ULSD - Background
Beginning in 2001, the U.S. Environmental Protection Agency (EPA) passed rules requiring use of ultra-low sulfur diesel fuel in diesel engines like trucks and buses, construction equipment, and more recently, stationary sources. Ultra-low sulfur diesel (ULSD) has only 15 parts per million (ppm) of sulfur. Low sulfur fuel has 500 ppm sulfur and uncontrolled sulfur diesel may have levels much higher.
The low level of sulfur allows new emission control equipment on tailpipes and exhaust stacks that dramatically reduce particulate matter and nitrogen oxides in diesel exhaust. Beginning in 2001, the U.S. Environmental Protection Agency (EPA) passed rules requiring use of ULSD fuel in diesel on-road engines. More recent rules have addressed non-road engines like construction equipment and stationary sources like power generators. EPA has not proposed regulating home heating fuel and jet fuel to these low sulfur levels.
EPA’s New Source Performance Standards (NSPS) for stationary diesel internal combustion engines applies to power generation. Like the non-road rule, affected engines were to move to 500 ppm sulfur fuel in 2007, and to 15 ppm sulfur fuel in 2010. Unlike the non-road or on-highway rules, the NSPS does not require all fuel for these engine types to switch to low or ultra-low sulfur diesel. Only engines considered “new,” “reconstructed,” or “modified” must use the lower sulfur fuel. "New" engines are newly manufactured engines. An engine is considered "reconstructed" when the cost of replacing worn engine parts equals 50% of the original engine costs. An engine is considered "modified" when any change to the engine causes an increase in air emissions. Given these three criteria, DEC estimates a full change-over to engines requiring ultra-low sulfur diesel will occur within 15 years in Alaska.
EPA rules for fuel sulfur levels in rural Alaska were derived from DEC recommendations which were incorporated into the proposed ruling, including the request to accelerate marine sources to the 2010 deadline. Read ADEC’s written comments (PDF) made on EPA’s NSPS for diesel fuel.
Diesel Use in Alaska
Alaska refiners primarily produce Jet A to satisfy demand from Alaska’s large jet fuel market. Jet A is not subject to the same sulfur requirements as fuel destined for mobile diesel source and new, reconstructed, and modified stationary diesel sources. Cost efficiencies, cold climate properties, and distribution logistics have encouraged producers and distributors to downgrade jet fuel for mobile, non-road, and stationary source fuel needs in rural Alaska. The amount of fuel used in rural Alaska’s mobile sources is less than 5%. Electrical power generation and space heating make up over 95% of a community’s diesel demand. With Jet A such a large portion of the statewide distillate market, there has been little incentive for Alaska refineries to produce ULSD for mobile sources alone. By comparison, the mobile source fuel is as much as 45 to 50% of the diesel market in the Lower 48 states.
The fuel storage and distribution infrastructure in rural Alaska is designed to handle a single grade of diesel fuel. Fuel is delivered and stored during the summer months for an entire year's use. The fuel distribution system is simple and efficient. Jet A is the primary fuel distributed; it will not gel at winter temperatures. The simple system design is a disincentive to introduce small volumes of costlier fuels with the potential to gel at low temperatures. When ULSD becomes necessary, distributors may choose to modify barges and add tanks to tank farms or switch entirely to ultra low sulfur diesel. A full switch to ultra low sulfur diesel would make barge modifications and increased tank storage unnecessary.
Over 150 communities in rural Alaska depend on diesel fuel for electricity. These communities are spread out over an area nearly twice the size of Texas. Most of these communities have populations less than 1000 people. They are not linked by electrical inter-ties, but rely on a local diesel power plant. This system of power generation is unique in the United States. These power systems in rural Alaska are operated as non-profits by city governments or regional cooperatives. Revenue is slim and operations are tightly controlled for costs. There is little revenue cushion to shield customers from increased operating costs like a rise in fuel prices.
Potential for Increased Fuel Costs
Fuel costs in rural Alaska are some of the highest in the country. A gallon of diesel costs over eight dollars in some areas. The cost per kilowatt-hour of power is over fifty cents before government subsidy.
The high fuel costs complicate the implementation of the federal diesel fuel rules. There is a spectrum of scenarios that may occur in complying with the federal fuel rules. A full conversion to ULSD would be a scenario where all fuel, whether required to use ULSD or not, would convert to ULSD. A full conversion of rural Alaska diesel to ULSD from high sulfur fuels in one delivery will result in a fuel cost increase based on ULSD cost at the refinery rack and the cleaning of barges, manifolds, and holding tanks. Communities, fuel users, and distributors may choose to blend high sulfur fuels with ULSD over a period of fuel purchases which avoids cleaning costs associated with a full conversion over one delivery.
A partial conversion would involve using ULSD only for regulated sources and continuing use of higher sulfur fuel for unregulated use like home heating. In a partial conversion, barge holds will be modified, new tanks, manifolds and fuel lines will be bought and installed in village tank farms. There could be a decrease in the amount of fuel transported depending upon how the barges are able to adjust their fuel loads. All of this will increase transportation costs per gallon. The conversion will be spread across all fuels transported.
In either scenario, we expect fuel costs to rise on top of the highest fuel and power costs in the country. The magnitude of the fuel cost increase, how it compares to how much fuel costs are increasing anyway, and which scenario may yield the least impact is discussed further in the economic analysis section.
EPA asked Alaskans to find a way to bring in the new fuel in a way that makes sense for the state. This plan could differ from the National Plan the EPA had for the 48 contiguous states. The EPA initially required a transition plan to this cleaner diesel by April 1, 2002.
ADEC has presented at a number of conferences on the issues of Alaska and ultra low sulfur diesel. ADEC has worked with a number of agencies on studies to look at health and economic impacts of these rules, including the University of Alaska and the Alaska Energy Authority. Further, to reduce diesel emissions, ADEC has worked with a number of entities to reduce diesel emissions through diesel emission reduction projects including the Anchorage School District, National Park Service, and the Northslope Oil Producers.