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Regulatory Impact Statement 6 NYCRR Subpart 225-1 and Part 200

Introduction

The New York State Department of Environmental Conservation (Department) is proposing to change 6 NYCRR Subpart 225-1, "Fuel Composition and Use - Sulfur Limitations" and 6 NYCRR Part 200, "General Provisions." Subpart 225-1 imposes limits on the sulfur content of distillate oil, residual oil, and coal fired in stationary sources. The Department is proposing these changes to both implement a statutory requirement and meet our obligations to reduce air pollution. The revisions to Subpart 225-1 will be a component of the State Implementation Plan (SIP) for New York State (NYS) directed at attainment of the particulate matter less than or equal to 2.5 microns in diameter (PM-2.5) national ambient air quality standard (NAAQS), the sulfur dioxide (SO2) NAAQS and the Department's obligations under the regional haze SIP submitted to U.S. Environmental Protection Agency (EPA) on March 15, 2010. This is a requirement flowing from the State's obligations under the Clean Air Act. This is not a mandate on local governments. It applies to any entity that owns or operates a subject stationary source. This proposal will not regulate transportation fuel.

The changes to Part 200 incorporate references to federal rules and add a definition for "waste oil". The revisions to Subpart 225-1 primarily include the lowering of the sulfur-in-fuel limits for all distillate and residual oils sold, purchased, and/or used in portable (not including non-road engines) or stationary sources in New York State. These changes will also include the lowering of the sulfur-in-fuel limit for waste oil, the removal of "out-of-date" sulfur-in-fuel tables, expired source specific variances, and the correction of typographical errors. In addition, the Department is removing the variance for emission sources with a maximum operating heat input greater than one million Btu per hour (mmBtu/hr) heat input rate that fire coal and coke in New York City, Nassau, Rockland, and Westchester Counties.

Statutory Authority

The statutory authority for the revisions to 6 NYCRR Subpart 225-1 is found in the following Sections of the Environmental Conservation Law (ECL): Section 1-0101, Section 3-0301, Section 19-0103, Section 19-0105, Section 19-0301, Section 19-0303, Section 19-0305, Section 19-0325, Section 71-2103, and Section 71-2105. In addition to the above statutory references, New York is obligated by the Federal Clean Air Act (Act) to develop plans to meet federal National Ambient Air Quality Standards (NAAQS) for particulate matter of less than 2.5 microns (PM-2.5) and sulfur dioxide (SO2) and a plan to reduce emissions that cause or contribute to regional haze.

Section 1-0101. This section declares it to be the policy of NYS to conserve, improve and protect its natural resources and environment and control air pollution in order to enhance the health, safety and welfare of the people of NYS and their overall economic and social wellbeing. Section 1-0101 further expresses, among other things, that it is the policy of NYS to coordinate the State's environmental plans, functions, powers and programs with those of the federal government and other regions and manage air resources to the end that the State may fulfill its responsibility as trustee of the environment for present and future generations. This section also provides that it is the policy of NYS to foster, promote, create and maintain conditions by which man and nature can thrive in harmony by providing that care is taken for air resources that are shared with other states.

Section 3-0301. This section empowers the Department to promulgate regulations to carry out the environmental policy of NYS set forth in Section 1-0101 and specifically empowers the Department to cooperate with officials and representatives of the federal government, other states and interstate agencies regarding problems affecting the environment of NYS. Section 3-0301 specifically empowers the Department to provide for the prevention and abatement of air pollution.

Section 19-0103. This section declares that it is the policy of NYS to maintain the purity of air resources and to require the use of all available practical and reasonable methods to prevent and control air pollution in the state.

Section 19-0105. This section declares that it is the purpose of Article 19 of the ECL to safeguard the air resources of NYS under a program which is consistent with the policy expressed in Section 19-0103 and in accordance with other provisions of Article 19.

Section 19-0301. This section authorizes the Department to adopt regulations to prevent and control air pollution in such areas of the state that are affected by air pollution, develop a general comprehensive plan for the control and abatement of existing air pollution and for the control and prevention of new air pollution, and cooperate with government agencies and other states or interstate agencies with respect to the control of air pollution.

Section 19-0303. This section provides that the terms of any air pollution control regulation promulgated by the Department may differentiate between particular types and conditions of air pollution and air contamination sources.

Section 19-0305. This section authorizes the Department to enforce the codes, rules and regulations established in accordance with Article 19.

Section 19-0325. This section specifically mandates standards for the sulfur-in-fuel content of number 2 heating oil sold in New York State for use in residential, commercial, or industrial heating applications.

