Air Quality Planning and Implementation Division TxLED Stakeholder WHJ: October 14, 2005 Page 1 TCEQ TxLED Stakeholder Meeting October 14, 2005 Air Quality Planning and Implementation Division October 14, 2005

Air Quality Planning and Implementation Division TxLED Stakeholder WHJ: October 14, 2005 Page 2 Purpose of this Stakeholder Group The purpose of this group is to receive input on the draft concept paper for changing the TxLED program prior to bringing a formal rule revision before the commission. Specifically the focus is on changing the rules to facilitate EPA approval of alternative plans.

Air Quality Planning and Implementation Division TxLED Stakeholder WHJ: October 14, 2005 Page 3 Why does the Alternative Plans Section Need Revisions? Currently, alternative plans are a mixture of various strategies and different calculation methodologies, with little standardization or linkage to current SIP reductions or inventories. The complexity and diversity of these plans requires extensive TCEQ and EPA review to approve the plans. Reductions may not be consistent with SIP inventories.

Air Quality Planning and Implementation Division TxLED Stakeholder WHJ: October 14, 2005 Page 4 Why does the Alternative Plans Section Need Revisions? TCEQ rules require EPA approval of each alternative plan and/or revision EPA takes the position their approval can only follow a SIP revision including public review and comment. Currently, EPA has provided a temporary mechanism to allow entities to operate under alt. Plans until this rule making is complete

Air Quality Planning and Implementation Division TxLED Stakeholder WHJ: October 14, 2005 Page 5 What Is a Solution? Utilize current SIP reductions, inventories, and previously approved EPA methods to formulate a replicable procedure for approving alternative plans. Require all alternative plans to ultimately fit within this process.

Air Quality Planning and Implementation Division TxLED Stakeholder WHJ: October 14, 2005 Page 6 What Advantages Are Afforded by this Solution? Using up-to-date SIP inventories and emission factors helps to ensure that the reductions counted on in the SIP remain whole. If a replicable procedure is used, the approval of individual alternative plans will not require a SIP revision

Air Quality Planning and Implementation Division TxLED Stakeholder WHJ: October 14, 2005 Page 7 How Long is a Producer’s Current Alternative Plan Good For? Current draft concept would allow approved alternative plans to be used 60 days beyond this rule’s effective date. Anticipated adoption of these revisions is mid

Air Quality Planning and Implementation Division TxLED Stakeholder WHJ: October 14, 2005 Page 8 Is an Alternative Plan the Only Way to Comply Short of Making TXLED? There are multiple ways to comply with the TxLED rules: –Make TxLED; –Make California diesel fuel; –Make a California approved alternative formulation; –Make a TCEQ approved alternative formulation; and –Achieve equivalent reductions using an alternative emission reduction plan.

Air Quality Planning and Implementation Division TxLED Stakeholder WHJ: October 14, 2005 Page 9 Make TxLED Follow § (a) and produce a diesel fuel with: –A maximum aromatic content of 10% by volume; –and a minimum cetane number of 48.

Air Quality Planning and Implementation Division TxLED Stakeholder WHJ: October 14, 2005 Page 10 Make California Diesel fuel Make California diesel fuel under § (e) –California diesel fuel produced under a small refiner exemption cannot be used to satisfy TxLED requirements under this section. –Includes California diesel that complies with the “designated equivalent limits” allowed under CARB regulations:  Aromatic Hydrocarbon Content (% by wt.)  21.0  PAH Content (% by wt.)  3.5  API Gravity  36.9  Cetane Number  53  Nitrogen Content (ppmw)  500  Sulfur Content (ppmw)  160 before 6/1/06,  15 starting 6/1/06

Air Quality Planning and Implementation Division TxLED Stakeholder WHJ: October 14, 2005 Page 11 Make a California approved Alternative Formulation § (e) also allows alternative diesel formulations that are approved for use in California to be used under the TxLED program. These formulations can and do include additive strategies (for example: Kern KOR-4c is an approved formulation under this section of the TxLED rules).

