EPA Mobile Source Rule Update WESTAR Spring Business Meeting 3 April 2007

2 EPA Mobile Source Rule Update Diesel locomotives and marine engines Ocean-going vessels Small lawn & garden gasoline engines and recreational gasoline marine engines Mobile source air toxics Renewable fuels standard

3 EPA’s Locomotive and Marine Diesel Proposal

4 Reconciling the Transportation Sector With the Environment: A Comprehensive and Collaborative Approach Light-duty Vehicles (1999) Heavy-duty Vehicles (2001) Clean Nonroad Diesel (2004) Common Aspects-- Systems approach– low sulfur fuel enables clean technologies Very large environmental benefits Responsive to clean air goals Highway Farm, Industrial, Construction Locomotive/ Category 1 And 2 Diesel Marine Proposal

5 Locomotive & Diesel Marine - a large mobile source: 1/3 of NOx and 2/3 of diesel PM in 2030 Diesel PM 2.5 Total=78,000 tons/yr (diesel-fueled engines) Mobile Source NOx Total=4,500,000 tons/yr

6 What the Rule Covers-- Locomotives Switch Line-Haul Passenger Sales ~ / year Typically rebuilt every 5-7 years

7 What the Rule Covers-- Marine Diesels Category 1 Commercial (<5 liter/cylinder) ~15,000/year (about half are aux engines) Recreational ~15,000/year Category 2 (5 to 30 liter/cyl) <300/year <75 hp <10,000/year gen setssailboats cruisers yachts auxiliary power for ocean-going vessels workboatsfishing vessels police boats ferries tugboats Great Lakes freighters Covered in separate initiative ocean-going ships Category 3 (>30 liter/cyl)

8 Proposed Locomotive Standards Remanufactured Locomotive Standards Newly-built Locomotive Standards New Long-Term (Tier 4) Standards New Interim (Tier 3) Standards Remanufactured Tier 2 Remanufactured Tier 0 & 1 locomotivegroups PM 2015 NOx as available 2013 required 2008 as available 2010 required date standard(g/hp-hr) 80% ~20% reduction%reduction%standard(g/hp-hr) ~90% 50% 50% ~60% NO x PM

9 Proposed Marine Diesel Standards Existing Marine Engines (requesting comment on remanufacturing stds) New Long-Term (Tier 4) Commercial >600kW New Interim (Tier 3) 0-20%reduction 1.3 varies by engine size standard(g/hp-hr) ~80% ~20% reduction%reduction%standard(g/hp-hr) ~90% ~90% ~50% NO x 20-60%reduction varies by engine size PMdate

10 Nationwide PM Reductions From the Proposal PM with current standards with proposed standards Calendar Year Particulate Matter (annual tons)

11 NOx Nationwide NOx Reductions From the Proposal with current standards with proposed standards Calendar Year NOx (annual tons)

12 Proposal Annual Costs and Benefits in % Unit cost as % of typical new locomotive price (similar for marine; varies vessel to vessel) 765,00028,000 Inventory reduction, tons 20:1 $12B $5560 $159MPM NO x Monetized benefits Benefit to cost ratio Cost per ton Cost $580 $446M

13 The Process Toward Completion Proposal signed by Administrator Johnson March 1 Comment period open for 90 days after publication (~July 1st) Hearings in Seattle May 8 and Chicago May 10 Targeting final rule before the end of the year

Ocean-going Vessels - IMO Deliberations - EPA OGV Rulemaking

15 Standards Comparison – IMO vs. other US mobile source categories

US Mobile Source PM2.5 Inventory (250,000 tons total) Recent detailed investigation by US EPA, California, and University of Delaware scientists indicate ocean-going marine vessel PM inventories for the US are low by as much as a factor of 3 for the baseline year 2001, and by as much as a factor of 5 for 2020

US Mobile Source NOx Inventory (4.5 million tons total) Recent detailed investigation by US EPA, California, and University of Delaware scientists indicate ocean-going marine vessel NOx inventories for the US are low by as much as a factor of 3 for the baseline year 2001, and by as much as a factor of 5 for 2020

US Mobile Source SOx Inventory (480,000 tons total)

19 Marine Emission Standards There are two sources of standards that apply to marine diesel engines in the U.S. –International Maritime Organization (IMO) Annex VI to the International Convention on the Prevention of Pollution from Ships Annex VI to the International Convention on the Prevention of Pollution from Ships –U.S. Federal standards Promulgated by EPA under the Clean Air Act Promulgated by EPA under the Clean Air Act