Sections 71-2103 and 71-2105 provide for civil and criminal penalties for violations of regulations promulgated pursuant to Article 19.

Based on the above-referenced sections the Commissioner has very broad authority to regulate air pollution from portable or stationary sources, including the promulgation of 6 NYCRR Subpart 225-1 entitled "Fuel Composition and Use - Sulfur Limitations".

Legislative Objectives

Article 19 of the ECL was adopted for the purpose of safeguarding the air resources of New York from pollution. To facilitate this purpose, the Legislature bestowed specific powers and duties on the Department including the power to formulate, adopt, promulgate, amend, and repeal regulations for preventing, controlling or prohibiting air pollution. This authority also specifically includes promulgating rules and regulations for preventing, controlling or prohibiting air pollution in such areas of the State as shall or may be affected by air pollution, and provisions establishing areas of the State and prescribing for such areas (1) the degree of air pollution or air contamination that may be permitted therein, and (2) the extent to which air contaminants may be emitted to the air by any air contamination source. In addition, this authority also includes the preparation of a general comprehensive plan for the control or abatement of existing air pollution and for the control or prevention of any new air pollution recognizing various requirements for different areas of the State. The legislative objectives underlying the above statutes are directed toward protection of the environment and public health. The proposed rulemaking will further the goals of the above referenced statutes by reducing air pollution, specifically SO2 emissions, a criteria pollutant and a precursor to PM-2.5 which in turn is a precursor to visibility-impairing haze from the majority of oil firing stationary sources throughout New York. These reductions will reduce the health impacts of said pollutants by providing cleaner air. In addition to the general authority listed above for setting standards for sulfur in fuel, both distillate and residual, Section 19-0325 of the ECL adds a specific sulfur standard for number 2 heating oil. Number 2 heating oil is a subset of number 2 distillate, which in turn is a subset of distillate oil sold in New York. The Department will be using both that specific authority and its general authority to set standards for sulfur in all distillate and residual fuel sold in New York.

Needs and Benefits

Regional haze refers to the presence of light-inhibiting pollutants in the atmosphere. These particles and gases scatter or absorb light to cause a net effect referred to as "light extinction." This scattering and absorbing occurs across the sight path of an observer, thus leading to a hazy condition. Emissions of pollutants such as SO2, PM-10, and PM-2.5 are the primary contributors to visibility problems. These pollutants lend themselves to being transported great distances once they enter the atmosphere. Accordingly, sources contribute to visibility impairment in Class I areas far downwind of their locations, thereby necessitating a regional approach to solving the haze issue.

Although no Class I areas exist within New York State, modeling has shown that emissions from sources within the State contribute to visibility impairment in nine downwind Class I areas: Lye Brook Wilderness Area, VT; Brigantine Wilderness Area, NJ; Presidential Range/Dry River Wilderness Area and Great Gulf Wilderness Area, NH; Roosevelt/Campobello International Park, Acadia National Park, and Moosehorn Wilderness Area, ME; Shenandoah National Park, VA; and Dolly Sods Wilderness Area, WV. The pervasive, regional nature of haze throughout the eastern United States requires a unified strategy for reducing emissions among the states. For this purpose, EPA established five Regional Planning Organizations (RPOs). NYS is a member of the Mid-Atlantic/Northeast Visibility Union (MANE-VU) RPO, and works with the other member states to develop regional haze strategies. New York State has the responsibility of controlling visibility-impairing pollution from its large number of oil fired sources to the greatest extent possible as the emissions from these sources affect nine federal Class I areas.

There are many environmental benefits inherent in the reductions of PM and SO2 that do not explicitly relate to visibility improvement. These reductions will lead to advances in health protection as well. Although downwind rural and urban areas within NYS were not specifically targeted through the Regional Haze Rule, these areas can expect to benefit from improved air quality. In addition to experiencing improved visibility, forested areas such as the Adirondack Park will benefit from reduced PM acid deposition impacts, which are described below. These environmental impacts could also be expected to translate into economic benefits from increased public use of a cleaner and visibly healthier park.

