AIR POLLUTION:

Citing construction crunch and labor shortage, refiners plead for Tier 3 delay

U.S. EPA's bid to curb sulfur in gasoline has already seen one delay after another -- from a yearlong stall in 2011 to a lag linked to the large volume of public comments on the proposal that pushed the proposal past its December 2013 release target.

The petroleum industry is asking EPA for one more timeout so refineries can prepare for the Tier 3 rules before a planned January 2017 launch.

"Given the complexity of the investments required to meet Tier 3, the EPA's proposed compliance date of January 1, 2017, would not provide sufficient time to engineer the equipment, navigate the extensive permitting processes and complete the installations necessary," Phillips 66 spokesman Bryan Kaus said in a statement.

But critics question refiners' arguments that they need more time to install the technology needed to lower the amount of sulfur in gasoline from 30 parts per million to 10 ppm. Environmental and public health advocates have called for EPA's proposal to be released before Friday and take effect on schedule, saying that any delay would mean an entire model year of cars wouldn't be viable with the low-sulfur fuel.

EPA declined to comment on the release or implementation date, but an analysis released last spring found that a limited number of plants would need to install brand-new equipment, a process estimated to take three years. Those that only have to revamp existing equipment could finish in two years, the agency found.

But in meetings with EPA and the White House Office of Management and Budget, groups including American Fuel & Petrochemical Manufacturers and the American Petroleum Institute, as well as individual refiners, have said planning for and installing the technology that would allow refiners to squeeze out the sulfur in gasoline could take years and would require plants to shut down for weeks.

A shortage of engineers qualified to work on the hydrotreaters needed to comply will also complicate the renovations in a tight three-year window, the industry says.

"That timeline is overly aggressive and puts into jeopardy refiners' ability to supply the fuel," said API's Patrick Kelly, who met with OMB earlier this month.

The outlines of the Tier 3 requirements -- 10 ppm by 2017 -- have been in discussion since 2011 and were confirmed in a proposal in April 2013. In that proposal, EPA said companies were "familiar with the likely requirements" and that many had a chance to begin the scoping process.

But those discussions did not include the specifics in the final proposal, and with the capital investment required, AFPM Senior Vice President of Advocacy Brendan Williams said the group's members wanted to be sure they were meeting every aspect of the final rule.

Specifics

To get ready to meet the Tier 3 rules, refiners will have to install hydrotreating equipment that strips sulfur and other substances from fuel either upstream or downstream of its fluid catalytic crackers. Many are expected to be able to meet the Tier 3 standards without installing a new hydrotreater, which industry said costs roughly $228 million, instead revamping existing equipment installed for previous sulfur reduction standards.

Companies contacted by Greenwire declined to comment on the specifics of their preparations, citing the proprietary nature of the plans.

Before installing or revamping hydrotreaters, refineries must first go through a planning process that begins with scoping studies that can run for months. Then engineers must go through a process design phase and operators must seek permits, a step that industry groups have warned can cause delays because they are waiting for EPA to approve the designs. Accounting for permit revisions and engineering following that approval, it can be as much as 18 months before construction is expected to begin.

Installing a hydrotreater requires a multistep process culminating in a plant shutdown that can run as long as 30 to 90 days. Because of the difficulties in keeping a refinery shut down for that long -- existing contracts must be adjusted or met elsewhere and the market can see ripple effects from a reduced supply -- the shutdowns are typically planned years in advance. That period will include any number of regular repairs, installation of more advanced technology and revisions necessary to meet new EPA rules.

Facilities typically used to do maintenance on a four-year schedule, but more durable equipment has largely extended that to five years. That means plants that had gone through their normal round of repairs in 2013 or 2014 wouldn't be due for more until after Tier 3 compliance had begun, said AFPM's Williams.

"If you have to shut down plants before then, you could see some problems in the fuel supply," he said. "You're talking about a significant undertaking that you don't want to be doing for a lot of reasons. It's not as simple as turning a couple of knobs and being done in a day."