20 US EPA Regulation for Category 3 Engines 2003 US EPA Regulation: 2-part approach –Near term standards: Equivalent to the International Maritime Organizations Tier 1 standards –Long-term standards: Commitment to finalize an additional tier of standards in the future EPA is committed to taking additional regulatory action under the Clean Air Act –Regulations stipulate a final rulemaking action by 4/27/07 We expect to issue an advanced regulatory announcement within the next few months EPA is also committed to the IMO Annex VI (air pollution) negotiation process

21 Background on IMO and US Positions July 2005 – IMO agreed to deliberate on potential amendments to Annex VI EPA, as part of the US Gov’t, has been very active on air pollution issues at IMO –Consistently advocated for stringent standards based on advanced emission technology solutions US Gov’t has submitted a proposal to IMO which outlines an approach for long-term reductions in PM, NOx and SOx from OGVs We expect the IMO deliberations to continue into 2008

22 Key Elements of the US Concept NOx standards for new build engines > 30 l/cyl (Category 3) –NOx reductions for pre-2000 engines –Interim NOx standards for new engines, –Long-term NOx standards for new engines based on advanced technologies (i.e., selective catalytic reduction), Applicable to engines operating in defined areas, e.g., 200 miles from shore for specific regions PM & SOx: –Performance standard applicable to all vessels operating in defined areas [x miles from shore] effective in [2011] SOx level of [0.4] g/kW-hr PM limit similar to existing US EPA Tier 2 diesel marine (engine-out standards) –Compliance could be through the use of low-sulphur fuel ( ~1,000 ppm S) and/or the use of SOx scrubbing technology Next Steps – US position to be discussed at IMO meeting later this month

Small Gasoline Engines and Recreational Gasoline Marine Rulemaking

24 EPA’s Current Small Gasoline Engine Standards Small engines: <25 horsepower, used in lawn & garden, and industrial equipment (e.g, mowers, chain saws, generators) Phase 1 standards took effect in 1997 –Standards represented a 33% reduction in HC+NOx from uncontrolled levels for all engines Phase 2 standards are phased-in from –Non-handheld (NHH) standards represented a 60% HC+NOx reduction beyond Phase 1 levels Standards were based on 4-stroke engine improvements –Handheld (HH) standards represented a 70% HC+NOx reduction beyond Phase 1 levels Standards were based on application of catalysts to most 2-stroke engines ~2/3 of new HH engines sold in the United States have catalysts currently

25 California Tier 3 Requirements California adopted Tier 3 standards for small gasoline engines –The reductions from the California exhaust standards represent a reduction of 35% from EPA’s Phase 2 exhaust program –Standards based on catalysts for non-handheld products ARB also adopted evaporative emissions controls –Tank, hose, and permeation control –Canister to control diurnal, running loss, and hot soak.

26 EPA’s Plans for New Phase 3 Standards In 2004, Congress directed EPA to propose new standards for spark-ignition (gasoline) engines < 50 hp In 2004, Congress directed EPA to propose new standards for spark-ignition (gasoline) engines < 50 hp We are pursuing new standards for the following engine categories: We are pursuing new standards for the following engine categories: Non-Handheld Lawn/Garden Handheld Lawn/Garden Outboard and Personal Watercraft (PWC) marine engines Sterndrive and inboard marine engines For lawn/garden engines, we plan to adopt California’s Tier 3 standards starting with model year nonhandheld engines For lawn/garden engines, we plan to adopt California’s Tier 3 standards starting with model year nonhandheld engines Also proposing tank permeation, fuel line, and diurnal emissions standardsAlso proposing tank permeation, fuel line, and diurnal emissions standards

27 Gasoline Marine Standards Outboard/Personal Watercraft: adopt California standards in 2009 –65% reduction in HC+NOx Sterndrive/Inboard: Adopt California HC+NOx standard in 2009 –70% reduction in HC+NOx (catalyst forcing) –Substantial reductions in CO emissions –One manufacturer has certified for California program and is now selling Marine fuel evaporative emissions currently uncontrolled –Proposing tank permeation, fuel line, and diurnal emissions standards

28 Small Gasoline Engines and Gasoline Marine Estimated Impacts and Next Steps 2030 Annual Emission Reduction Estimates –630,000 tons VOC –98,000 tons NOx –6,300 tons PM NPRM expected within a few weeks Final rule targeted for early 2008