Elevated PM levels are of concern for the New York City metropolitan area, which has been designated as non-attainment for the annual and 24-hour PM-2.5 NAAQS. PM consists of microscopic solid or liquid particles, and is the major cause of the regional haze issue. PM can be emitted directly from stationary sources, or comprised of nitrate and sulfate particles formed through reactions involving NOx and SO2 in the atmosphere. These particles are small enough to be inhaled into the lungs, and can even enter the bloodstream. Ongoing scientific studies show that particulate inhalation, similarly to ozone, leads to health problems such as coughing, difficulty breathing, aggravated asthma, and a higher likeliness for other respiratory disorders. Studies have also shown that elevations in PM concentrations are associated with such cardiovascular threats as irregular heartbeat and non-fatal heart attacks. Increased PM exposure may even cause premature death in those with existing heart or lung disease.

The proposed changes to Subpart 225-1 are intended to reduce the emission of SOx that are the precursors of PM below the present levels, and to comply with the mandates specified under ECL Section 19-0325. Existing regulations and emission control programs have been successful in the past at reducing these emissions. Regulatory efforts such as the Acid Rain program, past state and federal fuel sulfur limitations for stationary and mobile sources, and efforts like the Clean Air Interstate Rule have had a significant effect on air quality and health. The proposed sulfur-in-fuel limits in this rule are expected to further reduce monitored values of SOx, and to enable and maintain attainment of the NAAQS.

Sulfuric acid is formed through reaction of SO2 which has entered the atmosphere. This acidic chemical returns to the surface through dry deposition after it has been incorporated into dust or smoke which falls to the ground and may later mix with rainwater; or wet deposition, in which it returns to the surface as acid rain, snow, or fog. Acid deposition has many far-reaching ecological effects. It causes soil to lose its buffering capacity, which gives it the ability to neutralize some or all of the acidity in rainwater. Acidic water will dissolve nutrients in the soil before plants and trees are able to use them to grow. Damaged leaves caused by acid deposition will decrease a plant's ability to produce and store food, possibly leading to injury or death. Acid deposition also lowers the pH of lakes, rivers, and streams, effectively reducing the populations of fish and other aquatic organisms, and possibly leading to large shifts in the ecosystem as a whole. In addition, this deposition may inflict aesthetic damage to statues and buildings through the corrosion of bronze and the deterioration of paint and stone.

Number 2 Heating Oil Sulfur-in-Fuel Limit vs. Distillate Oil Sulfur-in-Fuel Limit

The Department is proposing to reduce the sulfur in fuel limitation for all distillate oil purchased and/or fired in New York State to 15 ppm. The Department proposes to phase in that limit based upon the intended use of that fuel. In 2010 Section 19-0325 (Chapter 203) was added to the ECL. The Department interprets this section to require that, by July 1, 2012, all number 2 distillate oil purchased for heating purposes only contains a sulfur content of 15 ppm or lower. Of note, the statute does not specifically define "number 2 heating oil" and the Department is unaware of the use of term "number 2 heating oil." Instead, the term-of-art used by industry for the type of oil at issue is "number 2 distillate oil" or "number 2 fuel oil." Additionally, number 2 distillate (or fuel) oil is generally, although not exclusively, used for two purposes: (i) to provide for use in boilers or burners which, in turn, are used to generate heat for buildings; and (ii) to fuel oil-fired power plants. In order to give the term "number 2 heating oil" appropriate meaning, the Department thus interprets Section 19-0325 and the July 1, 2012 compliance date to apply strictly to number 2 distillate oil that is used for heating purposes only. The Legislature also made clear in the Sponsors' Memorandum associated with enactment of ECL Section 19-0325; L.2010, ch. 203 (July 15, 2010), that the purpose of the new section was to require "a reduction in sulfur for all heating oil used in the state." (Emphasis added). The Sponsors' Memorandum, moreover, repeatedly refers to the bill being limited to fuel used for heating purposes.

Nevertheless, to assist the State in meeting its SIP obligations and to further reduce emissions of SO2 PM-10, and PM-2.5, the Department is also taking action to regulate distillate oil used in oil fired power plants. At the same time, the Department is cognizant of economic studies - some of which are discussed below showing that immediate implementation of sulfur-in-fuel requirements may be disruptive to the number 2 distillate oil market. Accordingly, the new sulfur-in-fuel limit for distillate oil used in oil-fired power plants will be phased in, with compliance date of July 1, 2014 for purchases. For the actual use and firing, all distillate oil, including number 2 heating oil, will be required to meet a compliance date of July 1, 2016.

As noted above, reducing sulfur in distillate oil in New York will reduce SO2, PM-10, and PM-2.5 emissions from said distillate oil. Such reductions will provide both health and visibility improvements and help New York meet its obligations under the Clean Air Act.

