Tier 3 Vehicle and Fuel Standards: Proposal Overview

1. Tier 3 Vehicle and Fuel Standards:Proposal Overview May 13, 2013

2. Overview • Background on Tier 3 • Vehicle Standards • Fuel Standards • Emissions and Air Quality Impacts • Benefits and Costs • Comment Period and Hearings

3. What is Tier 3? • Systems approach to reducing motor vehicle pollution: more stringent vehicle standards enabled by gasoline sulfur control • Creates a harmonized vehicle program • Coordinated with California LEV III and Light-duty GHG standards finalized last year for model years (MY) 2017-2025 • Enables auto industry to produce and sell one vehicle nationwide • Part of comprehensive approach to create cleaner, more efficient vehicles • Begins phasing in with model year 2017 • To allow coordinated compliance with LEV III and LD GHG

4. Why Tier 3: Air Quality and Public Health • Tier 3 standards would have immediate health and air quality benefits • Will help attain and maintain ozone and PM NAAQS • Provides cost-effective national reductions that avoid more expensive local controls • Reduces pollution near roads • More than 50 million people live, work, or go to school near major roads

5. Why Tier 3: Harmonized Vehicle Program • California finalized LEV III standards last year • EPA issued a waiver under CAA in December 2012 • The auto industry supports Tier 3 because they want to produce and sell one vehicle nationwide • Tier 3 is harmonized with LEV III • Would begin in 2017 to allow coordinated compliance with GHG and LEV III

6. Tier 3 Vehicle Standards • Phase in between 2017 and 2025 • Tighter VOC and NOx tailpipe standards • 80% reduction from today’s fleet average • Tighter PM tailpipe standard • 70% reduction in per-vehicle standard • Evaporative emissions standards • Reduced fuel vapor emissions and improved system durability

7. Vehicle Standards • Vehicles we propose to address • Light-Duty Vehicles (LDVs –passenger cars and very small trucks) • Light-Duty Trucks (LDTs – larger pickups and minivans) • Medium-Duty Passenger Vehicles (MDPVs) • Heavy duty vehicles between 8,500 and 10,000 lbs GVW, designed for passenger transport • Heavy-duty (HD) pickups and vans • “Class 2b and 3” vehicles -- 8,500 to 14,000 lbs GVW

8. Vehicle Tailpipe Standards: NMOG and NOx FTP • FTP=Federal Test Procedure • Standard test procedure designed to capture cold start and average drive cycle emissions. • Proposed Emission Standards • Fleet average standards in the form of NMOG+NOx • Provides flexibility to the manufacturers to certify to a lower fleet average with no compromise in environmental benefits • Standards would decline from a fleet average today of 160 mg/mi to 30 mg/mi by 2025 • Propose declining fleet average starting MY 2017 for <6000 lb GVW and 2018 for > 6000 lb GVW

9. NMOG+NOx Fleet Average Standards Final Tier 3 Standard 30 mg/mi • Phase-in and credits: • Program will allow vehicle manufacturers to earn credits in 2015 and 2016

10. Vehicle Tailpipe Standards: NMOG and NOx SFTP • SFTP=Supplemental Federal Test Procedure • Introduced in late 1990’s to address operation not captured in historic test cycles • Two SFTP specific test cycles • US06 – Rapid accelerations and high speeds • SC03 – Air conditioning usage at hot summer temperatures • SFTP standards are composite of FTP, SC03, and US06 • Proposed Tailpipe Emission Standards • Tier 3 composite SFTP standards for NMOG+NOx would focus on preventing excess fuel enrichment and lubricating oil consumption • Declining from a fleet average of about 100 mg/mi to 50 mg/mi • Fleet average decreases between 2017 to 2025 (consistent w/FTP)

11. Vehicle Tailpipe Standards: PM • Existing Tier 2 PM standards • Tier 2: FTP – 10 mg/mi, SFTP – 70 mg/mi (weighted) • Proposed Tier 3 PM per-vehicle standards • FTP standard of 3 mg/mi • SFTP: US06-only standard of 10 mg/mi for LDVs~LDT2s and 20 mg/mi for LDT3s and LDT4s • Cap standards: Intended to bring all vehicles to typical levels already being achieved • To encourage optimization of fuel controls, oil consumption controls, and combustion chamber design • Phase in from 10% to 100% of an OEM’s fleet from MY 2017 to MY 2022

12. Standards for Heavy-Duty Pickups and Vans • Proposing standards of comparable stringency to light-duty, but numerically higher to reflect more demanding duty cycles • Phase in from 2018 to 2022 • For vehicles >6000 GVW, CAA requires 4 years of lead time and 3 years of regulatory stability • Proposal includes optional phase-ins that allow for this

13. Vehicle Standards: Evaporative Emissions • Key elements • Lower the existing standards to bring nationwide the evap control technology used in California • Incentivize improved in-use system durability through system design improvements, extended useful life • Introduce a new leak emission standard • Bring nationwide the Onboard Diagnostic requirements used in California (helping to also facilitate the new leak standard) • Standards cover all gasoline powered highway vehicles