Mobile Source Air Toxics (MSAT 2) Final Rule

30 Why an MSAT2 Rule? Section 202(l) of the Clean Air Act –Requires standards to control toxics from motor vehicles and/or motor vehicle fuels Greatest emissions reduction achievable with technology, considering cost, lead time, etc. First MSAT rule in 2001 –Toxic emissions standard for gasoline –Identified data gaps, committed to research –Committed to additional rulemaking MSAT 2 Final Rule Published February 26, 2007

31 MSAT2 Final Rule Elements National benzene standards for gasoline Cold VOC exhaust standards and evaporative standards for light-duty vehicles Standards for portable fuel containers

32 Gasoline Benzene Content Standards 0.62 vol% annual average standard –2004 average benzene content: 1 vol% –Applies to each refinery –Nationwide banking and trading –Effective in vol% maximum average –Must be met with actual production (no credits) –Effective in 2012

33 Vehicle Standards New cold temp hydrocarbon standards –Vehicles are certified at 75º F, but recent data show emissions sharply increase at 20º F –New std. will reduce benzene, 1,3-butadiene, formaldehyde, etc. Evaporative standards –Harmonized with California –Codifies approach manufacturers are already taking Phase in from

34 Portable Fuel Container Standard Gas cans, diesel and kerosene containers Hydrocarbon standard starting in 2009 Reduces evaporation, permeation, spillage –Durable permeation barriers –Automatically closing spouts –Well-sealed cans Consistent with revised California program Attached garages contribute significantly to personal exposure to benzene

35 MSAT Final Rule Impacts Reduces MSATs by 330,000 tons in 2030 –Including 61,000 tons of benzene Toxic emissions from light-duty vehicles will be reduced 80% between 1999 and 2030 –As a result of this proposal and other standards in place Criteria pollutant co-benefits –1.1 million tons of VOC reduced in 2030 From vehicles and gas cans –19,000 tons of direct PM-2.5 reduced From vehicles

The Renewable Fuels Standard

37 The RFS – The Program Basics The Energy Policy Act (EPAct) of 2005 specified renewable fuel volumes –2006: 4.0 billion gallons/yr –2007: 4.7 –2008: 5.4 –2009: 6.1 –2010: 6.8 –2011: 7.4 –2012: 7.5 –2013+: Same percent of renewables for 2012 (0.25 billion gal of which must be cellulosic ethanol) Each year EPA must convert RFS into percent of gasoline production standards that apply to refiners, importers, gasoline blenders.

38 Ethanol is Sweeping the Nation 76% of all E10 If 100% of all Gasoline is E10

39 Relative Value of Different Renewables EPAct specifies that 1 gal of cellulosic ethanol counts as 2.5 gallons for compliance purposes. We proposed to base the “Equivalence Value” or credit for other renewables on volumetric energy content in comparison to ethanol (adjusted for renewable content): –Corn-ethanol: 1.0 –Cellulosic biomass ethanol: 2.5 –Biodiesel (alkyl esters): 1.5 –Renewable diesel: 1.7 –Biobutanol: 1.3 Sought comment on life cycle energy, petroleum, or green house gas (GHG) emissions as the basis for these values.

40 Not Pictured AK: 0% ETOH HI: 100% ETOH DC: 100% ETOH What The Country May Look Like in Bgal Ethanol 100% E10 <10% E % E % E10

41 Emissions & Air Quality* Nationwide Localized maximum CO % decrease N/A Benzene % decrease N/A NOx + VOC % increase % increase (Summer) Ozone ~ 0.1 ppb increase ppb increase Impacts will vary by region, since renewable fuel use varies significantly * Incremental Impacts in 2012 compared to 2004 reference case

42 Next Steps FRM expected out within a few weeks Implementation workshop for industry –Jointly sponsored by EPA, RFA, ACE, NBB, API, NPRA, etc. Implementation – the 3 Rs –Registration, Recordkeeping, Reporting What’s Next ? –The President has already called for an expansion of the RFS program 35 Billion gallons by 2017 Renewable fuels and Alternative fuels

43 Appendix

44 MSAT2 Final Rule – Benzene Levels Before and After 2004 Benzene Vol% Benzene Vol% With Program % Reduction PADD % PADD % PADD % PADD % PADD 5 (no CA) % Total %

45 I II III IV V Petroleum Administration for Defense Districts (PADDs)

46 Costs of Renewable Fuels Increases in the use of renewable fuels are expected to add c/gal to the cost of gasoline for the nation as a whole (at $47/bbl crude)* In the Final Rulemaking also assessing impacts on –Agricultural sector economy –Energy Security Ethanol $ per gal Biodiesel $ per gal Production & Distribution Costs * Incremental Impacts in 2012 compared to 2004 reference case