Removal of Coal and Coke Variance

The Department is proposing to remove the coal and coke variance for emission sources with a maximum operating heat input greater than one mmBtu/hr heat input rate that fire coal and coke in New York City, Nassau, Rockland, and Westchester Counties. The Department's permitting regulation 6 NYCRR Part 201 requires that emission sources with a heat input of one mmBtu/hr or greater which fire solid fuel receive a permit from the Department. Currently, there are no facilities with emission sources of this type permitted in New York City. Therefore, this specific variance is no longer necessary. New emission sources that meet the size criteria would be permitted under the new emission source variance included in Subpart 225-1.

Stakeholder Meetings

The Department held two stakeholder meetings to discuss its proposed revisions to Subpart 225-1. The first stakeholder meeting was held on June 24, 2010 and the second on November 21, 2011. The Department solicited comments on the proposed rule from the stakeholders. Both stakeholder meetings consisted of attendees from the regulated community (oil manufacturers, oil distributors, and end users) to be affected by the proposed regulation, consultants (both technical and legal), and interested environmental groups. There were two primary concerns raised at the stakeholder meetings. The first involved timing because of the statute. Stakeholders were concerned that the Department would be unable to promulgate a regulation prior to the compliance date contained in the statute. The second also concerned compliance dates. Stakeholders were concerned about phase in of compliance dates for the remainder of distillate oil. Many subject facilities use distillate as back up fuel and fire it very infrequently. These facilities requested time to be able to use and/or blend down their reserve fuel. Based upon these comments the Department proposed a phased in compliance approach. While the July 1, 2012 compliance date for number 2 heating oil is in statute and therefore may not be changed by regulation, the regulation requires a July 1, 2014 compliance date for the purchase of complying oil and a July 1, 2016 compliance date for the firing of these oils.

Costs

Costs to Regulated Parties and Consumers:

Stationary sources subject to the Subpart 225-1 provisions may incur increased fuel oil costs associated with this proposed regulation. There are several factors that may affect fuel oil prices. These factors include but are not limited to fuel availability, price of crude oil, production costs, storage costs, increases in taxes on oil, overall demand based on weather conditions, and natural gas availability and price. The refining process used to produce lower sulfur content oils (less than 500 ppm sulfur content oils) is different from the refining process currently used to manufacture oil with a sulfur content greater than 500 ppm. There will be an initial cost to the oil manufacturers associated with conversion of the current refining process to the new refining process. Therefore, the Department anticipates that production costs will increase. However, based on all of the above listed factors there may or may not be an increase in oil prices (there is the possibility that oil prices could decrease). Setting aside the other factors, the Department conducted a cost analysis based solely upon the increase in production costs and availability of oil to the consumer.

The Department evaluated the availability and production cost of distillate oil with sulfur-by-weight specifications of 15 ppm (ultra-low sulfur distillate oil) in 2014 for the northeast U.S. that corresponds to the MANE-VU Region. The Department based this analysis on currently available refinery studies conducted for the National Oil Heat Research Alliance (NORA) and American Petroleum Institute (API), Energy Information Agency (EIA) data, and a public health benefits study conducted by Northeast States for Coordinated Air Use Management (NESCAUM). The NORA report concludes that as the demand for low and ultra-low sulfur distillate oil increases, the sources of supply and refining capacity for low and ultra-low sulfur distillate oil will be reconfigured for greater production capability. The API report projects that sufficient supplies of low sulfur distillate oil will be available to meet the demand that will be generated from the implementation of a low sulfur distillate oil standard in 2010 for New York State. The NESCAUM report determined overall health care savings from the implementation of both low and ultra-low sulfur distillate oil standards. (Public Health Benefits of Reducing Ground-level Ozone and Fine Particle Matter in the Northeast U.S., A Benefits Mapping and Analysis Program (BENMAP) Study, NESCAUM, January 15, 2008). The Department also conducted a cost analysis based on information from this report in addition to the NORA and API reports and EIA data.

Additionally, the Department considered the study conducted by the New York State Energy Research and Development Authority (NYSERDA) and Brookhaven National Laboratories (Low sulfur Home Heating Oil Demonstration Project Summary Report, Energy Research Center, Inc., and Brookhaven National Laboratories, BNL-74956-2005-IR, June 2005 (NYSERDA Report)). The NYSERDA report finds overall savings to consumers in terms of reduced heating equipment service and maintenance costs from using low sulfur distillate oil.

