Panel Seeks Early Deadline on Cleaning Up Diesel Fuel

Regional air quality regulators are proposing that Southern California move ahead of the nation in imposing strict new controls over diesel fuel--a step that state officials call extremely risky and likely to trigger fuel shortages and skyrocketing prices.

The outcome of the escalating feud between state and regional officials could have a major impact on the economy and the health of Southern Californians.

Diesel engines--which spew voluminous amounts of carcinogenic soot and smog-causing gases--are one of the state’s largest sources of air pollution. They also power the trucks that carry most of the state’s goods--from food to hardware--as well as tractors, bulldozers, airport equipment and ships.

Nationwide, the federal government announced a plan in May to slash the sulfur content of diesel fuel by 97% in 2006. But the South Coast Air Quality Management District is moving toward setting an earlier deadline--2004--that would apply only to fuel in Los Angeles, Orange, Riverside and San Bernardino counties.

This week, two senior aides to Gov. Gray Davis, the heads of the California Air Resources Board and the state Energy Commission, sent a strongly worded letter to the AQMD, calling its proposal “both unnecessary and extremely risky.”

The Los Angeles region would be “likely to face periodic disruption in [diesel fuel] supply with potentially dramatic price increases and potential shortages,” according to the letter from Michael Kenny and Steve Larson.

But AQMD Executive Officer Barry Wallerstein shows no signs of backing down. Today, the agency’s board is expected to schedule a hearing and vote on the proposal in September.

Wallerstein said there is no reason to wait two extra years to clean up diesel exhaust. The AQMD staff analyzed the issues and concluded that oil refineries will be able to produce adequate amounts of the new diesel fuel in 2004, he said.

“If there is demand, there will be supply,” he said.

But state officials--remembering a diesel fuel crisis in 1993--call that approach foolhardy. California’s oil industry and trucking companies agree.

Kenny, executive officer of the state air board, said in an interview Thursday that he would overturn the AQMD’s rule if it is adopted. The state agency has veto power over local air quality rules although AQMD officials say it remains to be seen whether the agency would actually make good on its threat.

Because the equipment to refine the new fuel is extremely expensive, Kenny said, only a small number of oil companies would probably gear up to produce it in 2004. As a result, if accidents or production problems shut down any of those refineries, diesel operators could face shortages and exorbitant prices, he said. Fuel produced in other states would not comply until 2006, leaving California with no backup for two years.

“The South Coast [Air Quality Management District] doesn’t really fully understand the implications of what they are proposing,” Kenny said. “They don’t have experience with regard to fuels at all, and they don’t understand the nuances of fuel issues, and the pricing and marketing.”

Truckers Fear Higher Costs

The California trucking industry, which endorses the 2006 national deadline, also warns of dire consequences.

“You could have $5-a-gallon fuel down there [in the Los Angeles region.] It’s just a disaster,” said Stephanie Williams of the California Trucking Assn. in Sacramento. “This is the No. 1 issue for our members. It could put all those companies down there out of business.”

Of the trucking group’s 2,500 companies, 60% are located in the Los Angeles Basin. Williams predicts that those companies will buy their fuel outside the Los Angeles Basin if the 2004 local deadline is approved.

Michael Wang, environmental manager of an oil company group called the Western States Petroleum Assn., said fuel standards should be left to national or state control.

“I don’t think it’s a smart move,” he said about the AQMD’s proposal. “There are real constraints to having a regional fuel. Every time you make a fuel more and more unique, it leaves less of a safety net for the consumers. The supply / demand issues are so very, very tenuous here in California.”

Environmental groups, however, support the AQMD’s proposal.

“The state’s not prepared to regulate the diesel industry as much as it should. That’s why we have polluting vehicles on the road today,” said Gail Ruderman Feuer of the Natural Resources Defense Council. “It makes sense for the Los Angeles region, with the most polluted air in the country, to adopt the rule ahead of the EPA, and we applaud the [AQMD] for doing this.”

No compromise is in sight and Kenny and Wallerstein seem adamant in their stances. Some observers say it has become a battle of wills between the state’s two smog czars.

“We’re the child caught in the middle between the fighting parents,” said Williams of the trucking association.

The staffs of the AQMD and the Air Resources Board--the nation’s two most powerful air quality agencies--have disagreed several times in recent months about regulations for diesel trucks and buses.

The state agency historically has set pollution standards for fuel and vehicles, developing a worldwide reputation for pioneering and aggressive standards. But the AQMD, under Wallerstein’s rule, has been unhappy with the state’s pace for diesel engines because of the pervasiveness of the exhaust in the Los Angeles region. As a result, the AQMD has begun to forge its own path.

Wallerstein said the AQMD decided to shift its focus toward diesels after determining that 70% of the cancer risk from the Los Angeles region’s air pollution comes from diesel exhaust.

Seeking to Curb Sulfur

While factories, automobiles and other sources of pollutants have already greatly reduced their emissions, he said, diesels lag behind in pollution control.

“It’s time for diesels to step up to the plate,” Wallerstein said.

He is unconvinced that the rule would cause fuel shortages, Wallerstein added. “Where is their evidence? This is well-known technology, and the refiners indicate they can make the changes within four years,” he said.

Reducing sulfur in diesel fuel is considered one of the single most important rules to control air pollution. Without ultra-low sulfur fuel, diesel engines cannot be equipped with newly developed soot filters and catalysts that can reduce truck and bus emissions by 90% to 95%.

State officials said that if the AQMD rule is adopted, California’s refineries would have to be working at full capacity to ensure an adequate fuel supply.

AQMD officials “are betting that everything will work perfectly at every refinery for two years and we don’t think that’s realistic,” said Jerry Martin, spokesman for the state air board.

State officials know from decades of experience that air quality rules can disrupt supplies and prices.

In 1993, California suffered a diesel fuel shortage and 50-cent-a-gallon price hikes when oil refineries implemented Air Resources Board standards. The trucking industry and the Legislature vehemently criticized the air board and Gov. Pete Wilson. The state agency also took flak in 1996 for price increases after gasoline was reformulated.

The charges of both sides in the feud are difficult to assess because antitrust laws and company trade secrets keep refinery production rates and goals a closely guarded secret.