14. Certification Fuel Changes • Updating vehicle certification test fuel specifications used for vehicle testing • Key highlights • 10 ppm sulfur • 15 vol% ethanol • Forward looking with respect to ethanol content • Ensures new vehicles are designed for the fuels they may see in the future • 87 octane • Also proposing certification test fuel specifications for E85 to provide greater consistency and stability in FFV testing • Provisions to allow for testing on other fuels for vehicles that require their use (e.g., premium)

15. Why Lower Sulfur Gasoline? • Both Tier 3 and LEV III vehicle standards depend upon lower sulfur gasoline • Sulfur at current levels degrades the performance of vehicle catalytic converters the primary emission control system on vehicles • Tier 3 vehicle standards not achievable without lower sulfur • Lower sulfur also provides immediate reductions in NOx and VOC emissions from the existing fleet • California already has lower sulfur gasoline (as do Europe, Japan, S. Korea, and several other countries) • Other states prohibited from controlling gasoline sulfur on their own • Enables some lower-cost technologies for complying with vehicle greenhouse gas standards

16. Tier 3 Fuel Standards • Lower the average sulfur standard from 30 to 10 ppm starting January 1, 2017 • California is already 10 ppm sulfur on average, and Europe and Japan have a 10 ppm cap • Proposing to either: • Maintain the current per-gallon sulfur caps (80 ppm at refinery gate, 95 ppm at retail); or • Lower caps to 50 ppm at refinery gate, 65 ppm at retail • Seeking comment on 20 ppm/25 ppm caps • Lower caps would take effect on 1/1/2020

17. Fuel Flexibilities • Proposing the superset of flexibilities that have proven successful in past EPA fuel programs • Annual average standard with a sufficiently high per-gallon cap • Early credit program to phase in the sulfur standard from January 1, 2014 through December 31, 2019 • Relief for small refiners and refineries <75,000 barrels per day • Delay of 3 years through December 31, 2019, consistent with the end of the early credit phase-in for large refiners • Total of 35 refineries representing a total of 10% of gasoline production • Economic and Technical Hardship provisions available to all refiners • EPA has granted hardship relief to over a dozen refineries under past fuel regulations; many more for RFS

18. Refinery-by-Refinery Results • Of the total 111 refineries regulated: • 29 No capital changes (no or minimal cost), • 66 Revamp existing unit (moderate costs), • 16 Add new grassroots posttreater (higher costs) Revamp New - Grassroots

19. Tier 3 Emission Impacts National Onroad Inventory Reductions • Emission reductions will continue to grow beyond 2030 as more of the fleet continues to turn over to Tier 3 vehicles

20. Ozone Reductions in 2017

21. Ozone Reductions in 2030

22. PM2.5 Reductions in 2030

23. Benefits of Tier 3 • Total Ozone and PM-related Premature Mortality Avoided: • 820-2,400 in 2030 (based on range of ozone and PM mortality studies) • Other PM- and ozone-related health impacts avoided in 2030: • Hospital admissions and asthma-related ER visits: 3,200 • Asthma exacerbations: 22,000 • Upper and lower respiratory symptoms in children: 23,000 • Lost school days, work days, and minor restricted activity days: 1.8 million • Total Monetized Benefits in 2030 (2010$): • $8 to $23 Billion

24. Summary of Costs and Benefits • Fuel Sulfur Standard • 0.89 cents per gallon • $2.1 billion in capital costs over 6 year phase-in period • Based on a detailed, peer-reviewed, refinery-by-refinery analysis • Vehicle Standards in 2025 • $130 per vehicle • Annual Cost in 2030 • Vehicle Program: $2.0 billion • Fuel Program: $1.3 billion • Total Program: $3.4 billion • Total Monetized Benefits in 2030 • $8 to $23 Billion

25. RIA Table of Contents • Executive Summary • Chapter 1: Vehicle Program Technological Feasibility • Chapter 2: Vehicle Program Cost and Effectiveness • Chapter 3: Establishing New Emissions Test Fuel Parameters • Chapter 4: Fuel Program Feasibility • Chapter 5: Fuel Program Costs • Chapter 6: Health and Environmental Effects Associated with Exposure to Criteria and Toxic Pollutants • Chapter 7: Impacts of the Proposed Rule on Emissions and Air Quality • Chapter 8: Comparison of Costs to Emission Reductions and Air Quality Benefits • Chapter 9: Economic Impact Analysis • Chapter 10: Initial Regulatory Flexibility Analysis

26. Public Participation • Comment period closes June 13 • Hearings held April 24 and 29 • Philadelphia and Chicago • Broad spectrum of stakeholders, including citizens • All testifiers supported Tier 3 except oil industry • American Petroleum Institute, American Fuel and Petrochemical Manufacturers, Marathon