NORA Report

The NORA report analyzes the availability of and the cost to produce low sulfur distillate oil in 2012, and ultra-low sulfur distillate oil in 2018, to supply the demands of the northeast U.S. market. The report analyzes availability of low sulfur distillate oil as of 2012 because that was the targeted implementation date of the low sulfur distillate oil standard within the inner zone of the MANE-VU region (New Jersey, New York, Delaware and Pennsylvania, or portions thereof). The targeted implementation date for the first phase of the program for the outer zone of the MANE-VU region was 2014. The entire MANE-VU region was targeted to require the use of ultra-low sulfur distillate oil by 2018. The NORA report focuses on the supply and demand of the northeast U.S. distillate oil market, because this area corresponds to the entire MANE-VU region that will be affected by both the low and ultra-low sulfur distillate oil standards.

The NORA report indicates that there will be a major shift to ultra-low sulfur distillate oil by 2012 in the Atlantic Basin region, of which the eastern half of the U.S. is a part. By 2012, approximately 76 percent of distillate oil in the Atlantic Basin region will be low or ultra-low sulfur distillate oil, up from 48 percent in 2006. By 2018, 86 percent of Atlantic Basin distillate oil will be 50 ppm or less.

Similarly by 2018, 94 percent of the northeast U.S. distillate oil will be ultra-low sulfur according to the NORA report. Therefore, most suppliers will be marketing all or predominantly ultra-low sulfur distillate oil. This is mainly because the on-road and non-road diesel conversions to ultra-low sulfur were completed more than five years earlier. Therefore, suppliers will have had adequate notice of the distillate oil market conversion to ultra-low sulfur distillate oil. Hence, the NORA report indicates that supplying the additional ultra-low distillate oil will not place a significant strain on the northeast U.S. distillate oil market. Based on this conclusion, the available supply in 2014 will meet the demand of New York State.

The NORA report points out the possibility that the availability of ultra-low sulfur distillate oil may be constrained at the beginning of 2012, because Federal mandates for non-road mobile sources to use ultra-low sulfur diesel in the U.S. will cause a rapid, short-term shift to ultra-low sulfur distillate oil. In consideration of this possibility, the Department proposes to implement ultra-low sulfur distillate oil standard for number 2 heating oil in 2012 while the remainder of the distillate oil (used for other stationary source applications) will be required to meet the ultra-low distillate oil standard in 2014. This implementation period is being provided to allow the refineries sufficient time to make modifications to increase ultra-low sulfur distillate oil production to meet this demand.

According to the NORA report, producing 500 ppm sulfur content distillate oil will cost refineries 5.4 to 6.8 cents per gallon more than producing the current distillate oil. This figure includes both capital and operating costs of control equipment. The production of 15 ppm sulfur content distillate oil will cost as much as 8.9 cents per gallon more than producing the current distillate oil. The cost to refineries that have existing desulfurization facilities for low sulfur distillate oil to convert to the production of ultra-low sulfur distillate oil production is estimated to be 4.6 cents per gallon.

API Report

The API report provides additional support for the availability of the low sulfur distillate oil. It analyzes the availability and cost to produce low sulfur distillate oil for 2010 in the U.S. The API report utilized a proprietary refinery analysis model that accounted for the operations of each domestic refinery that manufactures distillate oil. The API report found that even without any change to the allowable sulfur-by-weight specifications in distillate oil the 2010 production of low sulfur distillate oil in the eastern U.S. will reach 250, 000 barrels per day, as compared to 90, 000 barrels per day for high sulfur distillate oil (distillate oil with a sulfur content higher than 500 ppm), so that these fuels represent approximately 73 and 27 percent of the total distillate oil production in the eastern U.S. for 2010, respectively. This closely corresponds to the nationwide relative production values for high and low sulfur distillate oil in 2010, which the API reports as 423, 000 barrels per day for low sulfur distillate oil as compared to 155, 000 barrels per day of high-sulfur distillate oil.

NESCAUM Report

NESCAUM used the USEPA's BENMAP (this is an economic benefit model used by EPA) to estimate the economic benefit of avoided adverse health care episodes, such as hospital admissions and medical treatment that result from SO2 emission reductions achieved from the implementation of low and ultra-low sulfur distillate oil standards in 2018, within the northeastern United States. The analysis showed that the eastern and mid-western United States will achieve SO2 emission reductions of 180,000 tons with an economic benefit in reduced health care costs of $3.63 billion, which corresponds to more than $20,000 of benefit per ton of SO2 removed. The report also showed that energy efficiency improvement efforts would result in future reductions in fuel oil consumption.

