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EPA rule changes likely to impact storage terminal operators

Sept. 9, 2015
JOHN B King of Breazeale, Sacshe & Wilson LLP, gave a presentation that addressed the recent regulatory and legal developments impacting environmental compliance.

JOHN B King of Breazeale, Sacshe & Wilson LLP, gave a presentation that addressed the recent regulatory and legal developments impacting environmental compliance. He spoke during the International Liquid Terminals Association’s International Operating Conference held June 1-2 in Houston, Texas.

Here is a synopsis of the key regulatory actions that are taking place or are being considered:

•  Renewable Fuel Standard.

The Environmental Protection Agency (EPA) is proposing the volume requirements and associated percentage standards that would apply under the RFS program in calendar years 2014, 2015, and 2016 for cellulosic biofuel, biomass-based diesel, advanced biofuel, and total renewable fuel. EPA is also proposing the volume requirement for biomass-based diesel for 2017.

“This to me is a big mess,” he said. “The EPA is supposed to create certain amounts of levels of renewable fuels that are supposed to be blended into our fuel supply and set targets each year for four different types of renewables.

“The EPA had not taken action regarding RFS for 2014 or 2015. A suit was filed March 18, 2015, and a proposed Consent Decree lodged on April 10. Under the proposed Consent Decree, EPA will finalize the levels by November 30, 2015, with a 2014 number. They combined 2014, 2015, and 2016 into one big standard.”

The Clean Air Act provides EPA with the authority to reduce the volume requirements from their statutory targets under certain conditions, and the EPA is proposing to use these authorities in this action. EPA has evaluated the availability of qualifying renewable fuels and factors that in some cases constrain the supply of those fuels to the vehicles that can consume them. EPA has also considered the ability of the market to respond to the applicable standards by producing changes in production, infrastructure, and relative pricing to boost the use of renewable fuels.

Based on these and other considerations, EPA is proposing volumes which, while below the volumes originally set by Congress, it believes would increase renewable fuel use in the United States above historical levels and provide for steady growth over time. In particular, the proposed volumes would ensure continued growth in advanced biofuels, which have a lower greenhouse gas emissions profile than conventional biofuels. The EPA is also proposing to increase the required volume of biomass-based diesel in 2015, 2016, and 2017 while maintaining the opportunity for growth in other advanced biofuels that is needed over the long term.

Congress developed the renewable fuels program in an effort to reduce greenhouse gas emissions and expand the nation’s renewable fuels sector, while reducing reliance on foreign oil. The agency says biofuels are an important component in the Administration’s efforts to enhance energy security and address climate change.

The EPA says that due to constraints in the fuel market to accommodate increasing volumes of ethanol, along with limits on the availability of non-ethanol renewable fuels, the volume targets specified by Congress in the Clean Air Act for 2014, 2015, and 2016 cannot be achieved.

“However, EPA recognizes that the statutory volume targets were intended to be ambitious,” the agency said in its regulatory announcement in May. “Congress set targets that envisioned growth at a pace that far exceeded historical growth rates. Congress clearly intended the RFS program to incentivize changes that would be unlikely to occur absent the RFS program. Thus while the agency is proposing to use the tools provided by Congress to waive the annual volumes below the statutory levels, we are proposing standards that are directionally consistent with Congress’ clear goal of increasing renewable fuel production and use over time. The proposed volumes would require significant growth in renewable fuel production and use over historical levels. EPA believes the proposed standards to be ambitious but within reach of a responsive marketplace.

