EPA Mobile Source Rule Update WESTAR Spring Business Meeting

1. EPA Mobile Source Rule UpdateWESTAR 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 Highway Common Aspects-- • Systems approach– low sulfur fuel enables clean technologies • Very large environmental benefits • Responsive to clean air goals Light-duty Vehicles (1999) Heavy-duty Vehicles (2001) Farm, Industrial, Construction Locomotive/ Category 1 And 2 Diesel Marine Proposal Clean Nonroad Diesel (2004)

5. Locomotive & Diesel Marine - a large mobile source:1/3 of NOx and 2/3 of diesel PM in 2030 Diesel PM2.5 Total=78,000 tons/yr (diesel-fueled engines) Mobile Source NOx Total=4,500,000 tons/yr

6. What the Rule Covers-- Locomotives Line-Haul Switch Sales ~700-1200 / year Typically rebuilt every 5-7 years Passenger

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

8. locomotive groups date PM NOx standard (g/hp-hr) reduction % standard (g/hp-hr) reduction % Remanufactured Locomotive Standards Remanufactured Tier 0 & 1 2008 as available 2010 required 0.22 ~60% 7.4 - 8.0 ~20% Remanufactured Tier 2 2008 as available 2013 required 0.10 50% 5.5 -- Newly-built Locomotive Standards New Interim (Tier 3) Standards 2012 0.10 50% 5.5 -- New Long-Term (Tier 4) Standards PM 2015 NOx 2017 0.03 ~90% 1.3 80% Proposed Locomotive Standards

9. date PM NOx standard (g/hp-hr) reduction % standard (g/hp-hr) reduction % New Interim (Tier 3) 2009-2014 varies by engine size ~50% varies by engine size ~20% New Long-Term (Tier 4) Commercial >600kW 2014-2017 0.03 ~90% 1.3 ~80% Existing Marine Engines (requesting comment on remanufacturing stds) 2008 20-60% reduction 0-20% reduction Proposed Marine Diesel Standards

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

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

12. PM NOx Cost $159M $446M Inventory reduction, tons 28,000 765,000 Cost per ton $5560 $580 Unit cost as % of typical new locomotive price (similar for marine; varies vessel to vessel) 3% Monetized benefits $12B Benefit to cost ratio 20:1 Proposal Annual Costs and Benefits in 2030

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

14. Ocean-going Vessels - IMO Deliberations - EPA OGV Rulemaking

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

16. 2030 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

17. 2030 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

18. 2030 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 • U.S. Federal standards • 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, 2011-2015 • Long-term NOx standards for new engines based on advanced technologies (i.e., selective catalytic reduction), 2016+ • 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

23. 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 2001-07 • 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 • 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 2011-2012 model year nonhandheld engines • Also 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 MarineEstimated 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

29. 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 2011 • 1.3 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 2009-2015

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

36. 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 If 100% of all Gasoline is E10 76% of all Gasoline @ 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. What The Country May Look Like in 2009 9.6 Bgal Ethanol 100% E10 50-100% E10 <10% E10 10-50% E10 Not Pictured AK: 0% ETOH HI: 100% ETOH DC: 100% ETOH

41. Emissions & Air Quality* • 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

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

46. Costs of Renewable Fuels Production & Distribution Costs • Increases in the use of renewable fuels are expected to add 0.3 - 1 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 * Incremental Impacts in 2012 compared to 2004 reference case