Distillate Oil:

The Department used information from the NORA, API, NESCAUM reports and EIA data to determine the costs and benefits of implementing the proposed low and ultra-low sulfur distillate oil standards including appropriate compliance dates. As discussed above the API report found that the 2010 production of low sulfur distillate oil in the eastern United States will reach 250, 000 barrels per day, as compared to 90 TBD for high sulfur heating oil (high sulfur distillate oil contains a maximum of 0.5 percent sulfur by weight - the maximum sulfur content allowable to meet the American Society of Testing Materials standards), so that these fuels respectively represent approximately 73 and 27 percent of the total distillate oil production in the eastern United States for 2010. The average amount of distillate oil consumed in New York between 2004 and 2008 was 1.73 billion gallons per year. The majority of the distillate oil fired during this time period was considered to be high sulfur distillate oil (approximately 95 percent).

The Department used an emission factor of 142S1 (expressed in units of pounds of SO2 per thousand gallons, where the S in the equation represents the percent sulfur concentration by weight of the distillate oil) to determine the approximate reduction in SO2 emissions when the sulfur-in-fuel limits are changed from high sulfur distillate oil to ultra-low sulfur distillate oil. There are three different S values for New York (0.5 percent in the upstate, 0.37 in Nassau, Rockland, and Westchester counties, and 0.2 percent in New York City). The Department used a split of 50 percent usage in the upstate and 25 percent usage in both New York City and the Nassau, Rockland, and Westchester counties. As stated above, approximately 95 percent of the distillate oil used in New York State was considered, by the Department, to be high sulfur distillate oil. Therefore, the Department has calculated that New York State would achieve a SO2 emission reduction of 45,591 tons per year from the implementation of the ultra-low sulfur distillate oil standard in 2014.

The cost to manufacture the projected 1.73 billion gallons per year of high sulfur distillate oil to ultra-low sulfur distillate oil is estimated to between 173 million dollars and 197.2 million dollars. This is based on the application of the NORA cost estimates of 10.0 to 11.4 cents per gallon for manufacturing high sulfur distillate oil to ultra-low sulfur distillate oil. This corresponds to a cost of between 3,795.00 and 4,326.00 dollars per ton of SO2 emission reductions, based on the total SO2 emission reductions stated above.

Residual Oil:

Lowering the allowable sulfur content of residual oil to 0.5 percent (5,000 ppm) would affect all of New York State except for New York City, Nassau, Rockland, and Westchester counties. The average amount of residual oil consumed in New York between 2004 and 2008 was 1.39 billion gallons per year. The Department used an emission factor of 157S2 to determine the approximate reduction in SO2 emissions when the sulfur-in-fuel limits are changed from the currently permitted sulfur content residual oil to the 0.5 percent sulfur content residual oil. There are three different S values for New York (1.0 percent in portions of Suffolk County, 1.10 percent in portions of Erie County, and 1.5 percent in the remainder of the State. The Department used a split of 50 percent usage in the upstate and 50 percent usage in both New York City and the Nassau, Rockland, and Westchester counties. The 50 percent residual oil usage outside of New York City and the Nassau, Rockland, and Westchester counties can be broken down to five percent usage in portions of Suffolk County, five percent usage in portions of Erie County, and 90 percent usage in the remainder of the State. The Department has calculated that New York State would achieve a SO2 emission reduction of 52,220 tons per year from the implementation of the 0.50 sulfur content residual oil standard in 2014.

The historical average price difference from August 30, 2004 to July 27, 2007 of residual fuel oil with sulfur-by-weight contents between 0.5 and 1.0 percent was 5.05 cents per gallon. Using this estimated price difference, the total economic impact of the proposed 2014 standard for New York State consumers on the affected 696.6 million gallons per year of residual oil is 35.2 million dollars. This corresponds to 674 dollars per ton SO2 removed as a result of the proposed decrease in sulfur content in residual oil.

Estimated Net Benefit

The total cost of the proposed decrease in sulfur content from distillate oil and residual oil is estimated to be between 2,079 to 2,314 dollars per ton of SO2 removed. This estimate is based on combined costs of 203.3 to 226.3 million dollars, divided by the SO2 emissions removed of 97,811 tons per year that the Department anticipates will result from the proposed standards. The annual health-care benefit is estimated to be 1.97 billion dollars, which the Department calculated based on the NESCAUM health care benefit factor of $20,167 per ton of SO2 removed for the 97,811 tons of SO2 removed. The health benefit exceeds the compliance costs by a factor of nine. Taking the difference between the benefits and costs, the Department estimates that the proposed standards for distillate oil and residual oil will have a minimum net benefit in health care savings of 1.75 billion dollars.

