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

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

What is Tier 3? 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) –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

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 4

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 5

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 6

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 7

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 8

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

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) 10

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

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 12

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 13

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) 14

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 15

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/

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 17

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) 18 Revamp New - Grassroots

Tier 3 Emission Impacts Emission reductions will continue to grow beyond 2030 as more of the fleet continues to turn over to Tier 3 vehicles 19 National Onroad Inventory Reductions TonsPercentTonsPercent NO x 284, ,00028 VOC 45, ,00023 PM 2.5 NA 7,50010 CO 747,00045,765,00030 Benzene 1,62548,58136 Total air toxics 15,000390,00023

Ozone Reductions in

Ozone Reductions in

PM 2.5 Reductions in

Benefits of Tier 3 23 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

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 24

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 25

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 26