Air Quality Planning and Implementation Division TxLED Stakeholder WHJ: October 14, 2005 Page 12 Make a TCEQ Approved Alternative Formulation Following procedures in § (f), produce an alternative formulation of diesel fuel that has been approved by TCEQ. There are currently four of these formulations approved by TCEQ: –Lubrizol PuriNOx –Biofriendly Green Plus –GTAT California Viscon –Biodiesel Industries B20 with Viscon

Air Quality Planning and Implementation Division TxLED Stakeholder WHJ: October 14, 2005 Page 13 Make a TCEQ Approved…Continued A producer/importer could also produce or import an alternative formulation approved under § (d) by demonstrating compliance through use of the EPA’s Unified Model. Using this method, each gallon would need to meet the minimum emission reduction requirements.

Air Quality Planning and Implementation Division TxLED Stakeholder WHJ: October 14, 2005 Page 14 Questions?

Air Quality Planning and Implementation Division TxLED Stakeholder WHJ: October 14, 2005 Page 15 Two Proposed Replicable Procedures Use of the Unified Model Use of early gasoline sulfur reduction

Air Quality Planning and Implementation Division TxLED Stakeholder WHJ: October 14, 2005 Page 16 Using the Unified Model Demonstrate the average of all on-road diesel fuel produced in any calendar year that is sold, offered for sale, supplied, or offered for supply in affected counties achieves at least 5.5% reduction in NO X emissions from on-road engines, and 6.2% for non-road engines in These overall percent reductions much be achieved for the attainment counties listed in § , and each individual non-attainment area. An updated version of EPA’s unified model will be available on TCEQ’s Web site within the coming weeks.

Air Quality Planning and Implementation Division TxLED Stakeholder WHJ: October 14, 2005 Page 17 Background: Gasoline Off-Set Ratios Producers have been allowed to use early gasoline sulfur reductions to offset compliance with TxLED in future years. –Example: If a producer produced gasoline with a sulfur level lower than the EPA default assumptions in 2003, ’04, or ’05 the NOx benefit can be pulled forward and used in ’06 and ’07. –This strategy is limited to the attainment areas (does not include DFW, HGB, or BPA).

Air Quality Planning and Implementation Division TxLED Stakeholder WHJ: October 14, 2005 Page 18 Why Use Off-Set Ratios as a Replicable Stategy? Some producers have expressed an interest in using NOx reductions from lower sulfur gasoline produced in ’03, ’04, and ‘05 to substitute for the NOx reductions achieved from producing TxLED in ’06 and ’07. Different methodologies have been used to determine equivalency. The TCEQ proposal would remove the burden of modeling by each producer to show equivalency

Air Quality Planning and Implementation Division TxLED Stakeholder WHJ: October 14, 2005 Page 19 What Is An Off-Set Ratio? An off-set ratio is a ratio of the low sulfur gasoline barrels offered for sale in an earlier year to the number of non-compliant diesel fuel barrels offered for sale in a future year. The offset ratio takes into account the differences in the NOx inventories between gasoline and diesel fuels, and the differences in the emission reductions between the two fuel strategies.

Air Quality Planning and Implementation Division TxLED Stakeholder WHJ: October 14, 2005 Page 20 What’s an example of an off-set? Acme Refining produced 3,000 barrels of low sulfur gasoline in 2003 for use in the attainment counties covered by the TxLED rule. In 2006, Acme plans to market 1,000 barrels of TxLED in these same attainment counties, however Acme wishes to use its gasoline “credits” in lieu of supplying TxLED.

Air Quality Planning and Implementation Division TxLED Stakeholder WHJ: October 14, 2005 Page 21 What’s an example of an off-set (cont.)? If an off-set of 3:1 has been established, Acme could use its 3,000 barrels of low sulfur gasoline produced in 2003 to off-set its obligation for 1,000 barrels of TxLED required to be supplied in 2006.

Air Quality Planning and Implementation Division TxLED Stakeholder WHJ: October 14, 2005 Page 22 Why Establish Off-Set Ratios by Rule? Establishing off-set ratios by rule accomplished three objectives: 1.Establishes consistency. 2.Incorporates approved SIP inventories and uses Mobile 6 to establish the ratios. 3.Facilitates EPA approval of this replicable procedure.