Environmentalists have countered that the lead time issues are overblown and that refiners will be easily able to comply with the standards by 2017. They point to a refinery-by-refinery analysis performed by EPA that estimated that 16 refineries would require construction of new grass-roots hydrotreaters and that many others would be able to simply revamp existing equipment. The more stringent Tier 2 standards that cut sulfur levels from 300 ppm to 30 ppm by 2006 mean that most plants have already installed hydrotreating equipment.

An analysis by Navigant Economics Managing Director George Schink prepared for the Emissions Control Technology Association said that the work done for Tier 2 not only meant plants are ready but gave refiners "experience with making these sorts of investments."

"Given that Tier 3 requires only about one-third of the investment by refiners as was required under Tier 2, asking for more than the four years that the refiners used to implement the Tier 2 investments seems inappropriate," Schink said.

The flexibilities proposed for Tier 3 include a delay for small refiners that would hold off compliance until 2020 for plants of a certain size. The proposal also included a trading program that would allow refiners to bank and trade credits if they produce 10 ppm fuel before 2017, which analysts have estimated could allow some plants to delay implementation until 2020.

API has said the ability to bank credits is hindered by the limited lead time and the continued use of Tier 2 credits.

EPA is also expected to include a hardship provision, as it has in the past, to help refineries facing unforseen consequences.

Industry groups also are warning that their industry is already facing a shortage of the skilled engineers and construction workers needed to install the equipment, which could lead to more delays. Competition for skilled engineers and retirements among older workers have led to the shortage, which industry groups say they don't expect to be filled in the next few years.

"There's a finite supply, and you have a lot of people doing a lot of work in a short time period," Williams said.

EPA said in its proposal that since plants already have begun the scoping process, there should be enough lead time to ensure that the labor supply is spread out and working on staggered projects.

Pushback

API said Tier 3 could provide a test case for future rules, which the group says should follow a five-year lead time. With coming greenhouse gas regulations on refineries that could require even more changes that could conflict with the added energy required for hydrotreaters, compliance could be even more complex for future rules.

"We've explained the need to extend compliance implementation from four to five years, but now they're cutting it to less than three," said API's Kelly. "When we talk about how much implementation will cost the industry, we're not including accelerated implementation."

But supporters of finalizing the rule this month have also been pushing their case. Other groups that have met with OMB this month include the Sierra Club, Union of Concerned Scientists, Consumers Union and Advanced Engine Systems Institute.

The lower-sulfur fuel will help car engines with catalytic converters and other emissions-reduction equipment run more efficiently and will cut nitrogen oxides, particulate matter, carbon monoxide and air toxics. Green groups have said the result will be the equivalent of taking 33 million cars off the road.

"A delay means more premature deaths, more asthma, more heart attacks," said Jesse Prentice-Dunn, a transportation policy analyst with the Sierra Club. "When they institute low-sulfur gasoline and that goes into every car, new and old, that's going to have incredible health benefits overnight."

EPA declined to comment on whether the final rule would delay implementation or increase flexibility on the lead time. In its proposal published in the Federal Register in May 2013, the agency said that it believed that "in reality, less lead time ... would actually be necessary."

And with the state of California and the nation of Japan already requiring 10 ppm gasoline and the European Union on its way, automakers say they'll be in compliance regardless of when the federal standards begin.

In the end, environmentalists and public health groups say the key is making sure the program comes online as soon as possible to get instant benefits. A number of mayors have gotten in on the effort by lobbying EPA Administrator Gina McCarthy for quick finalization, including Philadelphia's Michael Nutter, Boston's Martin Walsh, Las Vegas' Carolyn Goodman and Salt Lake City's Ralph Becker.

"The citizens of Philadelphia -- and communities across the country -- have the right to breathe clean and healthy air," Nutter wrote. "The new standards are especially important to our children, minority, and low income populations who are impacted by asthma and other debilitating health conditions."

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