NYSERDA Report

NYSERDA and Brookhaven National Laboratories conducted a three-year demonstration project in which 1,000 homes switched from high to low sulfur distillate oil. According to the NYSERDA report, consumers that switch to low sulfur distillate oil save money, because low sulfur distillate oil used in heating is cleaner-burning and results in a substantial reduction in heating equipment maintenance and service requirements, while at the same time reducing SO2 emissions. The NYSERDA report found that the use of the low sulfur distillate oil reduced fouling of heating equipment, which meant that cleaning of the equipment was needed less frequently. The savings ranged from $22.00 to $40.00 per year, based on hourly labor costs of $56.00 to $100.00 per hour. These calculations were based on the cleaning interval increasing from 18 months for fuel with sulfur by weight of 0.25 percent (2,500 ppm) to 58 months for fuel with sulfur by weight of 0.05 percent. This savings would be equivalent to one to two percent of the roughly $2,000 cost of distillate oil per year per home.

The NYSERDA report also estimated that fouling a furnace system with approximately 2,500 ppm distillate oil reduces efficiency by approximately two percent per year, and more than 50 percent of deposits are created by the sulfur in the fuel. Reducing sulfur content in distillate fuel oil to 0.05 percent (500 ppm) will increase efficiency by approximately one percent over the heating season, for a 0.5 percent average annual efficiency increase. In the case of a $2,000 per year heating bill, the efficiency savings would be approximately $20.00. Additionally, the use of low sulfur distillate oil will extend furnace life and could reduce the cost of new oil furnaces, because of the ability to use lower-cost materials in their construction and more compact heat exchangers.

In addition to the above referenced report NYSERDA publishes a weekly "Heating Fuels Report". This report contains the cost difference and oil stock pile figures for both high sulfur and 15 ppm oil. NYSERDA has published this report for about 15 years. NYSERDA also published a report in January 2011 titled "Patterns and Trends - New York State Energy Profiles: 1995-2009"3. These reports show some important trends. First, the amount of number 2 heating oil used in New York State has been steadily decreasing since 2005 after its peak usage from 2000 through 2005. The report shows that the amount of number 2 heating oil used between 2005 and 2009 dropped by 40 percent. Preliminary number 2 heating oil use data from 2010 and 2011 show the trend of lower oil usage in the Northeast has continued. Second, price trends show that the difference between 15 ppm and high sulfur oil was as low as a penny per gallon prior to the shutdown of several oil refineries in the Northeast between October 2011 and April 2012. Since the shutdown of these refineries the price difference between 15 ppm and high sulfur oil has once again risen to approximately five cents per gallon.

Based on conversations with representatives of the oil refining industry the Department developed an understanding of why some refineries in the Northeast were shut down. The oil refining industry determined that there was an excess refining capacity of oil. Traditionally, the refiners prefer to operate at or above 80 to 85 percent capacity of the refining equipment. It was explained that several of the refineries were operating between 65 and 70 percent capacity. The representatives also stated that due to the decrease in number 2 heating oil usage throughout the Northeast much of the refined product (specifically the 15 ppm oil) was sold and shipped to Europe. Due to the excess oil capacity, the price between the high sulfur oil and the 15 ppm oil dropped until it was almost even. Therefore, the shutdown of these refineries is a market correction to demand and will result in slightly increased price differences between the different sulfur content oils.

Costs to State and Local Governments:

State and local governments may incur increased fuel oil costs (see "Costs to Regulated Parties and Consumers" paragraph above) associated with this proposed regulation because they are required by Section 19-0325 of Chapter 203 of the ECL to purchase and fire 15 ppm sulfur content number 2 heating oil. However, no new recordkeeping, reporting, or other requirements will be imposed on state and local governments based on this proposed rule-making. Based on the Department's permitting data, there are 50 State and local government facilities that have Title V permits and 75 State and local government facilities that have state facility permits (please note that some of these facilities fire both distillate and residual oil and that the facilities that fire residual oil that reside in New York City, Nassau, Rockland, and Westchester counties will not be affected by the proposed sulfur-in-fuel standards). Using the cost per gallon figures from the above reports in combination with the fuel use data and fuel use assumptions, the Department was able to estimate the cost or cost range increase, based solely on increased production costs and oil availability, for the State and local government facilities. The four State and local government facilities with Title V permits that fire residual oil may incur an average fuel cost increase of 14,000 dollars per year per facility. The 48 State and local government facilities with Title V permits that fire distillate oil may incur a fuel cost increase of between 21,000 to 24,000 dollars per year per facility. The 24 State and local government facilities with state facility permits that fire residual oil may incur an average fuel cost increase of 1,200 dollars per year per facility. The 56 State and local government facilities with state facility permits that fire distillate oil may incur a fuel cost increase of between 9,000 to 10,000 dollars per year per facility. The projected fuel cost increases will be partially offset by the gain in efficiency and lower maintenance costs that are directly attributable from the use of lower sulfur fuels.