Air Quality Planning and Implementation Division TxLED Stakeholder WHJ: October 14, 2005 Page 23 What counties are covered by the gasoline off-set ratio strategy? 90 attainment counties: Anderson, Angelina, Aransas, Atascosa, Austin, Bastrop, Bee, Bell, Bexar, Bosque, Bowie, Brazos, Burleson, Caldwell, Calhoun, Camp, Cass, Cherokee, Colorado, Comal, Cooke, Coryell, De Witt, Delta, Falls, Fannin, Fayette, Franklin, Freestone, Goliad, Gonzales, Grayson, Gregg, Grimes, Guadalupe, Harrison, Hays, Henderson, Hill, Hood, Hopkins, Houston, Hunt, Jackson, Jasper, Karnes, Lamar, Lavaca, Lee, Leon, Limestone, Live Oak, Madison, Marion, Matagorda, McLennan, Milam, Morris, Nacogdoches, Navarro, Newton, Nueces, Panola, Polk, Rains, Red River, Refugio, Robertson, Rusk, Sabine, San Jacinto, San Patricio, San Augustine, Shelby, Smith, Somervell, Titus, Travis, Trinity, Tyler, Upshur, Van Zandt, Victoria, Walker, Washington, Wharton, Williamson, Wilson, Wise, and Wood counties. These are basically the attainment counties along and east of IH- 35 and IH-37 from Corpus Christi to the Oklahoma border.

Air Quality Planning and Implementation Division TxLED Stakeholder WHJ: October 14, 2005 Page 24 What years of low sulfur gasoline qualify? Lower sulfur gasoline needed to be produced in 2003, 2004, or 2005 in order to be eligible to use the off-set. Sulfur levels will need to be verified through the records submitted to EPA under the anti- dumping provisions of 40 CFR part (2003), and the low sulfur gasoline reporting provisions of 40 CFR (2004 and 2005).

Air Quality Planning and Implementation Division TxLED Stakeholder WHJ: October 14, 2005 Page 25 What sulfur levels were assumed in the SIP? For SIP inventory development purposes, staff used the Mobile 6 default sulfur levels for determining NOx emissions. Sulfur Level ppm Average Cap

Air Quality Planning and Implementation Division TxLED Stakeholder WHJ: October 14, 2005 Page 26 What sulfur levels generate credit? Ranges of sulfur level reductions are as follows: 2003 Sulfur ppm 25 to 49% below Fed. baseline 50 to 74% below Fed. Baseline 75% to just above Fed. Baseline Federal Limit or lower Average Range or lower Cap Range or lower Off-Set Ratio

Air Quality Planning and Implementation Division TxLED Stakeholder WHJ: October 14, 2005 Page 27 What sulfur levels generate credit? Ranges of sulfur level reductions are as follows: 2004 Sulfur ppm 50% below Fed. Baseline Federal limits or Lower Average Range or lower Cap Range80 or lower Off-Set Ratio

Air Quality Planning and Implementation Division TxLED Stakeholder WHJ: October 14, 2005 Page 28 What sulfur levels generate credit? Ranges of sulfur level reductions are as follows: 2005 Sulfur ppm Federal Limits or Lower Average30 or lower Cap80 or lower Off-Set Ratio 2.26

Air Quality Planning and Implementation Division TxLED Stakeholder WHJ: October 14, 2005 Page 29 How Were the Off-sets Determined? Mobile 6 was run with baseline assumptions varying the sulfur level accordingly. Emission factors were weighted by the amount of the NOx inventory they represent. –For example, light duty gasoline vehicle represented 48.7% of the on-road NOx inventory. –Note: diesel vehicles are not impacted by gasoline sulfur changes.

Air Quality Planning and Implementation Division TxLED Stakeholder WHJ: October 14, 2005 Page 30 How Were the Off-sets Determined? TxLED achieves NOx reductions from both the on-road and off-road mobile inventories. Lower sulfur gasoline achieves NOx reductions only from the on-road inventory. TxLED achieves an average of 5.7% reduction. Lower sulfur gasoline achieves a varying NOx reduction depending on sulfur level and year models using the fuel.

Air Quality Planning and Implementation Division TxLED Stakeholder WHJ: October 14, 2005 Page 31 How Were the Off-sets Determined? The total diesel NOx inventory (on and off-road) is larger than just the on-road gasoline NOx inventory. The on-road gasoline NOx inventory is only about 41% of the on and off-road diesel NOx inventory. For this reason and the variable emission reductions based on gasoline sulfur level, a 1:1 offset ratio will not work.

Air Quality Planning and Implementation Division TxLED Stakeholder WHJ: October 14, 2005 Page 32 Questions?