the capabilities of each group to respond to these concerns. The perspectives of these many stakeholders are reflected in the design of our proposed program and the principles on which we based it.


Through this broad deliberative process, we developed a list of overarching principles for the design of a strong, national program, including:


The auto and oil industries and other stakeholders provided meaningful suggestions during the development of the proposal. Based on our work with the stakeholders, we drafted a proposal, which we then shared and revised based on our discussions with other parts of the federal government, including the Department of Energy and the Office of Management and Budget, to ensure that the proposal balanced concerns regarding cost, benefits, and timing. We believe that the Tier 2/Gasoline Sulfur standards that we proposed on May 1, 1999, represent a common sense, cost-effective plan resulting from the many levels of cooperation we experienced in this process.

Our proposal consists of two parts: Tier 2 emission standards and gasoline sulfur requirements. The vehicle standards require manufacturers to meet a corporate average NOx standard of 0.07 grams/mile -- a 77% reduction from NLEV levels and a more than 90% reduction from Tier 1 levels. These standards are phased in over time beginning in 2004, and the heavier vehicles (between 6,000 lbs. and 8,500 lbs GVWR) are given the greatest amount of time, until 2009. During the phase-in period, the remaining cars and smaller trucks will continue to meet NLEV levels, and the heavier trucks, which are currently certified to Tier 1 standards, will have to meet average levels of 0.2 g/mi NOx.

In meeting the corporate averages, manufacturers will have a number of certification "bins" to choose from. The bin with the highest emission levels will accommodate vehicles certified to 0.2 g/mi NOx, with corresponding standards for hydrocarbon, carbon monoxide and particulate emissions. We believe this bin will provide substantial flexibility for manufacturers to comply with the Tier 2 standards while still meeting their customers' desires for larger trucks and SUVs, including possible diesel-fueled vehicles.

Our proposal also reduces evaporative emissions from all vehicles by 50%, and extends the useful life requirements for these vehicles to 120,000 miles to more properly represent the actual operating life of today's cars and trucks. Thus, although much of our effort was focused on ensuring reductions in NOx emissions, our program will also result in fewer hydrocarbon emissions. These reductions will help states to improve and maintain their air quality for many years.

We have designed this program to achieve the environmental goals as early as possible while minimizing the burden on the affected industries. In addition to allowing vehicle manufacturers to choose from emission standard bins above and below the average standards, we have provided other compliance flexibilities for manufacturers. In addition to the certification bins, manufacturers will be able to use an averaging, banking, and trading program when meeting the corporate average standards. Under this program, manufacturers who surpass their corporate average standard in a given year can bank or trade NOx credits for future use or for use by manufacturers that are having trouble meeting the corporate average standards. Other flexibilities include the phase-in and interim standards.

Overall, we have estimated that these requirements will only result in modest increases to the cost of producing these vehicles. We estimate that the technologies required for cars and the smaller light trucks will average about $100/vehicle. The heavier trucks will require more changes, particularly since they are starting from less stringent standards; this technology will average about $200/vehicle.


To enable the emission control technologies necessary to meet these proposed standards, we have proposed a national gasoline sulfur standard of 30 ppm on an annual average basis, with a maximum cap of 80 ppm in 2004, and a credit program to allow for compliance as late as 2006. Based on the information I mentioned earlier, we believe a national program is the best option, due to the permanent damage that sulfur causes on vehicle emission control performance and the magnitude of environmental benefits to be achieved from this program.

Tier 2 technologies anticipated to be used to meet emission levels required to address our air quality concerns are expected to be even more sensitive to sulfur than today's technologies, and these new technologies simply cannot be exposed to high sulfur levels and continue to perform as designed.

Current information indicates that these catalysts will have a partial but permanent loss in performance if they are exposed to high sulfur levels, even for a short period of time. This permanent damage can on average mean a loss of as much as 50% of the emission-reducing capacity of a catalyst, which for some vehicles means the emissions reductions of the new standards are lost. For example, a 1999 Ford Taurus designed to meet NLEV standards that was a part of the industry testing program only recovered 40 percent of its capacity after a short exposure to gasoline with a sulfur content typical of current gasoline. As vehicles are required to maintain tighter controls on operations in order to meet low emission standards over a range of operating conditions, the ability of the catalyst to reverse the negative sulfur impact is further lost. The role irreversibility will play on vehicles which travel across the country also supports the need for a national program. A regional sulfur control program would compromise the ability of a vehicle/fuel program to achieve the air quality reductions needed to protect public health by limiting the effectiveness of the emission control systems in "high-sulfur" regions versus "low-sulfur" regions. In addition, clean vehicles which for any number of reasons might travel to a "high-sulfur" region would be irreversibly damaged. Hence, tighter emission standards would require not only substantial reductions in sulfur levels, but timely and uniform reductions across the country to protect the new technology.

There are additional reasons for a nationwide sulfur control program. Gasoline sulfur reduction is essential to improve the emission control performance of current technology vehicles. NLEV vehicles being sold today in the Northeast and by 2001 in the rest of the country using high sulfur fuels will have NOx emissions about 140% greater than NLEV vehicles operated on 30 ppm gasoline. Sulfur reductions will result in emission benefits from existing vehicles as well as enabling future Tier 2 vehicles, including vehicles using fuel efficient technologies. A national program will provide broad environmental and health benefits including: reduced air toxics, reduced acid rain, improved visibility, reduced nitrogen deposition in our nation's waterways, and reduced agricultural damage. Finally, a national program will not preclude the introduction of fuel efficient technologies, such as gasoline direct injection, and will ensure compliance with the vehicle standards across the nation.