“There are two different authorities in the statute that permit EPA to reduce volumes of advanced biofuel and total renewable fuel below the volumes specified in the statute. When the agency lowers the applicable volume of cellulosic biofuel below the volume specified in the CAA, we also have the authority to reduce the applicable volumes of advanced biofuel and total renewable fuel by the same or a lesser amount. The agency can also reduce the applicable volumes of any renewable fuel under the CAA general waiver authority under certain conditions, including where there is ‘inadequate domestic supply.’ This proposal uses a combination of these two authorities to reduce volumes of both advanced biofuel and total renewable fuel to address two important constraints: imitations in the volume of ethanol that can be consumed given practical constraints on the supply of higher ethanol blends to the vehicles that can use them; and limitations in the ability of the industry to produce sufficient volumes of qualifying renewable fuel, particularly non-ethanol fuels

“EPA is proposing to set the renewable fuel standards for 2014 at the levels that were actually produced and used as transportation fuel, heating oil or jet fuel in the contiguous US and Hawaii. For 2015 and 2016, EPA is proposing ambitious increases in both advanced biofuel and total renewable fuel in comparison to 2014 levels. This proposed rulemaking also provides an evaluation of the expected volumes of cellulosic biofuel for 2015 and 2016, and proposes annual increases in the required volume of biomass-based diesel for 2015, 2016, and 2017.”

•  Crude oil exports.

Senator Murkowski (R-Alaska) and many major oil companies are in favor of lifting the ban, which was enacted by the 1975 Energy Policy and Conservation Act in the wake of the 1973 Arab Oil Embargo to avoid foreign imports. The exceptions are Cook Inlet crude, Trans-Alaskan Pipeline, and exports to Canada. Refined oil products, such as gas and diesel, may be exported.

“Because of resurgence of oil production, there are two bills to rescind the ban on exportation,” King said. “Our oil production is up. Some of what we’re producing, I think it’s a good idea to allow that to be exported. I think that could honestly impact products you handle at your terminals.

“Why lift the ban? Oil production is sharply up, producers can’t find refiners to process the lighter, sweeter crude they are producing, Gulf refineries process heavier types of crude, it’s hard to ship to East Coast refineries, and it depresses prices, which inhibits production.

“Why not lift the ban? It could increase the price of gasoline, and there’s the issue of carbon emissions.”

According to the Congressional Research Service’s March 2014 report, transportation is another concern:

“A further increase in domestic crude oil production could amplify existing oil transportation concerns, which have received considerable attention. In particular, the current expansion of North American oil production has led to significant challenges in transporting crudes efficiently and safely using the nation’s legacy pipeline infrastructure. In the face of continued uncertainty about the prospects for additional pipeline capacity, and as a quicker, more flexible alternative to new pipeline projects, crude oil producers are increasingly turning to rail as a means of transporting crude supplies to US markets.

“According to EIA data, the volume of crude oil carried by rail increased by 423% between 2011 and 2012. While oil by rail has demonstrated benefits with respect to the efficient movement of oil from producing regions to market hubs, it has also raised significant concerns about transportation safety and potential impacts to the environment. The most recent data available indicate that railroads consistently spill less crude oil per ton-mile transported than other modes of land transportation. Nonetheless, safety and environmental concerns have been underscored by a series of major accidents across North America involving crude oil transportation by rail.

“In addition, crude oil barge transportation may receive increased attention in light of the March 2014 oil spill in Galveston Bay, Texas. On March 22, 2014, a container ship collided with an oil barge, releasing approximately 168,000 gallons of oil into the bay and closing the Port of Houston. As with rail transport, crude oil transportation by barge has increased substantially in recent years (by 53% between 2011 and 2012). However, the same dataset cited above indicates that tank vessels and barges consistently spill less crude oil per ton-mile transported than other modes of oil transportation. Nonetheless, spills from barges and tankers often occur in locations that may be particularly vulnerable to oil contamination.”

•  Methane.

“The White House has announced a strategy to reduce methane emissions as part of the Climate Action Plan,” King said. “While acknowledging that methane emissions are down 11% since 1990, it targets a strategy to reduce methane from landfills, coal mines, agriculture, and oil and gas.

“It will build on the 2012 NSPS that required ‘reduced environmental completions’ and applied to hydraulically fractured natural gas wells. The EPA will propose a final rule in 2016 that probably will apply to hydraulically fractured oil wells, pneumatic pumps, and leaks from well sites and compressor stations.”   ♦