Low-Sulfur Heating and Distillate Oil Regional Initiative

Air Quality Technical Advisory CommitteeSmall Business Compliance Advisory

Committee

Winter 2008

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The 1977 Clean Air Act Amendments declared a national goal to prevent future visibility impairment and remedy existing impairment in the national parks, wilderness areas, and wildlife refuges (“Class I” areas)

The goal is to reach natural visibility conditions by 2064.

There are 10-year planning timeframes to make “reasonable progress” towards the 2064 goal – the first milestone is 2018.

BACKGROUND: Regional Haze

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BACKGROUND: Regional Haze

•The Class I states must formally “consult” with contributing states in setting their reasonable progress (RP) goals.

•The Mid-Atlantic/Northeast Visibility Union (MANE-VU) was established in 2000 to help the Northeast states plan for meeting regional haze requirements.

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BACKGROUND: Regional Haze

Both the non-Class I states and the Class I states must set out long term strategies (LTS) in their SIPs to achieve the Class I states’ reasonable progress goals.

There is a “mid-course review” within each 10-year planning timeframe for states to evaluate progress towards their LTS and RP goals – the first review is due in 2013.

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Class I areas in the MANE-VU Region

Moosehorn

RooseveltCampobello

Acadia

Presidential RangeDry River

Great Gulf

Lye Brook

Brigantine

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BACKGROUND: Regional Haze

Potential control strategies are evaluated for their “reasonableness” taking into consideration four statutory factors:

1) The costs of compliance,2) The time necessary for compliance, 3) The energy and non-air quality impacts, and4) The remaining useful life of sources subject to

the requirements.

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BACKGROUND: Regional Haze

MANE-VU completed the “Assessment of Reasonable Progress for Regional Haze In MANE-VU Class I Areas” in July 2007.

The sulfate ion (SO4) is the primary chemical species contributing to visibility impairment, especially on the 20% worst days.

The report evaluated 4 source categories (electric generating units, cement and lime kilns, industrial/commercial/institutional boilers, and heating oil) using the four-factor analysis for potential sulfate reductions.

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Largest Sources of SO2 Emission in the MANE-VU Region

Source Category Emissions(tpy)

% of Regional Total

EGUs 1,628,333 71%

ICI Boilers 156,333 7%

Residential/Commercial Oil Heat Burners & Furnaces

153,225 7%

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MANE-VU Low-Sulfur Fuel Initiative

The MANE-VU states adopted a “Statement of the Mid-Atlantic Visibility Union (MANE-VU) Concerning a Course of Action Within MANE-VU Toward Assuring Reasonable Progress” in 2007.

MANE-VU states agreed that a regional low-sulfur oil strategy is both reasonable and achievable by 2018.

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As much as 75% of the total sulfur reductions achieved by this strategy assumed to come from using the low-sulfur #2 distillate for space heating in the residential and commercial sectors.

One-quarter of Pennsylvania homes rely on oil heat. New England states are even more heavily dependent on oil heat than Pennsylvania.

MANE-VU Low-Sulfur Fuel Initiative

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Low Sulfur Oil – inner zone (NJ, NY, DE & PA or portions thereof)

Strategy S-1 S-2

distillate 500 ppm 15 ppm

#4 oil 0.25% sulfur 0.25% sulfur

#6 oil 0.3-0.5% sulfur 0.3-0.5% sulfur

Required no later than

2012 2016

MANE-VU Low-Sulfur Fuel Initiative

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Low Sulfur Oil – outer zone (rest of MANE-VU)

Strategy S-1 S-2

distillate 500 ppm 15 ppm

#4 oil 0.25% sulfur

#6 oil 0.3-0.5% sulfur

Required no later than

2014 2018

MANE-VU Low-Sulfur Fuel Initiative

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Annual SO2 Emission Benefitsin the MANE-VU Region

in 2018

2018 15 ppm #2

(from 2000+ ppm baseline)

5,000 ppm#4 & #6

(from 10,000 ppm baseline)

Total Reductions from Low Sulfur

Oil Strategy

EmissionReductions

167,000 tons 19,000 tons 186,000 tons

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Potential Emission Reduction of Lower Sulfur Fuel Oil(% reduction compared to 2,500 ppm sulfur fuel)

Pollutant 500 ppm 15 ppm

SO2 75 % 93%

PM 80 % ?

NOx 10 % ?

Hg ? ?

CO2 1%-2%% 1%-2%

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Consumer Benefits

Sulfur reductions can save consumer money because low sulfur heating oil reduces rate of fouling of heating equipment & therefore reduces maintenance.

Cleaner furnaces/boilers burn less fuel.

Can compete on “greenness” with natural gas.

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Implementation Concerns

Fuel de-sulfurization is proven emission control strategy

Implementation challenges are economic rather than technical

3 primary issues must be addressed: Supply Cost Political viability

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Stakeholder Process at Regional Level

Oil heat dealers are generally supportive of lowering sulfur as means of “greening” their image relative to natural gas competitors.

Wholesalers & retailers generally support MANE-VU approach & timeline.

Timing & avoiding patchwork of different requirements are key to this support.

Refiners meeting scheduled for 2/19/09.

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Supply Issues Highway diesel and most off-road diesel requirements

are all moving towards 15 ppm sulfur. Tank space limits number of products.

Higher demand for distillate globally, most transportation fuels.

Recent study conducted for the National Oilheat Research Alliance (NORA) suggests that supplies of low and ultra-low sulfur distillate should be available to meet the demands of the M-V program in the general timeframes laid out by the states.

Transportation issues – different in New England than more southern states.

Residual fuels more problematic – more discussion needed.

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Supply Issues

The inner/outer zone strategy helps make the timeframes reasonable.

Some discussion with distributors about whether an interim step to 500 ppm or direct to 15 ppm is better.

Biofuels can be blended to further reduce emissions and extend supplies with domestic feedstocks.

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Cost and Price

MARAMA assumed refiners can, by 2018, produce lower sulfur home heating and fuel oils at an acceptably small increase in price to the end user.

Between 1993-2003, the incremental cost between 2500 ppm and 500 ppm distillate averaged 1.5 cents per gallon.

Over past several years this delta has been higher, due in part to rapid changes in the oil industry as result of environmental regulations, but the gap is closing.

As market moves toward nearly all ULSD, the incremental cost of high, low and ultra-low product

should normalize.

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Cost and Price

NORA estimates cost of producing 15 ppm distillate at about 9 cents per gallon.

Forces other than production costs will also play role in determining the price differential that consumers will pay for cleaner heating oil.

Petroleum economics are volatile at this time.

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Next Steps

Continued discussion by MANE-VU states with stakeholders.

Work towards consensus on key issues.

Individual state rule processes with regular stakeholder/public input.

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Contacts

Dean Van Orden, Assistant Bureau Director, 717-783-9264, dvanorden@state.pa.us

Arleen Shulman, Chief, Air Resources Management, 717-772-3436, ashulman@state.pa.us