We believe there are a number of promising technologies available to refineries to remove sulfur. Several technologies have been developed that reduce the capital investment, the loss of octane value, and the energy consumption involved in desulfurizing gasoline compared to conventional methods. Two specific technologies, CDTech and OCTGAIN, were closely examined during the development of this proposal and we believe they are cost-effective viable technologies for removing sulfur from gasoline. In addition, a number of refineries and other companies are exploring other technologies. We believe the industry will make extensive use of these technologies in meeting the proposed requirements.

To enhance the flexibility of compliance for the oil industry, we have proposed to provide refiners with two additional years, until 2006, to comply with the proposed requirements through a voluntary banking and trading credit program. This credit program will allow sulfur credits to be generated as early as 2000 by refineries making early reductions in sulfur levels. To provide some protection to the Tier 2 vehicles that will be phasing into the fleet in this same time frame as the credit program for refiners, refiners will meet a maximum cap standard of 120 ppm in 2004 and of 90 ppm in 2005 as well as actual in-use average sulfur level standards that are substantially lower than current sulfur levels. The rule is expected to be finalized at the end of this year. Under this proposal, refiners will have four years for planning and construction, and then an additional two years during which refiners could use credits to meet the phase-in of the 30 ppm average standard.

In addition to these provisions, the particular problems of small refiners have been carefully considered. We convened a panel under the Small Business Regulatory Enforcement Fairness Act (SBREFA) to evaluate the potential impact on small refiners of our proposed gasoline sulfur standards. The panel used the Small Business Administration definition of small refiner based on the total number of employees in the corporation, including any non-refining functions. Based on the panel's recommendations, we have proposed to allow refiners employing no more than 1,500 people an additional four to six years (beyond 2004) before they will be held to the 30 ppm average/80 ppm cap standards. In the interim, about half of these small refiners would have to reduce their sulfur levels below 300 ppm, but they will not have to meet the same levels that the majority of refiners will be held to in 2004. This delay will allow small refiners to make the required investments over a longer time, and we expect all of them will be able to comply by the end of the delay period.

Throughout the SBREFA process a number of specific issues were identified as concerns. We have identified these issues in the proposal and are asking for comment on how to address these concerns. As an example, in the proposal, we have asked for specific comment on other potential definitions for small refiners -- ranging from the crude oil processing capacity of the refinery to counting employees only involved in gasoline production. While the purpose of these provisions is to provide some relief to the smallest refiners, we are looking forward to working with the entire industry to find the most appropriate definition.

A number of other issues are outlined in the proposal where we are keenly aware of the concerns likely to be expressed and are seeking input and ideas from the public and the industry. A specific example is the concerns expressed by refiners regarding the time constraints on being able to construct the necessary desulfurization equipment in time to meet our standards or, hopefully, to generate credits through early reductions. We have proposed to work with industry and the states to streamline the construction permitting process to minimize the potential that permitting could be a roadblock to early compliance. In addition, we are requesting comments on a general hardship provision.

Although I believe our proposal expresses a clear willingness to design the most workable program possible, I do not want to minimize the cost and effort that the oil industry will expend in meeting the proposed standards. We estimate that it will cost 1-2 cents/gallon to reduce gasoline sulfur levels to the proposed standards. However with the flexibilities we have outlined in the proposal and the advances in desulfurization technologies that have occurred in recent years, we believe we have outlined a sound and effective proposal for reducing sulfur from gasoline.

Since diesel cars and light trucks will also be impacted by the proposed vehicle standards, we've also released an Advance Notice of Proposed Rulemaking which raises questions about the need to control diesel sulfur levels to enable these technologies to meet the Tier 2 standards. After consideration of comments received on the need to control diesel fuel sulfur levels, we plan to issue a Notice of Proposed Rulemaking late this year, so that refiners have this information at the same time that they receive our final regulations for gasoline sulfur control. Since this decision has significant implications for the refining industry, we would work with representatives of this industry to identify workable options and would work with small refiners to address their unique concerns.


We believe our combined vehicle standards and gasoline sulfur requirements to be very cost-effective, at about $2,000 per ton of NOx plus VOC reduced. In 2020, the emission reductions from these new national standards would be equivalent to reducing the number of vehicles on the road by more than 2/3, or 166 million vehicles. While the total cost of the program for cleaner vehicles and gasoline, adjusted for inflation, is estimated to be around $4 billion annually, the benefits -- avoided deaths, avoided illness and hospital days, avoided lost work days, etc. -- are estimated to be worth over $16 billion annually in our best-case estimate.

In conclusion, let me emphasize that we believe that the progress that has been made to date to bring cleaner vehicles to our nation's highways has been one of the reasons our air quality continues to improve. However, as we move into the next century, there is no doubt that even cleaner vehicles and gasoline need to continue to be part of the solution as we strive to ensure clean air across our nation. The amount of miles that people drive continues to increase. Sales of larger (more polluting) vehicles, such as minivans, SUVs, and pickup trucks, continue to increase. Current emission standards cannot offset the growth in miles traveled. Technology is available and affordable to better control these vehicle emissions, provided that we address the negative impact of sulfur in gasoline on these technologies. Cleaner vehicles and cleaner gasolines are part of the cost-effective solution to cleaner air.

Thank you again for this opportunity to discuss our program with you. I would be happy to answer any questions that you may have.


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