Costs to the Regulating Agency:

The Department will face some initial administrative costs associated with the application review and permitting of the new sulfur-in-fuel limits. No additional monitoring, recordkeeping, or reporting requirements are being proposed under this rule-making. Therefore, no additional costs will be incurred by the regulating agency based on these factors.

Local Government Mandates

This is not a mandate on local governments. Local governments have no additional compliance obligations as compared to other subject entities. Also, no additional monitoring, recordkeeping, reporting, or other requirements will be imposed on local governments under this rulemaking.

Paperwork

The proposed changes to Subpart 225-1 will create no additional paperwork for the facilities subject to the requirements of this rule.

Duplication

The proposed revisions to Subpart 225-1 do not duplicate, overlap, or conflict with any other State or federal requirements.

Alternatives

The Department evaluated the following alternatives:

(1) Take no action: This alternative could prevent New York State from complying with its obligations under the CAA. If the Department does not implement this regulation, it would not be able to meet its obligations to achieve attainment in the PM-2.5 non-attainment areas throughout New York State. Also, without the promulgation of Subpart 225-1, the State would not be reducing its regional haze impacts in the northeast. The reduction in sulfur-in-fuel limitations will directly result in reductions of SO2, PM-10, and PM-2.5. Reductions of these air contaminates will definitively aid New York in meeting both its attainment goals for PM-2.5 and reduce the State's regional haze impact. Therefore, the "Take no action" alternative has been rejected.

(2) Partial implementation of sulfur-in-fuel standards: The Department could revise Subpart 225-1 to only include the sulfur-in-fuel requirements of Section 19-0325 of the ECL for number 2 heating oil. These revisions would also correct any existing typographical errors and update the regulation to match the permitting nomenclature of Part 201. During the June 24, 2010 stakeholder meeting for Subpart 225-1 the oil manufacturers and oil distributors expressed concerns that the Department would create added burdens by only including the provisions in ECL Section 19-0325. The oil manufacturers stated that they would need to reconstruct their facilities to be able to manufacture the 15 ppm sulfur content distillate oil. They stated that the manufacturing process was different for distillate oil that has a sulfur content of less than 500 ppm than for distillate oil that has a sulfur content of greater than or equal to 500 ppm. They expressed that the reconstruction was fine as long as they could totally commit and not have to divide their manufacturing between several fuel sulfur contents (which would entail maintenance of multiple processes and equipment). The oil distributors expressed concerns that a partial implementation would require them to maintain multiple fuel oil storage tanks which could result in cross contamination problems. Therefore, based on the stakeholder concerns the "Partial implementation of sulfur-in-fuel standards" alternative has been rejected.

Federal Standards

The proposed revisions to Subpart 225-1 do not exceed any minimum federal standards. The proposed reductions will lower the standards to the point where they would be equivalent to the sulfur-in-fuel standards of both 40 CFR 60 NSPS and 40 CFR 63 National Emission Standards for Hazardous Air Pollutants.

Compliance Schedule

The Department proposes to promulgate the revisions to Subpart 225-1 by early 2013. The provisions of this rule will take effect based on a phased approach. The initial compliance date, for purchase of number 2 heating oil, is July 1, 2012, in accordance with section 19-0325 of the ECL, for emission sources that fire number 2 heating oil for residential, commercial, or industrial heating applications. The secondary compliance dates are July 1, 2014 for the purchase of all remaining distillate oil and residual oil in New York State and July 1, 2016 for the firing of all distillate oil and residual oil in New York State.

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1 AP-42 Compilation of Air Pollution Emission Factors, Volume I, External Combustion Sources, Chapter 1.3, Fuel Oil Combustion, USEPA, September 1998
2 AP-42 Compilation of Air Pollution Emission Factors, Volume I, External Combustion Sources, Chapter 1.3, Fuel Oil Combustion, USEPA, September 1998
3 This report can found at: http://www.nyserda.ny.gov/~/media/Files/Publications/Energy-Analysis/1995_2009_patterns_trends_rpt.ashx?sc_database=web


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